Unfavorable Weather Conditions
Weather conditions that are not favorable for winter wheat in Ukraine and Russia will reduce both countries’ harvest and export potential. As a result, traders are maintaining high purchase prices at the beginning of the season to evaluate the volume and quality of the new crop.
Impact of Heat on Wheat Quality and Yield
Temperatures between 30-35°C in Ukraine and the southwest of Russia will improve wheat quality but reduce its yield. While temperatures in Ukraine are expected to drop from Wednesday, the heat in Russia is forecasted to continue until the end of the week. Initial data from wheat harvesting in Russia indicate yields are 0.5-1 t/ha lower than last year.
Wheat Harvest Projections
The MARS agency predicts that Russia will harvest 82.5 million tons of wheat in 2024/25, down from 93.6 million tons last year, which is 5% below the five-year average.
Rising Purchase Prices in Ukraine
This week, purchase prices for wheat in Ukraine increased by $2-3/t in Black Sea ports to $192-195/t for food wheat and $175-177/t for fodder wheat, compared to $150-160/t at the same time last year.
Factors Influencing Price Increase
The main reasons for the price increase include the decrease in freight costs from Black Sea ports to levels comparable to those from Romania and Russia and reduced insurance costs for entering Ukrainian ports. This follows the active operations of the Ukrainian Armed Forces against the Russian Black Sea Fleet, which has withdrawn from Crimea.
Ukrainian Wheat Export Trends
In the 2023/24 marketing year, Ukraine increased wheat exports by 8.8% to 18.4 million tons, surpassing the USDA’s June estimate of 17.5 million tons. However, in the 2024/25 marketing year, exports are expected to decrease to 14-15 million tons due to reduced initial stocks and a three-year low in harvest.
Pressure from US Wheat Harvest
Active harvesting of winter wheat and improved spring wheat crop conditions in the US are putting pressure on stock quotes. According to NASS USDA data, 54% of winter wheat in the US was harvested as of June 30 (compared to 33% last year), and 72% of spring wheat was in good or excellent condition (up from 48% last year). Despite this, starting prices for winter wheat in the US are 13-35% lower than last year, and spring wheat prices are 28% lower.
Decline in Wheat Futures
July wheat futures fell yesterday:
- Soft winter SRW wheat in Chicago: down 1.4% to $206.3/t (from $233.8/t last year)
- HRW hard winter wheat in Kansas City: down 1.7% to $217.9/t (from $294.4/t last year)
- Hard spring HRS wheat in Minneapolis: unchanged at $230.75/t (from $294.7/t last year)
- September wheat futures on the Paris Euronext: down 1.4% to €227/t or $243.8/t, matching last year’s level (-14% for the month)
Global Wheat Production and Demand
Importing countries are expected to increase wheat production in FY 2024/25, reducing demand at the start of the season. However, demand is anticipated to rise again after assessing the harvest in Black Sea countries. Iran has announced it will not export wheat this season, and Pakistan is projected to harvest a record 31.4 million tons of wheat, 11% more than last year, according to FAS USDA estimates.
The high starting prices for wheat in Ukraine, driven by reduced crop yields in Russia and unfavorable weather conditions, illustrate the complex dynamics of the global wheat market. Stakeholders should monitor ongoing developments and market reactions to make informed decisions as the season progresses.