US Wheat Prices Surge Amid Geopolitical Turmoil and Production Challenges

Wheat Prices Increase Amidst Geopolitical Tensions

The global wheat industry has fluctuated at the end of 2023. Concerns over potential disruptions in shipping routes within the Black Sea region sparked the recent surge in the Chicago Board of Trade (CBOT) wheat price by 3.1% week-on-week (WoW) to USD 6.315 per bushel on Dec 28, 2023. This unexpected market movement during the usually tranquil end-of-year holiday period was primarily triggered by a Ukrainian attack on a Russian military ship, renewing apprehensions about the flow of wheat trade in the area. This strike reignited fears of disruptions in wheat flows, leading to marked increases in wheat contracts. Moreover, The Russian Ministry of Agriculture’s decision to impose a temporary restriction on durum wheat exports further contributed to the market's unease, aiming to bolster domestic food security and stabilize prices, effective from December 1, 2023 to May 31, 2024.

Figure 1. Wheat Future Price

Adverse Weather and Robust Chinese Demand Influence Supply and Trade Dynamics

Amidst the surge in wheat prices, Tridge anticipates that elevated prices will continue throughout Q1-24, considering the forecasted global decrease in wheat production for the 2023/24 period and strong demand from China. In the Dec-23 forecasts, global wheat production for 2023/24 increased by 1 million metric tons (mmt) to 783 mmt from the previous month. However, the recent figure remains below last year’s record by 0.84% year-on-year (YoY) from 789.7 mmt. China, Australia, Canada, and Brazil production estimates are down from the previous year due to adverse weather.

Furthermore, China's demand for wheat in 2023 puts pressure on the price. China’s demand for international wheat has been bolstered by quality concerns in its domestic crop this year, mostly due to heavy rains at harvest time in the top wheat-producing province, Henan. Ample domestic supplies of feed-quality wheat have resulted in larger expected wheat feed. With a greater proportion of feed-quality wheat in this year’s crop, China requires additional imports of milling wheat to supplement domestic supplies for food use.

In 2022, China heavily depended on Australia's abundant supplies of both milling and feed-quality wheat. Thanks to Australia's exceptional crop in 2022/23 and reduced shipping costs, the country exported 5.7 mmt of wheat to China, marking a 109% YoY surge. This substantial increase secured nearly 55% of the Chinese wheat import market share.

Figure 2. Top Country of China’s Wheat Imports

The robust demand for milling wheat in China has led to diversified wheat imports from other origins in 2023. Notably, China significantly escalated imports from the United States (US) and Canada from Jan-23 to Sep-23. The country imported 1.77 mmt of Canadian wheat, indicating a 204.17% YoY surge, alongside the import of 629,749 metric tons (mt) of US wheat, demonstrating a significant 15,465% YoY increase in the first nine months of 2023. These substantial import surges underscore China's heightened demand for milling wheat from various global sources. China’s wheat imports are expected to surpass 12.5 mmt, an increase of 27% YoY from 2023.

Figure 3. Chinese Wheat Imports Volume

Attention is now focused on how geopolitical events and ongoing production issues, notably in key wheat-producing regions, will shape supply dynamics. Additionally, the persistent strong demand from China, spurred by quality concerns in its domestic crop, presents a compelling factor influencing global wheat prices. The market's resilience in the face of geopolitical disruptions and production constraints will likely determine the direction of wheat prices moving forward. Therefore, staying vigilant and closely watching global wheat production, trade flows, and demand trends will be needed in response to the market's evolving dynamics in the coming months.