Tightening Wheat Supplies in Europe and Black Sea Ripple Through Global Commodity Markets

Combined wheat production in the European Union, Russia, and Ukraine is forecast down 12 percent from last year to the lowest level in 5 years. The EU wheat crop is down 9 percent from last year on hot, dry weather in the northern Member States, while production in Russia and Ukraine is down from recent bumper crops on a return to normal yields.

With global wheat production down substantially from last year, prices are rising. The recent climb in global wheat prices has led corn prices higher as well, even as the spread between the two has widened. Thus, wheat has become less preferred in feed rations relative to corn. This is particularly evident in the European Union, where corn imports and feeding are expected to be record high to support domestic feed demand. Wheat and barley feeding are expected down from the previous year. Also offsetting the lower EU wheat feeding is higher soy consumption.

Globally, wheat food use is forecast to continue steady growth, but the share of global trade occupied by the European Union, Russia, and Ukraine is expected lower. These suppliers are likely to keep much of their core markets in place, but will likely lose share in regions such as North Africa, Sub-Saharan Africa, and Southeast Asia as their price advantage diminishes. Argentina, Canada, and the United States are all expecting larger wheat crops and will likely become increasingly price competitive later in the year.

OVERVIEW FOR 2018/19

Global wheat production is down this month mainly from smaller crops in the European Union and Turkey. Global trade remains a record, but is forecast down from last month as higher prices weaken demand. Exports are projected lower for Australia and the European Union, but up for Russia and the United States. The U.S. season-average farm price is up $0.10 to $5.10 per bushel.

WHEAT PRICES

Domestic: U.S. wheat prices for the month of July were mostly up due to concerns regarding production prospects in several other major wheat-exporting countries and the consequent tightening of global supplies. Prices for Soft Red Winter (SRW) were up $16/ton to $231 and Hard Red Winter (HRW) rose $24/ton to $254. Hard Red Spring (HRS) quotes improved $23/ton to $270, following some reports of lower-than-expected yields in major spring wheat areas. Soft White Winter (SWW) quotes declined $4/ton to $225.

Global: Exporter prices were mostly up at the end of July. Concerns of drought in Australia have driven its prices up, leaving Australia uncompetitive on the international wheat market. EU prices were up based on concerns over the size of the new crop. Black Sea quotes rose on tightening global wheat supplies. U.S. prices are up similarly, supported by international market supplies. Argentina is down this month on expectations of a bumper crop.

Month Ending Prices for Major Wheat Exporters

Month Ending

Argentina

Australia

Black Sea

EU

US

July

$240

$280

$223

$246

$254

June

$253

$253

$198

$209

$230

May

$265

$263

$211

$210

$254

Source: IGC

Note on FOB prices: Argentina- 12.0%, up river; Australia- average of APW; Fremantle, Newcastle, and Port Adelaide; Black Sea- milling;

EU- France grade 1, Rouen; US- HRW 11.5% Gulf