Global wheat inventories outside of China are forecast to drop in 2022/23 to the lowest level in 14 years, marking the third consecutive annual decline in wheat ending stocks excluding China. The tightening stocks reduce worldwide reserves of wheat in the event of further disruptions to global supply chains.
Wheat production excluding China will be mostly flat this year, but higher consumption will push ending stocks down 7% from a year earlier, the USDA projects. Russia, Canada, and the US are expected to increase wheat production, but this will be offset by smaller harvests in Ukraine, European Union countries, Argentina, and Australia.
A Gro analysis based on stocks-to-use ratios, a key measure of supply availability, shows that 2022/23 ending stocks excluding China will represent 70 days of worldwide wheat consumption. That’s down sharply from 90 days of reserves for the 2018/19 crop year. (Although China is the world’s largest wheat producer, its production is primarily for domestic use.)
Wheat prices currently don’t appear to reflect the tightening outlook for inventories. Since hitting their recent highs in March, wheat futures have retreated 42% and are currently trading at 10-month lows. The tightening supply picture, however, could add support for prices in coming months.
Prices for wheat and several other agricultural commodities have largely detached from market fundamentals for much of this year and instead have more closely tracked macro investment instruments, such as US Treasuries. Read Gro’s analysis quantifying this unusual shift in trading dynamics here.
Russia’s wheat crop is expected to reach a record this year, following a strong winter wheat harvest. Winter wheat accounts for 75% of Russia’s total crop. However, Russia’s spring wheat crop is currently experiencing below average vegetative health, or NDVI, a satellite-derived measure of plant health.
View this display from the Gro Portal showing vegetative health levels compared with the 10-year average, as well as Gro Drought Index readings, for spring wheat growing areas in both Russia and neighboring Kazakhstan.
Russia is forecast to export a record 42 million tonnes of wheat this year, according to the USDA. But that will depend on the course of the war with Ukraine. So far this year Russian wheat exports have been sluggish.
Ukraine has begun exporting wheat again, but shipments pale in comparison to years past. In 2021, Ukraine shipped 3.7 million tonnes of wheat in August and 4.4 million tonnes in September, a far cry from what’s being exported currently. Of concern is Ukraine’s ability to plant a new crop of winter wheat in the fall amid the ongoing war, and seeded area could fall substantially from last year.
In the US, total wheat production is forecast to increase by 8%, but ending stocks will be at a near-decade low, partly due to increased exports. US spring wheat yields are projected to be up sharply compared with last year’s drought-hit crop. However, spring wheat planted area is at a 40-year low, following a cold and wet spring. The US winter wheat harvest, which accounts for about 75% of total wheat production, fell 23% year over year as drought in the southern Plains damaged the hard red winter wheat crop, as shown by the Gro Drought Index.
Similarly, Canada’s spring wheat crop is seeing sharply higher yields — up by double digits, according to Gro’s Canada Spring Wheat Yield Forecast Model. And a 9% increase in acreage should result in a significantly improved harvest.
Offsetting these gains are production declines in other countries. The wheat harvest is forecast to drop 4.5% in the EU, with France, the largest producer, facing the worst drought in at least 19 years. This display from Gro’s Climate Risk Navigator for Agriculture shows the weak growing conditions for wheat crops in EU countries.
Elsewhere, Australia’s wheat crop is forecast to be down 9% from last year’s record, and a heat wave in India late in the season is estimated to have reduced its wheat production by 6% year over year, bringing India wheat ending stocks to the lowest level since 2016/17. In South America, elevated drought levels are weighing on Argentina’s wheat crop ahead of the November harvest.