Bad weather and war threaten to keep global wheat supplies under pressure, reviving the specter of rising food costs, according to Bloomberg.
Farmers face many obstacles, such as wet fields in Western Europe, dry soil in Australia, and delays in supplies from Ukraine as a result of the war launched by Russia. This means that global inventories will remain the smallest in about a decade, according to analysts who participated in a survey conducted before the release of the first US government forecasts for next season.
A bumper crop in the Black Sea has long held prices in check, and wheat is trading at half its 2022 record price, but concerns about supplies are rising again. Futures rose to their highest levels since August, and funds trimmed bearish bets they had held for nearly two years.
This is a worrying sign for consumers who have finally found relief from rising food prices. Any sustained rise could raise bread and pasta costs and ignite inflationary pressures on central banks, with other major crops such as cocoa and coffee rising this year.
“Demand has risen, stocks remain tight globally, and new crop problems are mounting,” said James Polesworth, managing director at CRM AgriCustomities.
With harvest season approaching in the Northern Hemisphere, the next few weeks remain crucial for crop growth, meaning there is still time for things to get better or worse.
As harvest season approaches in the Northern Hemisphere, the next few weeks remain crucial for crop growth, meaning there is still time for things to get better or worse. Here’s a summary of conditions for large farmers:
Black Sea Drying up
Russia, the largest wheat exporter, risks losing vital moisture. Analysts have slashed harvest estimates due to weeks of heat and scant rain in the southern regions. According to Commodity Weather Group on Wednesday, half of Russia’s winter wheat crops will remain exceptionally dry in the next two weeks.
Russia has yet to harvest a large crop, but its dominance in the crop means that any shocks in domestic prices will be transmitted to other markets.
Ukraine War
Drought has also affected large areas of Ukrainian wheat in recent weeks.
Attacks on agricultural infrastructure threaten exports, and the workforce has been depleted as men head to serve in the army.
Next season’s grain production may decrease by 6% from last year as farmers switch acres to more profitable crops like rapeseed.
Rainy Western Europe
Crop growth in northwestern Europe has been hindered by a wet spring. This may affect the quality of winter crops, crucial for deciding their use for food or animal feed. In France, the condition of wheat and barley fields is significantly behind last year’s level. Moreover, rains have delayed spring cropping in the United Kingdom, Germany, and France.
“We are of course concerned about the issue of uncultivated areas as it is linked to weather conditions,” Benoit Pietrement, head of the cereals board at the crop office FranceAgriMer, said last month.
Dry Australia
Dry and hot summers in some areas of Australia have dried out the soil at crop planting time. Farmers remain cautious, although recent rains have provided some relief in some key areas of Western Australia.
Denis Voznesensky, associate director of sustainable and agricultural economics at Commonwealth Bank of Australia, said this week that crops were at risk of “burning” in the state if rains stopped after germination. He explained that the rise in wheat prices locally and globally was faster than expected.
Dry United States
Drought worsened in U.S. winter wheat fields since early April and remains a concern for spring crops, despite rain in the latest forecast. Yet, more American winter wheat is better than usual for this time, and spring crops exceed the five-year average.
Concerns about crops are showing in prices, with money managers now less pessimistic since July. But things may change before the start of the first harvest in the Northern Hemisphere in about four weeks.
“There are a lot of weather-related risks yet, and the crop is not complete yet, and if it rains it will have value,” said Matt Ammerman, StoneX’s director of commodity risk. “It’s still a wait-and-see game.”
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