Chicago wheat futures fell to their lowest levels in nearly three years this week, but exportable global wheat supplies are expected to approach historic lows by mid-2024, relative to demand. Theoretically, that information should prevent further declines in the price of wheat around the world, but there is a catch: this is a common rumor since a long time that has not materialized.
Reasons For Falling Inventory
Wheat prices reached new highs following Russia's invasion of Ukraine in early 2022 because the two nations together account for nearly 30% of global exports. Since then, there have continued to be doubts about Ukraine's ability to produce and export, though this has largely been a bearish rather than a bullish factor for prices.
According to estimates of monthly supply and demand released on Tuesday by the U.S. Department of Agriculture, the percentage of major exporting nations' wheat stocks available for use will drop from 15.1% in 2022–2023 to 13.5% in 2023–2024. It is crucial to distinguish between global stocks and stocks in exporting nations because top wheat producer China holds about half of the world's supply but only trades a small amount.
The second-lowest stocks-to-use on record, 13.5%, is only surpassed by 13.1% in 2007–2008, when wheat prices were at their most volatile. The most recent five-year average in exportable wheat stocks-to-use is 15.7%, with the highest in the last decade being 18.9% in 2017-18. CBOT wheat futures are currently about a third stronger this month than they were in September 2017, eg. they have been down more than 30% since September 2022.
Exportable wheat stocks-to-use were predicted to reach 15-year lows by mid-2023 a year ago, and all-time lows were predicted in mid-2022 two years ago. Neither scenario came true, and the pattern of an impending drop in wheat supplies has likely worn on grain traders.
Wheat Forcasts From Ukraine
According to the USDA's most recent forecasts, bad weather caused a supply contraction among major exporters. The forecasts for Argentina, Australia, Canada, and the European Union's 2023–24 wheat crops decreased by a combined 7 million metric tons (mmt) from the previous month's estimate, and they are expected to export 91 mmt this year. Since early 2022, there have been significant swings in Ukraine's wheat harvest and export projections, but the market has consistently underestimated them.
For instance, USDA's estimates from the previous year for the recently finished 2022–2023 marketing year showed Ukraine wheat exports at 11 mmt versus the most recent figure of 17.1 mmt.
Ukraine's recently harvested 2023-24 wheat crop is now expected to outperform last year's crop, despite USDA forecasts for a 20% decline, though exports are still expected to fall by 36%, owing to the lack of a clear agreement between Russia and Ukraine regarding Black Sea trade.
According to recent patterns, one might naturally anticipate that Ukraine's 2023–24 wheat exports will eventually exceed current projections, but the nation's grain shipments from September 1–13 were down nearly 50% from the same period last year.
The decline this month is a very recent development that is worth keeping an eye on. As of August 30, Ukraine had exported approximately 4.3 mmt of wheat since the 2023–24 season began on July 1, up from approximately 4 mmt in the same period a year earlier.
Exportable wheat stocks-to-use were predicted to reach historic lows by mid-2022 just before the Russian invasion in February 2022, indicating Ukraine cannot fully account for why global wheat supplies have consistently been underestimated.
Russia, the top exporter of wheat globally, has a significant role in this. In 2022–23, it shipped a record 46 mmt of wheat, far exceeding the initial outlook of 39 mmt after the crop last year far exceeded expectations. In 2023–2024, Russia is expected to export 49 mmt of wheat.
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