Top wheat-producing countries all concerned about 2024 weather

The wild world of wheat. Literally. Anyone growing, trading or involved in the wheat industry is very aware of this market’s volatility.

Thankfully, from a producer standpoint, we have finally experienced a sizable rally on global weather headlines over the past couple of weeks. Weather is often a major market driver this time of the year — much like all three major grains. However, supply and demand projections, particularly for wheat, are supporting even greater weather-related market volatility this year.

Based on the April World Agricultural Supply & Demand Estimates report, global wheat ending stocks moved to its lowest level in eight years. This isn’t new for the market as global wheat ending stocks have been moving lower since their peak in 2019/2020 at 297 million metric tons. Since that time, global supplies have declined 39 million metric tons with the latest USDA estimate projecting world wheat stocks at 258.3 million metric tons. To many in the trade, the move lower in ending stocks isn’t matching the recent action in wheat exchanges as they made new lows in 2024. While that may seem puzzling, it's important to remember that so far, the USDA is expecting higher global production for 2023/2024. In fact, it's still the second highest on record behind last year.

Ample production by the world’s top wheat exporters is to blame. With sufficient supplies readily available on the global market, the trade hasn’t had to worry about supply issues. Remember, the Russia/Ukraine conflict premium has largely gone to the wayside as the market has largely re-routed supply. Without geopolitical headlines adding market volatility, the global wheat market has gone back to trading fundamentals. To start 2024, there hasn’t been any major fundamental hiccups to spark a premium build. With record production in Russia and adequate harvests in the U.S., the European Union, Ukraine, Australia and Argentina, the global wheat market hasn't had reason to deviate from the lower trend. That, however, appears to be changing with adverse weather potentially impacting wheat production in Russia, Europe and the U.S.

Russia’s production and exports have a major influence on global wheat prices. Rightfully so — it is the world’s largest wheat exporter. Historically, over 70% of Russian wheat is winter wheat, with about 30% being located in southern Russia. Currently, projections from many global agencies are predicting another year of large Russian wheat production. However, dry weather conditions are posing a significant risk to the crop in key growing regions.

After below average rainfall in March, key production areas of Russia remained dryer than normal through the month of April. In fact, rainfall in the area has been less than half its normal amount over the past several weeks. With these regions supplying the bulk of Russia’s exportable wheat supplies, private analysts have started trimming production estimates. Remember, Russia has been exporting record quantities of wheat after two consecutive bumper harvests. With that in mind, it certainly questions how much supply will be available on the global market if production falls. As long as the dryer trend remains intact for key production regions, the market will debate the issue which could keep wheat prices supported.

Regardless, current conditions are spurring drought concerns for Russia which many will tell you is long overdue. Historically, Russia experiences a drought every five to seven years. That hasn’t been the case recently as the last time Russia experienced a sizable drought was in 2010 and 2012. In 2010, the drought hit in June/July which cut yields for both winter and spring wheat crops. In 2012, April turned hot and dry which prevailed through the growing season. As a result, Russia’s total wheat production suffered substantially during both years. Just remember, Russia has been quick to impose export quotas or even bans during times of drought or domestic food inflation. In 2010, after the drought devastated the country’s wheat crop, it imposed an outright export ban in early August. The move caused global wheat futures to spike as the ban was extended to the end of June 2011.

It's important to also note that in both 2010 and 2012, global wheat production was also stressed due to global weather conditions. While we aren’t there yet, there are other areas of the world facing production issues this year.

France and other areas of the European Union are facing the opposite weather pattern. Cold and wet conditions last fall limited winter wheat plantings with acres estimated to be down considerably from the previous year. Unfortunately, conditions haven’t improved this spring as more rain and cold temperatures have pushed crop condition ratings to their lowest level in four years. At this point, many private analysts have moved production estimates lower for the region. Not only due to yield and quality loss but also abandonment. As a result, many private analysts and other agencies are projecting the EU’s wheat crop to be its smallest size since 2020.

As you can tell, the Northern Hemisphere is a major focus for the wheat market this time of year and North America isn’t excluded. Despite stellar conditions to start 2024, there are dry pockets emerging in U.S. hard red winter wheat areas. While condition ratings are still at their highest level for this time of year since 2020, ratings have deteriorated over the past couple of weeks due to re-emerging drought. Recent rains have missed key areas of the southern Plains which is fueling ideas of further downgrades. Especially in portions of southwestern Kansas as it experienced its third driest April on record. U.S. spring wheat areas, on the other hand, have benefited from recent rains but dry areas still remain in Canada. Estimates look for increased wheat production in Canada this year, which could actually be triggered by the dry conditions favoring wheat acres. However, without relieving rains, yields will likely hinder a production rebound.

Overall, top global exporters including Russia, the EU, the U.S. and Canada are all entering the growing season with weather concerns. Global wheat stocks look ample at the moment but any production losses by a major exporter can quickly change the outlook. Just remember, as with any commodity weather market, the trade’s sentiment can change as quickly as the forecast. Wheat experienced a taste of that this past week with a forecast adjustment.

The Southern Hemisphere hasn’t grabbed weather headlines yet but the planting season there will be beginning soon. Remember, Australia and Argentina are also large global producers. With weather analysts predicting the transition from an El Nino weather pattern to a La Nina event late summer, the entire world of wheat could be impacted. In terms of a global wheat weather market, it may be just beginning.

Allison Thompson is a market analyst with The Money Farm in Ada, Minnesota. She previously has worked as a Farm Business Management instructor and is active on her family's Mahnomen, Minnesota, grain farm.