Wheat futures will stay buoyant for the rest of 2022, supported by the Ukraine war and last week’s downgrade to the US harvest, but face a retreat next year, Fitch Solutions said.

The analysis group lifted by 13 cents to $9.33 per bushel its forecast for average Chicago wheat prices in 2022, on a second-month contract basis.

The forecast – some 10 cents above the analyst consensus, as reported by Bloomberg – reflected an expectation for “prices to range trade, at around $9.10-9.30 per bushels, throughout the remainder of 2022”, implying values at least matching current levels.

The March 2023 lot was on Thursday trading at $9.11 a bushel.

Fitch raised too its forecast for average wheat prices in 2023, by $0.60 per bushel to $8.60 per bushel, although this was $0.10 below the analyst consensus.

It also implies prices falling from current levels, which suggest an average 2023 price of roughly $9.05 a bushel.

‘Market remains in deficit’

Fitch’s forecast reflected expectations that world wheat output will in 2022-23, for a second successive season, record a shortfall compared with demand, albeit of a modest 1.20m tonnes, compared with a deficit of 9.10m tonnes in 2021-22.

“Despite a recent upward revision to the Ukrainian and Russian harvest, a downward revision to US harvest expectations will ensure the global wheat market remains in deficit in 2023, keeping prices elevated well above historic levels,” Fitch said.

The US Department of Agriculture last Friday cut by 3.6m tonnes to 44.9m tonnes its estimate of this year’s domestic wheat harvest, citing weaker ideas on production of both spring and winter crops.

‘Upward momentum for prices’

Fitch also highlighted the importance of the direction of the Ukraine war for prices, saying that Russia’s annexation of Ukrainian states “has provided upward momentum for prices”, and noting that values “remain sensitive” to the conflict given the two countries’ importance in wheat exports.

Nonetheless, Ukraine’s wheat exports will, despite the deal with Russia for a maritime corridor, “remain below historic levels throughout the forecasting horizon” thanks to a harvest “pegged back by” 38% year on year, with exports seen slumping by 44%.

The analysis group was also sceptical over the latest upbeat forecasts for Russia’s harvest, terming as “particularly optimistic” SovEcon’s 100m-tonne estimate.

Fitch itself stood by a 91m-tonne forecast, although reporting that this “still” represents an increase of 21% from 2021-22.

Part of the reason for a wide variation in estimates reflects whether production from Ukrainian territories is included in Russian figures, with the USDA, for instance, strictly excluding volumes from the likes of Crimea.

Long-term support

However, ultimately, “the increase in Russian wheat production is expected to offset declines in Russia’s major competitors, Ukraine and the EU and place downward pressure on international prices”, Fitch said.

It forecast exports from Russia – which “has been forced to export their wheat at a discounted rate and to a reduced number of markets due to challenges with booking sales” – rising by 21% year on year in 2022-23 overall, to 42m tonnes.

Nonetheless, longer-term, Russia’s invasion will remain a support to values.

“While we currently expect fighting to ease beyond 2023, we expect the impact of the war to keep Ukrainian wheat production below pre-war levels out to 2025-26 due to damage sustained to wheat fields exposed to the war.

“Additionally, due to the two countries’ importance to the global wheat trade, continued tensions in the region will continue to support elevated global prices even if fighting has eased.”