US wheat prices hit three-year high as drought and Black Sea attacks curb supply

Russia’s Black Sea port attacks push one-third of global wheat trade out of accessible supply chains

Wheat prices are at their highest level in three years, but US farmers say they are not confident higher market prices will translate into better margins. Merrill Nielsen, who farms 2,500 acres in Kansas, told The Guardian that he lost his entire wheat crop in the spring and faces record diesel costs for his remaining operations. “We’re not looking to plant any more wheat than we probably normally would, or maybe we won’t even plant that much,” Nielsen said. “I don’t know. Really, we’ll have to see what the weather does for us.”

The combination of high input costs, poor weather and geopolitical disruption has left farmers facing an uncertain growing season even as bread-type wheat futures have climbed 39%, according to The Guardian. Consumers from millers and bakers to restaurants and grocery shoppers face the risk of higher prices downstream.

Drought across the United States and Europe has been shrinking harvests, Joao Lampreia, a market strategist at the Lisbon-based Freedom24, told the newspaper. Weather forecasts for a “super” El Niño this year carry “alarming signals” about the impact on wheat crops, Lampreia said. The phenomenon, exacerbated by the climate crisis, causes warm waters to rise to the surface across the equatorial Pacific Ocean, along the coast of South America, and is known to imperil agriculture in the southern hemisphere significantly.

Wheat supplies in key exporting countries are at their second-lowest levels on record, The Guardian reported. Australia’s wheat plantings are already down 12% because of expectations of dryness and increased fertilizer costs.

On a brighter note for producers, El Niño can also bring wetter conditions to the southern Great Plains in fall and spring. During the last major El Niño in 2015 and 2016, the United States set an all-time record-high winter wheat yield, Mark Welch, an economist who researches grain marketing at Texas A&M University, told The Guardian.

Geopolitical factors compound the weather stress. Recent Russian attacks on port facilities in the Black Sea, through which roughly one-third of the global wheat trade passes, have disrupted grain shipments, The Guardian reported. Black Sea farmers had just finished a bumper crop before the attacks. Because of the fighting, supply is largely inaccessible, which has pushed prices up, Welch said.

If Black Sea farmers and shippers find alternative routes, prices will backtrack somewhat, Welch said. At best, about 35% to 50% of that wheat could find a way out, but it will take longer and cost more, Lampreia said.

Dan Basse, president of agricultural market research company AgResource, told The Guardian that the combination of weather-damaged harvests and constrained wheat exports could leave global food prices higher than they are today. The United Nations Food and Agriculture Organization’s food price index, which tracks a basket of widely traded food commodities, was up 2.5% in August over a year earlier, Basse said.

The spike in wheat prices “has tentacles that go far beyond the war between the Ukrainians and Russians,” Basse said. “The world needs more harvested acreage of every grain. All of this resonates in higher grain and food prices for the world looking forward.”

In the immediate future, US farmers will need to help make up the shortfall. Basse said he expects planted acreage for wheat this winter to expand about 10% more than last year as producers try to capture higher prices.

But structural obstacles remain. Harvested acreage for wheat in the United States has been at its lowest levels since 1877, as farmers have found it more profitable to plant corn and soybeans rather than wheat, The Guardian reported. One year of high prices is unlikely to reverse that trend.

“If it’s not an average yield or better, the breakeven cost really gets high very quickly,” Welch said.

Vance Ehmke, a wheat-seed seller in south-west Kansas, told The Guardian he has fielded more calls for seeds this year. But the weather in the southern Great Plains is now too dry for seeds to germinate and grow.

“If you get your wheat up, you’ve got 90% to 95% odds that you’ll harvest something. But if you can’t even get it up, I mean, you’re just screwed,” Ehmke said.

Prices will need to stay high to accommodate the surge in input costs that ongoing trade wars have exacerbated, Ehmke said. “We are the ones that get hurt by those policies,” he said.