Wheat Price probably Drop end 2011, 2012 wheat forecast may follow

Wheat prices that plunged 20 percent to $6.35 a bushel this year in Chicago will probably drop as low as $5.90 before the end of December. Wheat production is expanding after last year’s 47 percent price rise led farmers to plant more grain, while Russia and Ukraine recovered from drought that ruined crops. Cheaper wheat will reduce strains caused by rising corn and rice prices and add to pressure on United Nations-monitored food costs that have declined 9 percent from a record in February.

“The wheat is looking beautiful, there’s so much of it,” Bruce Ley, 45, said from his farm near the town of Mullewa in Western Australia in a region known as the Wheatbelt. “I’m a bit worried that the global wheat glut may reduce prices but there’s nothing I can do about that. I’ve just got to harvest the stuff and get it to market.”

Wheat is heading for its biggest annual decline since 2008, when the IGC says harvests reached a record, and is this year’s fifth-worst performer in the Standard & Poor’s GSCI gauge of 24 commodities, followed by zinc, sugar, nickel and cotton.

Commodity index gained 3 percent since Jan. 1, versus a 6.5 percent drop in the MSCI All-Country World Index of equities and an 8.5 percent return on Treasuries, Bank of America Corp. indexes show.

Wheat may rebound should livestock and poultry farmers use more in feed as a substitute for higher-priced corn, according to Rabobank International. Corn trades at a premium of about 18 cents a bushel, compared with an average discount of $1.83 in the past five years. While China’s corn harvest may gain 6.7 percent to a record this year, according to an SGS SA survey for Bloomberg yesterday, higher demand may still boost Chicago futures, Newedge USA LLC said.

Wheat commodity is heading for the biggest slump in three years as the second-largest harvest on record swells stockpiles, easing shortages that drove global food costs to an all-time high. Harvests are rising in Canada, Russia, Kazakhstan and Ukraine, among the worst hit by last year’s weather, according to the IGC, which includes more than 50 nations. While demand will expand 22 million tons, compared with 3 million tons a year earlier, stockpiles will still grow to 202 million tons, the IGC estimates. That’s 53 percent more than in 2007-2008, when prices reached a record $13.495.

IGC anticipates a more than 9 percent gain in wheat- feed use to 124.2 million tons, the highest level in about 20 years. Rabobank says demand may reach 129.5 million tons.

Options and futures traders may be betting on a rally. The most widely held option gives holders the right to buy wheat at $8.50 by Nov. 25, a 34 percent increase from the closing price in Chicago yesterday. Wheat for delivery in September 2012 is 14 percent more expensive than for December this year, according to data from the Chicago Board of Trade.

A return of extreme weather may also curb supplies of other grains, boosting demand for wheat. Floods in Thailand, the world’s largest rice exporter, destroyed as much as 7 million tons of unmilled grain, the government estimates. That equals 4.6 million tons of milled rice, 1 million more than the global surplus expected by the U.S. Department of Agriculture.

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