Rebellion in Russia Sparks Global Wheat Market Volatility

This weekend’s rebellion against the Russian government by the Wagner paramilitary group sparked volatility in global wheat markets Monday, as CBOT futures prices jumped in intraday trading by more than 3% to a four-month high before settling back. 

The instability in the region, coupled with ongoing worries about wheat production around the world, has speculative traders covering short positions. There are also growing concerns that renewing the Black Sea Grain Initiative could be more difficult than in the past when it expires on July 18. The initiative, last renewed in May, provides a safe transit corridor for agricultural commodities from war-torn Ukraine, as Gro highlighted here. 

Russia is the world’s No. 1 wheat exporter and was expected to ship a record 46.5 million tonnes of wheat in 2023/24. Production prospects for Russian winter wheat crops, which make up the bulk of the country’s wheat production, have been very favorable, as shown by Gro's Russia Winter Wheat Yield Forecast Model. 

Many countries in the Middle East and North Africa rely heavily on wheat exports from Russia. Egypt, for example, normally gets 60% of its wheat imports from Russia. Any hindrance to Russia’s exports could alter world trade flows at a time when production is threatened worldwide.

2023/24 wheat production in many countries is at risk from drought. The Gro Drought Index, aggregated for all the world’s wheat-growing regions using Gro’s Climate Risk Navigator for Agriculture, is at its second-highest level in at least two decades. Gro models and analytics are projecting weaker year-over-year harvests from Canada, India, Ukraine, Australia, Argentina, the US, the EU, and China.

The poor wheat production outlook comes as global wheat ending stocks, excluding China, are close to the tightest levels in more than a decade. 

In addition, Russia’s spring wheat crop, which represents 25% of the country’s total production, is also contending with dry conditions. Accumulated rainfall in spring wheat regions is close to a 20-year low, as seen in this Navigator display, while the Gro Drought Index has advanced since early May and now shows “severe” drought conditions. 

Russia harvests its winter wheat crop in July and its spring wheat crop beginning in August.