Wheat Prices Continue to Plummet but the Subsidies Never Die
US wheat prices remain elevated, with the most active wheat contract on the Chicago Board of Trade (CBOT) up 1.5% at $8.93 a bushel.
Fresh planting data from the US Department of Agriculture (USDA) highlighted that the 2022/23 US wheat outlook for supply and use was unchanged in September. The projected 2022/23 season-average farm price (SAFP) is lowered by $0.25 per bushel to $9.00, on reported NASS prices to date and expectations for cash and futures prices for the remainder of 2022/23.
Despite the decline, $9.00 per bushel would remain a record SAFP. The 2022/23 global wheat outlook raises supplies, consumption, exports, and ending stocks this month. Supplies increase by 3.6 million tons to 1,059.6 million, as production increases for Russia and Ukraine more than offset a decline in beginning stocks.
Production in Russia is forecast 3.0 million tons higher, at 91.0 million, on harvest results for winter wheat to date published by the Russian Ministry of Agriculture. A strong crop from Russia, the world's top exporter, has pointed to near-record amounts of wheat becoming available for shipment.
Ukrainian farmers have completed the 2022 wheat harvest – threshing 19.2 million tonnes, compared to 2021's harvest of 32.2 million tonnes of wheat. The agriculture ministry has said the fall in output in 2022 was a direct result of hostilities in the country's eastern, northern and southern regions.
Russia's invasion of Ukraine drives wheat prices higher
Both Russia and Ukraine are major producers and exporters of grain. According to the United Nations' Food and Agriculture Organisation (FAO), Russia exported 32.9 million tonnes of wheat in 2021, accounting for 18% of global trade, while Ukraine shipped 20 million tonnes, equivalent to 10% of the global market share.
Following Russia's invasion of Ukraine on 24 February, Russia blockaded the Black Sea – the main export route for Ukrainian commodities. Prior to Russia's invasion, Ukrainian grain was exported via its Black Sea ports, which include Chornomorsk, Mykolayiv, Odesa, Kherson and Yuzhny.
Grain is one of Ukraine's main industries, with exports totalling $12.2bn in 2021 and accounting for close to a fifth of the country's exports.
The blockades halted most Ukrainian grain exports, which led to a surge in global wheat market prices and prompted fears of food shortages in Africa and the Middle East. Exports continued via road and rail routes – dubbed 'Solidarity Lanes' by the European Union – but were nowhere near enough to stabilise the global wheat market.
Efforts to broker a deal to unblock Ukraine's sea ports to alleviate the food crisis were underway for several months, with an agreement finally being reached in late July.
The Black Sea export corridor
Three Black Sea ports were unblocked at the end of July following a deal between Moscow and Kyiv, brokered by the United Nations and Turkey, releasing hundreds of thousands of tonnes of grain to global markets.
The first cargo was loaded on 1 August after Russia lifted its naval blockade, allowing ships to use a safe corridor through the Black Sea.
Ukraine's government said that in the first half of August, only 948,000 tonnes of the commodity were exported, compared to 1.8 million tonnes in the same period last year.
On a visit to Odesa on 18 August, UN Secretary-General Antonio Guterres summarised the interim effects of the grain deal:
"In less than one month, 21 ships have departed from Ukrainian ports and 15 vessels have left Istanbul for Ukraine to load up with grain and other food supplies. As we speak, more than 560,000 metric tons of grain and other food produced by Ukrainian farmers is making its way to markets around the world.
"Meanwhile – and critically – we have seen signs that global food markets are beginning to stabilise. Wheat prices dropped by as much as 8% following the signing of the agreements. The FAO Food Price Index fell by 9% in July – the biggest decline since 2008. Most food commodities are now trading at prices below pre-war levels, but still very high.
"Getting food and fertiliser out of Ukraine in larger quantities is crucial to further calm commodity markets and to lower prices."
However, escalating conflict between Russia and Ukraine is posing a fresh threat to Black Sea grain exports. The UN-backed deal that has enabled Ukraine to export millions of tonnes of wheat is under strain again as a record number of 150 cargo ships have been stuck across the Black Sea, according toBusinessInsider.
Deepening wheat supply deficit in 2022 & 2023
As a result of the war in Ukraine, the sowing area in the country this year has been reduced, with the grain harvest expected to plunge in 2022.
According to the Ukrainian Agribusiness Club (UCAB), an industry association, the occupation of some Ukrainian territories by Russian troops, territorial proximity to hostilities and mined fields have all reduced the area sown this year, which will inevitably reduce production and exports.
The Ukrainian government has said that the country could harvest at least 50 million tonnes of grain in 2022 compared to a record 86 million tonnes in 2021, due to the loss of land to Russian forces and lower grain yields.
An article by consulting firm McKinsey & Company expanded on the reasons cited by the government and quoted the following figures with regard to Ukraine's grain production and exports:
"We estimate that crop production in Ukraine will decline by 35 to 45 percent in the next harvesting season. The main reasons are reduced harvest area due to ongoing military actions and land mines, farmers' lack of liquidity (due to the inability to ship a large part of last year's harvest), decreased yields due to reduced access to fertilizers, disrupted timing, less advanced plant protection, and ripple effects from increased diesel and fertilizer costs.
"On top of farming challenges, export logistics may continue to be a challenge. Due to these combined factors, exports from Ukraine are likely to decrease by a total of 30 million to 44 million metric tons for the 2022–23 marketing year from a prewar baseline."
According to the USDA's latest WASDE report, global supplies have been revised upward, supported by record production expectations for Russia. US supply outlooks were unchanged this month.
World wheat stocks are expected to fall to 267 million tonnes in 2022/23 – their lowest level in six years and down 5% from the previous year.
McKinsey has estimated that the size of next year's global supply deficit will be conditional on the stability of the Black Sea export corridor:
"In the next planting season, due to the war's disruption of Ukrainian planting and harvesting and combined with less-than-optimal inputs into Russian, Brazilian, and other growing countries' crops, supply will likely tighten. We estimate that these impacts could create a 23 million to 40 million metric ton deficit of globally traded grain in 2023. A smaller deficit is possible if agreements are respected and Black Sea exports from Ukraine become sizable."
Wheat price forecast 2022-2023
As of 10 October, the USDA lowered the US season-average farm price (SAFP) for 2022/23 by $0.25 to $9.00 a bushel.
Fitch Solutions wrote in its research reportWheat Prices: Rising Tensions In Ukraine Providing Momentum For Pricesthat it had revised its 2022 average wheat price forecast upwards to USc933/bu ($9.33/bu) from USc920/bu previously ($9.20/bu), requiring prices to range trade at around USc910-930/bu throughout the remainder of 2022, representing a 32.8% departure from its 2022 highs.
According to Dutch agricultural bank Rabo Bank's most recent wheat price analysis, a cancellation of the Black Sea grain deal is likely, but is mainly priced in already.
Data and analytics provider Trading Economics forecasted wheat to trade at $9.15/bu by the end of the third quarter, rising to $10.19/bu in 12 months' time, or by October 2023.
Algorithm-based forecasting service WalletInvestor's wheat rate projection for the next 12 months was more bullish, suggesting a value of $10.46/bu in a year's time. The site's wheat price predictions saw the grain rising to $16.47/bu in the next five years.
Given the uncertain geopolitical development and market volatility, the majority of analysts and websites have refrained from providing wheat price forecasts for 2025. Wheat price forecasts for 2030 are also unavailable.
Note that analyst and algorithm-based predictions can be wrong. Forecasts shouldn't be used as a substitute for your own research. Always conduct your own diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and goals.
Keep in mind that past performance doesn't guarantee future returns, and never invest any money you cannot afford to lose.
FAQs
Is wheat a good investment?
Regardless of the wheat price outlook, whether wheat futures are a good investment for you or not depends on your risk tolerance, investment goals and portfolio composition.
You should do your own research, and never invest any money that you cannot afford to lose.
Will wheat prices go up or down?
Many analysts, institutions and algorithm-based forecasting services, including WalletInvestor and the USDA, expect wheat prices to rise in the next 12 months. However, wheat price predictions can be wrong and have been inaccurate in the past.
Always do your own research before making any investment decisions.
Should I invest in wheat?
Whether you should invest in wheat depends on your personal circumstances such as risk tolerance, portfolio size and composition, investing goals and timeframe, and your experience in the markets. Remember that commodity markets are volatile and never invest money you cannot afford to lose.
Related reading
Source: https://capital.com/wheat-price-forecast
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