A drought in the US Plains that cut US winter and spring wheat production will likely result in the lowest US wheat ending stocks in 11 years, analysts said. World wheat stocks are also seen dwindling due to hot, dry weather in several other wheat-producing regions.
"We have a good-sized reduction in the United States, and then we're looking at reductions in Australia, France and Germany, and a little bit in Canada," Citigroup grains analyst Terry Reilly said.
But the drawdown in stocks and the resulting rise in year-on-year prices could prompt Northern Hemisphere farmers to plant more winter wheat this fall, helping supplies to rebound in 2007/08.
Analysts expected the US Department of Agriculture to lower its estimates of US all-wheat production and ending stocks when it issues its August crop reports on Friday.
The average estimate for the US all-wheat crop among analysts surveyed by Reuters was 1.762 billion bushels, below USDA's July forecast for 1.806 billion and below last year's crop of 2.105 billion.
The consensus estimate for US 2006/07 wheat ending stocks was 410 million bushels, below USDA's July forecast of 438 million and the smallest total since the 1995/96 marketing year, at 376 million bushels. The tight stocks reflect a smaller US harvest due to widespread drought that shrivelled wheat crops from Texas all the way to the Canadian border.
Production worries sent wheat futures soaring to 10-year highs on the Minneapolis Grain Exchange in mid-July, and at the Kansas City Board of Trade in May. The strong prices should inspire increased seedings of winter wheat for 2007/08.
"We would anticipate that not only the farmers in the United States. but the wheat farmers of the world would respond," said Joe Victor of Allendale Inc, a commodity research firm in McHenry, Illinois.
"When that snow cover comes off in February-March, and we start to see how many green fields are out there in the world, watch prices start to pull back," he said.
The USDA's August estimate of the US spring wheat crop will be key in setting short-term direction for wheat futures.
Most analysts expect the USDA to cut its spring wheat production number, reflecting a decline in crop condition ratings over the past month as temperatures sizzled in the northern US Plains. North Dakota, the top US spring wheat producer, recorded its second-hottest July on record.
However, traders at the Minneapolis exchange have been noting market talk of better-than-expected yields as the harvest progresses northward. Some analysts agreed, predicting the USDA would make few changes to its spring wheat estimate.
"Based on what we we're hearing from clients, we may not see nearly as much damage as what the trade may have been trying to (show)," Victor said.
Because drought caused the spring wheat crop to mature ahead of normal and the harvest got off to an early start, the USDA's August estimate will be based on a crop that is unusually advanced.
The spring wheat harvest was 49 percent complete as of Sunday, well ahead of the five-year average of 17 percent. "We're already halfway harvested. This should be a pretty good survey of the crop, versus other August reports," said Randy Mittelstaedt, an analyst with R.J. O'Brien in Chicago.
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