Image: Pixabay
The drought is expected to send global wheat stocks for major exporters to their lowest levels in more than a decade, a Reuters analysis shows, a decline coming as top supplier Russia escalates its conflict with Ukraine and creates more uncertainty for importers.
Farms in areas of North and South America, Europe and Australia are facing crop losses as extreme weather spreads across an unusually wide geographic area, making food production increasingly vulnerable. Escalating tensions between Russia and Ukraine have also brought food security concerns back to the forefront of grain trade and diplomacy.
{module Form RD}
A Reuters analysis of US estimates of wheat stocks and crop use for seven major exporters shows that inventory levels will decline to a 16-year low in 2023/24. By removing Russia, the US and EU reduce the ratio to the lowest level since at least 1960, reflecting supply shortages in key carriers such as Australia, Canada and Argentina, the analysis shows. Russia is expected to increase shipments due to large harvests, overcoming dry spells in places like Siberia.
The Kremlin's July 17 withdrawal from the Black Sea agreement, which allowed the safe export of grain from Ukraine, adds uncertainty to the global outlook. Subsequent airstrikes on Ukrainian ports destroyed an estimated 180,000 metric tons of crops in nine days. “The world has no supply cushion to fall back on,” said Dan Basse, president of consultancy AgResource Company. “If there is a problem in the Black Sea with Russian exports, the wheat market gets very spicy, very quickly.”
Supply concerns have already triggered volatile movements in wheat prices, including a spike on July 19 that was the biggest daily gain since the days after Russia invaded Ukraine in February 2022.
Wheat importers with limited reserves available are vulnerable to price and supply shocks. For months, some buyers in Asia, the Middle East and Africa bought just enough to cover their short-term needs, in part because of expectations for Russia's big harvest, traders said.
Supply risks in the Black Sea now appear to extend beyond Ukraine to Russia's exports, said Alexander Karavaytsev, senior economist at the International Grains Council. He said 60 million tonnes of Russian and Ukrainian exports could be under threat, or a third of global trade. “Lower-than-forecast seedings in Argentina, ongoing concerns about crop quality in parts of Europe, as well as weather issues in two other major exporters – the US and Canada – do not help the supply situation,” Karavaytsev said.
Multi-line chart with USDA data shows wheat stocks in the US, Canada, Australia, Ukraine, Russia, Argentina and the EU – the world's biggest wheat exporters – falling to their lowest level in decades in crop year 2023 /2024 due to extreme heat conditions.
“MAKES ME CLIMB A TREE”
July is believed to be the world's hottest month on record. Drought in the northern US and Canada has reduced potential harvests of protein-rich spring wheat and durum wheat, damaging crops used to make sweets and pasta. Analysts warn that farms could suffer more damage before harvests.
Drought conditions in Canada are similar to those in 2021-22, when production was down about 37% from the previous year, said Kelly Goughary, senior research analyst at Gro Intelligence.
The crop forecast expects a cut of more than 5% in US spring wheat production compared to last year, after drought also led Kansas farmers to abandon winter wheat fields.
In North Dakota, farmer Chad Weckerly said his durum wheat will produce 20% to 30% less than last year. He is frustrated by projections that Russia's bumper crop will offset losses elsewhere in the world. “That Russia news just drives me crazy because nobody knows what Russia has,” Weckerly said.
U.S. and Russian government estimates of Russia's harvest vary. For 2023-24, the US estimates that Russia's wheat exports will increase by 44% from two years ago, to 47.5 million tonnes.
Moscow may slow exports if it is concerned about rising domestic bread prices, said a trader at a multinational trading company in Europe.
Fewer ships were also looking to pick up grain from the Black Sea area after Russia pulled out of the export deal, amid growing uncertainty over whether fighting could hit commercial ships.
MULTIPLE PROBLEMS
The EU needs a big crop to compensate for a reduced harvest last year and uncertainty over the availability of Black Sea wheat, said Stephen Nicholson, Rabobank's global sector strategist for grains and oilseeds. “If something goes wrong with Russia and Ukraine, we are not going to be in a situation where everything is going to be OK,” Nicholson said. “You’re seeing a lot of problems around the world and you often don’t see that.”
Consultancy Strategie Grains has repeatedly lowered its forecasts for EU wheat harvests and in July pegged production at less than 1% above the 2022-23 harvest. Assessments of conditions fell in France, the bloc's biggest exporter. Even so, buyers said they still expect a decent crop from the EU and are focusing on Russia's big crop.
In Australia, normally the world's second-largest wheat exporter, production will fall by 34%, below the 10-year average, the country's agricultural department said. Australia supplies buyers in Asia, including China.
China saw its first decline in summer wheat production in seven years following heavy rains. The country has grain reserves, although analysts say lower production and poor quality of crops could increase imports. China continues to buy Australian wheat and also relies on grain from the Black Sea.
In another twist, an Indian ban on non-basmati white rice further exacerbated concerns about potentially tighter global wheat supplies because both crops are used for food, analysts said. India is the world's largest exporter of rice and accounts for more than 40% of exports. “If that can’t be replaced and people go back to wheat,” said AgResource’s Basse, “then we have a problem almost worse than when Russia initially invaded Ukraine.”
Source: agrolink
{module Read Also}
