Lower stocks, freezing temperatures push wheat prices higher

by Ron Sterk
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WASHINGTON — U.S. wheat prices moved higher last week on anticipated tighter supplies after freezing temperatures damaged what was expected to be the best winter wheat crop in years. Separately, the U.S. Department of Agriculture reduced projected carryover of wheat on June 1, 2007, by 50 million bus in its April 10 World Agricultural Supply and Demand report.

Futures prices for hard red winter wheat at the Kansas City Board of Trade initially traded up the 30c-a-bu daily limit on April 9, but eased back to post only small gains for the day in Kansas City as well as in Chicago and Minneapolis. Prices traded sharply higher last April 10. Traders said the freeze would impact futures prices for another couple weeks until damage was better assessed.

"In a stunning reversal from March, unusually cold air settled across areas from the Plains to the East coast, threatening jointing to heading winter wheat, blooming fruits and emerging corn on April 7-8," the National Agricultural Statistics Service (NASS) of the U.S.D.A. said. Although still too early to fully assess losses, nearly every weekly crop weather bulletin across the entire winter wheat growing area referred to concerns about damage from sub-freezing temperatures.

The U.S.D.A. reduced its winter wheat crop condition ratings after the freeze. Rated good to excellent in the 18 major winter wheat states as of April 8 was 64% of the 2007 crop, down from 71% a week earlier. Several states increased the "fair" rating until the extent of the damage could be better determined.

More telling were changes in the ratings for individual states. Rated good to excellent in Kansas, the top hard red winter producing state, was 55% of the crop on April 9, down 22 percentage points from 77% a week earlier.

"Wheat freeze damage reports indicated 54% of the wheat has not been damaged (91% a week earlier), 15% received light damage (8%), 15% received moderate damage (1%), and 16% received severe damage (0%)," Kansas Agricultural Statistics said.

"While not yet reaching the heading stages, the crop in Kansas was progressing well ahead of normal, leaving it vulnerable to the week’s sub-freezing temperatures," the NASS said.

There were reports of wheat lying flat on the ground in Kansas after the freeze.

Other hard winter states such as Texas, Oklahoma, Colorado and Nebraska also noted freeze concerns but said it was too soon to determine the extent of damage. The effects of the freeze will be of special interest to participants on this year’s hard red winter wheat tour sponsored by the Wheat Quality Council April 30 to May 3.

Several soft winter wheat states saw large declines in condition ratings. Good to excellent ratings on April 8 declined 19 percentage points from a week earlier in Missouri, 18 points in North Carolina, 16 points in Arkansas, and 7 points in Illinois and Indiana.

"Many farmers will be evaluating wheat stands to determine if they should leave the wheat for harvest or destroy it in order to plant corn or soybeans," the Indiana Field Office of the NASS said. Because of a poor start to the crop last fall in major soft winter states, condition ratings were well below year-ago before the freeze.

Some growers were said to have inquired about cancelling forward sales of wheat fearing the freezing temperatures might have reduced crop yield potential. But mills advised growers to wait until damage could be confirmed before finalizing cancellations.

"Winter wheat is a notoriously resilient crop, and damage assessments could take weeks, since post-freeze weather can be an important factor in determining the final outcome," the NASS said.

Also supportive to wheat prices last week was the U.S.D.A. projection of carryover stocks on June 1, 2007, of 422 million bus, down 50 million bus from its March projection, 149 million below 571 million last year, and below analysts’ expectations of 449 million bus. It would be the smallest ending stocks since 1996.

The decrease in ending stocks from March was due to a 25-million-bu increase in feed and residual use, to 170 million bus, and a 25-million-bu increase in exports, to 900 million bus, the U.S.D.A. said. The average price of all wheat was unchanged from March at $4.20@4.30 per bu, and compared with $3.42 last year.

In the wheat-by-class breakdown, the U.S.D.A. projected carryover for hard winter wheat at 142 million bus, down 25 million bus from March, hard spring at 124 million bus, down 10 million, soft red winter at 89 million, reduced 11 million, durum at 21 million, down 5 million, and white wheat unchanged at 46 million.

Corn and soybeans, meanwhile, were expected to see little impact from the freeze. Crop progress in most major corn and soybean states of the Corn Belt was behind normal because of the cool, wet spring. As a result, damage to row crops was minimal in those states.

Carryover of U.S. soybeans on Sept. 1, 2007, was projected at a record 615 million bus, up 20 million from March and 166 million above 449 million a year ago, due to a 15 million decrease in crush, a 20 million reduction in exports, a 4 million cut in seed use only partially offset by a 20 million increase in residual use, the U.S.D.A. said. Average pre-report trade estimates were much lower at 586 million bus. The projected soybean price range was $6.10@6.50 per bu, unchanged from March and compared with $5.66 last year.

U.S. corn carryover on Sept. 1, 2007, was projected at 877 million bus, up 125 million from March based on a 125-million-bu decrease in projected feed and residual use, to 5,850 million bus. Before the report analysts predicted carryover to average 826 million bus. The projected price range in 2006-07 was narrowed to $3@3.20 per bu from $3@3.40 in March and compared with $2 in 2005-06.

This article can also be found in the digital edition of Food Business News, April 17, 2007, starting on Page 16. Click here to search that archive.

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