Drought is hitting American wheat growers hard

The wheat yield in the American state of Oklahoma is, to put it mildly, far from impressive. According to the crop tour, the average yield remains stuck at 1.5 tonnes per hectare, only marginally below the level seen during the dry year of 2023. Nevertheless, the news has had little impact on the market. Geopolitical developments, and in particular the prospect of an end to the conflict between the US and Iran, are weighing more heavily on sentiment.The May wheat contract on the Matif closed yesterday €0.50 higher at €187.50 per tonne. The September contract, which accounts for the bulk of trading activity, closed €2.75 lower at €207.50 per tonne. On the CBoT, wheat closed 10½ cents lower at $6.06 per bushel. Corn fell even further, declining 12¾ cents to $4.52¾ per bushel. Soybeans followed the same downward trend as the grains, closing 16¾ cents lower at $11.79 per bushel.Developments in the Middle East are playing a significant role in the decline of the grain market, according to analysts. American President Trump’s strategy regarding the war in Iran remains difficult, if not impossible, to predict. However, a visit by Trump to meet his Chinese counterpart Xi in Beijing is scheduled for next week. China is heavily dependent on oil supplies from the Persian Gulf passing through the Strait of Hormuz.There are indications that China is increasing diplomatic pressure to keep the Strait of Hormuz open. Yesterday, the Iranian foreign minister was in China for talks with his Chinese counterpart. Tehran and Beijing appear to be aligning their interests ahead of Trump’s summit with President Xi. According to analysts, the presence of an Iranian minister in China at this particular moment is far from coincidental.Markets seem to be pricing in the possibility of a swift resolution to the conflict in the Middle East. Oil prices are under some pressure, while equity markets continue to perform relatively well. From that perspective, there is little support for bullish sentiment in the grain markets.Drought takes a heavy tollAccording to the crop tour, growers in the American state of Oklahoma are not heading for a bumper harvest. Total production is estimated at 47.8 million bushels. By comparison, the ten-year average stands at 94.5 million bushels, while last year’s harvest reached 106.4 million bushels of wheat.The average yield recorded during the crop tour came to 23.1 bushels per acre, equivalent to just over 1.5 tonnes per hectare. This places yields 39% below last year’s level and slightly beneath the yield recorded during the exceptionally dry harvest year of 2023.Next week, the Kansas Wheat Council will conduct a crop tour in that state. Expectations are that the results in the largest wheat-producing state in the US will not differ greatly from neighbouring Oklahoma. That could provide a fairly bullish signal for the American wheat market.Larger wheat stocks in CanadaIn Canada, wheat stocks are 12% higher than last year. Overall, wheat inventories in Canadian storage facilities stood at 19.5 million tonnes at the end of March, the reference date used by Statistics Canada. That marks the largest stock level in 12 years. Of this total, 15.2 million tonnes remain stored on farms, which is 14.1% more than at the same point last year. Market agency Argus expects soybean acreage in Brazil to expand only modestly in the 2026/27 season. Higher production costs and increased weather risks, as an El Niño year is considered likely, are making growers in the world’s largest soybean-producing country cautious. Margins for soybean cultivation are under pressure, partly due to higher fertiliser prices driven by geopolitical tensions.