Wheat production in Kansas, the second-largest U.S. grower, probably will drop as dry weather persists, threatening to increase costs for breadmakers and restaurants that are already boosting prices.
The state’s winter-wheat crop was in the worst shape in 15 years as of yesterday, after drought across the Great Plains dimmed prospects for the harvest that starts in June, government data show. Less output would erode inventories already expected to drop 14 percent in the U.S., the world’s biggest exporter.
Wheat futures are up 57 percent in the past year after adverse weather cut output from Russia to Canada in 2010, spurring companies including Grupo Bimbo SAB, the world’s largest breadmaker, to pass on higher costs to consumers. Panera Bread Co., a St. Louis-based restaurant chain, and General Mills Inc., the maker of Wheaties, plan to raise prices.
“It’s not going to be a great year,” said David Schemm, a farmer in Sharon Springs, Kansas, who may abandon as much as half of his wheat and plant other crops instead. “I look at my wheat crop, and it’s kind of sad, kind of disappointing. I really hope the remaining acres out here can have decent production.”
Analysts and industry officials will meet tonight in Manhattan, Kansas, before beginning the Wheat Quality Council’s annual tour of fields tomorrow. About 46 percent of the state is experiencing drought, said Brian Fuchs, a climatologist at the National Drought Mitigation Center in Lincoln. That was the most since at least 1999, when the center began tracking data.
Texas, Oklahoma
Kansas may produce 257 million bushels this year, down 29 percent from last year, said Darrell Holaday, the president of Advanced Market Concepts in Manhattan, Kansas. Texas and Oklahoma crops may be cut by half, he said. The three states made up 28 percent of all U.S. production last year, government data show. North Dakota is the leading grower.
“The U.S. may have a significant reduction in hard, red winter-wheat production, plus we know we have planting concerns with the spring crop,” said Justin Gilpin, the chief executive officer of Kansas Wheat, a Manhattan-based trade group. “We may have another year-on-year where we have the world consuming more wheat than we’re producing.”
About two thirds of crops are winter varieties planted in the Midwest and Great Plains from September to November. They go dormant until March, and are harvested from June to August. Spring wheat, grown primarily in northern states, is planted in April and May and harvested from August to September.
Delayed Planting
Only 1 percent of wheat in North Dakota, which grows spring varieties, had been planted as of yesterday, as wet weather and slowly melting snow delayed field work, the U.S. Department of Agriculture said. About 10 percent of the nation’s total spring crop was sown, down from 57 percent a year earlier, the USDA said. An estimated 45 percent of the Kansas winter-wheat crop was in poor or very poor condition, the most since 1996.
The USDA said in February, before most winter crops in the Great Plains emerged from dormancy, that national production may drop 5.8 percent this year to 2.08 billion bushels. The agency will update its forecast on May 11.
Shrinking output in the U.S. may exacerbate a shortfall in global grain supplies. In the year starting July 1, cereal inventories, including wheat and coarse grains, may slide 2.6 percent to 334 million metric tons, a four-year low, as consumption outpaces demand, the International Grains Council said on April 20.
The group also cut its estimate for worldwide wheat production.
Rising Food Prices
World food prices reached a record in February before easing in March, according to the most-recent United Nations data. High costs and corruption spurred political unrest this year across the Middle East and northern Africa, ousting leaders in Tunisia and Egypt, the world’s biggest wheat importer.
Wheat futures for July delivery fell 9.5 cents, or 1.2 percent, to settle at $7.9175 a bushel today on the Chicago Board of Trade. On Feb. 14, the price reached $9.1675, the highest for a most-active contract since August 2008, after governments in the Middle East and Africa boosted grain imports amid escalating turmoil.
Giancarlo Turano, a principal at Turano Baking Co. in Berwyn, Illinois, said commodity costs have increased about 30 percent in the past year. The company, which buys flour made from wheat grown in the Great Plains for baking at facilities in Georgia and Florida, raised bread prices about six weeks ago, he said in a telephone interview.
“It’s made it very, very challenging to manage our business, just because prices are going to continue to go up,” said Turano, whose 49-year-old company sells bread to retailers including Wal-Mart Stores Inc. “The unfortunate thing is that as prices go up, consumption goes down throughout the country, not only in retail, but also the food-service segment.”
Grupo Bimbo
Grupo Bimbo, based in Mexico City, has increased prices in the U.S. twice since October amid higher commodity costs, Armando Giner, an institutional-relations director, said on a conference call on April 27. The company is set to complete an acquisition of Sara Lee’s North American bakery business this year.
Panera Bread will raise prices 1 percent in September because of higher wheat costs, Jeffery Kip, the chief financial officer, said on a conference call on April 27.
General Mills, based in Minneapolis, said in March it would raise prices amid “volatile costs for food ingredients.”
U.S. agricultural income is expected to rise to a record $94.7 billion this year, according to the USDA. Farmers won’t reap those rewards if crops deteriorate, said Schemm, who manages 12,000 acres near Kansas’s border with Colorado. He said his area got 2 inches (5 centimeters) of rain last week, which may improve soil and allow replanting fields with sorghum or corn.
Kansas is “a major supplier to the world of wheat,” he said. “It’s critical that we start to grow a good crop, because when we don’t have good production, it puts pressure on the world market."
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