Global wheat market: Wheat market declines are moderating and future supply is tightening

In the week ending March 3, 2023, global wheat prices continued to fall, but the decline slowed. Chicago wheat futures are hovering near lows not seen since September 2021, mainly as plentiful and cheap Russian wheat flooding the market helps reduce global food inflationary pressures; Good rainfall in the Great Plains and Midwest also helped improve the prospects for winter wheat after it turns green. But the prospect of lower wheat yields next year in Russia, Ukraine and Australia, as well as the threat of hot weather in India's upcoming harvest, suggests prices are likely to consolidate at current levels.

Chicago Board of Trade (CBOT) May soft red winter wheat futures closed at $7.0875 a barrel on Friday, down 1.8 percent from a week ago. May hard red winter wheat futures on the Kansas City Board of Trade closed at $8.1625 a barrel, down 2.3 percent from a week ago. May hard red spring wheat futures on the Minneapolis Grain Exchange (MGEX) closed at $8.7275 a barrel, down 1.1 percent from a week ago. Euronext May 2023 wheat closed at 275.25 euros/ton, down 1.7 percent from a week ago. Argentine wheat spot prices were quoted at $358 a ton, down 0.3% from a week ago. The ICE dollar index closed Friday at 104.488, down 0.64 percent from a week ago.

Precipitation helps improve moisture content in America's wheat belt

Recently, large-scale precipitation has occurred in the Great Plains and the Midwest of the United States, supplementing soil moisture and creating ideal growth conditions for crops after greening. More precipitation is expected across the central Plains on Friday as a winter storm moves east from the central Rockies, the National Oceanic and Atmospheric Administration (NOAA) said Friday. Parts of Illinois, Indiana and Ohio could get a lot of rain over the next 24 hours. The outlook for the next six to 10 days shows cooler temperatures and lower precipitation odds for much of the United States late next week, but still above normal, with the highest chance of showers over the central Plains. The U.S. Drought Index fell to 118 points as of Feb. 28, 2023, from 124 a week earlier and 187 at the same time last year, according to the U.S. Drought Monitor Weekly. As of Feb. 28, 85.1 percent of Kansas, the No.1 winter wheat producing state, was in some form of drought (D0-D4), down from 86.8 percent a week earlier and 96.0 percent a month earlier.

A crop rating report released Monday showed mixed ratings for U.S. winter wheat. As of Feb. 26, Kansas winter wheat was 19% good, down from 21% a month earlier and at the end of November, and down from 25% a year earlier. The margin was 51%, the highest so far this year, up from 38% a year earlier.

Winter wheat in Texas and Oklahoma is in better shape than a year ago. Oklahoma had an excellent rate of 36 percent, up from 17 percent a month ago and 11 percent a year earlier. Texas had an excellent rate of 19%, up from 14% last month and 8% a year earlier. Soft red winter wheat in Illinois was 82 percent good, up from 69 percent a month ago.

Russian wheat continues to dominate export markets, while U.S. wheat exports are sluggish

Russia continues to provide low-cost wheat on the international market. Russia exported almost 34 million tonnes of wheat in the first eight months of 2020/23 (July-February), up 17.6 per cent from the same period last year, the Russian Grains Union (RGU) said. Wheat exports in February 2023 were 2.95 million tons, up 24 percent year-on-year.

Ukrainian agriculture Ministry data showed wheat exports so far in 2020/23, which began in July, were 11.3 million tonnes, down from 18.1 million tonnes for the same period in 2020/22.

Net U.S. wheat sales for 2020/23, which began in June, were 300,000 tons in the week ended Feb. 23, down from 420,000 tons a week earlier, the USDA's weekly export report showed. Year-to-date sales totaled 17.13 million tons, down 6.3% from the same period last year. The USDA's annual export target is 21.09 million tons, down 3.2 percent from a year earlier.

Looking at prices from major wheat exporters, International Grains Council data shows hard red winter wheat at $372 a tonne on March 1, soft red winter wheat at $306 a tonne, wheat from Argentina's Upper River region for recent shipping dates at $356 a tonne, and first-class wheat at Rouen Port in France at $300 a tonne. As a comparison, wheat was quoted on Feb. 24 at Russian deepwater ports at $300 a ton, FOB.

Wheat production in the Black Sea and Australia is expected to decline next year

On March 1, consultancy SovEcon cut its 2023 Russian wheat production from 86 million tonnes to 85.3 million tonnes, 18.3 per cent lower than the record 2022 crop, as unfavorable winter weather cut its winter wheat production forecast from 61.6 million tonnes to 60.9 million tonnes, while spring wheat production remained unchanged at 24.4 million tonnes. The company said the lower forecast for winter wheat production was due to a lack of rainfall in southern Russia in recent months.

Ukraine's wheat production in 2023 is likely to be between 16 million and 18 million tons, down from 20.2 million tons in 2022, Deputy Agriculture Minister Vysotsky said on March 2. Ukrainian farmers sowed 4.1 million hectares of wheat this year, up from an October estimate of 3.7 to 3.8 million hectares, but well below the 6.2 million hectares sown in 2021/22.

In Australia, the past three years of La Nina, which has helped bring good rainfall, have led to record wheat yields for the third year in a row. With an El Nino expected later this year, lower than normal rainfall in Australia is likely to threaten the 2023/24 wheat production outlook.

The World Meteorological Organization (WMO) said in its quarterly report released on March 1 that El Nino, which is linked to warmer waters in the Pacific Ocean, is likely to form between June and August. There is a 15 percent chance that El Nino will form between April and June, 35 percent between May and July, and 55 percent between June and August.

In India, the next few weeks are likely to be hot and dry in the country's wheat-growing regions following record heat in February, damaging the maturing wheat crop. Industry bodies are concerned that India may need to import wheat.

Global wheat production in 2023/24 is likely to fall for the first time in five years

The United Nations Food and Agriculture Organization (FAO) on Friday released its first estimate for the world wheat production in 2023. The 2023 wheat crop is expected to be 784 million tons, down from a record 794.6 million tons in 2022 and the first decline in wheat production in five years. That's mainly because Russia and Ukraine will lose more than the expected increase in wheat production in the U.S. and Canada. The FAO expects Russian wheat production to fall to 83 million tons in 2023 from a record 102.7 million tons in 2022, as drier than usual weather in southern regions and weak domestic prices reduce the area sown for winter wheat. Wheat production in Ukraine is expected to fall from 20m tonnes in 2022 to 17m tonnes, as a lack of funding and damaged infrastructure lead to a 40 per cent year-on-year reduction in the area sown for winter wheat in 2023.

Analysis of the prospect of Black Sea negotiations

On February 28, Ukrainian government sources said they had appealed to the United Nations and Turkey to start talks on extending the Black Sea grain deal, but there has been no response. The deal was extended for 120 days in November and expires on March 18. Markets are closely watching the extension of the deal because its collapse would cut off Ukraine's humanitarian corridor for grain exports from the Black Sea. In the words of Philippe Mitke, president of the European grain Chamber (Coceral), if the agreement is not extended, the consequences will be quite explosive.

On March 2nd Sergei Lavrov, Russia's foreign minister, accused the West of killing the deal. The English-language media barely mentioned the specifics of Mr. Lavrov's refutation. According to Russian media reports, the Russian Foreign Ministry believes the Black Sea deal is not working as intended because Ukrainian grain is not being shipped to poor countries in Africa and Asia, and Western countries continue to block all Russian grain and fertilizer exports. The UN-brokered agreement signed in Istanbul on 22 July 2022 includes the creation of a safe corridor for Ukrainian ships transporting maize and wheat through the port of Odessa to countries facing food insecurity; At the same time, according to the memorandum signed by Russia and the United Nations, Russia should also facilitate the export of grain and fertilizer. But in the eight months since the accord was implemented, only part of it has been implemented, and it falls far short of its declared humanitarian goals. Since August 1 last year, Ukraine has exported more than 23 million tons of grain, 70 percent of which is animal feed rather than grain and food as originally claimed. Forty-seven per cent of Ukraine's grain exports went to the EU, "upper middle-income countries" accounted for another 34 per cent, and only 2.6 per cent went to poor countries that needed food the most. Meanwhile, little progress has been made in facilitating Russian exports of grain and fertiliser. Russia points out that Ukraine continues to block the Togliati-Odessa ammonia pipeline for political reasons, preventing Russia from exporting 2.5 million tons of raw materials that could be used to produce 7 million tons of fertilizer and feed 200 million people. Although the United States and its Allies say the sanctions do not cover Russian grain and fertilizer exports, both are effectively restricted by the West's ban on all Russian ships calling at its ports or receiving insurance and brokerage services, and a total embargo on Russian commercial shipping. The Russian Foreign Ministry says most of Ukraine's grain is sent to the EU as feed, not to the poorest countries. At the same time, Russia's agricultural and fertiliser exports have been blatantly obstructed, with 262,000 tonnes of Russian fertiliser, for example, blocked for months in Dutch and Baltic ports. Moscow has long said it will give the fertiliser to African countries free of charge, but so far only 20,000 tonnes destined for Malawi have been successfully shipped from European ports. So Russia says the grain deal isn't working as well as it should.

As the above shows, Russia still wants to ease restrictions on its agricultural and fertiliser exports, and with good reason. It is expected that the next two weeks will be spent haggling over the terms of the renewal of the agreement, and the likelihood of the deal falling apart is unlikely because that would be lose-lose. Given the interests of countries such as China and Turkey in renewing the deal, the chances of a last-minute compromise are high.