After being surpassed by political factors like the war in Ukraine, grain market fundamentals have regained their status as the key drivers of prices, as weather hiccups in major cereal-producing regions cast doubt on the prospects of a global grain glut.
Wheat prices in Chicago have gained 33% in the past two months after falling to a four-year low, supported by mounting concerns over lower production volumes, even as analysts still expect a record-high crop this year. Corn prices have also turned higher, although to a lesser extent.
AgResource president Dan Basse cited a range of weather-related issues affecting major producers, including frost in key growing regions of Russia, the world’s largest wheat exporter, drought in Argentina, the world’s third-largest corn exporter, and excessive rainfall in parts of Europe.
Basse noted that the next two to three weeks will be crucial in determining the impact of these weather events on crop prospects, and a clearer picture should emerge by June 1. He expects European and U.S. farmers to be the main beneficiaries, while importers like Egypt’s state buyer GASC and Chinese buyers will be the losers.
The renewed focus on crop fundamentals has overshadowed the influence of geopolitical risks, which remain a concern. François Luguenot, a grain analyst at CyclOpe, warned that any disruption to global trade routes, such as the Black Sea, the Strait of Panama, or the Suez Canal, could have significant price implications.
The shift back to a “weather market” highlights the volatility inherent in the global grain trade, where production shocks can quickly upend supply and demand dynamics. As the world grapples with the potential for tighter supplies, the importance of weather conditions in major growing regions has once again taken center stage.