What caused the breakdown of the wheat market?

The coronavirus pandemic is starting to shake the wheat market. Governments around the world are beginning to secure supplies of crucial staples like grains. Typical trade routes have been affected by export restrictions. 

Export limits across the Black Sea region already had ripple effects. Cargoes are being held up. Egypt, the biggest buyer of wheat, decreased offers in the latest tender.

But, coronavirus is not the only threat to the grain. Weather is challenging the crops at this time of year.

Benjamin Bodart, a director at CRM AgriCommodities, said that the wheat market could not afford any major weather-related accidents for grain production in the next season. Stockpiles are already decreasing. 

Wheat exporting countries banned shipping

Last week, the EU, the second-largest wheat exporter, halted exports. Romania has already traded most of its wheat production this season. Still, at the country’s Constanta port, the bans stranded some vessels. The European Commission objected to the move of the Romanian government, assuming that there aren’t any shortages of food in Romania that could justify limited trade. UkrAgroConsult, an agriculture market consulting company, noted that the bans might help support wheat prices in other suppliers. 

On Wednesday, the Minister of Agriculture of Romania said that the government is observing domestic supply, and it will either extend the ban on export or ease it.

Ukraine, Russa, and Kazakhstan have also restricted agricultural trade. Like the EU, the US government limited its forecast for Russian exports. Russia is likely to lose its position as the world’s top wheat exporter. The country has exported 20.5% of global wheat exports in 2018. In 2019, Russia exported more than 33 million tons of wheat. This year, the country has already shipped around a fifth of its grain. Russia’s ban will end before the next harvest season. However, Kazakhstan extended its export share on wheat.

Even though there have not been grain shortages yet, some importers are already taking unusual precautions. Egypt plans to purchase 800,000 tons of overseas wheat in the next few months, while Lebanon is considering importing wheat for the first time since 2014. Saudi Arabia has issued a tender for commodity supplies. Plus, Jordan is striving to increase its grain storage capacity.

Weather is not being advantageous for the crop

This year another factor is disturbing wheat supply chains – the weather. Most of the grain producers are in the Northern Hemisphere. It makes April the beginning of a critical period of crop conditions. In Russia, dryness is raising worries about damage to the nation’s biggest crops. Europe is experiencing a dry spring as well, after an overly wet winter. 

The International Grains Council has forecasted that wheat reserves will grow next season. However, stockpiles across the top exporters of wheat may decrease. 

Carsten Fritsch, an analyst at Commerzbank, said that the current crop year is coming to an end, and shipments have already been completed for the most part. Still, there are signs that the new crop will also encounter difficulties.