Saturday 26 May 2012

Agriculture: Drought parches wheat fields worldwide


Bloomberg News 
CHICAGO -- Droughts withering wheat crops from the United States to Russia to Australia will probably spur the biggest reduction in global supply estimates since 2003 and drive prices to the highest in almost a year.

Kansas, the top U.S. grower of winter wheat, is poised for its driest May on record, the state's climatologist estimates. Ukraine and Russia, accounting for 11 percent of world output, have endured drought conditions for three months, University College London data show. The U.S. Department of Agriculture may cut its global crop estimate by 1.2 percent next month, the biggest drop in a June report since 2003, according to the average of 18 analyst estimates compiled by Bloomberg.

Wheat traded in Chicago rose as much as 18 percent in the 10 days through May 21 on concern that the market is returning to the droughts of 2010. Russia and Ukraine curbed exports that year and prices more than doubled to $9.1675 a bushel by February 2011, the month when world food costs tracked by the United Nations rose to a record. Analysts surveyed by Bloomberg expect futures to gain 12 percent to $7.51 by mid-July.

"In 2010, everyone was talking about dryness in Russia even in May, but no one was paying attention," said Chris Gadd, an analyst at Macquarie Group in London. "Because you've had the history of 2010, people are going to the other extreme and overreacting a little. If weather conditions deteriorate further, production estimates could go a lot lower."

Futures surged to an eight-month high of $7.22 on May 21 on the Chicago Board of Trade. The grain's 2.6 percent advance this year makes it the third best performer in the Standard & Poor's GSCI Index of 24 commodities behind soybeans and gasoline. The gauge's 4.1 percent drop since the start of January compares with a 0.2 percent gain in the MSCI All-Country World Index of equities. Treasuries returned 1.4 percent, a Bank of America Corp. index shows.

The USDA said May 10 that global wheat output will decline 2.5 percent to 677.56 million metric tons in the crop year beginning June 1, leaving stockpiles of 188.1 million tons at the lowest relative to demand since 2009. The department will probably cut the production forecast to 669.15 million tons in its June 12 report and reduce the inventory estimate to 183.3 million tons, according to the Bloomberg survey.

Kansas got 0.39 inch (0.99 centimeter) of rain in the first 20 days of May, according to Mary Knapp, the state's climatologist. The record low of 0.98 inch for the entire month was set in 1966, the Manhattan, Kansas-based scientist said. Analysts were predicting record wheat yields for the state as recently as three weeks ago.

As much as 30 percent of the grain harvest in eastern and southern Ukraine may be lost because of damage from dry weather, said Tetiana Adamenko, the head of the agro-meteorology department at the National Meteorology Center in Kiev. Russian wheat output may drop 15 percent this year if below-average rainfall persists in southern regions during the flowering period for the next two weeks, Macquarie estimates.

While dry weather is depriving winter plants of the water needed to develop kernels, there's still time for improvements before harvesting starts next month. Futures jumped 29 percent in July and August last year because of concern about drought, before tumbling 23 percent in the following month as rainfall revived crops and harvests exceeded analysts' estimates.

Winter wheat accounted for about 75 percent of U.S. output last year and is the main variety grown in the Black Sea region.
Original Article Here

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