The price of your bagels and pizzas are about to rise as the cost of so-called 'aristocrat of wheat' - Hard red spring wheat - is exploding on the back of a worsening drought in the US High Plains.
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.
As Bloomberg reports, 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.”
“Basically, the crop is burning up,” said Joe Lardy, research manager at CHS Hedging, a commodities broker.
Data released Thursday by the US Drought Monitor show more than 90 per cent of the two states was in drought, with “severe” or “extreme” conditions in dozens of counties.
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.”
And if you like bacon on your pizza, then you have a double-whammy as Lean Hog Futures just hit a contract record high too...
It seems Yellen's rate-hikes are perfectly timed to quench the drought and birth some more piggies.