The world will have so much wheat this year that U.S. farmers could leave every acre unplanted and still have a surplus, a sign of more losses after futures had their worst first quarter in 15 years.
A 34 percent jump in the combined harvests of Australia and Russia over two years is creating the biggest wheat glut since 2002, even as American growers sow the fewest acres in 39 years and the U.S. Department of Agriculture raises its estimate of world output each month since June. Analysts surveyed by Bloomberg expect an 8.6 percent price drop by July.
Two years after prices doubled, sparking food riots from Haiti to Indonesia, the United States, Canada and Russia are battling for export markets.
"It's a mammoth surplus, and we have to get rid of it before prices have any hope of rallying," said Bill Gary, president of Commodity Information Systems in Oklahoma City. Gary, who began trading grain in 1961, predicts $4 a bushel by August, a 17 percent decline. "If we have another financial crisis, which I don't believe is likely to happen, we could see wheat prices fall to $3.50 a bushel."
U.S. farmers, the biggest exporters, will see their share of the world market plunge to 19 percent this year, the lowest in at least five decades, down from 29 percent in 2008, government data shows. Russia will supply 14 percent, up from 3 percent in 2004. Australia's 12 percent share has almost doubled since drought damage two years ago.
Rising supply made speculators on the Chicago Board of Trade the most bearish in February since at least 1993, U.S. Commodity Futures Trading Commission data shows. Short positions, or bets prices will fall, outnumbered longs by 60,457 contracts on Feb. 12. As of April 6, the net-short holding was 55,427, the third-most since December 2005.
Prices dropped in seven of eight quarters since reaching a record $13.495 in February 2008. The slide in the three months ended March 31 was the biggest for the period since 1995.
U.S. farmers plan to sow more corn and soybeans instead. Even though corn futures are down 14 percent this year, more than wheat's 11 percent drop, corn would yield $168 more profit per acre, based on USDA cost estimates and CBOT prices.
Wheat will be planted on 53.827 million acres from September last year through June 2010, down 9 percent from a year earlier and the fewest since 1971, the USDA said March 31. The acreage for the U.S. corn crop, the world's largest, will rise 2.7 percent to a three-year high, and soybeans will increase 0.8 percent to a record, the government said.
Global stockpiles by May 31, will reach an eight-year high of 195.82 million metric tons, the USDA said April 9. That's about 30 percent of total demand, the highest since 2004.
Even without a U.S. crop, world inventories of 165.23 million tons and production of 618.11 million tons in the year ending May 31 would exceed estimated demand by 21 percent, according to USDA data.