Spend Matters welcomes a guest post from Loraine Hudson of Mintec.
For the past three years there has been lower than average rain in America’s “Bread Basket” of Texas, Oklahoma and of course Kansas - the nation’s largest wheat producing state. Whilst global wheat production in 2013/14 reached record breaking levels, US wheat production fell and part of that is down to the effect of the prolonged spell of dry weather. The US and India are the only two major wheat producing countries to see a drop in production year-on-year. When we turn our attention to this year’s harvest, it seems the situation may be even worse.
Wheat is susceptible to dryness after the seedling has emerged from its dormant winter period into the construction and flowering stages - which occur in the spring when there is usually the most rainfall. Growing wheat plants typically need to drink between 0.1 to 0.2 inches of water a day during March and April in order to mature with the highest yields. In the past month the average rainfall in Kansas, Texas and Oklahoma has been less than 0.1 inches of rain a week, following on from months of lower than average rainfall.
A lack of water during spring can have a devastating effect on yields. US wheat yields have generally increased year-on-year due to better farm efficiencies but the impact of drought could slow or halt that trend. In fact, some experts are predicting that the wheat yield in the US will fall to 45.8 bushels per acre (bu/acre), down 3% from 2013/14 and down 1% from 2012/13. It’s bad, but not quite as bad as the drought ravaged crop of 2011/12 when the yield reached just 43.7 bu/acre. However, a worst-case scenario suggests that the 2014/15 wheat yields could even be as low as 39.0 bu/acre in Kansas; reflecting levels reminiscent of the late 1990’s.
All this will inevitably have an impact on price. The graph above shows how dramatically the price of wheat was affected in 2012. We mustn’t forget that drought affects other crops as well and if production of maize and soyabeans are reduced because of drought, or any other reason, then the price of wheat can be driven up as well. In the case of the price spike in 2012, maize production was poor and there was also reduced wheat production from the Black Sea region, another globally important producing region.
So if we don’t want US wheat prices to spike this summer, I guess we’ll all have to get out our drum and do the rain dance for a few more months yet.