MT. JULIET, Tenn. (DTN) -- DTN's national average cash price for a bushel of hard red winter wheat established a new high at $13.15 earlier this month, a record that reflects not only drought conditions in the Southern Plains, but also weather and geopolitical issues in most wheat-growing regions of the world.
Wheat is the most cosmopolitan of the grains and is famous for adapting and growing in a variety of climates. That means there's usually a bountiful crop somewhere in the world, but this year, there are problems everywhere it grows. For farmers, it means higher prices for the foreseeable future, but poor countries will have to spend more to fend off famine.
USDA estimates global ending stocks for the 2022-23 marketing year at 267 million metric tons (mmt), or 9.81 billion bushels (bb).
"Ending wheat stocks at the top eight exporters is a better metric for gauging world wheat supplies," DTN Lead Analyst Todd Hultman said.
USDA's new estimate of 2 billion bushels for those countries is down 24% from the recent 2016-17 peak of 2.63 bb and is similar to 1.99 bb in 2013-14, Hultman noted.
Generally, economics dictate that when supplies grow tighter, prices rise. Higher prices put a damper on demand, causing prices to plateau or decline, thus bringing supply and demand into a better balance.
"The strange wrinkle in this story is that when it comes to poorer nations, it's most likely that their governments are going to be the ones to buy at least minimal supplies to help their people," Hultman said. "So, it becomes more of a political issue and a budget strain for a lot of these governments, but the world isn't necessarily going to consume less wheat because it's more expensive. There's kind of a minimum global consumption that's going to be protected at a lot of cost."
Historically, Hultman said, the only factor that affects global wheat demand is population, which means that under current circumstances, there's still room for wheat prices to rally.
HOW WILL WHEAT WEATHER THE WEATHER?
"I don't think there's a major production area on the planet that hasn't had some sort of issue, which is unusual. The Black Sea is actually not in a bad spot right now weather-wise, but it has other issues," DTN Ag Meteorologist John Baranick said, referring to the war in Ukraine.
Drought in the hard red winter wheat-growing areas is well documented, with the recent Wheat Quality Council's tour estimating Kansas production at 261 million bushels. If that estimate is realized, the crop in the nation's largest wheat-growing state will be 93 million bushels (mb), or 26% lower than last year. (For more on the wheat tour's findings, please read: https://www.dtnpf.com/….)
In the Northern Plains and southern Canada, farmers are struggling with persistently wet conditions, and many fear they may not get the crop planted.
"North Dakota is in rough shape like the eastern Canadian Prairies with very slow planting progress," Baranick said. While USDA's estimates for Canadian production are higher than last year, much of the major growing areas face the same troubles as the U.S. "The same active weather pattern through mid-June does not promote on-time planting for the next few weeks, and they should have colder temperatures around on average as well for slower growth."
La Nina looks like it will deal drought conditions to Brazil and Argentina, while causing issues with flooding and too much moisture in Australia.
China had decent moisture to get its crop established, but dry conditions have begun to take a toll. The story is similar in India and Pakistan, where a late hot-and-dry spell evaporated one of the potential sources of additional exportable wheat. USDA had forecast India to export 8.5 mmt (312 mb) for 2022-23, but India banned wheat exports last week.
"In North Africa, Morocco has seen the worst drought in 30 years, and the crop was decimated this year," Baranick said. Many African nations source their wheat from Europe, Ukraine and Russia. Western Europe, Italy and Spain have battled patchy dryness, drought and hot temperatures, but parts of eastern Europe appear poised to have a better crop.
"The Black Sea probably has the best growing conditions in the world right now. The fall establishment was mixed, but precipitation over the winter and spring have been very good," Baranick said, adding that cooler temperatures and a risk of late frost in western Russia could potentially be damaging.
In addition to higher production estimates this year, it's also sitting on sizeable stocks. The question becomes whether countries will do business with Russia given the invasion of Ukraine, whose production and ability to export is also in doubt. Negotiations to open a shipping lane in Russia's blockade for grain exports recently fell through without a deal.
For many countries, feeding the population is paramount to maintain a stable government. USDA's Economic Research Service tracks the number of the food-insecure people in the world, which it describes as people who consume 2,100 calories or less per day.
"Due to the persistent effects of COVID-19 on income levels, the number of food insecure people in 2021 is estimated at 1.2 billion, an increase of almost 32% (291 million people) from the 2020 estimate," Hultman said. Countries in Asia -- particularly in Bangladesh, India, Pakistan, and Indonesia -- and Sub-Saharan Africa comprise most of the increase in food-insecure populations. (You can read the entire report here: https://www.ers.usda.gov/….)
Even if these nations could afford to buy U.S. wheat, which is more expensive, especially when factoring in the strength of the dollar, few would because of the shipping expenses and logistics.
"It looks like Russia is going to be in the driver's seat," Hultman said. "Because really, if Russia is selling their wheat to countries that are having starvation issues, I don't think the West is really going to object."
Katie Dehlinger can be reached at
Follow her on Twitter @KatieD_DTN
(c) Copyright 2022 DTN, LLC. All rights reserved.