Power Hour: Wheat Slump Longest Since 2005 as Output Surging

July 1, 2013 09:30 AM

July 1 (Bloomberg) -- Wheat futures slid to a one-year low, extending the longest slump since 2005, on signs of record global output and reduced demand for supplies from the U.S., the world’s biggest exporter.

Farmers from Australia to Canada will produce a combined 683.1 million metric tons in the year that starts today, up 4.3 percent from the prior 12 months and the highest ever, the International Grains Council said today. Prices have tumbled 16 percent this year as importers shun U.S. supplies for cheaper grain from Russia and Ukraine, and signs of a record Midwest corn harvest in 2013 erodes demand for wheat in livestock feed.

Corn, soybean and wheat prices plunged on June 28 after the U.S. government estimated farmers will plant more grain than forecast and the largest oilseed crop ever. While wheat output in the U.S. is down from last year, production will jump 38 percent in Russia and 27 percent in Ukraine, the IGC data show. Cheaper grain will curb global food costs tracked by the United Nations that already are down 9.5 percent from a record in February 2011, according to BB&T Capital Markets.

"The U.S. market is so overvalued that once the Black Sea supplies get into the pipeline, we’ll start to lose business," Mike O’Dea, a risk-management consultant at INTL FCStone in Kansas City, said in a telephone interview. Reduced demand for wheat by livestock producers reflects the surge in corn supply and lower prices, he said.

Wheat futures for September delivery fell 0.5 percent to $6.5475 a bushel at 12:54 p.m. on the Chicago Board of Trade, heading for an eighth straight decline and the longest slump for a most-active contract since June 8, 2005.


Corn Slides


Corn futures for December delivery, after the harvest, fell 1.9 percent to $5.015 a bushel, after touching $5.0125, the lowest for a most-active contract since Oct. 8, 2010.

Exports of U.S. wheat from June 1 through June 20 were down 15 percent from the same period a year earlier, U.S. Department of Agriculture data show. Commitments to buy were up 27 percent to 8.59 million tons, according to the USDA. Inspections at U.S. ports totaled 83 million bushels in the first 27 days of the marketing year that began on June 1, down 3.2 percent from a year earlier, the USDA said today.

U.S. growers will sow 56.53 million acres of wheat in the season that started June 1, the most in four years, the USDA said on June 28. The agency also predicted corn, the biggest domestic crop, will be planted on 97.379 million acres, the most since 1936 and above the 95.431 million expected in a Bloomberg survey.


Corn Feed


Stockpiles of corn will remain low until the U.S. harvest starts in September, and some livestock feeders may use wheat in animal rations, O’Dea said. Cash corn in Kansas City, which normally trades at a discount to wheat, cost 63 cents more per bushel today, USDA data show.

About 20 percent of the domestic winter-wheat crop was harvested as of June 23, USDA data show. The agency will update the progress of domestic planting and crop conditions at 4 p.m. in Washington today. While that’s behind the five-year average of 37 percent, collection of the grain means more will be available, pressuring prices, said Shawn McCambridge, the senior grain analyst for Jefferies Bache Commodities LLC in Chicago.

"We don’t see much as far as support" for prices, McCambridge said by telephone. "Once we see the Black Sea region wheat coming out, they’ll have more to export this year. Not an overwhelming amount, but what they have, they’re going to push it out quickly."


--Editors: Steve Stroth, Patrick McKiernan


To contact the reporter on this story: Tony C. Dreibus in Chicago at tdreibus@bloomberg.net


To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net


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