Near Record Wheat Crop May Lower Prices

Droughts and heat waves have severely impacted global grain supplies in the last few years but recent production has reversed this trend. The United Nations estimates output will climb 4.3 percent to 690 million metric tons which is about 10 million tons below the record high set two years ago. As a result of increased production wheat prices are expected to fall 17 percent to $6 a bushel by years end.

Other crops are also expected to set records like rice in the global market and corn and soybean in the United States. When weather patterns signaled a change which resulted in more moisture farmers took to planting more crops in response pushing prices lower. Weather by its very nature is unpredictable however and this situation could be temporary.

After about seven weeks of drought in Europe and the U.S. wheat prices increased by 50 percent. Increased production from better weather will only last in a stable weather environment. If there are any signs of dry weather then prices could rebound due to anticipated production shortfalls. So far however, global grain yields are forecasted to meet or exceed last years numbers.

Hedge funds and other speculators in particular are expecting global production to increase. U.S. Commodity Futures Trading Commission data shows firms were net-short 41,519 futures and options for the week of March 12. In August, those same firms were a net-long 80,827 contracts meaning they expect prices to decrease going forward.

Outside of the United States, Russia and Australia are both anticipating significant production increases. Russia will produce 53 million tons of wheat which is 39 percent more than last years yield. Australia sees shipments likely advancing 13 percent to 18 million tons in 2013-2014. This should help global production return to average historical levels resulting in lowers prices for consumers.