Northern U.S. Plains drought shrivels spring wheat crop to smallest in 33 years, USDA says

© Reuters. FILE PHOTO: Spring wheat is inspected in central North Dakota, U.S., July 25, 2018. Photo taken July 25, 2018. REUTERS/Julie Ingwersen

By Julie Ingwersen and Karl Plume

CHICAGO (Reuters) - Farmers in the northern U.S. Plains are on track to harvest the smallest spring wheat crop in 33 years, reflecting the impact of severe drought in the key farming region, the U.S. Department of Agriculture (USDA) said on Monday.

The shortfall in spring wheat, which typically represents a quarter of total U.S. wheat production, means tighter supplies of the variety used in bread and pizza dough, prized by millers for its quality and high protein content.

Benchmark futures prices on the Minneapolis Grain Exchange surged more than 5% after the USDA slashed its 2021 spring wheat harvest outlook to 345 million bushels, down 41% from a year earlier and the smallest since 1988. Chicago Board of Trade winter wheat contracts followed suit, gaining 3% to 4%.

Soaring U.S. wheat prices will further pinch import-dependant nations that have struggled with food inflation and climbing costs for shipping grain around the world.

A harsh drought in the Canadian Prairies is threatening to pare supplies of the high-protein grain even further. Both nations export the majority of their spring wheat.

"The spring wheat production is a lot weaker than expected and has been heading south. There's just nothing good to say about this spring wheat crop," said Jack Scoville, analyst with the Price Futures Group in Chicago.

"Wheat millers are going to pay, and so are we. The good news is that there's only few cents worth of wheat in each loaf of bread or package of cereal. But even so, it's going to creep up," Scoville said.

Spring wheat production losses should be partially offset by a large U.S. winter wheat harvest, but U.S. supplies are still projected at the tightest in eight years, the USDA said.

Late on Monday, the USDA rated just 16% of the U.S. spring wheat crop in good-to-excellent condition, the lowest early-July level since 1988.