The U.S. Department of Agriculture is taking a conservative view in how the escalating Russia/Ukraine war is going to impact future wheat exports.
Both Black Sea nations are major exporters, but after largely leaving grain terminals alone for most of the war, both sides are now attacking key positions.
The 2026-27 forecast for Russian wheat exports is 46 million tonnes, down by 1.5 million metric tonnes, and Ukraine at 13.5 million tonnes, down by 1 million tonnes.
"I'd say this is very conservative with what could be reality if the situation in the Black Sea isn't resolved within the coming months." said Rhett Montgomery, a market analyst with DTN-the Progressive Farmer. His remarks were made on a webinar following the release of the USDA World Agricultural Supply and Demand Estimates (WASDE) report on Wednesday.
Montgomery says the wheat market has been a "powder keg" for the past two or three weeks, waiting for a bullish event to rally around.
However, there is the fear that with so much damage being imposed on both sides, there could be a potential cease fire or even end to the four year old war.
"Do traders perhaps nervous that we'll see kind of a buildup in stocks within Russia and Ukraine in the minute some sort of agreement is reached potentially? Will we just see an unleashing of wheat upon the market at a relatively low price? We've seen Black Sea export offers really fall here over the past few weeks, mainly because they have to make the price attractive to get anyone to want to send a ship into a war zone, essentially." Montgomery said of what could drive the price dynamic moving forward.
"But we are sitting in a tighter situation, a more uncomfortable situation within the world wheat market, I would say now, and I even would have said three or four months ago, so leans bullish in that regard."
If there are large reductions in Russian and Ukrainian wheat exports, the question then becomes can the European Union fill the gap. Montgomery says no.
"Right now, not seeing any increased export capabilities for the European Union. And part of that is to do with lower production, trimming just slightly due to the late season drought, which eventually turned into a historic drought. Luckily, the wheat crop was a little bit ahead of that relative to the corn crop. Also seeing higher domestic usage for wheat by the European Union." he said.
There is also the belief that the big wheat importers are holding back on purchases and trying to stretch out current supplies.
"The USDA also did see world importers as cutting demand. So in response, likely to high prices, we are going to see some world buyers simply lean on their ending stocks from last year and their available supplies and maybe take a step back from the market for the time being, obviously not wanting to send ships into the Black Sea, not wanting to pay an extremely high price to source wheat out of France, for an example, or Germany." said Montgomery.
Montgomery says the United States does not appear to be benefiting from the escalating war between Russia and Ukraine. Wheat export commitments to the end of July are down 30 per cent compared to the same time last year.
(With files from Neil Billinger, CJWW)
