Wheat Surges on Droughts Hitting Key Producing Regions, Strong Asian Demand

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Wheat futures are climbing higher to start the trading week, bucking the downward trend seen across most of the commodities market. Wheat prices are mostly benefiting on weather conditions in key producing areas and bearish crop outlooks. Can wheat sustain the momentum, or will investors take early profits?

September wheat futures surged $0.1625, or 2.31%, to $7.20 per bushel at 14:16 GMT on Monday on the Chicago Board of Trade (CBoT). Wheat prices are trading at their best levels since the end of May, adding to their year-to-date rally of about 12%. Over the last month, wheat has advanced 11%.

Canada, one of the world’s largest wheat producers, is experiencing its worst drought in nearly two decades in the western region of the country. This has Statistics Canada turning bearish on crop outputs, noting that record-high temperatures and a paucity of rainfall would have negative effects on farmers’ abilities to produce.

In Alberta, only 36.6% of wheat crops were rated in “good to excellent” condition, while the majority of crops in Saskatchewan were rated in poor to good condition.

“These reports indicate that some crops have matured faster than normal or stagnated in their development,” the report stated. “The longer these conditions persist, the greater the negative impact will be on crop and hay yields and ultimately, farm cash receipts.”

Australia is looking to benefit from growing Asian demand, prompting industry observers to anticipate higher prices without too much competition from regional producers. Russia is expecting worsening crop conditions due to heavier rainfall that could impact the country’s yields for the next two marketing seasons.

According to the US Department of Agriculture (USDA), Australia has been shipping immense volumes to several major Asian markets, particularly Indonesia and Vietnam.

“The majority of the increased export shipments so far in marketing year 2020-21 have been to Indonesia and Vietnam. In comparison to the same time the previous year, exports to Indonesia and Vietnam have increased by almost 400% and 300%, respectively, and by volume up 3.8 million mt,” the USDA noted in its report.

Will this have ramifications for the North American wheat market? Analysts are sounding the alarm that the US and Canada could start to lose its market share.

In other agricultural commodities, September corn futures rose $0.045, or 0.83%, to $5.4975 a bushel. September soybean futures slipped $0.0475, or 0.35%, to $13.445 per bushel. September copper futures shed $0.018, or 1.00%, to $1.7775 per pound.

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