Wheat Prices 2012 Tumble, March Delivery Fell 36 cents

Wheat prices 2012 tumbled as a government report showed the nation’s farmers had planted winter wheat on much more of their land this season amid last year’s higher prices and easing drought conditions in Kansas, Oklahoma and Texas. Farmers and agricultural analysts had anticipated that more acres would be used for winter wheat given the welcome precipitation last fall and the acres left idle after other crops failed this summer. But Kansas State University economist Dan O’Brien said most analysts had not expected that the amount of acreage planted would increase so much.

Wheat prices in major western European markets were flat to slightly higher on Monday as export-boosting weakness in the euro offset pressure from pre-weekend falls in Chicago, and with a holiday closure in U.S. markets keeping activity light.

At the Chicago Board of Trade, wheat for March delivery fell 36 cents to $6.05 a bushel. The longer-term impact on prices will be determined when it is clear if all those extra acres turn into increased production and whether dry conditions return in the spring when the wheat comes out of dormancy.

Across the country, the amount of winter wheat planted for harvest in 2012 was estimated at 41.9 million acres, the National Agricultural Statistics Service reported Thursday. That is an increase of 3 percent from 2011 and up 12 percent from 2010.

Kansas farmer Jerry McReynolds, who has roughly 2,300 acres now planted in winter wheat, says that like many others, he added several hundred acres at his farm near Woodston because of the good prices and because some acres were idle after other crops failed this summer.

The rain Kansas got this fall also encouraged him to plant more winter wheat, which is hardier in the face of drought.

“All those factors came together to cause us to plant more wheat and we may pay the consequences,” McReynolds said. “We don’t know about that — certainly if today is an indication ... the markets are not too good today.”

McReynolds, who was attending the American Farm Bureau board meeting in Honolulu, had been anxiously awaiting the government report and checked commodity market prices on his hand-held device throughout the day. “I am worried about the price of wheat because when I get home I am gonna pay for this,” McReynolds said.

O’Brien said if farmers get adequate rain or snow, those added acres would mean more bushels come harvest that would increase supplies and could lower crop prices.

“There is a lot of uncertainty and weather trends in place that really raise the question of whether that will happen,” O’Brien said. “I don’t think we can say that is going to happen yet with a lot of certainty.”

The La Nina weather pattern is still hanging around and that tends to mean drier conditions this spring in wheat-growing areas, he said.

Texas Panhandle wheat farmer David Cleavinger, a past president of the National Association of Wheat Growers, is in a holding pattern on what he’ll do with the 1,200 acres of winter wheat he planted a bit late last fall because of the state’s historic drought. Though they have gotten timely rains and some snow the past few months, the wheat plants are “really, really small” in height, he said.

“There’s enough moisture for it right now, but there’s no submoisture whatsoever,” Cleavinger said. When the wheat comes out of dormancy, “it’s going to need more moisture. We keep hoping we get an 18-inch snow storm. It will be OK if we get more rain.”

As he waits, Cleavinger will be considering what to do with the wheat he ends up with: He can sell it as grain, sell it to cattle feedlots as silage made from wheat, cut it and sell it for hay at a time in Texas when there is little supply and prices are high — as much as $250 a ton — or let cattle graze in his fields.

“Odds of hay prices being pretty good should be an advantage for us to take it for hay rather than taking it to grain,” Cleavinger said. “It all is tied back to weather and rain. So if you don’t have moisture, you don’t have those options.”

Using his wheat for hay would be less risky, he said, because it wouldn’t still be in the fields when spring storms can bring damaging hail.

Hard red winter wheat, the type used for making bread, accounts for the vast majority of the nation’s winter wheat acreage. It rose 6 percent to 30.1 million planted acres.

Kansas, known as the nation’s breadbasket, planted 9.5 million acres, an 8 percent jump. Texas planted 5.9 million acres, up 11 percent from a year ago. Oklahoma seeded 5.5 million acres, an 8 percent increase.

Plantings of soft red winter wheat and white winter were both down nationwide.

“What it indicates is more hard red winter wheat planted,” O’Brien said. “I don’t know if we can say with a lot of confidence that will necessarily result in higher production until we work our way through this spring uncertainty.”

Europe

* The euro rose following a 17-month low against the dollar on Friday, when credit rating agency Standard & Poor's downgraded nine euro-zone countries, including France, but stayed below $1.27, partly due to stalled talks on Greece's debt.

* A softening euro helped European milling wheat in Paris stay in positive territory on Friday, even as Chicago crop futures fell sharply on a corresponding rise in the dollar plus improving crop weather in Argentina.

* March milling wheat closed up 1.25 euros or 0.63 percent at 198.25 euros a tonne. It continued to face resistance around 200 euros, with a key level seen at 203.50 euros, the peak of a rally at the turn of the year.

* "Our competitiveness has been reinforced, as shown by sales secured with Egypt and probably Algeria," French grains consultancy Agritel said in a note. "The impact of the price fall in Chicago is thus being limited by the euro factor and this could continue this week."

* French wheat scored its third straight tender sale to Egypt on Friday and was also seen as in contention to claim part of a major purchase by Algeria last week.

* The upturn in French exports has also been supported by a flagging pace of shipments from Russia after it dominated the early part of the season.

* In other export news, Tunisia issued an international tender to buy 125,000 tonnes of durum wheat.

* Weather worries in big exporting countries may provide broad support this week to grains, after they were dented last week by bigger-than-expected supply estimates from the U.S. government and by forecasts for improved crop weather in Argentina.

* A drought in Argentina will worsen this week as rain will not be enough to revive parched corn and soy crops, local meteorologists said.

* Colder weather in France since the end of last week was not seen as threatening crops as temperatures were not severe enough, with the cold rather seen as potentially beneficial for strengthening plants after mild conditions since the autumn.

* In oilseeds, rapeseed futures were little changed, with February closing down 0.50 euros or 0.11 percent at 450.00 euros a tonne.

* The weak euro and tight supply in Europe helped rapeseed hold up better last week than their lead market, U.S. soybeans, which were hit by bearish U.S. government estimates and the return of rain to drought-hit Argentina.

GERMANY

* Germany's market was little changed on late Friday levels, with support coming from a stable Paris market, export-boosting weakness in the euro and firm feed wheat demand.

* Standard bread-quality milling wheat for January delivery in Hamburg was offered for sale unchanged at 202 euros a tonne with buyers at around 200 euros.

* "The weaker euro will make the export outlook more positive at a time when competition from rivals like Argentina is flagging," one trader said. "But the lack of a lead from U.S. markets today means some people are restrained in trading."

* Short covering by animal feed makers was keeping German feed wheat prices at the same level or even higher than milling wheat, continuing a pattern seen last week.

* Feed wheat for delivery up to June in the South Oldenburg market near the Netherlands was offered for sale at 203 euros a tonne with buyers around 201 euros.

* "The new year holiday season in the Black Sea region has kept sales offers of feed wheat low, which seems to be keeping spot demand for feed wheat high," another trader said. (Reporting by Gus Trompiz and Valerie Parent in Paris and Michael Hogan in Hamburg; Editing by Anthony Barker)

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.

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.

“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.”