Global wheat inventories are poised to decline next year by the most since 2007 as drought curbs production from the U.S. to Russia, implying tightening supply this season that may halt a three-month slump in prices.
Stockpiles on June 1, 2013, will drop 6.1 percent to 185.06 million metric tons from a year earlier, according to the average of 19 analyst estimates compiled by Bloomberg. The most-held options in Chicago give holders the right to buy wheat by June 22 at an 11 percent premium to the close on June 8. Prices may average $7.25 a bushel in the third quarter, 15 percent more than now, Societe Generale SA said today in a report.
The U.S. Department of Agriculture updates its global crop estimates tomorrow, the first such release with both electronic and floor trading open on the Chicago Board of Trade. Traders may face changes driven by below-average Midwest rainfall and worsening growing conditions for winter wheat across the U.S. Yields are shrinking in Russia and growers in Argentina and Australia may plant less because of dry soil, according to reports from farm managers and agricultural researchers.
“Supplies are not as ample as they were expected to be just three or four months ago,” Christopher Narayanan, the head of agricultural research for Societe Generale in New York, said by phone. “We have multiple crop problems, and that should support prices.”
Wheat has fallen 13 percent since reaching an eight-month high of $7.22 on May 21 and is down 3.4 percent since the start of January. The July contract rose 0.25 cent today to $6.305 in Chicago. The Standard & Poor’s GSCI Spot Index of 24 commodities declined 9.7 percent this year, and the MSCI All-Country World Index of equities rose 0.1 percent. Treasuries returned 1.7 percent, a Bank of America Corp. index shows.
The most-held wheat option provides the right to buy the grain for July delivery at $7 a bushel by June 22 on the CBOT, followed by the option that allows the purchase of the December-delivery contract at $8, which expires on Nov. 23, exchange data show.
The U.S., the biggest exporter, will produce 2.212 billion bushels (60.2 million tons) this year, the average in a Bloomberg survey of 18 analysts shows. While that’s less than the USDA’s estimate last month of 2.245 billion bushels, it’s still higher than the drought-damaged harvest of 2011, which came in at 1.999 billion bushels. Dry weather from Texas to Ohio may prompt the USDA to cut its winter-wheat forecast to 1.644 billion bushels, from 1.694 billion, the survey showed.
Winter-wheat conditions in the U.S. fell for five straight weeks through June 3, while parts of Kansas and Oklahoma got as little as 5 percent of normal rainfall in the past month as of June 8, government data show.
A dry spell in May that followed a damaging freeze in February may cut production in the 27-nation European Union to 130.5 million tons from 137.4 million last year and 132 million estimated by the USDA last month, said William Tierney, the chief economist at AgResource Co., a research company in Chicago. Output in the 12 nations of the former Soviet Union may drop to 90 million tons from 114 million in 2011, he said.
“We are paring down the supplies in the major exporting regions where the world depends on sourcing wheat to meet food consumption,” Tierney said. “We are tightening up rather significantly the comfortable surplus the world has had the last few years.”
Reduced inventories may not lead to higher prices if Europe’s widening debt crisis and a faltering global economy further erode demand for grain used in food and animal feed. Inventories of 185.06 million tons would still 47 percent higher than in the 2007-08 season, when prices reached a record $13.495 in February 2008.
“The global supply of wheat is more than enough to meet both food and animal-feed demand this year,” said Chad Henderson, a market analyst for Prime Agricultural Consultants Inc. in Brookfield, Wisconsin. “Recent rains in eastern Europe and parts of Russia have stabilized yields, and we still have three months to get rains in Australia and Argentina.”
An index of 55 global food prices fell the most in more than two years in May as the cost of dairy products, grain and sugar declined, the United Nations’ Food and Agriculture Organization said June 7.
Crop yields in Kansas, the largest U.S. grower of winter wheat, may be better than expected because plants matured early enough to avoid damage from the dry weather in May, according to Kansas Wheat, an industry group. An analysis of crops collected during the first week of the harvest showed farmers getting 40 bushels an acre on average, up from 35 bushels last year, spokesman Bill Spiegel said June 6 from Manhattan, Kansas.
While the USDA on May 10 forecast a 1.1 percent drop in global demand to 686.47 million tons in the year that began June 1, consumption during that period will still be the second-highest ever and exceed production by 1.3 percent.
Except for Canada, where output will jump 5.1 percent, the world’s biggest exporters will harvest smaller crops this year, AgResource’s Tierney said. Production by the seven top exporters will tumble 8.9 percent to 342 million tons from a year earlier, he said. The USDA on May 10 forecast output at 355.9 million.
Russia’s yields may shrink 30 percent from 2011 because of a drought, farm manager Valinor Public Ltd. said June 7. In Argentina and Australia, farmers are planting less because of dry soil, AgResource estimates.
For the biggest exporters, inventories before the start of the 2013 harvest will be equal to 15 percent of what they ship overseas and consume domestically, down from an estimated 19 percent on June 1 this year and the lowest since 2008, Tierney said.
The USDA also is expected to reduce its forecasts for domestic corn and soybean inventories in tomorrow’s report, as demand prospects improve, according to the Bloomberg surveys.
Corn reserves on Sept. 1, before the harvest, may fall 27 percent to 822 million bushels from a year earlier and down from 851 million forecast by the USDA on May 10. That would be the smallest since 1996. Soybean inventories may decline to a two-year low.
Corn prices plunged 12 percent in May and soybeans dropped 11 percent, the biggest monthly declines since September, on speculation that warm, dry weather in April and May boosted planting and early crop development, increasing the potential for a record corn crop and a 4.9 percent increase in soybean production.
About a quarter of the corn and soybeans in the Midwest and a third of the crops in the southern Mississippi River Valley may be stressed by above-normal temperatures and dry weather the next two weeks, the Commodity Weather Group LLC said June 7. About 53 percent of the Midwest was abnormally dry or in moderate drought on June 5, up from 42 percent a week earlier and 1 percent last year, government data show.
“It’s much more critical for the corn crop to get widespread rains the next two weeks to prevent irreversible yield losses,” said Jim Gerlach, the president of A/C Trading Inc. in Fowler, Indiana. “Trading will be focused on U.S. weather until there is a widespread rain.”