(Bloomberg) — Wheat is one of the world’s most vital crops. The grain is used in staple foods such as bread, couscous, chapatis and pasta – and high prices for this product have a long history of triggering unrest.
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Current global stocks are low and a spate of bad weather means analysts have been cutting estimates for the next harvest in Russia, the world’s biggest exporter. Benchmark prices have jumped more than 10% this month alone.
That’s why what’s happening right now in Kansas is so important for markets and the outlook for food inflation: the wheat harvest in the largest U.S. producer is unexpectedly increasing.
The state’s plants are a vibrant shade of healthy green and are reaching consistent, favorable heights for this part of the season. Timely rain and snow have given the fields a boost ahead of the harvest that begins as early as June.
Last week, about 70 crop scouts fanned out across Kansas, stopping in fields with poles to measure the number of plants and grains in order to make yield estimates. They found the state’s harvest is on track to hit a three-year high of 290.4 million bushels. That would surpass the U.S. Department of Agriculture’s latest forecast by 8.4%.
“What we’ve seen in the last few days is the potential the crop has,” said Romulo Lollato, associate professor of agronomy at Kansas State University, who was among the observers on the Wheat Quality Council’s annual harvest tour.
The trip took surveyors through Kansas, Oklahoma and Nebraska. While some fields had white, sacred kernels, which are a telltale sign of freeze damage, and others had the so-called stripe rust fungal disease, which has been migrating from Texas and Oklahoma, the overall outlook for the harvest is optimistic.
Final estimates from the tour peg Kansas yields at 46.5 bushels per acre, up from 30 bushels per acre last year, when the drought was so severe that many fields failed to reach harvest.
Still, with more than a month left until fields are ready for harvest, more dry weather or extreme heat would reduce yields from these estimates.
“It’s best to start raining quickly to get those numbers,” said Dave Green, executive vice president of the Wheat Quality Council and harvest tour leader.
Recovering demand
This year marks the 150th anniversary of Mennonite immigrants who brought a variety of wheat from Turkey to Kansas that thrived when planted before winter, as the season’s snow cover provided crucial moisture to the soil.
This variety of wheat – the hard red winter – is now the most widely grown in the US and is commonly used to make flour for rolls, croissants and pizza dough. However, what US Wheat Associates calls its “excellent” milling and baking characteristics also helped it lose ground in world markets to cheaper Russian wheat.
Once the world’s largest wheat exporter, the US has now fallen to fourth place. Domestic demand, which has been the strongest pull for the grain, has also shown signs of weakening as some consumers reduce purchases of baked goods amid soaring food inflation.
“We just know that we’re growing wheat that doesn’t necessarily suit the price-conscious buyer,” said Lee Scheufler, a wheat farmer and crop explorer in Kansas.
This is changing a little. With Russia’s smaller harvest increasing the costs of these supplies, this will likely make Kansas wheat a potentially less expensive alternative in the coming months.
“The U.S. should find some additional demand for HRW wheat,” said Mike O’Dea, grains analyst at StoneX, referring to the hard red winter variety.
He said Brazil recently purchased some bulk shipments of wheat from the US. The variety was also competitive in shipments to Mexico, the main buyer of American wheat, which, however, is increasingly dependent on Russia.
“If we could drive Russian wheat out of Mexico, we could probably see a bigger export program,” O’Dea said.
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