Monday, September 20, 2010

Fall Wheat Weather Uncertain

Bryce Anderson from DTN reports that in less than six months, the perception of world wheat supplies has reversed from abundant to borderline tight. Much of that switch is due to significant crop damage in Russia caused by historic drought this past summer.

A continued lack of moisture means that Russia's reduced wheat crop size could last another year. The Russia drought impact was twofold in wheat. First, it reduced available grain for food usage. Secondly, since much of the wheat grown in fields around the Black Sea is used for livestock feed, the drought shaved away part of the international feed grain supply as well. Thus, the Russia drought was bullish for the U.S. corn market as well as wheat.

Telvent DTN Ag Meteorologist Joel Burgio began tracking the Russia drought in April when he first identified Russia as an area of dryness. Since mid-June, Burgio saw the area turn progressively drier and hotter, which led to the sharply lower harvest.

"Just look at August," Burgio said. "Saratov in the Volga Valley had only one millimeter of rain -- 35mm below normal. Its average temperature was almost 15 degrees Fahrenheit above normal."

To make matters worse from a production standpoint, Burgio said September is bringing very little rain to the central Russia wheat belt. This lack of rain severely hinders planting of next summer's wheat crop, because of a lack of soil moisture to germinate the crop.

"We may see some scattered showers in the Volga Valley, but that's a skeptical chance," Burgio said. "Also, we have to remember that a chance for one rain event doesn't break drought, nor make the winter wheat crop. They've got a long way to go before they're out of the woods."


The Russia wheat moisture woes -- and the potential for the dry pattern to remain through the rest of this fall -- mean that the world wheat market will be on edge for a few months.

"Out of all the grains, wheat remains a true global commodity," said DTN Analyst John Sanow. "While supplies remain sufficient to meet current needs, the planting delays in Russia and the former Soviet Union will be watched closely," Sanow said.

Elsewhere in the global wheat scene, Argentina's wheat crop has benefited from some contra-seasonal rains in late August; and Australia's eastern wheat areas have benefited from a La Nina event in the Pacific Ocean. La Nina is the term used to describe an ocean temperature trend which is below normal and has a trade wind pattern blowing east to west.

"Australia has had a very typical La Nina relationship so far," Burgio said. "The eastern wheat belt is doing quite well. The only possible problem is that it's been too wet and on the cool side recently. This trend could slow down development. And West Australia could see some wheat losses due to dryness, but the eastern rains are making up for that."

Other major wheat areas are at least holding their own. Argentina's crop is benefiting from some surprising later-season rain. U.S. spring wheat harvest is going well. Canadian wheat producers have a slow harvest, but have avoided a complete crop failure despite an unfavorably wet and cool start to the season last spring. Plus some of the best hard red winter wheat production areas of the Southern Plains in the U.S. have favorable soil moisture for planting the crop which will be harvested in 2011.

Even with these countries' assistance, however, wheat supplies promise to be a question for some time.

"The commercial side of the (wheat) market seems nervous, indicated by the inverted deferred futures spreads in the Chicago, Minneapolis and Kansas City markets," said Sanow.

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