With wheat stocks incredibly tight and prices at record high levels, farmers around the world are expected to grow more of the crop.
Indeed, any indication that farmers might not rush to wheat causes prices to rise. A Jan. 11 U.S. Department of Agriculture report on U.S. winter wheat acreage ignited the market when it said area increased by four percent rather than the eight percent analysts expected.
The hard red winter acreage number actually declined from last year because dryness in some areas prevented farmers from seeding.
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U.S. year end supply of wheat is expected to be the lowest in 60 years and global stocks the lowest since 1977-78.
The shortage of quality hard wheat pressured nearby Minneapolis futures above a record shattering $15 US per bushel in early February, and new crop December 2008 climbed to $11 per bu. Wheat markets in Chicago and Kansas City also rose, but not as high as Minneapolis.
The International Grains Council (IGC) on Jan. 24 forecast that world wheat area would increase a modest 2.6 percent to 544.6 million acres. Global yields in 2007 were hurt by heat and drought in Australia and Canada and too much rain in the United States and Europe.
The IGC said that if the weather co-operates, allowing yields to bounce back, production this year may climb 6.5 percent, or about 40 million tonnes, to 642 million tonnes.
The IGC has Australian production rising about 10 million tonnes to 22.5 million, assuming a recovery after two severe droughts. Parts of eastern Australia received heavy rain in January.
The IGC report shows European production climbing almost 16.8 million tonnes, mainly due to assumption of better weather and North American production rising about nine million tonnes.
A 642 million tonne crop would exceed consumption and allow stocks to rebuild marginally, but the supply-demand balance would remain tight.
Threats to this outlook:
- Indian officials are upbeat about reaching a 75 million tonne crop, but a portion of the acreage was seeded late and will require an extended winter providing cool temperatures into March to ensure good yields. Also, a large part of central India remains dry.
- There is lots of time for rain and spring snow to arrive in the U.S. winter wheat belt, but for now, most of Texas and large areas of western Kansas and Oklahoma remain dry.
