Grain Snippet: Tensions Driving Wheat Higher
The Black Sea war remains at the centre of the wheat market. In July, renewed speculation over potential Russia–Ukraine peace talks briefly weighed on sentiment. However, with no concrete outcome confirmed, the market has continued its upward trend.
Since early August, Dec US soft red winter wheat futures have risen by around 120 USc/bu, equivalent to approximately A$60/MT. By comparison, SA and VIC wheat prices have increased more modestly by around A$10/MT. Consequently, basis has weakened to a historically low level of around –100 USc/bu, reflecting strong production prospects across SA and VIC. Dec EU milling wheat, which more closely tracks Black Sea wheat prices, has risen by €26/MT since early August to €253.50/MT, its highest level in around 2.5 years.
Looking at developments in the Russia–Ukraine war, shipping through several major Russian and Ukrainian agricultural ports in the Black Sea remains severely disrupted, as continued drone attacks on ports and vessels have increased the risks associated with operating in the region. Russia is redirecting some grain through Baltic ports and rail networks, while Ukraine is relying more heavily on Danube River ports and western rail crossings. However, these alternative routes have limited capacity and are unlikely to fully replace disrupted Black Sea shipments in the short term. Prolonged disruption could therefore materially tighten global wheat export availability.
Turning to non-Black Sea exporters, the latest WASDE report indicates that combined production across the US, Argentina, Australia, Canada, the EU, Kazakhstan and the UK is down around 46 MMT y/y. Disrupted Black Sea wheat exports, combined with lower production among non-Black Sea exporters, continue to place upward pressure on the wheat market.
Türkiye recently proposed a new mechanism for the safe passage of grain through the Black Sea and has begun discussions with Russia and Ukraine. The proposal briefly tempered some of the market’s upward momentum, but no agreement has been reached at this stage.
SA and VIC wheat crops remain in favourable condition following exceptionally favourable rainfall since February. Most growing regions across both states have received average to above-average rainfall, with record totals recorded in some areas. Consequently, SA wheat production is forecast at a record 8 MMT, up 3.3 MMT y/y, while VIC production is estimated at a record 5.5 MMT, up 1.3 MMT y/y.
Conditions have been mixed across WA and NSW. GIWA forecasts WA wheat production at 9 MMT, down 4.3 MMT y/y. In NSW, following reasonable rainfall in August, wheat production is forecast at 9.5 MMT, up 1.5 MMT from our previous forecast but still below last season’s production of 11.2 MMT. However, the production outlook for both states remains heavily dependent on Sep–Oct rainfall.
Overall, Australian wheat production is currently estimated at 30–34 MMT. Even at the lower end of this range, production would remain above the 10-year average of 29 MMT, pointing to another sizeable Australian wheat crop.
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