The U.S. spring wheat crop is in its worst shape in almost three decades, sending prices for the grain on a tear.
Forty-five percent of the crop, the high-protein variety grown in northern states, was in good or excellent condition as of June 11, the U.S. Department of Agriculture said on Monday after the close of trading. That’s down 10 percentage points from the prior week and marks the worst rating for the time of year since 1988.
Futures have surged 13 percent in the past month, outpacing the gains of all the 22 components of the Bloomberg Commodity Index. Spring wheat isn’t tracked by the gauge. Dryness has expanded across key U.S. growing states this spring. Sixty-three percent of North Dakota, the top domestic producer, is short or very short on topsoil moisture, the USDA estimates.
“It’s pretty likely that we’ll get high-protein wheat at harvest -- there just won’t be that much of it,” Louise Gartner, owner of Spectrum Commodities in New Richmond, Ohio, said in a telephone interview.
Spring wheat futures rose 3.2 percent to $6.20 a bushel at 9:56 a.m. local time on the Minneapolis Grain Exchange. Prices earlier touched $6.2275, the highest for a most-active contract since July 2015. Volumes on the exchange have been climbing this month, and aggregate open interest reached 78,862 contracts on June 9, the highest in three months.
While world wheat stockpiles have surged in the past few seasons, recent harvests have favored quantity over quality, leaving high-protein grain in shorter supply.
American farmers produce two main types of wheat: winter and spring. Protein levels are higher for the latter, which increases the content of gluten, or the element that gives dough its strength and stretch.
The harvest of U.S. winter wheat is progressing further south, and initial data shows that the hard red variety may have lower-than-average protein levels for a second season. That can put spring wheat in greater demand as bakers seek to blend varieties to meet their desired characteristics. Most-active spring wheat futures are at the biggest premium in five years against hard red winter and soft red winter wheat traded in Chicago.
Farmers in Canada have also faced adverse conditions for their spring wheat crops. Soil conditions remain dry in many areas of Manitoba, the province’s agriculture ministry said Monday. Some Alberta farmers are shifting acres to barley due to delayed planting for spring wheat and other crops, and Saskatchewan’s topsoil moisture is deteriorating amid strong wind and lack of rains, according to reports from last week.
Conditions for some U.S. spring wheat should improve. Rains that began June 10 are forecast to last through early Wednesday, boosting moisture for plants in some parts of the northern Plains, and will be followed by a dry and cool period, according to Mike Tannura, the owner of T-storm Weather LLC in Chicago. The driest areas will remain in the west. Still, more rain will be needed to reverse drought conditions, and there is little in the forecast.
“The spring wheat conditions have the market’s attention this morning, with much debate on whether recent rains are too late for the crop,” The Hightower Report said in a note on Tuesday. “It feels like the market has more upside.”