Increasing Geopolitical Uncertainty Leads to Global Wheat Supply Constraints

The recent release of the USDA's World Agricultural Supply and Demand estimates sheds light on the evolving dynamics in the global wheat market for 2023-24. Despite a predicted decrease in global wheat production compared to the July update, these changes were expected and already incorporated into market expectations.

The updated global wheat outlook features lower opening stocks, reduced production, decreased consumption, declining international trade, and lower ending stocks than the July update. Adjustments by the USDA led to a 1 million tonne decrease in worldwide opening stocks to 268.3 million tonnes. Production for 2023-24 was lowered by 3.3 million tonnes to 793.4 million tonnes, still higher than 2022-23 by 1.8 million tonnes. This results in a 4.3 million tonne reduction in global supplies to 1,061.7 million tonnes, compared to 1,062.6 million tonnes in 2022-23.

The USDA lowered its July wheat export estimate by 2.2 million tonnes, arriving at a global trade volume of 209.4 million tonnes for the current month, down 4.2 percent from the 2022-23 marketing year. This projects a worldwide ending stock of 265.6 million tonnes, 0.9 million tonnes lower than July and 2.7 million tonnes less than the revised opening stock. This would be the lowest global wheat carry-out since 2015/16.

Russian wheat production remains at 85 million tonnes, aligned with local analysts. Respected consultancy SovEcon projects 87.1 million tonnes. The USDA maintains caution with an old crop estimate of 92 million tonnes. About 42 percent of the crop was harvested by the midpoint of the preceding week.

Russian exports were increased by 0.5 million tonnes to 48 million tonnes, in line with the strong pace of exports in 2022-23. SovEcon also raised its 2023/34 export forecast by 0.9 million tonnes to 48.1 million tonnes. Russian export disruptions could impact global wheat prices.

Wheat production in Ukraine was raised by 3.5 million tonnes to 21 million tonnes due to updated estimates from Ukraine's Ministry of Agriculture. Kazakhstan's production was adjusted to 15 million tonnes, 1 million tonne higher than July, but 1.4 million tonnes lower than last season. Exports remained steady for both countries.

US wheat production was unchanged from July, but there were shifts within wheat classes, including a slight increase in Hard Red Winter wheat production, a four percent rise in Soft Red Winter wheat output, and a six percent reduction in spring wheat production. Exports were reduced from 19.7 million tonnes to 19.1 million tonnes.

Australia's wheat production estimate remained at 29 million tonnes, given variable growing conditions. Export estimates stayed consistent at 21.5 million tonnes, but the opening stock figure of 2.8 million tonnes likely underestimates the actual stock, while the closing stock projection of 2.8 million tonnes is around half the actual quantity.

Canada's wheat production forecast was reduced to 33 million tonnes due to intensifying drought conditions, with exports also trimmed to 24.5 million tonnes.

The European Union saw reduced yields due to unusual weather, with the USDA lowering production estimates by 3 million tonnes to 135 million tonnes. Exports remained unchanged at 38.5 million tonnes.

Argentina's wheat production and export estimates were maintained at 17.5 million tonnes and 12 million tonnes, despite lingering effects of drought on winter cropping regions.

India's wheat production estimate of 113.5 million tonnes was surprisingly maintained, though local reports suggest otherwise. The government's plan to release wheat from state reserves may not suffice to stabilize prices, indicating potential substantial wheat imports before the next harvest.