Wheat Prices Gyrate on Ukraine Dam Destruction and Australia Production Forecast

Wheat prices gyrated in intraday trading following news that a major dam in southern Ukraine had been destroyed, throwing into doubt the already downgraded forecasts for Ukraine’s wheat production and exports. 

Also propelling prices was an early season estimate from Australia’s ABARES that the country’s new wheat crop would be down by nearly one-third from last year due to the expected onset of the El Niño climate event. 

July wheat futures jumped by nearly 4% in early trading on the CBOT before settling back. Exacerbating the price volatility is the speculative position held by managed funds — as of May 30 managed money was net short nearly 127,000 contracts, the largest net short position for this time of year in both numbers of contracts and percentage of open interest since at least 2006. 

In Ukraine, flooding caused by the destroyed Kakhovka dam poses a severe risk to people, along with further impediments to agricultural transport and logistics. The dam and reservoir, situated on the Dnipro River, is in the middle of Ukraine’s traditional main wheat growing area and is a major source of farm irrigation.

Reduced Ukrainian planted area coupled with lower yields, as shown by Gro's Ukraine Wheat Yield Forecast Model will weigh on the 2023/24 harvest. Ukraine’s wheat production is estimated to decline by 21% year over year, to 16.5 million tonnes, while exports are projected to drop 33%, to 10 million tonnes. 

In addition, there’s been no letup in Russia’s saber rattling surrounding the Black Sea Grain Initiative, which was extended last month for an additional two months. The Initiative has been critically important in restoring Ukrainian grain flows to the world by creating a safe transit corridor from the war-torn country, as Gro highlighted here. 

In Australia, the expected onset of El Niño is expected to have a sizable negative impact on the country’s wheat production, following three straight years of bumper harvests. The 2023/24 crop is currently being planted and ABARES projects a 30% year-over-year drop in production to 26.2 million tonnes. 

Gro’s machine learning-based Australia Wheat Yield Forecast Model, which provides estimates for in-season yields at the sub-state level, will go live for the season in late June. The model uses weather, vegetation health, and soil data, along with various other environmental features to continuously forecast final end of season yields.

Currently, global wheat ending stocks, outside of China, are at their lowest level since 2008/09 with little anticipated build in 2023/24 ending stocks.