Source: Zhitong Finance

Severe weather and war factors around the world are threatening the scale of the global wheat supply and are likely to revive concerns about rising food prices. Following the sharp rise in cocoa futures prices to new highs, wheat futures may take over the “baton” and continue to rise under supply pressure. Farmland farmers are facing major setbacks, from the humid fields of Western Europe to the arid soil in Australia, to the escalation of the Russian-Ukrainian conflict drastically limiting the supply of fertilizer and key crops to the international market. Analysts surveyed before the US government released its first crop forecast for next season said this meant that global crop inventories would remain at their lowest level in nearly 10 years.

The high wheat harvest season in the Black Sea region has been holding back the rise in wheat prices for a long time. The trading price of wheat was only half of the record level in 2022, but supply concerns have recently intensified again. The price of wheat futures on the Chicago Futures Exchange has rebounded to the highest level since August last year. Commodity-focused hedge funds are cutting bearish positions in wheat futures that have been held for nearly two years. At the same time, crop risks have made wheat traders panic.

This is a worrying sign for consumers who are finally relieving themselves from rising food prices. Any continued rise could increase raw materials and production costs for bread and pasta, and reignite inflationary pressure on central banks around the world. In addition, futures prices for other major crops, such as cocoa and coffee beans, are also rising this year. Cocoa has repeatedly reached new highs some time ago. Recently, it has entered a downward trend, and seems to have returned to rational trading.

Wheat stocks fall to their lowest level in nearly a decade — analysts expect USDA forecasts end-of-period stocks to remain stable

James Bolesworth (James Bolesworth), managing director of CRM agriccommodities, said: “Market demand has increased, yet global inventories are still tight, and new crop issues are escalating.”

In terms of the recent climate, it can be described as a very unfavorable factor for wheat growers. Fueled by the El Niño phenomenon and the accumulation of greenhouse gases, the past April once again became “the hottest April in the world since historical records began.” The global average surface temperature in April of this year was 15.03°C. Compared with the average temperature in April from 1991 to 2020, it was 0.67°C higher than the previous historical extreme value and the 2016 record. The latest hot temperatures also continued this round of global heatwaves, which hit new highs one after another, until the 11th month.

As the harvest season in the northern hemisphere gradually approaches, the next few weeks will remain critical to the global crop development process, so the actual situation is still likely to improve or worsen further. Here's an overview of the world's leading growers:

The dry climate of the Black Sea is likely to become more severe

Russia, one of the world's largest food exporters, is likely to miss critical moisture support. Weeks of high temperatures and lack of rainfall in the southern part of the country have prompted analysts to lower Russian grain harvest expectations. The Commodity Weather Group (Commodity Weather Group) said on Wednesday that in the next two weeks, about half of Russia's winter wheat will still face the threat of a climate that is too dry.

Russia is still likely to finally achieve a good harvest, but its global food dominance means that any fluctuation in local prices will affect other markets — and the country's wheat has recently become more expensive.

The Russian-Ukrainian war situation

In recent weeks, global heat and arid climates have also affected wheat production in large regions of Ukraine, an important wheat exporter, but geopolitical conflict factors have also raised other problems. Attacks on agricultural infrastructure threaten Ukrainian food exports, and the Ukrainian workforce has almost dried up due to male enlistment in the military.

Grain production in the next quarter is likely to drop by about 6% compared to the same period last year when exports were already weak. Furthermore, farmers are expected to change the land where grains are grown to more profitable crops such as rapeseed.

Overly humid Western Europe

Compared to Russia, Australia, and Southeast Asia, which are facing droughts, an overly humid spring affects the growth of crops such as wheat throughout northwestern Europe. The quality of winter crops — which determines whether supplies are used for human food grade or animal feed — may also be affected.

According to information, in French crop-growing regions, the share of wheat and barley under optimal conditions lags far behind the same period last year. Massive rainfall has also slowed the pace of spring planting in the UK, Germany, and France.

“We are clearly concerned about the problem of unplanted areas because it is related to weather conditions,” Benoit Pietlemont (Benoit Pietlemont), chairman of the Food Committee of the French Agricultural Service, said last month.

Australia's arid climate

Too dry and hot summers in parts of Australia have dried up the soil, causing farmers to face difficulties when growing crops. While the recent rainy climate has provided some relief in some parts of Western Australia, growers remain cautious.

Commonwealth Bank of Australia's Deputy Director of Sustainability and Agricultural Economics Dennis Voznesenski (Dennis Voznesenski) said this week that if the rain stops after the crops germinate, the state's crops may face the risk of being “burnt.” He said that wheat prices are rising faster than expected locally and globally.

The arid climate is also threatening US wheat production

Since the beginning of April, an arid climate has swept through a larger proportion of winter wheat farmland in the US, an important wheat exporter. Despite recent weather forecasts showing showers, the likely severe arid climate is still a cause of concern for spring planting in US farmland. Despite this, compared to the same period in previous years, more U.S. winter wheat is in the best condition, and spring planting is still higher than the 5-year average.

Concerns about crop yields are reflected in futures prices, but the level of pessimism among hedge fund managers is currently at a relatively low level since July last year. However, the actual situation may change significantly before the first harvest season in the northern hemisphere begins in about four weeks.

Matt Ammermann (Matt Ammermann), commodity risk manager from StoneX, said, “There are still many weather factors that have yet to be traded and the harvest is far from complete. If there is a rainy climate, they will be very valuable.” “It's still a game of betting similar to the wait-and-see type.”