Wheat prices have seen a significant rally, reaching a two-year high in Chicago and Paris during July, and extending these gains into August. This surge is primarily attributed to escalating geopolitical tensions and adverse weather conditions in major wheat-producing areas, which have collectively raised concerns about global supply.
Geopolitical risks, particularly in the Black Sea region, are a major driver. Ukrainian attacks on Russian oil refineries and tankers have led to fears of shipping disruptions. Russia has reportedly paused night-time shipments from its major export center, Novorossiysk, due to drone strikes. There is also concern that Russia might close the Azov-Don canal and the Kerch Strait, crucial waterways connecting the Black Sea and the Sea of Azov, which would severely impact grain exports. This follows a temporary halt in shipping through a canal linking the Don River to the Sea of Azov, as reported by Reuters.
Weather-related issues are also contributing to supply anxieties. A European heatwave is expected to result in Britain's smallest grain harvest since 1984. In contrast, parts of Russia have experienced excessive rainfall. U.S. spring wheat and other small grains in the northern Plains and southern Canada are stressed due to a lack of rain, although cool weather briefly reduced stress. Ukraine's Agriculture Ministry has warned that exports could plummet from 64.4 million metric tons to 29.6 million metric tons in 2026-27 if regular port operations are not maintained.
Benchmark futures in Chicago advanced as much as 2.2% in late July and were heading for a fourth consecutive weekly gain. In Paris, wheat prices were up about 5%. The KC HRW futures, a type of wheat, led the rally to its highest spot level since August 2023, increasing by 21 to 30 1/2 cents. Chicago SRW contracts reached their highest point since 2024, rising by 21 to 27 3/4 cents in the front months. MPLS spring wheat also posted gains of 16 to 24 3/4 cents.
Shipping companies are already reacting to the increased risks; FESCO, a Russian shipping company, has suspended applications for shipments. Traders will be closely monitoring upcoming USDA crop progress reports, U.S. winter wheat condition ratings, and the monthly USDA supply and demand report scheduled for August 12.
