Grain prices jumped early this week because of dryness in the eastern U.S. corn belt and a forecast of reduced world wheat production. Wheat futures hit an 11-year high.
Meteorologists called for a warm dry week east of the Mississippi, an area where the soil is already getting dry and corn yields are threatened.
Traders focused on that news and not the U.S. Department of Agriculture’s 2007-08 corn year-end stocks forecast June 11, which was larger than what traders expected.
The USDA kept its production outlook the same, but increased its 2007-08 beginning stocks by about one million tonnes.
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Its soybean year-end stock outlook was also larger than expected, but the dry weather forecast trumped that news too.
If the hot dry weather continues and hurts production, the already tenuous corn supply-demand balance in the coming crop year could become dangerously tight.
USDA’s wheat numbers got more attention than its corn outlook. The department slashed its world wheat production outlook by 6.7 million tonnes, a combination of big production cuts in Ukraine and Russia because of drought and trimmed U.S. production.
USDA might have to lower its outlook again if current problems persist.
It lowered its Ukraine wheat forecast to 14 million tonnes, but Ukraine’s farm ministry on June 11 lowered its forecast to 12 million tonnes, which is equal to its normal domestic demand, meaning it will be out of the export market this year.
Also, forecasts for more rain in the U.S. winter wheat belt threatened to further delay harvest and threaten quality.
The continuing rain and increasing evidence that the April freeze did more damage than thought are generating talk that USDA might have to further reduce the size of the U.S. winter crop in future reports.
Also supportive of wheat prices was word from India last week that it intends to buy five million tonnes of wheat between August and December to rebuild its stores.
The production problems in the former Soviet Union should also support feed barley prices.
Barley importers in North Africa and the Middle East will have to look to the European Union, Canada, the United States and Australia for supply.
Speaking of Australia, the eastern grain belt has received good moisture so far this season, but Western Australia, which usually produces about one third of the country’s grain, remains dry.
