Prices for spring wheat, the high-protein variety favored for bagels and pizza crusts, are starting to defy gravity.
Futures soared as much as 8.5 percent on Thursday, the most intraday since 2010, after Canada cut its planting outlook and drought conditions expand in U.S. growing states. Prices are up 31 percent in June, beating the gains for 80 other commodities tracked by Bloomberg.
The northern U.S. has been plagued by dryness this year, and conditions for the domestic spring-wheat crop are their worst for this time since 1988. Now, traders are eyeing a smaller crop in Canada, too. The country’s government on Thursday cut its outlook for the total wheat acreage more than analysts expected and said canola plantings will top the grain for the first time ever.
“Millers will import wheat out of Canada if they can’t buy locally from U.S. farmers,” Brian Hoops, president of Midwest Market Solutions in Springfield, Missouri, said by telephone. “With smaller wheat acres and some production issues in Canada, as well, that means there’s less product there to market, and demand has not backed off from what we can see.”
Spring wheat futures for September delivery jumped by as much as the exchange’s 60-cent limit on Thursday, reaching a three-year high of $7.68 a bushel on the Minneapolis Grain Exchange. Prices were at $7.50 at 12:43 p.m. local time. Winter wheat futures in Chicago are surging, too.
Trading volume on Wednesday reached 30,979 contracts, the second-highest in exchange history, according to its website.
Almost all of North Dakota, the largest U.S. spring wheat producer, has fallen into abnormally dry conditions, data form the U.S. Drought Monitor showed Thursday. The amount of land gripped by extreme drought expanded to just over 25 percent, up from about 8 percent a week ago. The parched conditions have threatened cattle grazing areas, too. A drought-busting rain isn’t yet in the forecast, said Alex Edwards, a National Weather Service meteorologist in Bismarck, North Dakota.
“We are fairly far behind for the season since May,” Edwards said. “Typical rain at this time of year will come in the form of thunderstorms, but that isn’t something you can rely on for widespread rain.”
The spring-wheat crop is valued for its high protein content, which is associated with higher levels of gluten -- the element that gives dough its strength and stretch.
Lower protein levels in the hard red winter crop harvested so far is expected to increase demand for the spring variety as millers and bakers hunt for grain that has enough gluten for bread flour.
Canada’s wheat seeding fell 3.7 percent from a year earlier to 22.4 million acres, trailing the 23.2 million the government forecast in April and the 22.8 million expected by analysts in a Bloomberg News survey, Statistics Canada said Thursday. The U.S. government will update its 2017 planting estimates in a Friday report, and analysts also expect an acreage cut.
Swaths of Canada’s southern prairies have received less than 60 percent of average precipitation since April 1. Many areas in Saskatchewan “are in need of rain” to help crops and pastures grow, according to the province’s agriculture ministry. Development of 38 percent of spring cereal crops is behind normal.
Spring wheat futures may reach the $8-$10 range, Societe Generale SA analyst Rajesh Singla said in a Thursday report. The Minneapolis exchange has set a trading volume record this month.
“Low elasticity of demand and substantial damage to the 2017-18 crop might keep inventories tight for a longer period of time,” Singla said. “Rainfall in the next 15 days in the U.S. Northern Plains is likely to remain deficient, and the spring wheat crop might continue to wither.”
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