No Easy Solution to Fill World Wheat Deficits

It remains to be fully seen how the ongoing conflict in Ukraine will impact global wheat supply and demand dynamics but weather woes in other parts of the world mean there won’t be much extra supply to cover any potential shortfalls.

As it stands today - with Ukrainian ports closed and even damaged by the fighting in some cases - the Middle East and North Africa figure to be among the regions scrambling the hardest to cover their needs. Both of those regions are among the biggest buyers of Black Sea wheat and both are now experiencing droughts that are expected to lower domestic production and raise the need for imports.

For example, the Middle East’s top wheat producer, Iran, is expected to see production drop 20% this year to 12 million tonnes, which is 17% below the five-year average, according to Gro Market Intelligence. Amid the Iranian drought, Middle East wheat imports are projected to soar 38% in 2022 to 24.6 million tonnes. In North Africa, Morocco is experiencing the worst growing season drought in 30 years, with portions of Tunisia and Algeria also badly hurt by dryness.

If those additional import needs can’t be met out of the Black Sea region, they will have to come from somewhere else, potentially North America.

But here at home we have our own problems. Canadian and US spring wheat production was battered by drought in 2021, slashing total expected 2021/22 US and Canadian wheat exports by 18% and 38%, respectively. The new-crop outlook remains highly uncertain too. Drought worries are ramping up across large portions of the US southern Plains, where temperatures just this week reached record highs of around 80 degrees F as far north as Kansas.

Drought is also expected to persist – at least through the early spring – in portions of the southwestern and south-central Prairies, as well as the western Dakotas. With the conflict still raging and no end in sight, it also highly uncertain whether Ukraine farmers will be able to get into the fields to even plant this spring.

India, a sporadic and relatively minor exporter of wheat may be able to help out in some way, with the USDA projecting that country to export 7 million tonnes this year, up from just 2.5 million a year earlier. However, that pales in comparison to the 16.8 million tonnes of wheat Ukraine exported in 2020/21 and the 24 million tonnes the USDA was forecasting it to export in 2021/22.

A better-than-expected crop in Australia this year also brings some extra supplies to the table but it is notable the USDA is forecasting combined 2021/22 wheat ending stocks for the world’s primary exporters (the US, Canada, EU, Australia, Argentina, Ukraine, Russia) to fall to 51 million tonnes – the lowest since at least 2007/08 and only about 18% of total global ending stocks.

The numbers provide some sense just how important Ukraine is in terms of the global wheat supply. The Black Sea region becomes even more important when you consider Russia exported just over 39 million tonnes in 2020/21. With worldwide wheat supplies already at their tightest since 2013, it is easy to see why the Ukraine-Russia have sent Chicago prices to the highest in 14 years.