According to a recent report from the US Department of Agriculture, American wheat fields have been ravaged by drought to such an extent that farmers are now on the verge of abandoning crops at a rate unseen in more than a hundred years.
The USDA stated that producers are projected to harvest only about 67% of their planted acres. If this estimate holds true, it would mark the lowest harvest ratio since 1917. The persistent dry conditions across the US Plains have taken a toll on the iconic grain fields. Some wheat plants have been so severely affected by the lack of moisture that they will not yield any grain heads, rendering them unprofitable to harvest. As an alternative, farmers can file crop-insurance claims for the failed acres or opt to plant other crops. Analysts will have the opportunity to assess fields and make production estimates during an upcoming annual tour in Kansas, the top wheat-growing state.
Justin Gilpin, CEO of the trade group Kansas Wheat, commented on the situation, saying, "We'll see short wheat, thin stands, some wheat that looks really good, and a lot of fields that aren't going to be harvested."
The USDA's forecast of high abandonment rates is expected to lead to lower US wheat supplies than initially anticipated by analysts. This could result in elevated domestic prices, despite the likelihood of increased output from rival producers such as Canada and Argentina.
Following the release of this data, futures of hard red winter wheat, which is grown in drought-stricken states like Kansas and Oklahoma, surged by as much as 6.9%, marking the largest intraday gain for the most-active contract since October.
In contrast, corn production in the US is projected to reach a record high, which will contribute to global grain supplies and provide relief to livestock producers grappling with escalating feed costs.
Corn futures remained relatively stable, as traders were compelled to exit short positions in response to the "shocker" estimate for wheat production, as noted by Charlie Sernatinger, head of grains at Marex Capital.