World Wheat Squeeze Expected to Worsen in 2023 as Price Risks Persist – Braun, Reuters

By Karen Braun

NAPERVILLE, Ill. – Global wheat prices are experiencing record highs for this time of year, but market participants may need to reassess their optimism regarding supply forecasts for the upcoming year, based on the latest projections from the U.S. government.

On Thursday, the U.S. Department of Agriculture (USDA) reported that world wheat ending stocks for the 2022-23 marketing year will be at 267 million tonnes, marking a six-year low and falling short of analyst estimates, which predicted stocks would reach 272 million tonnes.

When compared to global demand estimates, wheat availability for the next cycle is alarmingly close to historic lows and notably below this year’s reduced levels. Excluding China, the world wheat stocks-to-use ratio for 2022-23 drops to 14.9% from this year’s 16.4%, reaching its fourth lowest level ever. The record low stands at 14.3%, set in the 2007-08 cycle, while the average from the mid-2010s was around 19%.

These dynamics may sustain high wheat prices well into 2023, influencing food prices globally and maintaining elevated costs for importing nations. Further risks to wheat supplies for the 2022-23 marketing year cannot be discounted.

Chicago wheat futures reached a two-month high of $11.83 per bushel on Thursday, while Paris-traded Euronext wheat recorded contract highs, with September futures hitting 416.25 euros per tonne.

The USDA’s estimates were the first for the 2022-23 cycle.

NARROW OUTLOOK

One of the more surprising forecasts released was for U.S. hard red winter wheat production, which the USDA estimates at 590 million bushels. Analysts had expected a figure of 685 million, already significantly lower than last year’s harvest of 749 million, and it would represent the smallest HRW harvest since 1963.

Current condition ratings for U.S. HRW states are dismal, among the worst on record. However, historical data indicates that the USDA’s predictions tend to closely align with final outcomes during years of poor yields, unlike in stronger production years.

Concerns are also mounting regarding the U.S. spring wheat crop, as planting lags behind. As of Sunday, planting rates were the slowest since 2011, with North Dakota reporting only 8% sown against a 37% average. Recent rains may exacerbate these planting delays.

The situation in Ukraine continues to add uncertainty to the wheat market, with Russian military forces occupying parts of the region, a historically significant wheat exporter. The USDA estimates Ukraine’s 2022-23 wheat harvest at 21.5 million tonnes, a ten-year low and a 35% reduction compared to the previous year. Wheat exports from Ukraine are projected at just 10 million tonnes, down 47% year-on-year, marking a nine-year low.

On the other hand, Russia, the world’s leading wheat exporter, is expected to see a more than 6% increase in its crop. Conversely, the USDA anticipates declines in wheat crops for major suppliers including Argentina, Australia, India, and the European Union, collectively expecting a 4% reduction. Adverse weather conditions in France and India could further impact yields.

Canada is expected to rebound with a 50% increase in wheat harvest compared to last year’s drought-affected output, although analysts remain cautious about planting rates and prevailing dry conditions. The total U.S. wheat crop is projected to rise by 5% from last year, largely driven by tentative spring wheat expectations.

China, often excluded from global grain discussions due to its extensive stockpiles, is set to hold a record 53% of the world’s wheat in storage by mid-2023.

Karen Braun is a market analyst. The opinions expressed are her own.