Grain Snippet: Wheat Futures Take a Breather, What’s Next?
Wheat futures have dropped sharply, driven by escalating trade tensions following US President Donald Trump’s tariffs on imports from Canada, Mexico, and China. These tariffs have spooked global markets, overshadowing concerns of weather-related crop issues and creating significant volatility in wheat markets. From early January to mid-February, US wheat futures had been climbing, fuelled by fears over potential winter kill damage in the US and Russia. However, by late February the weather begun warming and fears abated, into March, wheat prices tumbled further exaggerated by Trump’s tariffs, triggering a sharp decline that broke through key support levels. Wheat futures have however seen a bounce since the 3rd of March, following Trumps delay on tariffs on goods covered by the North American Free trade agreement for the next month.
The tariffs specifically target imports from Canada, Mexico, and China, which have all been significant US wheat trading partners. Canada, which exported 1.5MMT of wheat to the US in 2023/24, may look to redirect its wheat to other markets. While Mexico, the largest importer of US wheat, imported 3.8MMT last year, may also explore alternatives as tariffs are imposed. The ongoing uncertainty is expected to disrupt US wheat exports, with potential long-term consequences for Mexican consumers and US suppliers due to higher freight costs, as they endeavour to access different markets. At this stage we feel the tariffs will have a minimal impact on the Australian wheat trade.
In the EU, wheat exports remain sluggish, down 36% y/y, due to a poor production in 24/25. EU wheat futures have also fallen, pressured by forecast larger-than-expected 25/26 crop and limited damage from Black Sea winter kill events. While the prospect of a peace plan in Ukraine could alleviate some supply concerns, some specific areas of the EU are still struggling with weather challenges, including excess rainfall in France and drought concerns in Poland and Romania. As a result, wheat crop conditions in the EU remains a key area of focus.
Russia’s wheat exports are expected to slow as the Ruble strengthens and export quotas are imposed. Helping to alleviate some of the global supply issues, Australian wheat production has risen, with production recently revised up by 2.1MMT to 34.1MMT this year, up 8.1MMT y/y, though weak demand from China and Turkey is limiting export potential. China’s wheat import forecast has been revised down, reflecting a dip in demand, while Turkey continues to face import restrictions.
As Northern Hemisphere wheat crops approach harvest, conditions remain mixed. While the US and EU show promising production, Russian and Ukrainian crops are underperforming with soil moisture remaining below average, creating a potentially volatile outlook for the global wheat market. The next few months over spring will be crucial in determining whether these conditions improve or worsen.
Domestically, the Australian wheat market has seen a decline in prices, with ADE APW1 dropping $9/MT from $354 two weeks ago to $345 last week. However, local domestic prices have been somewhat insulated from the sharp drop in US futures, supported by improved exporter presence on the SA stem, better exporter engagement, rising Russian FOB prices and a weaker Aussie dollar.
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