Fresh contract lows in Chicago wheat futures this week are hardly indicative of global supply concerns, but traders may want to watch what’s happening in the Black Sea region more closely.
The winter grains of the largest wheat exporter, Russia, are in the worst condition ever, and Ukraine’s current shipping capabilities may soon be under threat. Russia and Ukraine accounted for a third of global wheat exports in the last marketing year.
Ukraine’s agricultural exports have faced challenges since Russia invaded the country nearly three years ago, as port infrastructure has been a prime target for attacks. This has forced Ukrainian grain exporters to seek an alternative route via Romania’s Black Sea port of Constanta.
Strategic port and the impacts of the Romanian elections
The frontrunner for Sunday's Romanian presidential runoff has suggested halting Ukrainian grain exports out of his country if elected. The move could prove popular with Romanian farmers, who have protested against the transit of Ukrainian agricultural products to preserve local markets.
It is unclear whether such a ban is likely or even possible, but Ukraine’s involvement has had some positive economic impacts. Overall freight traffic in Constanta in 2023 is expected to increase by 22.5% on the year, largely due to ongoing EU-funded infrastructure projects.
But it could be problematic if Ukraine were to lose Constanta as an outlet in the worst-case scenario. Constanta handled 14 million metric tons of Ukrainian grain in 2023, accounting for approximately 30% of Ukraine’s total grain exports that year.
For the 2024-25 marketing year that began on July 1, Ukraine’s wheat exports are expected to fall by 14% from a year earlier. However, Ukrainian grain exports from Constanta in the first 10 months of 2024 were expected to fall by 52% on the year as Ukraine increased reliance on its own seaports.
This cushions the blow of a potential loss of Constanta, but the ongoing war with Russia means that threats to Ukraine’s seaports never completely disappear. Fortunately for Ukrainian exporters, they had shipped half of the government’s agreed wheat export volume for 2024-25 by November 13.
Russia in danger
A senior Russian official said on Thursday that winter crops are in poor condition, just a day after Russian analysts reported that winter crops are in the worst health ever, citing data that is not normally made public.
The authority also said the situation is not critical, but further analysis may suggest otherwise.
Analysts said at least 37% of winter crops are in poor condition, compared with 4% a year ago, and this is the worst rating on record. On average, over the past five years, only 8% of winter crops are in poor condition to date.
Impacts on production and outlook for 2025
Furthermore, only 31% of crops are in good condition, compared to 74% a year ago. The share of crops in good condition is the lowest in 23 years.
The last time Russia's grains were in a worrying condition ahead of winter was in 2020, when some 22% of crops were in poor condition in early December. At the time, it was the worst rating in seven years.
While the exact number is not known, the share of crops that scored well four years ago was not the lowest in seven years, which sets it apart from this season. The problems in both years were caused by dry weather during fall planting.
Russia’s 2025 wheat harvest may already be starting in a hole. Farmers said last month they would sow less wheat this year in favor of more profitable crops, including oilseeds.
Preliminary estimates pegged the 2025 harvest close to 2024 levels, which were down 20% from the record 2022 result.
Wheat is a notoriously resilient crop. It has the ability to bounce back from adverse conditions as long as the weather is favorable. So it may be difficult to spark traders’ fears about Russia this early in the game.
Once the crop comes out of dormancy in the spring, satellite imagery could provide good insights into the state of Russia’s wheat crop. Recent weather data will also be key to this analysis. This will happen regardless of whether the government decides to share the information.
Source: Karen Braun | Notícias Agrícolas
