Dry weather is becoming a concern in several parts of the world.
It was a getting a little dry in northern Iowa as this was written May 18, and private forecaster T-Storm Weather LLC was forecasting above normal temperatures for Iowa, Illinois and Indiana, the heartland of the U.S. Midwest.
The U.S. Department of Agriculture’s forecast of a national average of 166 bushels per acre for corn is a record and well above the normal trend. The USDA noted the benefits of early seeding to yield prospects, but that optimistic forecast will have to be reined in if the heat and dryness continue into June and July.
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However, the main action last week was in wheat markets.
Chicago December wheat futures rose 14 percent on dry weather in key production regions, the biggest weekly gain in 16 years. That strength was made more impressive by the fact that the anxiety over the eurozone’s debt problems pressured most other commodities lower.
However, we must remember it is only May, which is a little early to be writing off crops, even winter seeded ones. Still, the wheat market looks better than it did a few weeks ago.
The winter wheat crop has headed and is turning colour, three weeks ahead of normal because of an unusually warm spring. Just a couple of weeks ago an industry tour of the state presented an optimistic yield forecast, but it has been dry since then and the condition has deteriorated.
The tour two weeks ago pegged the Kansas crop at 11 million tonnes, but now estimates are falling to 8.8 to 9.5 million tonnes.
Highs are in the low 30s C and the two week forecast is for below normal rainfall.
Areas around the Black Sea have suffered from hot, dry weather in recent weeks. Ukraine’s production had already suffered because of weather problems in the winter, and Bloomberg reports that the recent hot, dry weather threatens 30 percent of the remaining crop.
The USDA already forecasts that Ukraine will produce only 13 million tonnes of wheat in the new crop year compared to a bumper 22.1 million in 2011-12.
Ukraine received some rain last week, but it didn’t reach into Russia.
Russia’s Institute for Agricultural Market Studies cut its all-crop outlook to 91 million tonnes from 93 million because of the wheat crop’s reduction to 54 million from 56 million tonnes.
A Russian government spokesperson said it would likely cut its outlook in a week or so.
The USDA’s current forecast for Russian wheat production is 56 million tonnes, similar to last year’s crop. However, drought reduced the crop to 41.5 million tonnes in 2010-11.
That drought was widespread, reaching into Siberia. This year’s dryness is focused in the area east of the Black Sea, which traditionally provides most of the country’s exports.
Analysis group SovEcon also noted that subsidized rail rates that helped move grain west from Siberia will end in June, making it difficult to backfill the reduced supply in the Black Sea area with wheat from central Russia.
Farmers Down Under are seeding their winter crop.
April moisture in Western Australia, the country’s largest wheat producer, was below normal and May has also been dry.
A spokesperson with CBH, the state’s largest grain handler, told Bloomberg that farmers will wait for showers before resuming seeding. Acreage could be reduced if rain does not come or arrives too late.
Meanwhile, the Australian Oilseeds Federation said that a lack of rain is also a problem on the east side of the country, in New South Wales and Victoria.
Canola emergence is spotty.
This caused the federation to take a conservative view of 2012 canola production, forecasting it at 2.965 million tonnes, down from last year’s 3.185 million despite an increase in seeded area.
The federation is more pessimistic than other forecasters.
The USDA pegged Australian canola output at a record 3.25 million tonnes, while the Commonwealth Bank of Australia sees 3.2 million tonnes.
Some weather forecasters believe the current neutral situation in the Pacific Ocean will rapidly shift into an El Nino, and that usually brings dry weather to Australia.
