Grain Snippet: Wheat Rally Fuelled by Geopolitics
Over the past month, US wheat futures have rallied sharply, with May soft red winter gaining 19 USc/bu and hard red winter surging by 70 USc/bu. The move has been primarily driven by escalating tensions in the Middle East, which have significantly disrupted trade flows through the Strait of Hormuz, a key corridor for global oil and fertiliser trade. This has pushed oil prices higher, with strength spilling over into agricultural commodity markets. This momentum has carried through to the domestic market, lifting Aussie wheat values. Over the month, SA and VIC old crop prices have increased by around $15/MT, while new crop values are up by $25 to $30/MT.
Another contributing factor to the Aussie wheat market is the weakening Australian dollar. From January to early March, the AUD strengthened to 0.70, a level not seen in three years, driven by political uncertainty in the US and a hawkish RBA monetary stance. However, with escalating geopolitical tensions in the Middle East, the AUD has since weakened to 0.68, as risk-off sentiment has outweighed the impact of the RBA’s hawkish outlook. The recent decline in the AUD is equivalent to approximately a $10/MT increase in Aussie wheat prices.
Looking at the global wheat balance, a large carryover into the 2026/27 season is expected, which continues to cap upside in the wheat market. This suggests that the recent strength in both global and domestic wheat prices is primarily driven by US–Iran conflict risk premium rather than underlying supply and demand fundamentals. The latest WASDE report forecasts 2025/26 major wheat exporter production at a record 434.6 MMT, up 46.5 MMT year on year. As a result, ending stocks are projected to increase by 16.3 MMT to 77.5 MMT, the highest level in the past five years.
Globally, wheat crop conditions remain broadly favourable, with the US the key area of concern. Since February, US winter wheat in drought has increased from 50% to 57%, driven by persistent dry conditions across major growing regions. This has weighed on crop development, with conditions continuing to deteriorate. The USDA recently reported that Kansas (21% of total US winter wheat production) has crop conditions rated at 40%, down significantly from 61% m/m.
In contrast, EU wheat conditions remain generally favourable, although some regions are experiencing localised waterlogging, flooding, and precipitation deficits. Russia (the world’s largest wheat exporter) has seen its 2026/27 wheat production revised up by 1.7 MMT from the previous forecast to 87.6 MMT, reflecting favourable conditions to date.
Domestically, seasonal conditions have been favourable ahead of seeding. From late February to mid-March, widespread rainfall of 10 mm to 150 mm across southeastern Australia improved soil moisture. As a result, the Bureau of Meteorology indicates above-average soil moisture across SA and VIC. Looking ahead, forecasts suggest mixed rainfall over the next fortnight, while the BOM’s longer-term autumn outlook remains dry with an increased risk of El Nino.
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