Too much of the weed that feeds

London - Wheat

is the weed that feeds. The grain-yielding grass is such a hearty plant that it

is grown on more land than any other crop in the world. After four straight

seasons of record harvests, bins are bulging from Kansas to Queensland and

prices are near the lowest in a decade.

But there

are signs the glut may not last much longer, or at least that supplies may

tighten enough to halt the four-year slump in wheat futures. Farmers are

planting less because many are losing money. At the same time, global consumption

is at an all-time high. And the risk of crop-damaging weather lingers over key

exporting countries this year.

“It’s

difficult to be overly bullish,” said Benjamin Bodart, a director at

adviser CRM AgriCommodities in Newmarket, England. “The world is still awash

with wheat. You cannot deny it. But when you dig a bit further, the downside

now is fairly limited."

While many

money managers remain bearish - they’ve bet on lower prices for 17 months

straight - wheat is expected to gain in 2017 for the first time in five years,

according to a Bloomberg survey of 13 analysts. Rabobank says there is a “real

possibility” of a supply shock in the US and Europe if farmers shift to more

profitable crops, and JPMorgan Chase & Co predicts a stockpile drop this year

of 8.4 percent.

It’s not

difficult to see why the market slumped for so long. Wheat used in

everything from bread to cakes and noodles thrives in all sorts of climates,

and every few months there are crops being harvested somewhere in the world.

Global production will reach an all-time high of 751.3 million metric tons once

the current Southern Hemisphere harvest is complete, leaving stockpiles at

252.1 million tons, the most ever, US Department of Agriculture data show.

Prices

tumbled 13 percent last year to $4.08 a bushel on the Chicago Board of

Trade, touching a 10-year low of $3.86 3/4 on August 31 and extending the

longest stretch of annual losses since 1999. The grain was one of the biggest

commodity losers of 2016 and is down by more than half from its high in 2012.

Milling wheat in France dropped 3.2 percent to 168 euros a ton, capping a

four-year slide of 32 percent.

Shipping more

Russia, the

world’s top exporter, said on December 28 that its 2016 wheat harvest jumped 19

percent, more than analysts forecast. Farmers in Argentina are harvesting

what will probably be their biggest crop since 2012, according to CRM

AgriCommodities. And because wheat is sold in dollars on global markets, the

currency’s strength is boosting the incentive for growers outside the US to

ship more, even with lower prices.

“For prices

to move substantially higher from here, we need to see some signs of supply

being restricted, either by a weather event or by the fact that production

levels are curtailed,” said Fiona Boal, director of commodity research at

London-based Fulcrum Asset Management, which oversees about $5.2 billion.

Already the

prolonged slump in prices has discouraged farmers. The London-based

International Grains Council in November predicted a decline in global

planting. That includes fewer acres for top consumer China and declines for

major exporters, including the US, Canada, Australia and Kazakhstan.

Century low

In the US,

the number 2 exporter, growers probably seeded the fewest acres of winter wheat

in at least 104 years, according to the average estimate of 25 analysts

surveyed by Bloomberg before a Jan. 12 USDA report. Winter wheat, the

most-common variety grown in the country, is sown in the fall, goes dormant

during the coldest months of the year, and is harvested in the spring.

Some

farmers in Kansas, the largest US producer of winter wheat, could lose money on

every bushel, according to data from Kansas State University in Manhattan.

The crop cost about $5.04 a bushel to grow in the state’s south-central areas,

including land and labour expenses. That’s below the average national cash

price for hard red wheat of $3.38 as of January 6.

A big

reason for the wheat glut in recent years was mostly beneficial weather, which

allowed crops to flourish and yields to improve. That may not last, Tracey

Allen, an agricultural commodities analyst at JPMorgan in London, said in a November

23 report.

December, the condition of dormant US

wheat crops declined, including in Kansas, Oklahoma and Colorado,

the USDA reported on January 3. Parts of those states have received less than

half of normal precipitation since early October, according to US Drought

Monitor. Through March 31, drought is likely to persist in western Kansas, eastern Colorado

and most of Oklahoma,

according a seasonal outlook from National Weather Service.

Deep freeze

In parts of

Ukraine,

the fifth-largest exporter, the layer of snow that protects plants from freeze

damage may be insufficient to shield some crops during a cold snap, researcher

UkrAgroConsult said January 5. The country has since been hit by snow blizzards

and storms with temperatures of minus 25 degrees Celsius (minus 13 degrees

Fahrenheit) in western regions, broker Veles-Agro said on January 9.

With the

USDA predicting global wheat consumption rising 3.5 percent to a record 734.3

million tons in the 2016-17 season, JPMorgan says inventories will drop in 2018

to 228 million tons from an estimated 249 million this year.

Prices in

2017 will reach $4.50 a bushel and advance to $4.81 in 2018, according to the

median estimates of analysts in the Bloomberg survey. Rabobank predicts futures

will rally in each quarter this year, ending at an average of $4.60 in the

fourth quarter.

“Right now,

we’ve fully digested all these big supplies, meaning big Russian crop, European

crop, Australia, Canada, US,” which means the slump in prices is mostly over,

said Matt Ammermann, a commodity risk manager at brokerage INTL FCStone in

Plymouth, Minnesota. “We are not going substantially lower."