Wheat futures jumped as the US said that its winter sowings of the grain had fallen far more than investors had expected, by an area the size of Qatar, amid weak prices.
US farmers planted 36.61m acres of wheat for the 2016 harvest – a drop of 2.85m acres from last season, the biggest decline in six years, the US Department of Agriculture said.
The decline far exceeded the fall of 141,000 acres which investors had expected.
And it left US winter wheat area at its lowest since 2010, and the second lowest since World War I.
US winter wheat sowings peaked above 65m acres in 1981, before losing out to crops such as soybeans which offered better returns.
Winter wheat sowings typically account for some 70% of US plantings.
Hard vs soft
A breakdown of the data showed sowings of soft red winter wheat, the type traded in Chicago, at 6.72m acres, down some 5% year on year, and the lowest figure bar two on USDA data going back 30 years.
“Acreage decreases from last year are estimated in most southern soft red winter wheat growing states, while most of the states in the northern half of the region seeded more acres than in 2015,” the USDA said.
However, an even bigger drop was seen in plantings of higher protein, hard red winter wheat, the most popular type of the grain grown in the US, and which is traded as Kansas City wheat.
Plantings of hard red winter wheat were, at 26.5m acres, down 9% year on year, and by a distance the lowest within the last 30 years.
“Planted area is down from last year across most of the [hard red winter wheat] growing region,” the USDA said.
“The largest decline in planted acreage are estimated in the Great Plains states,” with Nebraska area hitting a record low of 1.28m acres.
Seedings in Kansas, the top US wheat growing state, were pegged at 8.50m acres, a decline of 700,000 acres year on year.
Sowings also dropped by 700,000 acres in Texas to 5.30m acres, while Oklahoma plantings were estimated down 400,000 acres at 4.90m acres.
The downturn comes in the face of farmgate prices for the 2015 wheat harvest which, at $4.90-5.10 per bushel, are forecast by the USDA dropping at least 15% year on year.
Prices of corn, at $3.30-3.90 per bushel, and barley, at $5.00-5.50 per bushel, were seen sticking in line with last season’s levels.
The impact on markets of the sowings data was to send Chicago soft red winter futures for March 2.6% higher to $4.81 ј a bushel, as of the close of trading on Tuesday.
However, Kansas City-traded hard red winter wheat for March fared even better, soaring 4.0% to end at $4.80 ѕ a bushel, nearly closing its – unusual – discount to its lower protein Chicago peer.
At Chicago broker Futures International, Terry Reilly termed the seedings the “biggest surprise” among the slew of data released by the USDA on Tuesday, and a figure “bullish” for prices.
“If we don’t get sharply higher durum and spring wheat seedings, the trade is looking at extremely low all-wheat area for 2016,” Mr Reilly said.
Indeed, the data more than offset on markets somewhat bearish data in two separate USDA reports, which showed wheat inventories higher than investors had expected as of the start of last month, likely reflecting lower-than-expected use in livestock rations.
Indeed, the USDA cut its lifted its forecast for domestic wheat stocks at the close of 2015-16 by 30m bushels to 941m bushels, reflecting a downgrade to expectations for feed consumption.
At Country Futures, Darrell Holaday said that the US, which faces its lowest wheat exports in more than 35 years this season, “continues to walk away from the world wheat industry”.
However, he added that the drop in wheat plantings implied higher seedings, and price pressure, for alternative crops.
The acres lost to wheat “will likely end up in soybeans, corn and sorghum, in that order,” Mr Holaday said.
“In the end that will be negative for those markets.”