Weather is fluky around the world with ups and downs. This year looks very iffy. The problem is the demand is still rising while the supply looks slightly problematic. Wheat has risen from yearly lows around the $4 mark to $6 now. This is a 50% increase in a few months. The big problem that is the sleeper is the quality of grain. Many farmers have eased off the fertilizer application to cut costs.
Growing grains sucks nutrients out of the ground -elements if you will. Carbon, Nitrogen and Oxygen can all be replaced by air. Nitrogen (if not replaced by legumes) Potassium and Phosphorus (NPK)- all needed for building proteins have to be added to the soil. When you take the grain off the land, you are carting those NPKs out or extracting it from the soil. There is usually an abundance in the soil that has been fertilized. Farmers can knock over a few seasons without fertilizer but later on the yields start to drop as the plant is stressed trying to get the remaining NPKs out of the soil. Are we at that point yet??? Because when that happens those farmers relying on past fertilizer have to start buying more and entering the market.
"July 27 (Bloomberg) -- North Dakotas southeast region and some counties in southwestern South Dakota may produce less hard-red spring and durum wheat per acre this year than in 2009.
Yields may average 42.7 bushels an acre in the area, based on random samples collected from 137 fields during the first day of the Wheat Quality Councils annual tour of farms in the states. Last year, the estimated yield in 184 fields in the region was 45.9 bushels.
It appears to be more stressed than a year ago, said Ben Handcock, the executive vice president of the Pierre, South Dakota-based council. I still think when its all done well be closer to a year ago, and thats a tremendous crop for North Dakota. Its a good quality crop of wheat even with lower yields.
Wheat futures for December delivery at the close of todays trading session rose 4.25 cents, or 0.7 percent, to $6.4175 a bushel on the Minneapolis Grain Exchange, where spring wheat is traded. The price has gained 25 percent this month as excessive rain in Canada curbed planting and drought hurt grain crops in Russia.
Some fields in the region couldnt be scouted today because excessive rain left soil too muddy.
North Dakota, the biggest wheat-producer, will produce 281.7 million bushels of spring wheat, down 2.8 percent from a year earlier, the U.S. Department of Agriculture said on July 9. Yields are expected to be 43 bushels an acre, down from 46 bushels last year, the USDA said."
The other point is that as grain prices rise in relation to weather problems, so will fertilizer prices. If you know you can get a bigger crop from throwing more fertilizer on and the market is there for it, then you are willing to pay more.
"Wheat rose for the first time in three sessions on speculation that the prolonged drought in Russia will slash output further, boosting demand for grain from the U.S., the worlds largest exporter.
The harvest of crops including wheat, barley, rye and corn may drop below 80 million metric tons, compared with the current estimate of 85 million, Deputy Economy Minister Andrei Klepach said today. Russian grain traders may halt new export agreements because the government may limit shipments, the Moscow-based researcher SovEcon said last week.
People are concerned that Russia may ban exports, said Brian Grete, the senior market analyst for Professional Farmers of America Newsletter in Cedar Falls, Iowa. Demand may increase for crops from the U.S., Grete said.
Wheat futures for September delivery rose 5.5 cents, or 0.9 percent, to $5.95 a bushel on the Chicago Board of Trade, after falling 1.2 percent the previous two sessions. The price has risen 39 percent since June 9 as drought damaged crops in parts of Europe and Russia, while too much rain in Canada reduced the area farmers planted this year.
Smaller Harvest
Russias grain harvest may fall below 70 million tons as yields drop amid the worst drought in at least a decade, SovEcon said today. The U.S. Department of Agriculture forecast Russian production of wheat and feed grains at 79.8 million tons earlier this month, down from 93.5 million last year.
The price of wheat in the European part of Russia rose 15 percent to 4,850 rubles ($160) a ton in the week ending July 23, SovEcon said. Barley added 30 percent to 3,350 rubles a ton during the week, while rye climbed 33 percent to 3,400 rubles a ton.
The trend has shifted from rising inventories to declining supplies, said Chad Henderson, a market analyst for Prime Consultants Inc. in Brookfield, Wisconsin.
Wheat is the fourth-largest crop in the U.S., valued at $10.6 billion in 2009, behind corn, soybeans and hay, government figures show."
China and India are boosting demand as their economies change. Moving to increased meat levels increases grain demand. 2kg of grain for 1 Kg pork and up to 7kg grain for 1 kg beef. This is the equation that dropped the grain prices significantly in 2008-9 as people switched to cheaper diets, away from meat. Now that this is correcting, we are seeing the rebound in demand.
If wheat hits $7 US, there will be a significant increase in the DAP price and a mild concern worldwide or panic. Higher DAP=higher RP=higher MAK.
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