Weather woes, Russia upend outlook for global wheat suppliers

CHICAGO, Aug 5 (Reuters): Drought is expected to send global wheat stockpiles for major exporters to the lowest levels in more than a decade, a Reuters analysis shows, a decline coming as top supplier Russia intensifies its conflict with Ukraine and creates more uncertainty for importers.
Farms in areas of North and South America, Europe and Australia are facing crop losses as extreme weather spreads over an unusually wide geographic area, making food production increasingly vulnerable. Escalating tensions between Russia and Ukraine have also returned concerns over food security to the forefront of grain trading and diplomacy.
A Reuters analysis of US estimates of wheat inventories and crop usage for seven major exporters shows stockpile levels will dwindle to a 16-year low in 2023-24. Removing Russia, the U.S. and the EU drops the ratio to its lowest since at least 1960, reflecting tight supplies in important shippers like Australia, Canada and Argentina, the analysis shows.
Russia is expected to boost shipments due to large harvests, overcoming periods of dryness in places like Siberia.
The Kremlin's July 17 exit from the Black Sea deal that allowed the safe export of Ukraine's grain adds uncertainty to the global outlook. Subsequent air strikes on Ukrainian ports destroyed an estimated 180,000 metric tons of crops over nine days.
"The world has no supply cushion to fall back upon," said Dan Basse, president of consultancy AgResource Company. "If there's an issue in the Black Sea with Russian exports, the wheat market gets very spicy, very quickly."
Already, supply worries sparked volatile moves in wheat prices, including a July 19 spike that was the biggest daily gain since the days after Russia invaded Ukraine in February 2022.
Wheat importers with limited reserves on hand are vulnerable to price and supply shocks. For months, some buyers in Asia, the Middle East and Africa have only been buying enough to cover their short-term needs, in part because of expectations for Russia's large harvest, traders said.
Supply risks in the Black Sea now appear to extend beyond Ukraine to Russia's exports, said Alexander Karavaytsev, senior economist at the International Grains Council. He said 60 million tons of Russian and Ukrainian exports could be under threat, or one-third of global trade.
"Lower than initially anticipated plantings in Argentina, current crop quality worries in parts of Europe, as well as weather issues in two other major exporters - the U.S. and Canada - don't help the supply situation," Karavaytsev said.
July is thought to have been the world's hottest month on record.
Dryness in the northern US and Canada has reduced the potential for harvests of protein-rich spring wheat and durum wheat, hurting crops used to make pastries and pasta. Analysts warn farms may suffer more damage before harvests.
Drought conditions in Canada are similar to 2021-22, when production fell about 37 per cent from the previous year, said Kelly Goughary, senior research analyst for Gro Intelligence.
The crop forecaster is expecting a greater than 5 per cent cut in U.S. spring wheat yields from last year, after drought also drove Kansas farmers to abandon winter wheat fields.
In North Dakota, farmer Chad Weckerly said his durum wheat will yield 20 per cent to 30 per cent less than last year. He is frustrated by projections that Russia's big crop will make up for losses elsewhere in the world.
"That Russia news just drives me up a tree because nobody knows what Russia has," Weckerly said.
US and Russian government estimates of Russia's crop vary. For 2023-24, the US estimates Russia's wheat exports will climb 44 per cent from two years ago to 47.5 million tons.
Moscow could slow exports if it is worried about domestic bread prices rising, a trader at a multinational trading house in Europe said.
Fewer ships were also looking to pick up grain from the Black Sea area after Russia quit the export deal, amid growing uncertainty over whether fighting could hit commercial vessels.
The EU needs a big crop to compensate for a reduced harvest last year and uncertainty about the availability of Black Sea wheat, said Stephen Nicholson, Rabobank's global sector strategist for grains and oilseeds.
"If something goes wrong with Russia and Ukraine, we're not in a situation where everything will be okay," Nicholson said. "You're seeing multiple problems around the world and you usually don't see that."
Consultancy Strategie Grains has repeatedly lowered its forecasts for EU wheat harvests and in July pegged production less than 1 per cent above the 2022-23 crop. Conditions ratings have declined in the bloc's top exporter France.
Even so, buyers said they still expect a decent EU crop and are focusing on Russia's large harvest.