Sizing Up Wheat in Parched Midwest Fields

May 2nd, 2014

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Category: Grains

(The Wall Street Journal) – Agricultural economist Josh Roe walked into a dusty wheat field on this city’s outskirts this week and spotted trouble. The ground was cracked, and the wheat plants were only half their normal size for this stage of the season.

“The need for rain is urgent,” said Mr. Roe, who works for the Kansas Department of Agriculture and is a sixth-generation farmer.

Drought is battering the nation’s wheat belt, curtailing the prospects for output of the grain and boosting prices in the $22 billion wheat-futures market. Prices have jumped 15% this year in Chicago trading, rallying as concerns have mounted about a lack of moisture in Kansas, the biggest U.S. wheat producer, and elsewhere in the Great Plains.

This week, Mr. Roe and about 75 other participants on a closely watched crop tour have witnessed up close the damage wrought by parched soils in Kansas, Nebraska and Oklahoma. The annual event—organized by the Wheat Quality Council, an industry trade group—includes grain buyers, farmers, commodity analysts and reporters who traipse through fields, measuring potential yields for “winter” wheat. The variety, used to make bread, is planted in autumn and harvested in late spring and early summer.

U.S. grain prices still are well below levels reached during the record-setting drought in 2012. But the recent gains for wheat, a key global food staple, have sparked concerns about higher food inflation in the U.S. and overseas. World food prices rose 2.3% in March to their highest level in 10 months, driven in part by higher grain prices, according to the Food and Agriculture Organization of the United Nations.

Wheat prices in the U.S., the world’s largest exporter, also have risen because of fears that Ukraine’s tensions with Russia will result in lower exports and grain output from the eastern European country, potentially sending buyers to the U.S. for supplies.

Still, global wheat supplies remain at healthy levels, thanks to bountiful harvests from other major wheat producers like the European Union and Canada, analysts said.

U.S. wheat futures leapt to a nearly five-week high earlier this week as participants on the crop tour, held since the 1950s, posted scores of photographs of drought-stricken fields on Twitter and traders seized on tour estimates of sharply lower yields than last year.

Prices eased Thursday as investors booked profits from the rally. Wheat for May delivery, the front-month contract, fell 14.25 cents, or 2%, to $6.9875 a bushel at the Chicago Board of Trade.

Less-active Kansas City wheat contracts, which trade on the CBOT and reflect prices for the winter wheat grown in Kansas, also declined Thursday, after jumping this week to the highest level in nearly 15 months.

On the tour’s final day Thursday, participants projected that yields in Kansas will average 33.2 bushels an acre. That would be the lowest level since 2007, according to U.S. Agriculture Department data.

Oklahoma’s wheat output may slide 37% from last year, to 66.5 million bushels, the lowest for the state since 1957, according to estimates this week from a separate crop tour run by industry group Oklahoma Grain & Feed.

Crop scouts visiting two fields in southern Kansas this week found the soil so dry that cracks were seven inches deep and about two inches wide, indicating a lack of moisture for weeks or possibly even months.

Strong wind gusts that pushed over semi-trucks and created dust storms in Kansas and Oklahoma this week also have dried fields and negated benefits from any rain that recently fell in the area.

As little as 0.01 inch of rain has fallen in most of southwestern Kansas and the Oklahoma panhandle in the past six months, according to the National Weather Service.

All of Kansas and most of Oklahoma and Nebraska are suffering from some level of drought, and some western parts of those states face extreme or exceptional drought, according to the U.S. Drought Monitor map.

“Usually farmers are optimists, but they’re struggling to maintain that optimism this year—they’re pretty depressed,” said Tim Bartram, executive director of the Oklahoma Wheat Growers Association, who took part in this week’s Wheat Quality Council tour.

U.S. wheat futures are likely to keep rising if the drought persists, said tour participant Dan Manternach, director of operations at agricultural-analysis firm Doane Advisory Services in St. Louis.

“At some point, you hit a stage in the growth cycle where you’re suffering irreversible yield loss, and we’re at that point right now,” he said.

Not everyone on the tour, however, is convinced prices will keep rising. Philip Beeson, director of commodity services for Beeson & Associates Inc., a consulting firm that helps large food companies manage their ingredient costs, said the conditions weren’t as bad as he had expected.

“With moisture over the next 30 days or so, there’s an opportunity for this crop to be better than people are expecting,” Mr. Beeson said.

That is of little comfort to Tom Morton, a 65-year-old wheat farmer near Oxford, Kan. He said he is worried about weather forecasts for next week showing no rain and 90-degree heat.

“The wheat’s late this year, and short, so it’s not going to be near the crop we had last year,” he said. “What it looks like in 10 days is what concerns me.”

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