The worst drought in the United States since the 1930s Dust Bowl is damaging wheat crops across the world's biggest supplier, at a time when hedge funds are the most bearish on prices in seven months.
About 62 per cent of the country is mired in a dry spell that the government says will last at least until March in states growing the most winter wheat.
With dormant crops already in the worst condition since records began in 1985 and global inventories headed for a third annual drop, Chicago futures may rise as much as 25 per cent to US$9.50 a bushel this year, the median of 32 analyst estimates compiled by Bloomberg shows.
That raises the prospect of prices reversing their 20 per cent drop since a July peak, a retreat that has spurred hedge funds to start betting on more declines in December. The prolonged drought is increasing concern that supplies will tighten because there is also dry weather in Argentina and Australia.
Heat waves in the Black Sea last year curbed cargoes until the next harvest and a lack of rain is slowing barge traffic on America's Mississippi, which handles about 60 per cent of US grain exports.
"We don't see any fundamental reason why the wheat market should be going down," said Tom Neher, a vice president at AgStar Financial Services, who helps to manage the company's grain investments valued at about $2.1 billion. "We're looking at Argentina and the Black Sea area and Australia with smaller-than-normal crops. In the US, the crop isn't ideal going into the winter stretch."
Wheat advanced 19 per cent to $7.78 in 2012 on the Chicago Board of Trade, having risen as high as $9.47 in July.
It was the biggest gain in the Standard & Poor's GSCI Spot Index of 24 commodities, which rose 0.3 per cent.
About 33 per cent of US winter-wheat fields were in good or excellent condition by November 25, from 52 per cent a year earlier, agriculture department data shows. Winter wheat, which goes dormant during the winter and resumes growth in March and April, is the most common variety grown, accounting for about 70 per cent of US production.
Drought is affecting all of Kansas, the biggest winter-wheat grower and rainfall was as little as 10 per cent of normal in the past 60 days in parts of Kansas, Oklahoma and Texas, National Weather Service data shows.
Kenneth Failes, who farms 350 hectares in Oklahoma, said as much as 40 per cent of his wheat did not emerge from the dry soil before the start of freezing weather and was lost.
* Bloomberg News