Wheat surges 19% in July as war risks and heatwaves squeeze supply

Chicago wheat futures climbed as much as 0.8% on Thursday, extending a rally that has pushed prices 19% higher this month to near a three-year high.

"Russian shipping restrictions, continued attacks on port infrastructure, and efforts to reroute grain exports have reinforced uncertainty surrounding near-term export availability," Futures International LLC said in a note Thursday.

The most-active contract surged 4.1% on Wednesday before paring gains as traders locked in profits. The rally has been fueled by overlapping supply threats: Ukraine struck three Russian oil tankers in the Black Sea on July 19, while Iran-backed Houthis attacked two Saudi oil tankers in the Red Sea on July 23. US President Donald Trump subsequently threatened "major military punishment" against Iran and the Houthis if further attacks occur.

The supply disruptions come as extreme weather ravages crops in key producing regions. The European Union's total grain output is projected to fall more than 9% this year, the steepest annual decline in over two decades, as scorching temperatures damage wheat yields in France and Germany. In the US, searing heat across North Dakota is stressing spring wheat crops and threatening yields. The Bloomberg Agriculture Spot Index, tracking 10 major farm products, rose to its highest level since July 2023 on Wednesday, signaling rising costs for staples from bread and cooking oil to meat and dairy.

Black Sea and Red Sea Routes Under Threat

The convergence of conflict along two strategic maritime corridors has disrupted global grain trade flows. Ukraine's strike on Russian oil tankers in the Black Sea on July 19 followed a pattern of escalating attacks on shipping infrastructure. In the Red Sea, the Houthi assault on Saudi tankers prompted Trump's warning of military escalation, raising the prospect of further disruption to the waterway that handles about 12 percent of global seaborne trade.

"The wheat market highlights just how significantly geopolitical changes can alter market fortunes, especially when backed by some fundamental tailwinds," CRM AgriCommodities said in a note Thursday, pointing to "the shift of grain supply chains into the front line of the Russia-Ukraine war."

European Heatwave Deepens Supply Deficit

France and Germany, the EU's largest wheat producers, are experiencing sustained high temperatures that have slashed yield expectations. The projected 9 percent decline in EU grain output marks the largest annual drop in more than two decades, according to Bloomberg data. In North Dakota, which accounts for roughly half of US spring wheat production, extreme heat is compounding stress on crops during a critical development phase.

The supply-side shock is already transmitting to consumer prices. The Bloomberg Agriculture Spot Index at a two-year high suggests food inflation pressures will intensify in coming months, particularly for emerging-market economies that rely heavily on grain imports.

This article is for informational purposes only and does not constitute investment advice.