Looking for a wheat price rally? Watch eastern Europe weather, economies

One of the more interesting things about Canadians is that we believe that we live in a nation that is a bread basket to the world. While agriculture is a critical piece of Canada’s economy, if we want to understand and appreciate the markets for the commodities which we produce, it’s important to understand how and where we fit into the global supply picture.

This fall Ontario farmers wrapped up planting in what appears to be another near record winter wheat crop. It’s important to look at how our production fits into the world-wide wheat market picture, and which part of the globe to watch as we search for triggers which could lead to significant price moves.

The two biggest wheat producing countries in the world are China, (at 137-million metric tonnes per year), and India, (at 107-million metric tonnes per year). That should really not be a big surprise to anyone. China and India have the two largest populations in the world, and it’s counter intuitive that a place could grow to such a huge population without having good access to food.

The third largest wheat producing country in the world is Russia, (at 104-million metric tonnes per year), followed by the United States in fourth place, (at 49-million metric tonnes harvested last year). This is where the message gets interesting. Although the United States is the fourth largest wheat producer in the world, its annual production is less than half of the top three countries. It’s also important to note that although China and India are the leaders in wheat production, they also have extremely large populations, which create a massive domestic market for wheat. Russia’s population is actually quite small considering their land area, so Russia exports about 77 % of their wheat crop. When you crunch the numbers it means that Russia exports about one-and-a -half times as much wheat as the United States produces annually.

In case you’re curious, these countries round out the top 10 wheat producers:

5: France

6. Ukraine (or at least was 6th but we will deal with that later)

7. Australia

8. Pakistan

9. Canada

10. Germany

What you’ll observe about major wheat producing regions is that a lot of them are located in Europe, especially in eastern Europe.

As soybean producers we’ve all learned that it’s critical to watch South American growing season weather because that’s where the majority of the world’s soybeans are grown, and in the case of wheat, eastern Europe and the Black Sea region is an important source of global wheat supply, especially in terms of how much of that crop is exported.

It’s been a really interesting year in terms of growing conditions in eastern Europe, (from Germany through western Russia). September of 2024 was the 7th consecutive driest month across the Black Sea region. That’s a spectacular statistic when the period from March through September is record-breaking droughts in a region which relies heavily on growing winter wheat.

You’ll recall big rallies in wheat prices back in April and May when the spec funds took stock of dry conditions in Ukraine and Russia and bought their way out of their short positions creating an opportunity for farmers in this part of the world to forward contract 2024 and 2025 crop wheat production.

We haven’t seen a shift in rainfall patterns which would lead us to believe that the soil moisture is being restored in south eastern Europe, but since most of the wheat in this area is winter wheat, the price doesn’t really need to react at this point since the crop will soon be dormant. However, if the dryness persists into next spring, as the wheat breaks dormancy and needs to grow, then there’s certainly fuel in eastern Europe to ignite a March, April, May rally in wheat prices.

Another issue to monitor in eastern Europe is the noticeable decline in Ukrainian wheat production over the past two years. Prior to playing host to the Russian army, Ukraine grew about 33-million metric tonnes of wheat annually. Analysts currently put their 2024 crop production at 22.3-million metric tonnes. That’s roughly a 9.5-million metric tonne production drop over the past two years. That’s at least in part due to the lack of rainfall but also due to cropland simply being un-farmable due to military operations, and also war-related limitations caused by damages to infrastructure, shortages of labour, and all of the other disruptions to supply chains caused by the war.

Even if the rainfall situation resolves itself, it will take years for Ukraine’s agricultural capacity to be restored to its pre-war potential.

Canadian wheat production is typically a little over 30-million metric tonnes per year. Russia and the Black Sea countries export about three times as much wheat as Canada grows, which makes their impact on global wheat prices significant. If you’re watching for opportunities to price wheat they could be closely tied to weather and economic factors in that part of the world.
Canada is a great place for a lot of reasons but we’re not a global price setter.

Author: Steve Kell. Steve Kell is a Simcoe County crop farmer and handles grain merchandizing for Kell Grain, with elevators in Belleville and Gilford.

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Tags: United States, soybeans, Canada, Black Sea region, Production, wheat, Ukraine, India, Russia, Market, China, price, winter wheat