Expansive Global Supply Outlook Helps Push Wheat Prices Lower

With wheat prices reaching a four-year low of $5.20 per bushel in late July, consumers around the world may well have recently been breathing a collective sigh of relief. They can increasingly enjoy many of their favourite foods, such as bread, pasta and noodles, at some of the lowest costs since 2020, with the supply outlook widely reported to show increasing abundance for this year and next across many of the world’s key export markets.

With the first half of the 2020s heading towards completion, it is reasonable to conclude that few commodities have experienced more of a rollercoaster ride during the first four and a half years of this decade than wheat. The outbreak of war in Ukraine in late February 2022 saw wheat futures spike to all-time highs of more than $13 per bushel by early March; they proceeded to remain at elevated levels throughout the second quarter as it proved increasingly challenging for producers to ship grain exports out of the Black Sea. Russia is the world’s biggest single wheat exporter, while wheat exports from Russia and Ukraine combined represent almost one-third of the world’s total; the blocking of grain shipments in the region sent food-price inflation skyrocketing across the world.

Prices have gradually come back down to earth since the fourth quarter (Q4) of 2022, despite a prominent uptick in the summer of 2023 when the two sides failed to agree to a lasting Black Sea grain-shipment deal. However, with the steadily increasing grain volumes that Ukraine has managed to ship to the global market through alternative export routes, prices have continued to ease. Russia, meanwhile, enjoyed an exceptionally strong wheat crop last year, which was instrumental in sending prices to a three-year low by September 2023.

2024 has already seen dramatic fluctuations in global prices, with a bushel of wheat starting the year at around $6.15 before dropping sharply to below $5.30 by March as conditions for global supply continued to ease, with Russian wheat shipments reaching record volumes in February. But adverse weather conditions in key wheat-producing regions—including several weeks of heat and a lack of moisture in Southern Russia in April that was then followed by unseasonal frosts in May, soggy fields in Northwestern Europe and a dry, hot summer in Australia—conspired with strong demand to send prices soaring by 30 percent to more than $7.15 per bushel by the end of May.

Prices were also buoyed by news from the world’s second-largest wheat consumer, India, in late May that it would likely scrap wheat import duties after June to offset low state reserves, thus boosting imports this year to an estimated three to five million tonnes (metric tons) from just 120,000 tonnes in 2023. “Nobody saw this rally in wheat prices coming,” Ole Houe, director of advisory services at Australian agricultural brokerage IKON Commodities, told Reuters as prices reached a 10-month peak. “Millers and even traders haven’t covered much from exporters. The supply pipeline is kind of empty if you look beyond June.”

But an expansive forward global-supply picture, coupled with a much-improved outlook for Russia’s wheat crop, has triggered a dramatic turnaround in prices since then, with prices falling by almost 30 percent in the three months from late May’s peak of $7.15 per bushel to reach four-year lows by late July. According to SovEcon, a leading Black Sea grain consultancy, the 2024 wheat crop estimate as of early August was raised to 84.7 million metric tons (MMT), up from the early-July projection of 84.1 MMT and the 80.7 MMT estimated in June. “Weather conditions have been challenging for the new wheat crop in the majority of regions of the European part of Russia, whether it’s drought or spring frosts,” Andrey Sizov, head of SovEcon, stated. “However, conditions to the east of the Volga have been favourable throughout almost all of 2024. We expect to see above-average yields in the eastern part of the Volga Valley, the Urals, and Siberia.”

And with the Black Sea grain corridor fully functioning once again, expectations are rising for Ukraine’s grain shipments to rebound this year. Data from the State Customs Service of Ukraine as of July 26, moreover, found that the country—the world’s seventh-largest exporter of wheat prior to the outbreak of the conflict with Russia in February 2022—had exported more than three million tonnes of grain and leguminous crops since the beginning of the 2024/25 marketing year, compared with just 1.905 million tonnes a year earlier. Of this total, 1.163 million tonnes of wheat were exported, versus 649,000 tonnes in the 2023/24 year. The Ukraine government also estimated separately that Ukraine exported food worth $12.4 billion during the first half of the year, which means it is on track to surpass 2023’s full-year $22 billion in food exports.

Prices have been on the decline thanks to the projections strongly suggesting that supplies around the world will continue to rise in the 2024/25 marketing year. July estimates from the U.S. Department of Agriculture (USDA), for instance, noted that the global wheat outlook for 2024/25 is for larger supplies, trade and stocks against a more modest increase in wheat consumption. “Supplies are increased 6.9 million tons to 1,057.2 million, primarily on larger beginning stocks for several countries and higher production, mainly for the United States, Pakistan, and Canada,” according to the USDA’s “World Agricultural Supply and Demand Estimates” (WASDE) report published on July 12. “Projected 2024/25 global ending stocks are raised 5.0 million tons to 257.2 million, mostly on increases for the United States, China, Argentina, Pakistan, and Canada more than offsetting reductions for Russia, the EU, and Iran.”

In the United States, the 2024/25 outlook is for larger wheat supplies, exports and ending stocks, with supplies rising on increased wheat production and beginning stocks. “The first 2024 survey-based production forecasts for other spring wheat and Durum indicated an increase from last year for both classes at 578 million and 89 million bushels, respectively. Winter wheat production is also forecast higher at 1,341 million bushels on an increase in harvested area and yields,” the WASDE report also noted. “Beginning stocks are raised on the June 1 stocks reported in NASS Grain Stocks. Projected 2024/25 ending stocks are raised 98 million bushels to 856 million, up 22 percent from last year and the highest in five years.”

The USDA forecasted that all wheat production for the 2024/25 season would be raised by 134 million bushels to 2,008 million for the US, the world’s fourth-largest wheat exporter, largely due to an increase in harvested areas and higher yields. Indeed, a July 25 report from Bloomberg confirmed “record-high wheat yields in North Dakota” that will further expand American grain supplies. The main variety grown in the state, hard red spring wheat, will reportedly yield 54.5 bushels per acre, according to data from a tour of the state for wheat traders, millers and bakers, which is a whopping 15 percent higher than last year and the state’s highest yield calculation ever. “This is as good as we’ve had for the number,” Dave Green, executive vice president of the crop tour’s host, the Wheat Quality Council, told Bloomberg.

The USDA’s “National Crop Progress” report also showed that the US winter-wheat harvest had achieved 82 percent completion as of July 28, up from 76 percent recorded for the previous week. This supply expansion means that it should come as no surprise that the projected 2024/25 season-average farm price was reduced by a hefty $0.80 per bushel to $5.70, with the July WASDE report citing higher stocks, recent declines in futures and cash prices and lower projected US corn prices as reasons for the expected fall.

The bearish argument for wheat prices has been further strengthened by favourable rainfall in Argentina, which, according to a late-July report from the Buenos Aires Grains Exchange (BdeC), has allowed farmers to complete wheat planting for the current harvesting season. Wheat planting is thus complete on all major Argentine farmland for the 2024/25 cycle, with the planting of more than 6.3 million hectares dedicated to wheat 98.5 percent completed by July 26, the report showed, with rainfall focused mainly on the centre and east of the major agricultural area, allowing planting to be completed in both the northern and southern centres.

Nonetheless, evidence is growing that slumping prices are proving enticing once again for major buyers to re-enter the market and complete sizeable deals, which could soon lead to a market floor being created that sees prices firming once again. In mid-July, for instance, Egypt bought 770,000 tonnes of wheat in a tender comprising 50,000 tonnes of Bulgarian wheat and 720,000 tonnes of Russian wheat, marking its biggest purchase since 2022 and indicating that prices are low enough to buy such significant quantities.

Perhaps the world’s biggest wheat importer, along with Indonesia and China, Egypt typically makes large purchases around the start of the Northern Hemisphere’s harvest in the summer or early autumn. But a consultant at grain-trading firm JVC Swiss, Jean Charzat, also noted that the tender highlighted Russian exporters’ willingness to sell and that the recent adverse weather conditions in the country may not have impacted Russia’s wheat output as much as expected. “On top of that, the tender shows how uncompetitive European wheat is despite a decent crop under harvest,” Charzat added.

Tags: United States, wheat, India, crop, Black Sea, supply, Ukraine, Russia, prices, import duties