London, April 25 - The prospect of a record world wheat crop is likely to keep prices that have already fallen sharply from all-time highs under pressure, putting a temporary brake on a key driver of global food inflation.
"I really think we are going to see a bumper crop in wheat this year and I think that is going to be the underperformer of the grains," said fund manager Matthew Sena of U.S.-based Castlestone Management.
Global wheat stocks remain low however and any recurrence of the unfavourable weather which devastated crops in several key regions last year could see prices shooting back up again.
"World wheat crops appear to be in good condition at this stage of the season, particularly in the EU-27, Black Sea and soft red winter wheat areas of the U.S.," Rabobank analyst Luke Chandler said in a report this week.
"April/May is a key weather period for wheat production and with the current extreme tightness in the world wheat balance sheet, this season's weather will prove even more crucial than most," Chandler said.
Benchmark May soft red winter wheat futures on the Chicago Board of Trade fell to a low of $8.01 a bushel in early trade on Friday, its lowest level since November.
The contract has now fallen more than 40 percent from a record peak of $13.49-1/2 set in late February.
Soaring wheat prices have sparked increases in the price of staples such as bread, helping spark riots in several developing countries whose populations were already struggling to cope with living cost increases linked to record high energy markets.
High prices have also, however, sparked a response from farmers with an increase in plantings.
The International Grains Council has projected a world wheat crop of 645 million tonnes in 2008/09, down a marginal 1 million from its previous forecast but still well above a year earlier.
"This would still be a record, exceeding last year's total by 41 million tonnes following a 3.6 percent rise in sowings," the IGC said in a monthly market report this week.
Others have produced similar estimates with the French arable crop office ONIGC earlier this month projecting production would reach 635 to 640 million tonnes and Rabobank's Chandler forecasting 635 million.
THREAT DIMINSHES
"What has been weighing on the market is the fact that every day we get closer to setting that number is stone," said Shawn McCambridge, grains analyst with Prudential Financial, referring to 2008/09 production estimates.
"The threats of significant damage get reduced."
Plantings in the European Union had been boosted by the suspension of a rule forcing farmers to leave some land fallow, known as set-aside, in a bid to increase grain supply.
The IGC estimated that EU-27 wheat production would climb to 138.1 million tonnes this year, up 15 percent from 119.9 million in 2007 when droughts devastated production in the east while heavy rains damaged crops in the west of the trading bloc.
Bulgaria, for example, expects its wheat crop to recover to 3.5 to 4.0 million tonnes, up from 2.4 million tonnes last year, deputy agriculture minister Svetla Bachvarova said last week.
In China, the world's top wheat producer, there had been concerns that dry weather might reduce this year's harvest but these have lessened in recent weeks and the IGC expects the crop to be unchanged at 106 million tonnes.
China's top wheat growing provinces of Henan and Shandong are likely to have a bumper winter wheat harvest following recent rains, the Xinhua news agency said this week, quoting local agricultural authorities.
U.S. analysts expect U.S. wheat production to rise roughly 10 to 15 percent to around 2.3 billion bushels, up from 2.067 billion in 2007.
"New crop prospects looking promising in the United States. We have various problems but they are isolated and limited in size," McCambridge of Prudential Financial said. He estimated the upcoming U.S. wheat crop at 2.364 billion bushels.
Australia, usually the world's second-largest wheat exporter, expects a bumper harvest this year after drought slashed supplies during the past two years.
Australian Crop Forecasters estimated in late March that the crop would reach a record 27 million tonnes in 2008/09, double the drought-affected 13.1 million of the previous year.
Others have seen a slightly smaller but still substantial jump in production with the IGC this week projecting 24 million and ONIGC last month saying they expected 20 million.