Fireworks in wheat market after US harvest report

The latest WASDE report from the United States Department of Agriculture (USDA) triggered a strong rally on the Chicago futures market on Tuesday 12 May. The main catalyst was a much lower US wheat crop forecast than traders had anticipated. In particular, conditions across the dry US Plains are causing significant concern on international grain markets.According to the USDA, the United States is heading towards its smallest wheat harvest since 1972. Hard red winter wheat, the country’s main bread wheat variety, is under severe pressure due to persistent drought across the Southern Plains. Production of this wheat class is expected to fall to its lowest level since 1957. The figures came in well below market expectations and immediately sparked an explosive reaction on the futures markets. Wheat contracts in both Chicago and Kansas reached their daily trading limits on Tuesday.Market sentiment has also shifted sharply in Europe. On Euronext, the September milling wheat contract rose by 4% on Tuesday to €216.50 per tonne. This allowed the market to recover quickly from the price pressure seen earlier this month. The European market benefited not only from the strong gains in US wheat prices, but also from a weaker euro and rising energy prices. Higher oil and fertiliser costs are increasing production expenses worldwide and are providing additional support to agricultural commodity markets.Tighter wheat balanceAlongside the problems in the United States, the USDA also presented a tighter global wheat balance sheet than previously expected. For the 2026/27 season, the department forecasts global wheat production at 819.1 million tonnes, while consumption is expected to remain higher at 823.2 million tonnes. As a result, global ending stocks are projected to decline further to 275 million tonnes. This is below analysts’ expectations and confirms that the market is less comfortable than previously assumed.Notably, pressure is not limited to US production alone. The USDA is also forecasting smaller crops for several other key exporters. Production declines are expected in Russia, Canada, Australia, Argentina and the European Union. This is reinforcing the perception of tighter global supply. Lower import demandAt the same time, there are also factors that could limit further price increases. Improved harvests are expected in North Africa and the Middle East, which is likely to reduce import demand from these regions compared with last season. The USDA therefore expects global wheat imports to decline by around ten million tonnes.This creates a market environment in which supply is becoming tighter, while demand is not increasing equally across all regions. For Europe, this could improve export opportunities as US wheat becomes more expensive and less readily available. However, competition from Russia and Ukraine remains present. Despite the ongoing war, Ukraine is still expecting a wheat harvest of more than 22 million tonnes, sufficient to maintain an active export programme. The September soft red winter wheat contract in Chicago closed Tuesday 42¾ US cents higher at $6.91½ per bushel. Converted into metric terms, this equates to approximately €216.50 per tonne. As a result, Chicago wheat prices have effectively matched price levels in Paris, where the September contract also closed at €216.50 per tonne.