Although wheat prices have fallen from the peak earlier this year, global wheat prices remain elevated, reflective of both uncertainty in the market based on disrupted trade flows in the Black Sea region and the continued decline in the stocks of several major exporters.
Exporter stocks are often evaluated as a measure of supplies available to the global market and are closely correlated with export prices. For 2022/23, exporter stocks are forecast to decline to the lowest level since 2012/13.
The United States has relatively more storage capacity compared to other export-oriented countries, resulting in it being a residual supplier. While the United States is forecast to hold the largest volume of stocks among major exporters, its stocks are forecast to decline to the lowest level since 2007/08. U.S. stocks as reported in the September 2022 Grain Stocks report were in line with industry expectations, but the Small Grains Summary indicated that this year’s U.S. wheat harvest was smaller than previously expected, essentially on par with the prior year.
With dry conditions in the Southern Plains, Hard Red Winter wheat production was sharply lower, while spring wheat harvests improved significantly from the prior year’s severe drought. The tighter U.S. supply situation is reflected in the elevated prices for the United States compared to other major suppliers. The U.S. season-average farm price is forecast at a record $9.20 per bushel, compared to the current record of $7.77 established in 2012/13.
Combined European Union and United Kingdom wheat stocks1 are forecast to decline. The region has a smaller crop as a whole, while consumption is forecast higher. In particular, wheat feed and residual demand is robust amid a decimated corn crop.
Meanwhile, EU exports are set to rise to offset lower available supplies from Ukraine. Ukraine stocks soared in 2021/22 due to the naval blockade at the time. The grain corridor has enabled some wheat exports via sea ports, with around 2 million tons exported in September. With reduced production, Ukrainian stocks are forecast to be lower, but still above historical levels.
Among the major exporters, stocks are forecast higher for only two countries. Canada is forecast to rebound, given its improved crop this year compared to last year’s drought-afflicted crop; however, the situation remains quite tight. With an increase in exports projected for 2022/23, the moderate increase in stocks results in a further reduction of the stocks-to-use ratio.
Russia is the other major exporter forecast to have an increase in stocks. The country began the marketing year with exceptionally high stocks due to its export restrictions, including an export tax and export quota in place from mid-February through the end of June. The export tax continues to be updated on a weekly basis, albeit at a much lower rate than the prior year.
With large beginning stocks and a massive harvest, Russia will continue to be the top global wheat exporter. The initial pace of Russia exports has been relatively weak, but the monthly volumes are expected to increase as its prices remain competitive. Even so, Russia is expected to have its largest ending stocks in 30 years.
Argentina Wheat Exports Slashed on Smallest Crop in 7 Years
Argentina MY 2022/23 wheat production is lowered to 17.5 million tons this month as dry conditions continue to impact yield potential. Following a year of record production, Argentina’s wheat crop is now forecast at its lowest level since 2015/16. With limited exportable supplies, Argentina MY (Dec/Nov) wheat exports are lowered 1.0 million tons to 12.0 million.
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In MY 2021/22, Argentina’s record crop is forecast to allow for record exports of 16.3 million tons. While the global wheat market reeled from supply shocks caused by Russia’s invasion of Ukraine, Argentina absorbed some global import demand with its ample supplies and relatively competitive prices.
Importers in the Middle East, Africa, and Southeast Asia in particular struggled to find affordable wheat as Black Sea supplies were constrained and global prices skyrocketed. As a result, Argentina’s market share expanded relative to Ukraine and Russia in Indonesia, Nigeria, and other large import markets.
Argentina shipped record monthly volumes of its 2021/22 crop in December, February, March, April, and May. In doing so, Argentina quickly exhausted its supplies and its export quotes soared from $297/ton in January to $492/ton in June. Looking forward, Argentine export quotes typically decline in November as its wheat crop is harvested.
Nevertheless, poor production prospects for 2022/23 and increased competition from the Black Sea and Canada should ensure lost market share and diminished exports in 2022/23.