ENLARGE Wheat futures soared nearly 6% Friday, extending a sudden bounce that has put the grain in bull market territory as pounding rains have drenched crops in fields across the eastern Midwest just as farmers are supposed to be harvesting.
The unexpected price surge, including a 15% run over the past week, comes after wheat prices hit five-year lows in May, when ample global supplies and lackluster export demand for U.S. wheat depressed the crop’s value. Many forecasters as recently as the start of this month were predicting continued softness in wheat prices, but in the past two weeks up to six times the normal amount of rain has fallen in parts of the U.S. Midwest, according to data from the National Weather Service, and more precipitation is in the forecast for next week.
The wet weather is stalling the harvest of soft red winter wheat, which is grown mostly in states that flank the Mississippi River and is used to make pastries and snacks. Growers harvest the wheat mostly in June, but muddy soil this month has made it hard for many farmers to operate their harvesting combines, and prevents the crops from drying properly before removal. The excess moisture also is sparking worry over reduced crop quality and disease, with farmers reporting high incidences of vomitoxin, a toxin that results from a fungal disease that develops in wet conditions.
ENLARGE “This is something we didn’t see coming a couple of weeks ago,” said Terry Reilly, an analyst with brokerage Futures International LLC in Chicago. “But wheat really whiplashed” after 8 inches of rain dumped across fields in central Iowa and northeastern Missouri, he said, while upward of 2 inches of precipitation also hit parts of Illinois, Indiana and the Ohio River Valley.
On Friday, wheat for July delivery surged 30 1/4 cents, or 5.7%, to $5.62 1/4 a bushel at the Chicago Board of Trade Friday, the highest settlement since Jan. 9. Prices have risen 21% from their lows in early May.
About 19% percent of the nation’s winter wheat crop was harvested as of Sunday, according to a weekly progress report released by the U.S. Department of Agriculture earlier in the week. That figure is well behind of the average five-year pace of 31% for the same period. In Illinois, only 3% of the wheat crop had been collected compared with the average 29% for the previous five years.
Dave Eidman, an Illinois farmer who grows wheat and other crops, said his fields are so muddy he has only been able to work about one out of every 10 days, adding that heavy rains also wash starch out of the wheat, lowering its quality, or test weight.
“You lose test weight, you lose dollars. You get vomitoxin, you lose dollars,” said Mr. Eidman, 52, noting that due to recent flooding, some of his wheat has been devalued by as much as $2 a bushel. “They dock us for grain that’s not top quality.”
Higher wheat prices aren’t yet likely to result in a noticeable jump in grocery-store prices of bread or snacks, analysts said. “Wheat as a total percentage of the cost to produce bread, breakfast cereal and similar processed foods is probably less than 5%,” said Robert Moskow, senior analyst at Credit Suisse.
Adverse weather also is helping drive wheat prices higher elsewhere in the world, with heat and dry conditions threatening crops in rival wheat-producing countries like Canada and France, and dryness expected to hit Australia later in the season.
“What we’re seeing is part of the far reaching effects of El Niño,” said Austin Damiani, an analyst with Minneapolis-based brokerage Frontier Futures, noting that the weather pattern typically produces cool, wet conditions in the U.S. Midwest and the reverse extreme in other parts of the globe.
Despite the sharp gains, wheat prices still sit near the lowest levels in five years, and part of the week’s price spike comes because large investors like hedge-fund managers are rushing to exit short positions, or bets on lower prices, in case predictions for crop losses come true, reducing supplies.
Meanwhile, the slow pace of the U.S. wheat harvest also has boosted prices for soybeans, which many growers in the eastern Midwest plant on the same acres after wheat crops have been collected. Analysts said farmers typically aim to plant soybeans by mid-July.
“The weather has been anything but normal,” said Dave Marshall, a farm-marketing adviser at TFCG LLC in Nashville, Ill., adding that “there’s a re-evaluation going on. Where it finally ends up we’ll have to wait and see.”
Write to Jesse Newman at jesse.newman@wsj.com
