(Wall Street Journal) – The price of wheat is tumbling as weather forecasts brighten and investors grow more pessimistic on the outlook for demand for the grain.
Wheat for July delivery fell 11¾ cents, or 2.4%, to $4.77 a bushel at the Chicago Board of Trade Friday, the lowest settlement since May 11. The contract was down 7.4% for the week.
Egypt, a major importer of the grain, recently purchased 240,000 metric tons of wheat from Russia and Romania, highlighting the stiff competition the U.S. faces in the global market. Despite the recent drop in prices, U.S. wheat is relatively expensive compared with rival producers in Europe and Asia as gains in the dollar has made the grain less affordable for overseas buyers.
“The world has plenty of alternatives for wheat,” said Kurt Koester, president of AgriSource Inc., a brokerage and grain marketer based in West Des Moines, Iowa.
While demand for U.S. wheat eases, American farmers appear to be on track to produce 2.09 billion bushels of wheat, up 3% from a year earlier, according to estimates by the Agriculture Department. Heavy rains recently battered crops in the southern Plains, where much of the nation’s winter wheat is grown, but the USDA said 45% of the wheat was in good or excellent condition in the week ended May 24, unchanged from a week earlier.
The weather outlook also appears to be improving for U.S. crops, with forecasters now predicting warmer, drier conditions for key wheat-growing states in early June. Rival producers such as Russia and Canada are also seeing better weather forecasts, boosting prospects for world crops.
“The world is awash in wheat,” said Dan Basse, president of Chicago-based commodities firm AgResources Co. “There are no weather phenomena that would change a bearish view.”
The crops would add to already large global stockpiles, which the USDA estimates in 2015-16 will total 203.3 million metric tons.
Low wheat prices aren’t likely to result in a noticeable reduction in the cost of bread in grocery stores compared with a few months ago, though consumers can expect bread to be less expensive than last year, said Dan Manternach, director of operations at Doane Advisory Services in St. Louis, an agricultural information provider.
If wheat yields at harvest this summer turn out to be better than expected, prices for the grain could fall as low as $4.50 a bushel, Mr. Manternach said.
Investors are betting that wheat prices will continue to slide. Bearish hedge funds and other money managers outnumber those betting on higher prices by 83,335, according to data from the U.S. Commodity Futures Trading Commission.
Still, the market could see a bounce if U.S. crops begin to register heavier-than-expected losses from recent torrential rains, said Tom Leffler, owner of Leffler Commodities in Augusta, Kan.
“You’re going to have some acres where you can’t combine because plants are lying flat in floodwaters,” he said.
