Chicago wheat futures surged on Tuesday, hitting two-year highs after the USDA's latest WASDE report signaled a much tighter U.S. supply outlook than traders had anticipated.
Production stress across America's breadbasket is now converging with a megadrought and mounting fertilizer constraints, adding upward pressure on prices at a time when global food prices are rising.
The USDA forecast 2026/27 U.S. all-wheat production at 1.56 billion bushels, sharply below Wall Street expectations of around 1.74 billion, marking the smallest harvest since 1972.
After the report on Tuesday, Chicago wheat futures jumped to their highest level since May 2024.
The latest WASDE report should come as no surprise to readers, as we have been closely tracking the intensifying drought stress plaguing the U.S. agricultural market:
Saxo commodities head Ole Hansen penned a note on Wednesday, highlighting just how dire the report is for wheat production:
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USDA projected the smallest U.S. wheat harvest since 1972, triggering sharp gains in both Chicago and Kansas wheat futures.
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Hard red winter wheat production was estimated at the lowest level since 1957 following drought damage across the southern Plains.
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The Bloomberg Grains Index has gained 17% YTD, supported by strong advances in soybean oil, wheat, and related biofuel-linked markets.
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Managed money traders have returned aggressively to agriculture, although wheat positioning remains mixed due to continued contango focus.
Let's not forget America's breadbasket, plagued by drought, as the Middle East energy shock has disrupted the fertilizer trade and may impact harvests later this year. Global food prices are rising.
Related:
Our debate at the start of May featured former Bridgewater head of commodities Alex Campbell and Brent Johnson of Santiago Capital. It was hosted by Tony Greer and Jared Dillian, who discussed the potential food crisis that appears to be festering.