Wheat Prices Jump as Drought Threatens U.S. Output

By Kirk Maltais

Increasing drought levels across the U.S. Plains lifted U.S. wheat prices near two-year highs, while potential for an El Niño could make things even drier this summer.

Chicago wheat futures have gained nearly 30% since the start of the year -- the biggest gain among row crop futures -- due to the combination of U.S. drought, global fertilizer shortages and a looming El Niño. This week, most-active wheat futures settled at their highest level since June 2024, at $6.58 a bushel, according to data from FactSet.

Heading into the harvesting season for the key winter wheat crop, much of the western side of the U.S. Plains are locked in drought. Over 81% of Southern Plains is experiencing some form of drought, according to the latest data from the U.S. Drought Monitor. Nearly 20% of the region is experiencing either "extreme" or "exceptional" drought.

Only 30% of U.S. winter wheat is in either good or excellent condition as of the start of this week, according to the most recent weekly Crop Progress report from the Department of Agriculture. By comparison, 49% of the crop was good-or-excellent at this point last year.

"Near-term forecasts call for rain that appears likely to miss the hardest hit areas," said Jake Hanley, chief growth officer with Teucrium Trading. "There are thoughts that even for the farms that do receive the rain, yield losses are likely already baked in."

It's been a dry winter for wheat crops in the Western Plains this winter. The crop is typically planted in October, and is grown over the winter months before harvesting starts in May. But dry growing conditions have left the crop with extensive damage, with little relief in sight.

Drought conditions have intensified in Kansas, South Dakota, Oklahoma, and Texas since the start of the year, according to the U.S. Drought Monitor.

The ongoing U.S. blockade of the Strait of Hormuz has kept the flow of fertilizer from the major shipping channel snarled. Some U.S. farmers have felt the effects of the slowed shipments more than others, and other farmers globally have been more exposed to the lack of fertilizer.

Meanwhile, there's a 62% chance of the world's climate shifting from neutral to El Niño between June and August, according to NOAA's Climate Prediction Center forecast. The European Center for Medium-Range Weather Forecasts said that this El Niño could be the strongest on record, with peak intensity hitting in October.

El Niño typically results in hot and dry weather in many growing areas, including the U.S. Corn Belt and in Australia. With fertilizer supplies thin, this may further compound production losses for world wheat.

A drop-off in winter wheat production in the U.S., which comprises 70% of total U.S. wheat output on average, may be priced into wheat futures already, said Naomi Blohm, a senior market adviser with agricultural brokerage Total Farm Marketing. But what the market hasn't accounted for is the potential for a strong El Niño this summer creating adverse conditions for the U.S. spring wheat crop as well as other major growing regions including Russia and Australia.

"Right now, global ending stocks for wheat are 'enough,'" said Blohm. "But if two or three of the top global producers suffer due to production issues/weather/less fertilizer, then the world has a problem."

In addition, less wheat is forecast to be planted this spring. The USDA said in March that it expected planted spring wheat acreage to fall off by 3%. Australian wheat plantings, meanwhile, are forecast at a 7-year low, and planting in Canada is also expected to decline.

"You can't reap what you don't sow," Teucrium's Hanley said. "And in a drought, there may not be much of a reaping anyway."

Write to Kirk Maltais at [e-mail]

(MORE TO FOLLOW) Dow Jones Newswires

04-30-26 1330ET