Corn and Wheat Prices Jump to Highest Levels in Over Three Years

Prices for both corn and wheat have reached their highest points in more than three years. However, the underlying reasons for these recent price increases differ significantly for each grain.

Wheat futures closed up 3.1% at 784 cents per bushel on Friday, after reaching a peak of 790.25 cents – the highest since February 14, 2023. This past week saw wheat prices jump by 12.1%, marking its most substantial weekly gain since March 2022. Year-to-date, wheat futures have climbed over 54.5%, largely driven by escalating tensions between Russia and Ukraine in the Black Sea region.

Corn futures ended Friday 0.6% higher at 536.5 cents per bushel, following an intraday high of 541.25 cents, which is the highest since July 28, 2023. Corn saw a 5.5% increase for the week and is up 15.6% in August, positioning it for its best month since April 2021. The contract has risen 21.8% year-to-date due to tighter U.S. supply expectations and robust demand, further pressured by constrained Ukrainian exports impacting global availability.

The recent upward trend in corn prices is primarily attributed to growing concerns about the U.S. crop's supply and a less optimistic outlook, compounded by ongoing disruptions to Ukrainian exports which continue to strain global supplies.

"From the beginning of August until now, the market's consensus is that there is less supply than we initially thought at the start of the month," stated William Osnato, Barchart's director of commodity data research and analysis.

Osnato highlighted several contributing factors. The U.S. Department of Agriculture's (USDA) August World Agricultural Supply and Demand Estimates (WASDE) report revised corn yield estimates lower than anticipated by traders, despite forecasting the second-largest harvest on record. The USDA reduced its yield forecast by 2.3 bushels per acre to 180.7.

Furthermore, Osnato noted that the crop's outlook was negatively impacted by disappointing field observations from the Pro Farmer's Crop Tour. The tour indicated that extreme July heat had taken a toll on the crop, following excessive rainfall in June across many U.S. regions.

"We are slightly past the peak of the growing season, which is late July to early August, but adverse weather can still affect the crop at this stage," Osnato commented. Several parts of the eastern Corn Belt experienced excessive rainfall in August, alongside the development of corn fungal diseases later in the growing season.

Jim McCormick, co-founder and chief operating officer at AgMarket.Net, informed CNBC that concerns about the U.S. crop have become more critical because global supplies were already limited. He explained, "We thought the world would be supported by U.S. supply. Now, U.S. supply is becoming uncertain, and the market is moving into a rationing phase."

While not as significant as the U.S. crop itself, Osnato mentioned that other factors, such as the extreme heat and drought across Europe throughout the summer, considerably affected their corn production. Strong export demand from Europe further strained the already tight supply. The USDA's report increased export projections by 75 million bushels to 3.3 billion, reflecting heightened global demand and reduced exports from Ukraine, a major global corn exporter. Osnato, however, indicated that this effect is less impactful for corn than for wheat, adding that some disruption to Ukrainian corn exports had already been factored into the market.

McCormick suggested that Europe's drought-affected corn harvest could also put pressure on wheat, as reduced corn availability might lead the region to use more wheat for animal feed and retain more of its wheat domestically rather than exporting it.

Disruption of Wheat Supply

In contrast to corn, wheat's price surge is directly linked to disruptions in global supply. Reports of escalating tensions between Russia and Ukraine in the Black Sea region have led to grain export disruptions, driving up prices. Russia and Ukraine collectively contribute over a quarter of global wheat exports, and growing concerns about supply interruptions in this area have been a significant catalyst for the price increase.

"There have been several different disruptions in the Black Sea. That is definitely the main story," Osnato explained, noting that damage to Russian grain-export infrastructure has led to expectations of reduced near-term Russian wheat shipments, with the Black Sea being a primary export route.

Russia is the world's largest wheat exporter and a low-cost supplier whose prices often influence the global market. However, the crop has experienced significant obstacles in moving through the Black Sea. Recent attacks in the Sea of Azov, which feeds into the Black Sea, and further military strikes on grain export facilities, oil tankers, and vessels in the Black Sea region have made it difficult for shipping companies to secure insurance.

"What moves the market is a change in expectations, and Russia will not be able to ship as much wheat by several million tons because the capacity to ship out of the Black Sea has been significantly damaged," Osnato stated.

Weather conditions have added another layer of pressure to wheat supplies. Osnato reported that a severe heatwave reduced European wheat production by approximately 8 million to 10 million tons, while drought also decreased hard red winter wheat output in Texas, Oklahoma, and Kansas.

Beyond these fundamental supply concerns driving both commodities, reaching multi-year highs can independently attract further buying interest.

"When a contract hits new highs and multi-year highs, then you start to get momentum and systematic traders interested. So now you have fundamental and systematic traders looking at the market positively, and so those are all sort of mixing together," Osnato concluded.