April 4 (Bloomberg) -- It’s been a double-whammy winter for wheat farmers in the U.S., the world’s largest exporter.
With drought already sapping soil moisture across the Great Plains, the biggest growing region, a polar vortex in early 2014 draped fields in a deep freeze, killing more plants than normal. Since crops began going dormant in November, conditions deteriorated by the most in five years, according to grain brokers Jefferies Bache LLC and CHS Hedging Inc.
"My main concern is the lack of subsoil moisture," said Ron Suppes, 62, who farms about 10,000 acres near Dighton, Kansas. "We have received less than a third of the normal rain since we planted. Without more than a half inch of rain in the next two weeks, the crop will decline very quickly."
The prospect of crop damage is escalating supply concerns that sent Chicago wheat futures to their biggest rally to start a year in three decades. Prices jumped to a 10-month high March 20 after Russia’s annexation of the Crimea region in Ukraine boosted the risk of disruptions to grain shipments from the Black Sea. U.S. exports for delivery before the harvest in June are up 19 percent from last year, and domestic inventories on March 1 were down 15 percent from a year earlier.
Extreme weather is raising costs for consumers, sending world food prices to a 10-month high in March as crop damage from dry conditions across the globe lifted everything from meat to dairy to grain, United Nations data show. The U.S. retail price for all-purpose white flour reached a record 55.5 cents a pound in February, up 5.9 percent from a year earlier, data from the Bureau of Labor Statistics show.
Wheat futures on the Chicago Board of Trade jumped 16 percent in March, the biggest monthly gain since July 2012, and are up 11 percent since Dec. 31 at $6.74 a bushel. Prices touched a 42-month low of $5.50 a bushel on Jan. 29. The Standard & Poor’s GSCI Spot Index of 24 commodities rallied 1.9 percent in 2014, led by gains in coffee, hogs, corn and nickel. The MSCI All-Country World Index of equities advanced 1.3 percent, while the Bloomberg Treasury Bond Index gained 1.4 percent.
Drier-than-normal subsoils more than doubled in March to 76 percent in an area from Texas to North Dakota, where farmers grow hard, red winter wheat, T-Storm Weather LLC in Chicago said in a note April 2. Yields may drop to 45.7 bushels an acre this year, compared with 47.4 a year earlier, Berwyn, Pennsylvania- based Planalytics Inc. said March 28. The firm based its estimate on weather and satellite images.
The U.S. Department of Agriculture will issue its first estimate of this year’s U.S. crop conditions on April 7. The report may show 42 percent in good or excellent condition, compared with 62 percent in November, Jefferies Bache and CHS said. A 20 percentage-point drop would the biggest during winter dormancy since 2009, data show.
"The first crop ratings of the year will show significant declines since November," said Shawn McCambridge, the senior grain analyst for Jefferies Bach in Chicago. "It’s an anemic crop because of the moisture deficits."
In Kansas, the biggest grower of winter wheat, Suppes said his fields, about 214 miles (344 kilometers) northwest of Wichita, have endured drought-like conditions of varying degrees for 11 straight years. On the fields his family has farmed for more than 90 years, plants that normally get about 17 inches (43 centimeters) of rain got less than 6 inches, and crops on high ground that lacked protective snow cover were damaged or destroyed by arctic cold.
"The wheat looks green from the road, but if you were to walk out into the field and start digging down into soil, you won’t be impressed with the crop potential," Suppes said.
As of April 1, the U.S. Drought Monitor rated 65 percent of Kansas with severe-to-extreme drought, up from 34 percent at the end of 2013. Temperatures fell to the lowest since 1982 in February, damaging plants that did not have snow cover, according to Tim Emslie, the research manager for CHS Hedging.
As of March 30, state agriculture departments reported crops rated in good or excellent condition fell to 32 percent in Kansas from 63 percent in November, while Texas saw a decline to 11 percent from 32 percent and Oklahoma dropped to 17 percent from 77 percent, USDA data show.
The sub-zero winter temperatures across the Plains killed some plants, which means farmers may abandon as much as 10 percent of fields, up from an average of 3 percent, said Jeff Bechard, the president of AgMark LLC, the Beloit, Kansas-based cooperative that handles more than 50 million bushels of grain annually.
"Wheat is surviving off the top-soil moisture, because there is very little subsoil moisture," Bechard said. "There’s no panic yet, but we need half an inch of rain every week for plants to recover."
Rain and the return of more seasonably warm weather could revive the U.S. crop. Wheat is a hearty grass that can withstand periods of extreme weather, and most fields had a protective layer of snow when temperatures were at their lowest. Prices tumbled 22 percent last year, the biggest drop since 2008, on signs that record global output would boost reserves. Futures are down 6.6 percent from last month’s peak.
Supplies are increasing from Canada, the second-largest exporter, after rail bottlenecks delayed shipment of a record crop from 2013.
Rail operators are ramping up the number of cars to move Canadian grain stuck in storage, Transport Minister Lisa Raitt said March 26 in Winnipeg. The government ordered Canadian National Railway Co. and Canadian Pacific Railway Ltd. last month to increase the number of grain cars each sends to prairie elevators to move 500,000 metric tons a week.
The government’s intervention may double grain transport by rail, which can make up for any shortfall from the U.S., according to Mike O’Dea, a risk management consultant for INTL FCStone Inc. in Kansas City. Canada harvested 37.5 million tons in 2013, and global output will be a record 709 million tons in the 12 months that end in June, the London-based International Grains Council said March 27. As of Dec. 31, Canadian wheat inventories were up 38 percent from a year earlier.
"There’s a lot of Canadian wheat that will hit the market from May to July," O’Dea said. "Consumers are a little nervous watching the U.S. crop conditions, but we have a lot of bushels sitting in Canada."
Money managers are still betting on a wheat rally, holding their most-bullish position since November 2012. Hedge funds and other large speculators as of March 25 were net-long 36,492 futures and options contracts, up for a third straight week, after four months of bearish bets that prices would fall.
U.S. sales of wheat for delivery by May 31 totaled 30.35 million tons as of March 27, compared with 25.53 million a year earlier, the USDA said. Sales for delivery in the 12 months that start June 1 are up 17 percent, with increased purchases by Mexico, South Korea and the Philippines, three of the top six buyers of U.S. wheat.
Rising demand helped reduce domestic wheat inventories on March 1 by 15 percent to 1.056 million bushels, the lowest for the date since 2009, USDA data show.
"You don’t want to be short wheat until more is known about the spring precipitation pattern," said Rich Feltes, the vice president of research for R.J. O’Brien & Associates in Chicago. "Cold weather in the northern Plains and Canada the next 30 days is going to slow planting and increase supply risks for the spring-wheat crops. There is upside risk for prices, especially with the tailwind of the investment community."
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