Chicago Wheat Commodity Trading Fall 30 percent

Wheat traded in Chicago fell 30 percent from a 29-month high in February as a 47 percent surge in 2010 spurred more planting. That helped global food prices tracked by the United Nations drop 9.6 percent from a record, easing costs that drove global inflation higher. The second most widely held option gives owners the right to sell wheat at $6 a bushel by February, 6.4 percent lower than now, Chicago Board of Trade data show.

U.S. farmers, the world’s biggest wheat exporters, probably planted the most winter grain in three years, expanding acreage from a century-low reached in 2009 just as a global supply glut swells to its biggest in a decade.

About 41.02 million acres, an area bigger than Illinois, were sown from September to November, 0.9 percent more than a year earlier, according to the average of 16 analyst estimates compiled by Bloomberg. That will add to world inventories set to rise 4 percent to 207.7 million metric tons, the most since 2000, the survey showed. Winter wheat makes up 74 percent of the U.S. crop, and the government gives its first estimate tomorrow.

“We have ample supplies of wheat, and we just keep on producing more,” said Shawn McCambridge, the senior grain analyst at Jefferies Bache Commodities LLC in Chicago, who anticipates declining prices. “We’ll need normal-type weather conditions this spring, but in general, we’re going over the winter without really much of a dramatic concern.”

Trailing Equities

Wheat prices are down 1.8 percent this year, closing at $6.41 at 1:15 p.m. today in Chicago. Its 18 percent decline in 2011 was worse than the 1.2 percent retreat in the Standard & Poor’s GSCI Total Return Index of 24 commodities. The MSCI All- Country World Index of equities fell 9.4 percent and Treasuries returned 9.8 percent, a Bank of America Corp. index shows.

The S&P GSCI Agriculture Index of eight farm commodities tumbled 15 percent last year as slowing economies hurt demand for everything from cotton to soybeans. The gauge rose 44 percent in 2010 as drought decimated crops from Russia to Australia. At the end of 2009, the U.S. planted 37.33 million acres of winter wheat, the fewest sown since the fall of 1912, as excessive rains swamped fields from Ohio to Illinois.

Russian wheat farmers, once the world’s second-biggest producers, reaped 35 percent more last year than in 2010, recovering from the worst drought in more than 50 years, the U.S. Department of Agriculture estimates. Ukraine’s output jumped 31 percent, supply rose 9 percent in Canada and Australian production gained 1.5 percent to a record, according to the USDA. India, the largest grower after China, harvested its biggest crop ever.

Futures Trading

Hedge funds and other money managers have been betting on lower wheat prices since mid-September, having been mostly bullish since July 2010, data from the Commodity Futures Trading Commission show. They are holding a net-short position, or wagers on a decline, of 27,097 futures and options, compared with a net-long position of 51,787 contracts in February.

Growth in world demand this year may still exceed the 4 percent anticipated by the USDA, driving prices higher, as farmers substitute more for corn in livestock feed. Wheat is trading at a 12.25 cent-a-bushel discount to corn, compared with a premium of about $1.78 over the past five years, data compiled by Bloomberg show. Feed use for wheat will rise 16 percent this year, almost 12 times the rate of expansion in food use, the USDA estimates.

Corn rose 13 percent to $6.515 a bushel since Dec. 15 on mounting concern that dry weather is hurting crops in Brazil and Argentina, historically the largest exporters after the U.S. The lack of rain may spur more damage than the 2008-2009 drought that was the worst in 70 years, the Argentine Association of Regional Consortia for Agricultural Experimentation said Jan. 6.

‘Bearish’ Fundamentals

“Wheat is competitive as a feed grain with corn, so as corn goes, so goes wheat,” said Dan Manternach, a wheat economist with researcher Doane Advisory Services in St. Louis. “The fundamentals for wheat itself are bearish.”

Prospects for U.S. winter wheat have improved, with parts of Kansas, Oklahoma and Texas, the biggest producing states, getting three times the normal rainfall in the past 30 days, according to the National Weather Service. That is compensating for last year’s drought, the worst on record for Texas. Some areas of the Plains had half the normal rain in 2011.

Winter wheat is grown from the Midwest to the Great Plains, goes dormant until about March and is harvested from May.

Farmers “think we’re in far better shape than we were last year,” said Bill Spiegel, a spokesman for Kansas Wheat, a state growers group. “Last year, we didn’t have any moisture and the crop hadn’t really emerged. We’ve seen this year’s crop is up, and it went into dormancy in really good shape.”

Top Ratings

As of Jan. 1, 53 percent of the winter wheat in Kansas, the biggest growing state, was in good or excellent condition, compared with 47 percent a month earlier, the USDA said Jan. 3. In Oklahoma, 63 percent got the top ratings, up from 56 percent.

“We have good moisture in the top soil, but the subsoil is not as full as we’d like,” Paul Penner, a farmer in Hillsboro, Kansas, said in a telephone interview. “It looks great right now. But when it breaks dormancy in our area in late February and early March, that’s when it’s going to be critical that we get the rain we need as the temperatures rise.”

In Texas, about 25 percent of the crop was in good or excellent condition as of Jan. 8, unchanged from the end of November, the USDA said. Still, more fields were rated fair, and less were very poor, the worst rating.

Some farmers increased planting amid last year’s dry weather because government-subsidized crop-insurance rates set in September, based on futures prices, allowed them to lock in profits, Manhattan, Kansas-based Spiegel said.

“I’m bearish on wheat prices now on into harvest,” said Mark Welch, an agricultural economist at Texas A&M University in College Station, who expects prices in Chicago may drop as low as $5.75 by July. “Wheat is a resilient crop. If you give it a little rain to help it along, it’s surprising what it will do.”