Wheat Prices Hit 9 Month High

By: Georgi Milenkov
Georgi Milenkov
Georgi likes all things shiny; gold, silver, platinum an pirate treasure. Fascinated by the commodities market, Georgi uses his… read more.
on Jun 3, 2012

On 21 May 2012, Bloomberg reported that wheat climbed to its highest level since last September on account of the dry weather, which has been threatening harvests in both the United States and Russia.

Bloomberg notes that the July-delivery contract increased with 3.9 percent, reaching $7.22 a bushel on the Chicago Board of Trade. This price has been the highest for the most active contract in more than eight months.
Before wheat prices reached the current levels, Bloomberg reports that futures dropped 21 percent in the year through May 11, as farmers around the world collected record crops, helping towards the rebuilding of stockpiles. This wheat downtrend was reversed after May 10, when the US Department of Agriculture (USDA) released its first outlook for the 2012-2013 season, predicting a smaller global harvest. According to the USDA outlook, as reported by Bloomberg at the time, production in the year starting 1 July 2012 would drop to 2.7 million metric tonnes, from 5.8 tonnes a year earlier. Among the main reasons for the prognosis in question, as noted in the report, is the amount of rain from September through April, which was 55 percent less than a year earlier.

Dry weather is likely to have a negative impact on harvests in some parts of the US and Russia, with Bloomberg quoting Luke Mathews, a commodity strategist at the Commonwealth Bank of Australia, who noted that the dry weather in the US Great Plains and in southern Russia “has sparked significant speculative short covering in the Chicago wheat complex, pushing values sharply higher”.

In the case of the US, Bloomberg reports the forecast of the Chicago-based weather forecast service T-Storm Weather LLC, which notes that the states of Illinois, Indiana and Iowa are likely to experience above-normal temperatures for a seventh month in a row. The three states in question produce 40 percent of the US crop.!m[](/uploads/story/27/thumbs/wheat2_inline.png)

Russia also seems to be under a “dry spell”, with Bloomberg reporting the forecast of Ikar, the Moscow-based Institute for Agricultural Market Studies, which notes that Russia’s total grain harvest may drop 2.7 percent to 91 million metric tonnes relative to the 93.5 million tonnes forecast made last month. The expected decline will be due to drought in southern regions.

The USDA outlook, on the other hand, makes a prediction about wheat production in the EU-27 which, as noted in the report, is by far the world’s largest producer of wheat. According to the USDA report, wheat production in the EU is also likely to decline during the 2012-2013 season, reaching a five-year low of 132.0 million tonnes. Lower yields are expected in Spain, Poland, Hungary and Romania. These projections reflect the fall dryness observed in the eastern part of the EU and the extremely dry winter conditions, which developed in Spain and in Italy’s Po valley. The USDA report also notes that while precipitation in major countries and wheat areas has improved since late March 2012, Germany, Poland, the Czech Republic, Slovakia and Hungary are still drier than normal.

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