Global wheat supply forecast cut

A grain combine harvester reaps wheat The USDA cut the forecast for global production in 2010-11 by 2.3%

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The US Department of Agriculture (USDA) has sharply cut its outlook for world wheat production after revising down its crop forecast for Russia.

Global production would be 15.3m tonnes lower at 645.7m tonnes, it said.

The production outlook for Russia, which has seen its crops devastated by drought and extreme heat, was lowered by 15% to 45m tonnes. Neighbouring Kazakhstan also had its forecast cut.

But world wheat stocks still remain above crisis levels seen in 2007-08.

The USDA said stocks would fall from just under 194m tonnes to 174.8m tonnes.

Farmers welcome price rises

Juliana Liu

In the rolling foothills of America's Appalachian ridge, grain farmers are buzzing about the jump in wheat prices.

Dave Bond, 69, has been reaping the bounty. In the space of just a few weeks, the price he gets for his bushels has risen by almost half.

When the annual planting season starts again in September, he plans to devote 300 acres on his farm to wheat. Ordinarily, he would set aside 200 acres.

To do that, the veteran planter will convert land currently used to grow soybeans and other crops.

Over bacon sandwiches at the Amwell Valley Diner in Ringoes, New Jersey, Bond and his neighbours debate the riskiness of betting on a continuing rise in wheat prices.

Floyd Mencek, also an experienced farmer, reminds everyone that many growers are rushing to plant more wheat. If there is a shortage of seeds, then it may be difficult for farmers to take advantage of higher prices in the next harvest.

Record levels

The cut to production forecasts was bigger than analysts had expected.

But it was offset somewhat by increases in production forecast in the US, India, Australia and Uzbekistan.

The USDA report also predicted that reduced supplies and higher prices would reduce global consumption of wheat.

Earlier this month, fears about production levels lifted wheat prices on the futures markets to their highest levels for two years.

But the USDA sought to play down concerns that wheat prices would continue to rise to levels last seen during the food price crisis three years ago.

"Expectations that prices in the next few months will hit the record levels of 2007-08 are not substantiated by the reality of the global supply situation," it wrote.

Chicago Board of Trade (CBOT) wheat for September delivery rose about 3% to $7.25 a bushel after the USDA announcement.

Drought and fire

Russian Prime Minister Vladimir Putin had already warned that this year's grain harvest would be worse than previously thought.

Last week, Russia announced a ban on the export of grain from 15 August to 31 December, after crops were hit by drought and wildfires.

President Dmitry Medvedev said the events had destroyed a quarter of crops.

"Unfortunately many farms are on the verge of bankruptcy on account of the death of the harvest," he said on a visit to an agricultural region in the south of the country.

Last year, Russia was the world's third largest wheat exporter, behind the US and Canada, according to the USDA.

The USDA also cut its wheat production forecasts for Kazakhstan by 18%. It is suffering the same conditions as Russia. Ukraine had its forecast cut by 15%.

"The FSU [Former Soviet Union] numbers were breathtaking. We haven't seen USDA make an adjustment like that for some time," said Jerry Gidel, an analyst for North America Risk Management.

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