Crop woes lift hard wheat premium to $1 a bushel

The premium of hard red winter wheat hit $1 a bushel - extending its gains this week to 40% - after a tour of Kansas showed drought putting the crop in the top US producing state on course for an 18-year low.

Hard red winter wheat futures for July delivery took their premium over Chicago soft red winter wheat, the world benchmark, to $1.00 a bushel for the first time in early deals on Friday.

At that level, the premium was up nearly four-fold for 2014, including a rise of 40% this week, as the Wheat Quality Council crop tour of Kansas has highlighted the extent of drought damage to winter wheat.

Fears have mounted over in other hard red winter wheat states too, such as Oklahoma and Texas. Official data on Thursday showed drought spread to cover 74.5% of Texas, up 5.7 points week on week, and 79.2% of Oklahoma, up 0.2 points.

In Kansas itself, the extra of drought held steady at 98.8%.

The conditions contrast with those in the Midwest, where soft red winter wheat is grown, where excessive rain is a more common problem. Hard red winter wheat contains high levels of protein, and is used for purposes such as bread, as opposed to lower-protein soft red winter wheat, used in biscuits, or even as livestock feed.

'In need of moisture soon'

The crop tour estimated the Kansas wheat yield at 33.2 bushels per acre, its lowest projected figure since 2001, thanks to damage from dryness and late frosts.

Production was pegged at 260.7m bushels, a figure which, if realised, would be the smallest since 1996, when the harvest fell to 255.2m bushels, according to the US Department of Agriculture.

"Tour reports indicated the wheat crop across the state is behind normal crop progress, short and in need of moisture soon," said Julia Debes at US Wheat Associates.

'Exacerbate the dryness'

Indeed, traders fear there is a risk that the final figure might prove even lower, given forecasts for further poor weather.

Weather service MDA said that "significant dryness will continue to stress wheat in the west central and south western Plains", with cold temperatures remaining a, small, threat too.

"Much warmer temperatures next week will accelerate wheat growth, but will also exacerbate the dryness."

At broker Phillip Futures, Vanessa Tan said: "The US winter wheat crop is likely to experience a heat wave over the weekend which would further impact the crop adversely and weigh on yields."

Citigroup's Sterling Smith said that "temperatures in hard red winter wheat country are going to turn unseasonably hot in the coming days and this will result in further stress to crop that has had a rough go of it for most every step of development."

Tour record

Indeed, the crop tour has a record of overestimating the Kansas result, at least on yield.

Last year, it pegged the yield at 41.1 bushels per acre, above the final result of 38.0 bushels per acre, on USDA data.

In 2012, the tour's estimate of a 49.1-bushels-per-acre yield was well above the result of 42.0 bushels per acre, although the tour's record of overestimating actual production is less strong.

'No yield potential remaining'

Meanwhile, in Oklahoma, Jeff Edwards, small grains specialist at Oklahoma State University, warned that "drought conditions are worsening in most wheat producing areas of the state and yield potential is declining fairly rapidly".

Although crops in some areas could stage a recovery if "we receive rain soon", with temperatures "predicted to climb to the upper 90s Farhrenheit next week, the potential in these areas could decline rapidly.

"Most other areas of western Oklahoma have very limited or no yield potential remaining."

Kansas City hard red winter wheat for July stood at $8.11 a bushel at 05:15 Chicago time (11:15 UK time), up 0.9% on the day, and a premium of $0.97 a bushel to Chicago soft red winter wheat for July, which was also up 0.9%.

Informa Economics will later on Friday reveal its own estimates for the US winter wheat crop.

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