The winter wheat crop in Kansas looks increasingly a market "flashpoint" in the making thanks to the dry start to the season, which has left its condition already well below average with a freeze on its way.
The decline in the condition of the winter crop in America's top wheat-producing state - where officials this week rated only 27% of the crop in "good" or "excellent" condition, less than half the recent average ?has stoked expectations that a three-year run of above-average yields is at an end
"Increasingly, the current Kansas winter wheat crop looks to be tracking conditions similar to the three worst years in recent times ?1989, 1996 and 2002," Australia & New Zealand Bank said.
Such a comparison implies a steep drop in the harvest this year, with production tumbling by 34% in 1989, 11% in 1996 and 18% in 2002.
'False sense of security'
The continued decline in the condition of the crop, whose meagre good or excellent rating of 37% at the end of November was already ringing alarm bells, means it is "already shaping up" as "potential flashpoint", ANZ added.
Indeed, the run of Kansas bumper harvests, helped by abandonment rates of half average levels in the past two harvests, echoed the record in Russia, where huge grain harvests in 2008 and 2009 followed abnormally low rates of winterkill in autumn-sown crops.
"To an extent, the market was lulled into a false sense of security from a strong of above-average seasonal conditions [in Russia]," the bank said.
"Kansas wheat production faces a similar scenario leading into the 2011 crop."
'Wind and freeze damage'
The direct threat to the Kansas crop from dry weather, which saw only two recorded locations in the state receive more than half an inch of rain last month, has been compounded by forecasts for a freeze on its way later this month.
"A strong cold front is scheduled late in the 10-day outlook for parts of the [US] Plains, with the potential for winterkill unless adequate snow cover occurs prior," ANZ said.
Weather service Meteorlogix said that "dry weather and volatile winter temperatures maintain stressful conditions across wheat areas of the southern Plains, especially across the west".
A report on Monday from federal and state agricultural officials noted that "the lack of snow cover on wheat fields and the dry soil conditions have some producers concerned that their winter wheat is vulnerable to wind and freeze damage".
Higher protein supplies
Concerns over the plight of the Kansas crop have already been reflected somewhat in futures prices, with the hard red winter wheat traded on the Kansas exchange showing marginal outperformance over its Chicago peer since Russia's woes began driving prices higher in late June.
Supplies of higher protein wheat have come under extra scrutiny thanks to the rain which analysts have estimated at putting up to half Australia's crop, normally all of milling grade, in line for downgrades.
However, Commonwealth Bank of Australia analyst Luke Mathews noted that Australia's wheat quality, "whilst certainly showing the impacts of harvest rain, is holding up better than expected in many areas".
The Queensland flooding also looks set to prove less harmful to Australia's wheat prospects than many had feared, even through logistical disruptions, with only some 200,000 tonnes of wheat due for export from the state this month.
