Wheat Prices Jump, Signaling More Food Inflation

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By Ryan Dezember

Updated Nov. 4, 2021 3:13 pm

A poor harvest of spring wheat and concern over the winter crop have pushed prices for the grain to their highest levels in years and signal more food inflation ahead.

Drought across the Northern Hemisphere is the main culprit. Strong demand around the world, snarled supply lines and rising costs of farm inputs, like fertilizer and fuel, are contributing.

Futures prices for hard-red spring wheat, which grows over summer on the northern Plains and is favored by bakers and pizza makers, this week hit their highest price on the Minneapolis Grain Exchange since the 2008 planting season. At $10.17 a bushel on Thursday, spring wheat costs nearly twice what it did the past two autumns.

Prices for lower-quality but more widely grown winter varieties have also climbed. Soft-red winter wheat, priced in Chicago and used to feed animals and in processed foods, is up 28% from a year ago. The benchmark rose above $8 a bushel to its highest level since late 2012. Hard-red winter wheat, known as Kansas City wheat and used for flour, has added more than 40% since last November to a six-year high. In Paris, wheat prices made a record this week

Further gains are likely in store, said Carsten Fritsch, a commodities analyst at Commerzbank AG . Wheat importers like Japan, Egypt and Saudi Arabia have been stocking up on the global staple with big orders. Meanwhile, poor growing conditions have reduced inventories among exporters—mainly the U.S., Canada and Russia—and diminished expectations for the next crop.

“There’s no sign yet that high prices are deterring buying,” Mr. Fritsch said.

The U.S. Agriculture Department says that domestic wheat stockpiles are down 18% from a year ago and at the lowest level since 2007. On-farm inventories have fallen to their lowest level in more than 50 years, which means much of this year’s crop has already been delivered to market. Production this year is expected to fall 10% below last year despite an uptick in the number of acres planted with wheat.

The biggest factor in shrinking stockpiles has been severe drought in the northern prairies, which reduced yields of spring wheat by nearly a third and has the winter crop coming up patchy. More than a million acres planted with spring wheat were never harvested, according to Agriculture Department data.

Tommy Grisafi, a commodity broker at Advance Trading Inc., said it was evident early that the spring wheat crop would be poor. He toured North Dakota farms in early summer and found wheat fields scorched beyond recovery and others mowed down by pests, which thrive in hot, dry weather.

“It was burnt,” Mr. Grisafi said. “The grasshoppers ate what was left.”

High wheat prices aren’t as big a boon to farmers as they might seem, said Mitch Konen, who is president of the Montana Grain Growers Association. Farmers with unsold bushels will likely find a backlog at their local grain elevator, a jam that runs along the railways to congested ports, he said.

More important for growers like him: The price for next year’s spring wheat is much lower than for near-term deliveries. That is the price around which they are planning and financing the next crop, and although 2021 spring wheat is up to more than $8 a bushel, that is not enough to cover inflating costs, such as fertilizer, which has soared in price thanks to the most expensive natural gas in more than a decade.

“Fuel, fertilizer, chemicals, right now we’re seeing 25% to 30% increases,” he said. “Yet when I look at that new crop,  I’m only seeing about a 10% increase.”

Droughts are part of a natural cycle of water. But the drought currently gripping the Western U.S. has climate scientists concerned that the cycle may be shifting. This has major implications for farmers and the communities they surround.

High wheat prices aren’t as big a boon to farmers as they might seem, said Mitch Konen, who is president of the Montana Grain Growers Association. Farmers with unsold bushels will likely find a backlog at their local grain elevator, a jam that runs along the railways to congested ports.

More important for growers like him: The price for next year’s spring wheat is much lower than for near-term deliveries. That is the price around which they are planning and financing the next crop, and although 2021 spring wheat is up to more than $8 a bushel, that is not enough to cover inflating costs, such as fertilizer, which has soared in price thanks to the most expensive natural gas in more than a decade.

“Fuel, fertilizer, chemicals, right now we’re seeing 25% to 30% increases,” he said. “Yet when I look at that new crop, I’m only seeing about a 10% increase.”

Write to Ryan Dezember at ryan.dezember@wsj.com