Yahoo Finance US Wheat Comes to Rescue Market Plagued by Russian Shortfall
(Bloomberg) -- Wheat is one of the world’s most-vital crops. The grain is used in staples like bread, couscous, chapatis and noodles — and high prices for the commodity have a long history of kickstarting unrest.
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Current global inventories are tight, and a spat of bad weather means analysts have been chopping estimates for the next harvest from Russia, the world’s largest exporter. Benchmark prices have jumped more than 10% just this month.
That’s why what’s happening in Kansas right now is so important for markets and the outlook for food inflation: The wheat crop in the top US producer is unexpectedly getting bigger.
Plants in the state are a vibrant shade of healthy green and are reaching consistent, favorable heights for this part of the season. Timely rains and snow have given fields a boost ahead of the harvest that starts as early as June.
Just last week, roughly 70 crops scouts fanned out across Kansas, stopping in fields with yard sticks to measure the number of plants and grain kernels in order to make yield estimates. They found that the state’s harvest is on track to reach a three-year high of 290.4 million bushels. That would beat the US Department of Agriculture’s latest forecast by 8.4%.
“What we saw for the past few days is the potential the crop has,” said Romulo Lollato, associate professor of agronomy at Kansas State University, who was among the scouts on the annual Wheat Quality Council crop tour.
The tour took surveyors through Kansas, Oklahoma and Nebraska. While some fields had the white and hallow heads of grain that are the tell-tale sign of freeze damage and others had the so-called stripe rust fungal disease that’s been moving up from Texas and Oklahoma, the overall outlook for the crop is optimistic.
Final estimates from the tour peg Kansas yields at 46.5 bushels per acre, up from 30 bushels per acre last year, when drought was so bad many fields didn’t make it to harvest.
Still, with more than a month before fields will be ready for reaping, more dry weather or extreme heat would take down yields down from these estimates.
“It better start raining pretty quick to get these numbers,” said Dave Green, executive vice president of the Wheat Quality Council and leader of the crop tour.
Recovering Demand
This year marks the 150th anniversary of Mennonite immigrants bringing a wheat variety from Turkey to Kansas, which thrived when planted before the winter as the season’s snowcover provided crucial soil moisture.
That wheat variety — hard red winter — now is the mostly widely grown in the US and is commonly used to make flour for rolls, croissants and pizza crust. However, what the US Wheat Associates calls its “excellent” milling and baking characteristics has also helped it lose ground in world markets to cheaper Russian wheat.
Once the world’s top wheat exporter, the US has now slipped to fourth. Domestic demand, which has been the stronger pull for the grain, has also showed signs of creaking as some shoppers scale back purchases of baked goods amid soaring food inflation.
“We just know that we’re growing a wheat that doesn’t necessarily fit with the price-conscious shopper,” said Lee Scheufler, a Kansas wheat farmer and crop scout.
That’s changing a bit. With the smaller Russia harvest raising costs for those supplies, that will likely make Kansas wheat a potentially a less-expensive alternative in the months ahead.
“The US should find some additional HRW wheat demand,” Mike O’Dea, a StoneX grain analyst, said, referring to the hard red winter variety.
He said Brazil recently bought a few bulk cargoes of US wheat. The variety was also competitive in shipments into Mexico, the top buyer of American wheat that’s nonetheless been increasingly relying on Russia.
“If we could kick Russian wheat out of Mexico, then we could probably see a bigger export program,” O’Dea said.
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