Wheat struggling through drought; prices still bearish

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Winter wheat in the United States continues to struggle with the ongoing drought this winter. Reports in parts of Kansas indicated up to 25 percent of winter wheat was being abandoned after it did not emerge earlier in the fall before dormancy. Only 33 percent of winter wheat is in good to excellent conditions compared with 52 percent a year ago. The current drought is being compared to the drought during the 1930s Dust Bowl and weather forecasts are calling for a continuation of the current drought at least through March.

Around the world, drought has reduced wheat yields in other wheat-growing countries, reducing global supplies. Lingering drought conditions in Australia and other parts of the world indicate that supplies may not be able to recover in 2013. However, wheat prices have been decreasing after reaching a high of $9.4725 in July on the Chicago Board of Trade.

It appears that prices are still adjusting after spiking this summer and leaving many developing countries that rely upon wheat as a staple unable to afford the grain. Bakeries that bought the higher priced wheat now have cut back on demand since they cannot afford the higher priced wheat and maintain profitability.

It is uncertain if wheat prices will continue to decrease when forecasts for upcoming yields is growing worse each week. One analyst explained his perspective on what’s happening.

“We don’t see any fundamental reason why the wheat market should be going down,” Tom Neher, a vice president at AgStar Financial Services in Rochester, Minn., told Bloomberg. “We’re looking at Argentina and the Black Sea area and Australia with smaller-than-normal crops. In the U.S., the crop isn’t ideal going into the winter stretch.”

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