Bad weather poses threat to wheat supplies

By Gregory Meyer in New York May 26, 2011

Expectations for a sharp rebound in global wheat supplies were lowered on Thursday after an intergovernmental trading group said bad weather threatened key breadbaskets.

The International Grains Council trimmed its forecast for the annual global wheat crop by 5m tonnes to 667m tonnes, citing "unfavourable weather", especially in Europe and the US.

Compared with tight stocks of corn, wheat inventories are still relatively comfortable. The price of the staple grain has risen 78 per cent in the past year, while corn has doubled.

Yet in the US, the top wheat exporter, a drought has hit the winter wheat crop while farmers planting this spring have been delayed by sodden fields. France, Germany and other European producers are also suffering from dry weather.

"It seems there are problems in just about every major growing region in the world," said Dax Wedemeyer, a broker with US Commodities in Iowa state.

CBOT July wheat rose 3.1 per cent to $8.21 a bushel. On the Minneapolis Grain Exchange, July red spring wheat gained 4.2 per cent to $10.63 a bushel.

A devastating drought in the Black Sea region sent wheat prices soaring last year. Ukraine this week removed grain export quotas imposed in the wake of shortfalls.

Traders remain unsure about the future of a similar prohibition on wheat sales from Russia.

The London-based council, which facilitates international grain trading, also reduced its forecast for wheat consumption by 3m tonnes to 669m tonnes, still a record but lower than the previous estimate because demand from ethanol refiners is slowing and some Russian farmers are switching to barley as a way to feed animals.

Some analysts view the council's new production forecast, along with a previous 670m-tonne forecast by the US Department of Agriculture, as overly sanguine, given weather conditions. In the US 54 per cent of this year's spring wheat crop is planted in key states, well below the 89 per cent average for this time of year.

"There are more acres in the northern hemisphere where the wheat is declining in production potential than acres where it is improving," said Richard Feltes, vice-president of research at brokers RJ O'Brien.