Perilous
Times and Climate Change
Wheat Fields Wilt in Horrific Drought as Parched Earth
Spreads From China to Kansas
By Luzi Ann Javier, Madelene Pearson and Whitney McFerron - Jun 5,
2011
Bloomburg News
The worst droughts in decades are wilting wheat fields from China
to the U.S. to the U.K., overwhelming Russia’s return to grain
markets and driving prices to the highest levels since 2008.
Parts of China, the biggest grower, had the least rain in a
century, some European regions are the driest in 50 years and
almost half the winter-wheat crop in the U.S., the largest
exporter, is rated poor or worse. Inventory is dropping 8.8
percent, the most in five years, Rabobank International says.
Prices will advance 20 percent to as high as $9.25 a bushel by
Dec. 31, a Bloomberg survey of 14 analysts and traders shows.
Wheat as much as doubled in the past year as crops failed,
spurring Ukraine and Russia to curb shipments and increasing the
U.S. share of global sales by the most since 2004. Russia ending
its export ban on July 1 and Ukraine lifting quotas may not be
enough as crops wither elsewhere, fuelling gains in food prices
which the United Nations says are already near a record.
“In 32 years, I’ve never seen so many problems in so many places,”
said Dan Basse, the president of AgResource Co., a farm researcher
in Chicago. “We’re concerned about the world story now,” said
Basse, who has been studying agricultural markets since 1979 and
expects prices as high as $10 this year.
For Paolo Barilla, vice chairman of Parma, Italy-based Barilla
Holding SpA, the largest pasta maker, the yo-yo price moves are
his biggest business worry, he said in an interview last month.
Rising demand means grains will keep costing more, John Bryant,
the chief executive officer of Battle Creek, Michigan-based
Kellogg Co., the largest U.S. maker of breakfast cereal, said in a
conference call last month.
Grain Prices
Higher prices will help U.S. farm income rise 20 percent to a
record $94.7 billion this year, the government estimates. It also
means the most profit ever for Moline, Illinois-based Deere &
Co. (DE), the largest maker of agriculture equipment, analysts’
estimates compiled by Bloomberg show.
Futures traders anticipate rising wheat prices through March 2013,
according to data from the Chicago Board of Trade. Speculators
almost tripled their bets on gains in the two weeks ended May 31,
figures from the U.S. Commodity Futures Trading Commission show.
The most widely held option gives the holder the right to buy
wheat at $9 for July.
Wheat fell 2.6 percent to $7.7375 a bushel this year, trailing the
11 percent gain in the Standard & Poor’s GSCI Index of 24
commodities. The MSCI All-Country World Index of equities rose 2.8
percent and Treasuries also returned 2.8 percent.
Bloomberg Survey
Prices were last as high as the $9.25 predicted in the Bloomberg
survey in 2008, the middle of a three-year period when the U.S.
State Department estimates more than 60 food riots erupted
worldwide. No one is predicting a return to the record $13.495
reached in February of that year, and global inventory will still
be 44 percent higher than it was then, according to U.S.
Department of Agriculture estimates.
Wheat slumped 7.4 percent in the two days after Russia, formerly
the second-largest exporter behind the U.S., said on May 28 its
ban would end.
The country’s total grain harvest, decimated last year by the
worst drought in a half century, may expand as much as 48 percent
to 90 million tons this year, the Agriculture Ministry estimates.
Exports of wheat will more than double to 10 million tons, the
USDA said in May.
“The fundamental of Russian exports has to keep one in a bearish
stance until some new supply or demand issue develops either in
wheat or in corn,” said Lawrence Kane, a market adviser at
Stewart-Peterson Group in Yates City, Illinois. “My expectation is
that wheat continues in the downtrend.”
Northern Africa
Demand from some of the biggest importing nations may decline as
their harvests improve. Egypt, the largest buyer, will purchase
6.9 percent less in the 12 months ending in July 2012 and Morocco
46 percent less, the USDA estimates.
Rolling four-week grain exports to northern Africa from France,
now the second-biggest wheat exporter, fell 49 percent since the
end of March, according to data from the port of Rouen, the main
grain hub. The drop suggests no return to the panic buying in the
first months of the year when the nations expanded stockpiles to
damp prices as riots erupted from Egypt to Morocco.
The anticipated decline in import demand won’t stop global
purchases from rising, the USDA forecasts.
China may double its wheat imports to about 3 million tons this
year, said Li Qiang, the managing director at Shanghai JC
Intelligence Co., the biggest independent agricultural market
researcher. The crop may slump to 96.5 million tons because of
drought, below the 115.5 million predicted by the USDA, he said.
Corn Seeds
About 80 percent of China’s wheat crop is irrigated, alleviating
damage, Dan Manternach, an economist with Doane Advisory Services,
an agricultural researcher in St. Louis, said at the end of May.
In areas without irrigation, lack of rain in the next three weeks
may again threaten yields, he said.
“It’s been the driest year in my memory,” said Wang Peijun, 35, a
farmer from the east-central province of Henan, China’s biggest
growing region. “It’s too inconvenient, too costly to irrigate,”
said Wang from Jiaozuo City, who uses the crop to pay for corn
seeds planted after the harvest.
Wheat output in the 27-nation European Union may drop 3.5 percent
to 131 million tons this year, according to the median of seven
estimates in a Bloomberg survey of analysts and traders at the end
of May. France had its driest spring in 50 years, and April in the
U.K. was the hottest in 352 years, forecasters in those countries
have said.
“I’ve been farming here for 30 years and it’s the worst I’ve ever
seen,” said Robert Law, 53, who cultivates about 5,000 acres of
grain in Hertfordshire, England. “The drought has definitely gone
on longer than we’ve ever had before.”
French Harvest
The harvest in France, the EU’s largest, will slump 12 percent to
a four-year low, according to Agritel, a Paris-based farm adviser.
German wheat output will drop as much as 4 percent, according to
Hamburg-based Alfred C. Toepfer International GmbH, a grain trader
which had previously expected a gain.
Barilla, the pasta maker, sometimes has no choice other than to
raise prices and that is very “disturbing” because “people will
never understand why the price has such a dramatic increase in a
very short time,” Paolo Barilla told Francine Lacqua on Bloomberg
Television’s “On the Move.”
The world is in a “long-term upward trend on cost of goods,”
Kellogg’s Bryant told investors on a conference call a month ago.
“So we would look at 2012 and say, yes, it’s probably going to be
inflationary.”
Deere will report net income of $2.71 billion in its fiscal year
ending in October, from $1.865 billion a year earlier, according
to the mean of seven estimates compiled by Bloomberg.
Weather Service
About 44 percent of the U.S. winter-wheat crop was in poor or very
poor condition by May 29, the USDA said. Rainfall in the previous
two months was less than half of normal in much of Kansas,
Oklahoma and Texas, the biggest producers of winter varieties, the
National Weather Service estimates.
“On these windy days, there’s just dirt in the air and the sky is
brown,” said David Cleavinger, 53, who farms 3,500 acres in
Wildorado, Texas, and already lost about half of his 1,200 acres
of wheat. “Prices are great right now, but you’ve got to grow a
crop. If you don’t produce a crop, it doesn’t matter if wheat is
$40 a bushel.”
Rain is delaying the planting of spring wheat in North Dakota and
Montana. Plantings may be more than a million acres below what the
USDA estimates, according to Mike O’Dea, a risk management
consultant with INTL FCStone in Kansas City, Missouri.
Forecasters already are cutting their production estimates. The
London-based International Grains Council did so on May 26, and
the USDA will probably have to as well, Rabobank, Standard
Chartered Plc and Barclays Capital have said.
“I’m overall still bullish to the wheat market even with the news
out of Russia,” said Jason Britt, the president of Central States
Commodities Inc. in Kansas City, Missouri, who predicts a high of
$9.75 this year. “There are still enough problems in many growing
areas around the world to keep the market well supported.”
--William Bi in Beijing, Phoebe Sedgman in Wellington, Chanyaporn
Chanjaroen in Singapore and Tony Dreibus in London. Editors: James
Poole, Steve Stroth