Will bread become more expensive in the next period? The experts’ conclusion after the ‘crazy’ fluctuations in the price of wheat

The price of wheat has been on a “crazy” ride over the past four years, with unusual fluctuations for this grain that has so far shown stability, according to a financial market analysis signed by analysts at XTB.

After years of consistency, several factors have caused prices for this grain to skyrocket. The global supply shortfall, disruptions during the pandemic and the war in Ukraine contributed to this price increase.

However, prices soon fell to levels not seen since 2020. This begs a pertinent question: will this downward slope continue, or will future production problems caused by weather and climate change cause another price increase?

From consolidation to a new all-time high

Between 2016 and 2020, wheat prices remained relatively stable in the context of global overproduction. The situation has taken on an entirely different dimension as the outlook for production has worsened, partly due to rising global temperatures. All the while, demand continued to grow, especially from China and India. The pandemic initially caused prices to fall, but problems encountered throughout the supply chain soon triggered a new upward trend.

The outbreak of war in Ukraine further aggravated the situation. As major exporters of wheat, Russia and Ukraine represented an important link in global exports. Fears of disruption to Ukrainian exports and sanctions against Russia caused prices to double. This predictable price boom was, however, short-lived.

Record production and stocks in Russia weighed on wheat prices

Access to the Russian market remained largely uninterrupted. The state led by Vladimir Putin enjoyed a record harvest, replenishing its already overcrowded warehouses.

For its part, Ukraine was able to continue some of its exports via land routes and a partially reopened sea route. This massive supply, particularly attractive to Asian buyers because of the low price, has become a major drag on global wheat prices.

Currently, Russian wheat is priced below $190 per ton in Black Sea ports, significantly cheaper than US wheat ($207) and Western Europe ($225). This pressure on prices is quite likely to continue until Russia exhausts its current surplus and until the next harvest arrives – which is also expected to be a rich one, XTB analysts explain.

American exports are collapsing and cultivated acreage is falling

Although the US is not a leading producer or exporter of wheat, its market data still has significant influence. With exports at their lowest level since the 1970s, US wheat prices are facing strong downward pressure.

That collapse is due to a combination of factors, including increased demand for cheaper Russian wheat and a strong U.S. dollar, which makes U.S. grain less competitive. However, there are signs of potential future problems for the US market. The USDA (US Department of Agriculture) March Prospective Seeding Report predicts a 5% decrease in planted areas compared to the previous season.

Despite this, production and ending stocks for the 2024/2025 season are expected to increase as the projected harvested area is expected to be higher. The estimated farm gate price for the next season is slightly higher than the current market price. Even in these conditions, the price remains lower than in the previous season, from the farm, XTB analysts emphasize.

Hope on the horizon or more turbulence?

Despite the current oversupply and declining US exports, the global situation remains tense. The ongoing war in Ukraine and the possibility of Russia restricting Ukrainian exports raise concerns. In addition, neighboring countries are reluctant to rely on land routes for Ukrainian exports, which could disrupt further shipments.

In parallel, the volatile situation in the Middle East and possible blockages in the Red Sea could further disrupt supplies to key importers in Africa and Asia. Meteorological phenomena also represent another factor of uncertainty. Rising global temperatures have led to prolonged droughts in recent years in major producers such as Australia and Canada, and the US could face a similar fate, XTB analysts said.

Forecasts for this summer indicate higher than normal average temperatures for the period and lower humidity, which could result in a smaller crop than the projected planted area suggests. In addition, low prices could further discourage planting and the area harvested could be even lower than last year.

Will history repeat itself?

The current price trend after the 2022 peak resembles what happened after similar peaks in 1980, 1996 and 2008. Historically, the down cycle after such peaks tends to end in about 600 sessions.

According to XTB analysts, if this pattern holds, a rebound in prices could occur around the US wheat harvest in August and September this year. While Russia’s massive supply may continue to exert downward pressure in the short term, weather factors may well result in prices bottoming out by late summer.