March 3 (Bloomberg) -- Wheat prices, which last month posted the biggest gain since 2012, will extend the rally as drought and cold weather damaged U.S. winter crops across the Great Plains and Midwest, according to researcher AgResource Co.
Temperatures in growing regions have averaged as much as 12 degrees Fahrenheit below normal this year, High Plains Regional Climate Center data show. Expanding drought conditions from Texas to Illinois is also a concern for plants that will come out of dormancy later this month, said Bill Tierney, the chief economist for Chicago-based AgResource.
Prices jumped 8.4 percent last month, the most since July 2012. World production may decline to 696 million metric tons in the 12 months that start June 1, from 708 million a year earlier, the International Grains Council said Feb. 27. States including Texas, Nebraska, Oklahoma, Colorado and Kansas, the biggest U.S. growers of winter varieties, will update their ratings for crops today.
“I’m sure the conditions fell in February,” Tierney said. “If you combine a drop in U.S. crop ratings with the smaller world-crop forecast from the Grains Council, that should give the market a boost.”
Wheat futures for May delivery slid 0.5 percent last week to $6.0225 a bushel on the Chicago Board of Trade. The Standard & Poor’s GSCI Agriculture Index gained 1.6 percent, the fifth straight advance. Tierney declined to give a specific price forecast for the grain.
“Wheat plants are short, cold weather burned back leaves and top-soil moisture is short,” said Ken Jameson, the grain division vice president at the Garden City Co-op Inc. in Garden City, Kansas. “At best, it will be an average crop, and it could worsen depending on rain and temperatures in March to May.”
About 23 percent of the Great Plains was rated in moderate-to-exceptional drought as of Feb. 25, up from 19 percent three months ago, government data show. Cold weather and lingering drought left 47 percent of Texas wheat in poor or very-poor condition as of Feb. 23, up from 44 percent on Feb. 16, the state Department of Agriculture said last week. The crop in Kansas was rated 20 percent poor or very poor, compared with 6 percent on Dec. 30, the government said Feb. 3.
In November, 62 percent of the winter crop was rated in good or excellent condition, the highest in four years, after beneficial rainfall, data from the U.S. Department of Agriculture show. The USDA resumes national reports in April.
U.S. winter-wheat planting unexpectedly declined for the first time in four years as growers faced lower projected prices. Farmers planted 41.892 million acres of the grain that will be harvested in May and June, down from 43.09 million a year earlier, the USDA said Jan. 10.
Winter grades made up 72 percent of the U.S. crop last year. The hard, red variety from the Plains is used in bread, while the soft type is used in cookies and cakes.
The biggest risk to this year’s crop will be freezing temperatures in late March and early April, according to Donald Keeney, the senior agricultural meteorologist at MDA Information Services LLC in Gaithersburg, Maryland.
“The risk of freeze damage this year is 65 percent,” compared with a normal threat of 30 percent, Keeney said. “Dry conditions are unlikely to improve and may deteriorate in parts western Kansas, Oklahoma, northwest Texas and southeast Colorado.”
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