Wheat Falls as Rising Ukraine Output Curbs U.S. Grain Demand

By Tony C. Dreibus

Nov. 25 (Bloomberg) -- Wheat prices fell from a one-week high after Ukraine, the world’s fifth-largest exporter, reported a surge in grain production, signaling a drop in demand for U.S. supplies.

Ukraine increased the harvest of all grain by 83 percent to 53.6 million metric tons this year, Volodymyr Klymenko, head of the Ukrainian Grain Association, said yesterday. Wheat futures in Chicago are down 38 percent this year.

“We can’t sustain prices with all the problems we’ve got with demand,” said Tomm Pfitzenmaier, a partner at Summit Commodity Brokerage in Des Moines, Iowa. He said that Ukraine is “where all the expansion is going to take place. That’s the only place in the world where they have good growing conditions.”

Wheat futures for March delivery fell 4 cents, or 0.7 percent, to $5.5275 a bushel on the Chicago Board of Trade. Yesterday, the price reached $5.78, the highest for a most- active contract since Nov. 17. The grain has tumbled 59 percent since reaching a record $13.495 on Feb. 27.

Ukraine has exported 10 million tons of grain in the year that started July 1, and the country plans to ship the same amount by May 31, Klymenko said.

The U.S. Department of Agriculture expects Ukraine to ship 9 million tons of wheat in the 12 months that started June 1, compared with 1.24 million tons the prior year. The U.S. is the largest exporter followed by Canada, Russia, Australia and Ukraine, USDA data show.

U.S. Exports

Importers have committed to buy 20 million tons of U.S. wheat since the beginning of the marketing year, down 27 percent from the same period a year earlier, government data show. Exporters have shipped 15.1 million tons, down 14 percent from the prior year, the USDA said.

The price also dropped as investors sold baskets of commodities, including grains, metals and energy, Pfitzenmaier said. Crude oil slid 6.8 percent today, and copper dropped more than 1 percent. The Reuters/Jefferies CRB Index that tracks 19 raw materials dropped as much as 2.4 percent today.

“It looks like all these markets are trying to focus on crude oil,” said Vince Boddicker, a manager at Farmers Trading Co. in Mitchell, South Dakota. “They’re trying to separate themselves from it, but if it can, I don’t know.”

Grain-futures volumes have declined because of wide price swings and financial-market turmoil, Pfitzenmaier said. About 33,295 wheat contracts for March delivery traded today, down 39 percent from a year earlier.

“People have backed away on everything,” Boddicker of Farmers Trading said. “If you go back and analyze the year, we had index funds buying commodities. Then, at the end of June and into July, we were hearing about Fannie Mae and Freddie Mac, so people have pulled their money out of commodities.”

Wheat is the fourth-biggest U.S. crop, valued at $13.7 billion in 2007, behind corn, soybeans and hay, government data show.

To contact the reporter on this story: Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net.