In W35 in the wheat landscape, Refinitiv Commodities Research expects European Union (EU) soft wheat production to reach 127.7 million metric tons (mmt) in the 2023/24 season, a decrease of 0.3 mmt compared to the Aug-23 estimate. The 2023/24 EU durum wheat production is also estimated at 7.5 mmt, a reduction of 0.1 mmt compared to the Aug-23 estimate. This downward adjustment for 2023/24 EU wheat estimates is attributed to unfavorable weather conditions. Recent heat waves in Italy and the Iberian Peninsula and excessive rainfall in northern and eastern Europe adversely affected crop conditions, leading to a harvest slowdown and potentially harming grain quality.
As Argentina faces a prolonged absence of rain, the country's agricultural regions are heading into a critical stage for moisture demand. This particularly concerns Argentine wheat, which is approaching its reproductive phase. The situation is complicated by an ongoing election campaign, economic uncertainty, and fluctuating government measures. Additionally, developments in Brazil, which has significantly increased its cereal production, pose potential challenges to Argentina's wheat exports. This is because Brazil's import needs for Argentine wheat could decrease, raising concerns about self-sufficiency in the future. While a bumper wheat harvest of 15 mmt to 16 mmt would be welcome, it also necessitates careful financial planning to ensure producers don't face resource shortages.
New pricing dynamics emerged in the Russian wheat export market, increasingly detached from calculated parity levels in W35. Regulatory guidance suggests that Free-on-board (FOB) prices should not drop below USD 270 per metric ton (mt), notably higher than market rates. Conversely, CPT prices are expected not to exceed USD 174.45/mt, falling below fair parity levels. Compounding these factors were warehouse overstocking in ports, queues at port facilities, a fleet shortage, and subsequently, slower shipment rates. This dynamic prompted exporters to reduce purchase prices to discourage farmers from selling grain from the new harvest until normal export processes are restored. Consequently, this led to a decline in port prices, dropping from USD 174.45/mt in W34 to USD 167.27/mt in W35. However, these short-term infrastructure issues are anticipated to gradually subside in the first half of Sep-23, allowing prices to rebound, potentially returning to recent highs of USD 174.45/mt.
Lastly, Ukrainian farmers are not expected to significantly reduce the sown area for winter wheat for the 2024 harvest despite high logistic costs due to the wartime export crisis. According to the First Deputy Agriculture Minister, Taras Vysotskiy, the potential reduction in winter wheat sowing area might amount to just 0.1% year-on-year (YoY). While there were concerns that logistic challenges might lead to reduced wheat planting, the overall winter crop sowing area could even increase by 8% compared to the 2023 season. This increase is primarily due to an expansion in the area dedicated to winter oilseeds. This shift could potentially lead to reduced spring grain crops sowing like maize and spring barley.