Drought-Baked Fields in U.S. Dimming 2012 Wheat Outlook as Prices Rebound

A yearlong drought from Kansas to Texas has created the driest conditions on record for farmers preparing to plant winter wheat, dimming crop prospects for a second straight year in the U.S., the world’s largest exporter.

Dry weather already has cut output of hard, red winter wheat, the most common U.S. variety, by 22 percent from 2010, government data show. If drought persists into the planting months of September and October, next year’s harvest will be even smaller, and prices on the Kansas City Board of Trade may jump 50 percent to $13 a bushel, said Dan Manternach, a wheat economist with researcher Doane Advisory Services in St. Louis.

In Texas, where agriculture losses from the drought were a record $5.2 billion, soil moisture is so depleted that plants may not emerge from the ground without more rain, Texas A&M University said in a report yesterday. Kansas, Texas and Oklahoma were the biggest growers of winter wheat in 2010 and supplied 28 percent of all wheat varieties produced in the U.S.

“Most of us are gamblers enough that we will plant a wheat crop,” said John Goodknight, who farms 3,500 acres in Chattanooga, Oklahoma, and saw his wheat output drop by a third this year. “We just live and work in the conditions we have. It’s exceedingly hard to make it work with drought.”

While global supplies are rising as exporters in Russia and Eastern Europe recover from a drought in 2010, Kansas City wheat futures that closed yesterday at $8.6525 a bushel may jump to $10 by the end of September, Doane’s Manternach said. If drought spurs farmers to plant fewer acres than last year in the Great Plains, the largest U.S. growing region, or a winter freeze damages crops, prices may reach $13 by March, the highest price since 2008, he said.

‘Extreme Price-Rationing’

“For hard, red winter wheat in particular, we’re already down to very tight stocks because of this year’s drought,” Manternach said in a telephone interview. “A second year in a row of poor yields in the southern Plains would be cause for extreme price-rationing.”

Kansas City futures, which track the price of hard, red winter wheat, have surged 20 percent in the past year, topping the 9.8 percent gain for wheat on the Chicago Board of Trade, where the contract reflects primarily soft wheat grown in the Midwest.

Wheat futures for December delivery slipped 6.25 cents, or 0.7 percent, to settle at $8.59 today on the Kansas City Board of Trade, after earlier touching $8.69, the highest since June 14. The price dropped to a nine-month low on July 12, and has rebounded 24 percent since then.

Planting Delay

Winter-wheat planting can be delayed until November, especially in southern growing areas in Texas where winters are milder. Hard, red winter wheat, used to make bread, goes dormant until about March, and is harvested in May and June. The crop accounted for 46 percent of U.S. wheat output in 2010, while other winter varieties supplied 21 percent.

There is still time for crops to get enough moisture to allow plants to emerge from the soil before winter dormancy, and if rains return in the spring of 2012, yields might return to normal, said Jim Shroyer, an extension agronomist at Kansas State University in Manhattan.

Wheat planted in dry soil has a higher likelihood of being damaged by winter freezes, Shroyer said in a telephone interview. Areas of Kansas may need 6 inches (15 centimeters) to 10 inches of rain to break the drought and rebuild subsoil moisture, he said.

“As long as the surface is moist and we get good germination and emergence, we can kind of limp along with moisture here and there until we get the soil profile full,” Shroyer said.

‘Critical Time’

Southwest and south-central Kansas, a region that includes Sumner County, the biggest wheat producer, had the least precipitation on record in the first seven months of this year, said Mary Knapp, the state climatologist. July was also the hottest on record for the region, she said.

Only about 4.3 inches of rain fell in southwest counties from Jan. 1 to July 31, Knapp said by telephone from Manhattan, Kansas. The region needs about 9.4 inches of rain to break the drought and rebuild subsoil moisture, she said.

“We’re getting into the critical time period for winter- wheat planting and canola planting,” Knapp said. “We have a narrow time frame to get sufficient rainfall to moisten not only the top four inches or so of soil, to get the canola or wheat up, but also to have a continuation of water down into the soil profile, so you get some root development.”

Most-Severe Drought

In Texas, the biggest winter-wheat grower after Kansas last year, 99.9 percent of the state is suffering from drought, according to the University of Nebraska Lincoln’s U.S. Drought Monitor. The one-year drought is the most severe on records going back to 1895, according to a report from state climatologist John Nielsen-Gammon.

After losing non-irrigated crops this year, including cotton and corn, farmers “have good reason to worry that they won’t make a winter-wheat crop either” in 2012, Texas A&M’s AgriLife Extension Service said in a report yesterday.

Oklahoma has had the driest 10-month period on record, and July was the hottest ever for the state, according to the Oklahoma Climatological Survey.

“We are in a situation where we have been extremely dry for coming close to a year,” said Mike Schulte, the executive director of the Oklahoma Wheat Commission in Oklahoma City. “If we get ourselves into a situation where we don’t receive rain even by October, then we will have problems.”

This year’s winter-wheat harvest was 94 percent complete, as of Aug. 21, according to the U.S. Department of Agriculture. The agency estimates production of the hard, red winter variety at 794.4 million bushels, down from 1.018 billion in 2010.

Crop ‘At Risk’

This fall, 16 percent of U.S. output of the variety may be “at risk” of being sown late or not planted at all because of the drought, Mike Tannura, the president of forecaster T-Storm Weather LLC in Chicago, said in telephone interview.

If rain doesn’t come, some farmers may opt to leave fields fallow, waiting until spring to sow other crops including sorghum or cotton, said Darrell Holaday, the president of Advanced Market Concepts in Wamego, Kansas.

The drought may “cut acreage again quite significantly,” Holaday said in a telephone interview. “If it doesn’t rain, I think they’ll just let it set, fallow it all out.”

The most recent La Nina weather pattern, which lasted from late 2010 to early 2011, contributed to the drought, according to the National Weather Service’s Climate Prediction Center. The agency issued a “La Nina Watch” on Aug. 4, indicating that the weather pattern, a period of cooling equatorial waters of the Pacific Ocean, may redevelop.

Another La Nina

La Nina may cause drought to persist in Texas and southern Oklahoma through November, while northern Oklahoma and Kansas may see some improvement, the National Weather Service said.

“The current outlook looks like development of another La Nina system, which is not positive,” Mark Welch, an extension economist at Texas A&M in College Station who specializes in grain markets, said in a telephone interview. “The outlook is for another drier-than-normal winter with above-normal temperatures. We just hope we can get a crop in and enough of a storm pattern to get it going.”

To contact the reporter on this story: Whitney McFerron in Chicago at wmcferron1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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