Pavlo Khaustov
Chief Analyst | Barva Invest

Global wheat consumption continues to rise, driven by growing populations and expanding economies. However, balancing supply and demand has become an increasingly complex challenge. This article focuses on the impact of unpredictable factors such as climate change, economic volatility and geopolitical tensions on wheat production and food security. It also presents expert insights and projections on global wheat production, consumption and trade, providing a picture of the emerging dynamics of the international wheat market and the implications for future food security.

For decades, wheat has been one of the main cereals for both food and livestock production. Population growth and improvement of its financial well-being leads to an increase in wheat consumption: both directly through bakery products and indirectly through livestock, which are largely dependent on grain feed.

Thus, the global trend of consumption growth requires an adequate increase in supply. In the event of a mismatch between supply and demand, price plays its role in restoring the balance, which directly affects the welfare of the population and the economy as a whole.

The growth of global grain production has long been no longer based on the expansion of sown areas - the basis of this process has become yields. As shown in the Graph 2, the area is no longer a key factor in increasing production, but yields are driving the growth. Average global yields are gradually rising as a result of improved technology, investment in agriculture in underdeveloped countries, and the introduction of advanced technologies in leading countries.

Graph 2

However, this achievement poses a serious risk to global food security. Population growth has been occurring independently of successes in increasing yields, and the green line in the graph illustrates that yield growth has been accompanied by repeated declines and periods of stagnation. Weather and climate change remain the most significant and unpredictable factor. Other factors include economic instability and wars.

During a global decline in production, demand usually adapts, helping to smooth out fluctuations in the global balance. However, from time to time, every few favorable years, extreme situations arise when several key countries experience crop failures at the same time.

Each country usually has its own reserves and stocks to help cope with such challenges. However, agricultural production seasons are interconnected: if supply is low in one season, the country has to “hold out” until the next, hoping not only for a resumption of production but also for more stable conditions for replenishing reserves.

The “burn reserves now and catch up later” strategy is not always possible, especially for those buyers who work on a hand-to-mouth basis. Smaller processors that do not have sufficient cash flow or storage capacity cannot purchase large volumes in advance during periods of global crop failure. They are forced to enter the market regularly and buy at current prices. In such circumstances, they are forced to either reduce purchases, replace wheat with alternative crops, or close their business altogether.

At the country level, financial constraints are also becoming a serious barrier. A striking example is Egypt, where the population grows by 1.5-2 million people every year, and this is without taking into account the numerous refugees from the Middle East. The government, burdened with the need to subsidize the bread industry, is facing enormous economic problems. The system of subsidies is deeply intertwined in the lives of the poorest segments of the population. However, the economic challenges are exacerbated by the government’s current policy of centralizing power and building a new elite-oriented capital. This raises concerns that the government has priorities that are at odds with the need to address the root of the problem, which requires this massive subsidy system. As long as these issues remain unresolved, it maintains the risks of a new round of food crisis.

As Egypt remains a significant regional exporter of wheat flour, this may create the illusion that domestic consumption is fully covered. But the situation is different. In the summer of 2024, for the first time in decades, the government failed to cope with the subsidy program: at one point, prices for subsidized bread quadrupled from their usual levels. This shows that the existence of an export program is not an indication of domestic sufficiency. The Graph 4 depicts this situation. Despite the efforts, Egypt’s domestic wheat harvest has not shown any significant growth. The new government plan is to encourage farmers to increase acreage and invest in yields, but there is no reason to believe that this call will be more effective than the previous ones. Currently, consumption in Egypt is higher than they are managing to grow and buy abroad, and as a result, stocks are declining.

The global trend also looks disappointing. Demand growth is not keeping pace with production growth, and much of the demand is being covered by shrinking reserves. However, these reserves have been decreasing in recent years, and to remedy the situation, the harvest would need to suddenly start exceeding demand, allowing not only to meet current needs but also to rebuild stocks. However, this is a very unlikely scenario.

Even if we assume such a scenario, it would be primarily importers who would have to grow more. But their capacity is severely limited, which is why they depend on imports. If the stabilization of the global balance depends on exporters, then global dependence on their production will only increase. It is already evident that every year an increasing share of global consumption is covered by imported grain, which increases the risks in the event of any disruptions in exporting countries.

In the 2024/2025 season, the situation discussed earlier has already partially materialized. The two largest exporters - Russia and the EU - harvested a much smaller crop, in particular due to weather problems and reduced acreage in France, as well as a kaleidoscope of weather events that affected wheat in Russia. This is especially noticeable against the background of the previous season, when record export volumes were set.

Ukraine had an average harvest and, thanks to the operation of deep-water ports, was able to export all the export balances of previous seasons. However, its export potential in the current season is limited.

Other net exporters include Canada, Australia, and Argentina. These countries had a good harvest and were able to build up a high export potential, which partially compensates for Europe’s losses. However, their exports tend to be focused on regions far from the Mediterranean basin.

Thus, a certain distribution of markets is emerging: the Mediterranean region is experiencing a shortage of cheap wheat, while traditional suppliers provide good demand coverage in Asia, South America, and partially in Sub-Saharan Africa. As cheap Russian (and Black Sea) wheat remains the benchmark for the market for most of the season, attention will continue to be focused on the challenges and prospects of this region.

And the situation in Russia with poor harvest, overactive exports and government regulation is a key factor in price formation both in the past and in the coming months. The first half of the season was very active, with Russia dominating the export market, choking off competition and forcing some exporters to look for alternative markets. However, this was despite the depletion of inventories - during the season, the size of the crop was regularly revised downward, which limited the evaluation of real export potential.

In mid-October, rumors surfaced that the Russian government’s interference in agricultural exports might increase. Despite the launch of the full-scale invasion of Ukraine (after 8 years of occupation of Crimea and parts of Luhansk and Donetsk oblasts), in 2022 many foreign companies remained on the Russian market, and some of them even boasted of super-profits as more conscious (or more farsighted) competitors left the invader’s market. But in 2023-2024, the “nationalization” of foreign assets intensified in Russia, and some companies left the market under challenging circumstances. This also applied to some international grain exporters.

The Russia first took over the domestic market, and then started to take over the export market (FOB), and later when talks started about restricted export sales to “foreign intermediaries”, it begins to include CIF.

Putin’s second maneuver is a tribute from farmers in the form of export duties. It is the farmer who loses most of the $40 per ton that the duty currently costs. This duty has been in effect for several years and is calculated depending on the price: a price increase provokes (with a delay) a duty increase, and a price decrease provokes a duty decrease. In fact, it makes no sense for a farmer to sit on grain in order to earn better prices - inflation and devaluation are also a factor. What remains is to play the “pay less and sell more” strategy, for example, to wait for a sharp increase after a period of stabilization, when the duty will not react fully.

And finally, the third Putin’s maneuver- Russia, the world’s largest wheat exporter, which also exports grain from the fertile occupied oblasts of Ukraine... has set a quota for wheat exports from February 15 to June 30, 2025 at 10.6 mln t. For comparison, in 2024, the quota for the same period was 29 mln t, which meant that it did not actually limit exports.

This is a significant factor now, as we estimate that Russia will have about 14.2 mln t of wheat for export as of February 15, meaning that 3.6 mln t or 25% of this volume will not be exportable (except to the EAEU countries). This is a lot - for comparison, Ukraine’s export balances as of February 15 will be approximately 4.2 mln t.

The actual volume of Russian unsold stocks will depend on what exports Russia will demonstrate in January and the first half of February, as well as on what real exports will be in the first 6 months of the season - estimates range from 2 million tons, which is significant.

As a result, we have the following:

In the 24-25 season, the chronic risks that have long haunted the wheat market became more pronounced. We had a bad harvest in a number of major exporting countries, as well as negative economic and regulatory impacts. Next season, the EU has every reason to believe in the recovery of the crop and export potential, and there is no reason to be pessimistic about most other exporters. 

But Russia will remain a big concern. On the one hand, those significant volumes that the export cap will prevent from being exported will be transitional stocks for the 25-26 season. On the other hand, this will only partially compensate for the decline in export potential, as market participants see the acreage decline to one of the lowest levels in the last 8 years. In addition, the conditions during the winter wheat planting campaign and the current weather are unfavorable to expect the maximum yield potential for the southern (most productive) region. 

Therefore, some analysts are already making conservative forecasts for the next season’s crop and export potential. We estimate the total global export supply at 218.2 mln t, which is 5.7 mln t more than in the current season, but 3.2-3.5 mln t less than in the two years before. And we are emphasizing that there is no current reason to doubt a ‘normal’ harvest for the rest of the exporters. But, as history shows, the main risks to the crop in Europe and Russia will be in the second half of spring and early summer.

We expect that the limited export potential in the Mediterranean region will continue to be felt in the next 6 months and will affect prices. Unlike in the preceding seasons, we have repeatedly seen that in the last few years the phrase “the market considers everything” has ceased to be an axiom - very often, the price increase due to “poor crop” occurs months after there are indications of it, and the market waits for a conclusive confirmation. This can be attributed to increased uncertainty in the market, and possibly different approaches to risk management, but the distinction in market reaction in past and present is noticeable. 

Thus, it is possible that the limited supply of exporters that we expect in the coming months will not affect the mood of some importers until they are faced with the fact that no one is willing to sell grain at yesterday’s prices, and there is not much grain to be sold. Algeria is already taking action and has made a large-scale purchase of wheat. Meanwhile, India have been claiming to have a record crop for three years in a row, but government regulations and the constant setting of new record price levels suggest otherwise. Therefore, the “Silent Crisis”, which, in our opinion, is gradually coming out of its quiet phase, may suddenly turn into a loud explosion - and leave the market with empty barns.