The reasons behind the surge in the global wheat

In recent weeks, wheat prices on global markets have risen the most since the beginning of the war in Ukraine. You can read more about how to predict commodities prices in our article discussing the situation in the grain market.

Undoubtedly, one of the reasons for this sharp increase is adverse weather conditions. They have affected the harvests in Russia and Ukraine. In April, wheat futures prices on the exchange rose by 12%, marking the largest monthly jump since February 2022. In the latter part of the article, we will present a detailed analysis of the causes of this increase and forecasts for the future.

The reasons

1. Russia and Ukraine – losses caused by weather conditions and projected losses

April brought hope for good wheat harvests for Ukrainian farmers. However, May turned out to be one of the driest months in the region’s history, dashing these expectations. In Ukraine, which along with Russia accounts for nearly one-third of the world’s wheat exports, drought and unexpected frosts destroyed a significant portion of the crops.

As a result, forecasts indicate that Ukrainian wheat harvests will amount to 19.1 million tons, the lowest level in over a decade. In Russia, early frosts in May destroyed hundreds of thousands of hectares of crops, and analysts have lowered production forecasts by more than 10%.

Analysis by the Harvium team – satellite projection

Our team analyzed satellite data covering the wheat-growing area in southern Russia :-). Data from a representative winter wheat field in the Rostov region, which was most affected by frosts in early May 2024, show a significant decline in crop condition. Losses exceed 50% in the studied area.

Additionally, this situation did not improve at the beginning of June. This is shown in the maps and NDVI index graph below, which serves as a proxy for chlorophyll content and crop condition. In some fields, irreversible die-off of wheat shoots is visible. This may prompt local farmers to reseed with other crops on the most damaged fields to minimize losses this season. So far, such operations have not been observed.

Undoubtedly, an interesting temporal correlation can be observed between the occurrence of severe frosts in the wheat-growing region of southern Russia and the rise in prices in the following weeks. This is shown in the graph below.

2. Situation in other parts of the World

The increase in wheat prices has also been influenced by the situation in other parts of the world. Australia is struggling with drought, and India is likely to become a net importer of wheat.

Forecast by the U.S. Department of Agriculture

As a result, the US Department of Agriculture forecasts in its report that global wheat stocks will reach their lowest level in nine years, which may lead to further price increases in global markets.

3. Weather conditions

Weather forecasts predict improved conditions for western and central Ukraine and western Russia, which may limit further losses. However, in southern Russia, the lack of rainfall could exacerbate losses and lead to even lower wheat yields.

Conclusion

In summary, the sudden weather changes in Russia and Ukraine, as well as the challenging situation in other wheat-producing regions, have led to an increase in wheat prices on global markets. This situation has driven up wheat prices on global markets. Forecasts indicate possible stabilization in some regions, but overall prospects for global harvests remain uncertain. To obtain information about prices of various products and commodities, check the quotations and contact Harvium.