(July 2, 2012)
Wheat prices rallied in June to a 9 ½ month high, climbing from around $6.27 a bushel all the way to $7.57 a bushel on June 29th. The rally in wheat prices was most aggressive toward the end of the month as hot-dry weather took its toll on crops. Wheat crops around the world, in Russia, and the United States are suffering due to drought conditions.
Many crops, including corn, and soybeans are at risk due to the hot-dry weather in the United States, that shows no indication of letting up anytime soon. Wheat prices are also benefiting from the run-up in corn prices, as corn prices climb more wheat is used, rather than corn, for animal feed. Farmers may turn to wheat for an animal feed because global supplies of wheat are robust, compared to corn- which has dangerously low stockpiles. That being said, demand for wheat is picking up, according to data released at the end of the month by the USDA export sales from the U.S. almost doubled in the second week of June, with China and Japan stepping up purchases.
Even though the weather woes are new on wheat’s horizon, in the last week of the month, the International Grains Council cut its forecast for globalwheat production in 2012/13 to 665 million tonnes from a previous forecast of 671 million as the outlook for the crop in key exporter Russia deteriorated.In their monthly update, the USDA reported that all wheat (spring, winter, and durum) was estimated at 56,017,000 acres, up 109,000 acres from 55,908,000 acres indicated in March and up 1,608,000 acres, or 3%, from 54,409,000 acres a year ago. Harvest area was estimated at 48,826,000 acres, up 3,121,000 acres, or 7%, from 45,705,000 acres a year ago.
On July 1st, following the weather induced rally, Goldman raised its wheat forecast to $7.15 a bushel from $5.75 claiming lower inventories and growing downside risks of lower production due to the weather will cause wheat prices to hold higher compared to previous forecasts.