Wheat Drops to 6-Week Low as Rising World Crop Boosts Reserves

By Jeff Wilson

July 21 (Bloomberg) -- Wheat fell to a six-week low on speculation rising world production will outpace demand for flour and animal feed, after farmers planted more grain in response to record prices.

Global output will rise 8.8 percent to a record 664.2 million metric tons in the year that started June 1, the U.S. Department of Agriculture said July 11. The USDA estimate topped a June forecast for 662.9 million tons after favorable weather improved crop prospects in the U.S., Europe and Australia.

``The crop size is still increasing and that will eventually slow U.S. exports,'' said Roy Huckabay, the Linn Group's executive vice president in Chicago. ``There is a cushion for global wheat supplies this year.''

Wheat futures for September delivery fell 13 cents, or 1.6 percent, to $7.91 a bushel on the Chicago Board of Trade, after earlier touching $7.8625, the lowest since June 6. Most-active futures, still up 28 percent in the past 12 months, reached a record $13.495 on Feb. 27 after world demand in 2007 exceeded production for the seventh time in eight years.

The USDA said global reserves fell 8.5 percent to 116.1 million tons on June 1, the lowest since 1982. World inventories are forecast to rise 15 percent to 133.1 million tons in 2009.

Crop Conditions

Losses were limited by speculation that the condition of U.S. spring wheat fields declined because of hot, dry weather in the northern Great Plains, where most of that variety is grown, analysts said. After the close, the government said crop conditions unexpectedly improved in the past week.

About 63 percent of the spring-wheat crop was rated good or excellent, compared with 61 percent a week before and 75 percent a year earlier, the USDA said. Spring wheat is grown mostly in northern Great Plains states such as North Dakota and Montana and harvested in August and September.

Based on current conditions, U.S. spring-wheat production may rise to 37.5 bushels an acre from 36.8 bushels estimated a week ago and 35.6 bushels a year earlier, said David Salmon, a meteorologist for Weather Derivatives in Belton, Missouri. A month earlier, the yield was estimated at 38.6 bushels an acre.

Wheat is the fourth-biggest U.S. crop, valued at a record $13.7 billion in 2007, government figures show.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net.