GLOBAL wheat prices have risen sharply during the past month as the world continues to focus on the political instability in the Black Sea region and the declining condition of the US Hard Red Winter (HRW) wheat crop.
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During the past month, Chicago Board of Trade (CBOT) wheat prices have risen by more than 11 per cent as weather concerns and unfavourable crop conditions combined to push wheat markets higher.
Parts of Kansas, Oklahoma, and Texas - which represent almost 70pc of HRW wheat production - have continued to deteriorate this week due to hot and windy conditions.
In Texas more than 50pc of the HRW crop is currently rated poor to very poor - the bottom two ratings - showing the impact that a prolonged dry spell has had on crop conditions.
As a result just 13pc of the HRW crop in Texas is rated in the top two ratings categories of "good to excellent".
The US HRW crop is key for the supply of high protein wheat to global markets, often competing with Australian and Canadian wheat for use in the milling and baking sectors.
For this reason, weather developments in the US will be closely monitored during the coming months.
Rain during April and May is crucial in determining final yields for the HRW wheat crop and weather forecasts into mid-April are currently highly variable.
Despite the deteriorating conditions, production for the 2014 HRW crop is anticipated to be 13pc higher than last year's drought crippled crop.
The decline in winter wheat crop conditions in the US has caused Kansas City Board of Trade (KCBOT) wheat prices to rally dramatically.
Since January, wheat prices on the Kansas-based exchange have increased a whopping 21pc, widening the spread to prices for wheat on the Chicago exchange.
Despite the recent price rally - and barring any trade disruptions in the Black Sea region - we maintain our bearish view on wheat markets throughout 2014.
A swell in global feed grain stocks is expected to weigh heavily on world prices, particularly as we head into the second half of the year.
Conditions for most of the major wheat-growing regions, like the Black Sea and EU, currently look very promising and we expect about a 20 million tonne increase in global wheat stocks this year.
This increase in supply is a major reason for our bearish outlook for global and Australian wheat prices in the second half of 2014.
Graydon Chong is Rabobank's senior grains analyst.
