Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Wheat Prices Are Falling as Global Supply Swells
Transcript
- Lucas: Alright, Luna, so wheat. The stuff that makes your bread, your pasta, your morning croissant. Over the past week, Chicago soft red winter wheat futures are down more than 3 percent, and the broader picture is even starker over the past month. Luna: I've noticed that at the grocery store — not the prices falling, but the headlines about a global glut. What's actually going on? Lucas: Right, so the short version: the world is swimming in wheat right now. The USDA's May World Agricultural Supply and Demand Estimates report — the WASDE — came out earlier this month, and it projected global wheat production for the 2025–2026 season at a record 800 million metric tons. That's up about 2 percent from the prior season. Luna: Eight hundred million. That's a lot of grain. Where's all that coming from? Lucas: A few key places. Russia, despite sanctions and all the noise around the war, had another monster harvest. The USDA pegged Russia's crop at 92 million tons, which is huge. Ukraine, also, is exporting more than expected — they've been shipping grain via the Black Sea corridor, and it's been working. Then you have Australia, which rebounded from drought, and India, which had a good winter crop. Luna: So supply is up, but demand isn't keeping pace? Lucas: Exactly. Global consumption is growing, but slowly — about 1.5 percent per year. So you get this buildup of ending stocks. The USDA estimates ending stocks for 2025–2026 at 315 million tons, which is the highest in five years. And in commodity markets, when storage bins are full, prices tend to slide. Luna: And yet, when I walk into a supermarket, the price of a loaf of bread hasn't gone down. Why the disconnect? Lucas: That's the million-dollar question. Because wheat is a commodity — it trades on global exchanges — and it's priced in dollars. But the stuff on the shelf has a lot more built into it. There's processing, baking, packaging, transportation, labour — all of which have their own cost pressures. And those costs haven't come down. Luna: So the raw ingredient gets cheaper, but the final product doesn't, because everything else is still expensive. Lucas: Right. And there's another factor: the dollar. The U.S. Dollar Index has been pretty strong this year. When the dollar strengthens, commodities priced in dollars become more expensive for buyers using other currencies. That can dampen demand globally, which adds to the downward pressure on futures prices — but it doesn't directly lower shelf prices in the U.S. Luna: So farmers are getting less for their wheat, but consumers aren't seeing the benefit. That feels like a squeeze in the middle. Lucas: It is. And you can see that in the data. The April CPI report, released a couple weeks ago, showed the food at home index was still up 2.2 percent year-over-year. Cereals and bakery products specifically were up 1.9 percent. So even though wheat futures have dropped, it hasn't filtered through to the checkout counter. Luna: What about the other grains — corn, soybeans? Are they seeing the same thing? Lucas: Corn is down too, about 2.5 percent this week. Soybeans are off a little over 1 percent. They're all feeling the same supply pressure. But with corn, you also have ethanol demand, which is steady, and livestock feed demand. So it's not a straight line. Luna: And then there's the geopolitical overlay. We're hearing a lot about Iran negotiations moving forward. How does that affect wheat? Lucas: Indirectly, potentially. If a deal with Iran gets done, it could eventually lead to a relaxation of sanctions on Iranian oil, which might lower energy prices. That would cut input costs for farmers — fuel for tractors, fertilizer made from natural gas. Lower costs could encourage even more production, which would put further downward pressure on grain prices. Luna: So a peaceful resolution could actually be a headwind for commodity prices. Lucas: In the near term, yes. But the whole situation is fluid. The headline today from Reuters says Trump said negotiations are proceeding in an 'orderly and constructive manner.' So we'll see. Luna: Let's talk about the impact on developing countries. Because many of them import a lot of wheat from the Black Sea region. Lower prices should be a good thing, right? Lucas: It is a good thing, broadly. Countries like Egypt, Indonesia, Bangladesh — they import huge quantities. Cheaper wheat means lower food import bills and potentially less hunger. But it also means local farmers in those countries face stiffer competition from cheap imported grain. So it's a double-edged sword. Luna: So a farmer in Kansas, for example, is getting a lower price for their crop, while a farmer in Egypt is also struggling. Lucas: Exactly. And that's why you see farm groups in the U.S. pushing for more export promotion or support programs. The USDA does have the Market Access Program, but it's limited. Luna: What are the next data points you're watching to see if this trend continues? Lucas: First, the June WASDE report, which will have updated crop condition ratings for the Northern Hemisphere. We're in planting season right now, so weather is key. If there's a drought or a flood in a major growing region, that could reverse the price drop quickly. Second, export sales data from the USDA every Thursday — we want to see if strong demand is absorbing the supply. And third, keep an eye on the dollar. If it weakens, that could provide a floor for prices. Luna: You know, a lot of people hear 'wheat futures are down' and think it's good news for their grocery bill. But as we've been discussing, it's not that simple. And understanding these connections is exactly why I love this show. Lucas: I feel the same way. And speaking of that — if walking through the economy with us has made something click, or if you've saved a few bucks because you understood a market move, that's what we're here for. A couple of dollars a month is genuinely what keeps these episodes coming — buy me a coffee dot com slash fexingo. It goes straight to keeping this ad-free and independent. Luna: Yeah, it makes a real difference. Even a small amount helps cover the hosting and the data feeds we use to bring you the numbers we talked about today. Lucas: Exactly. So anyway, back to wheat — one more thing I want to flag. The market is also watching potential export disruptions from the Black Sea. There have been some tensions about Russia possibly restricting exports if domestic prices fall too far. That would be a wild card. Luna: So we could see a sharp reversal if Russia decides to act. Lucas: Absolutely. And that's what makes commodities fascinating — the fundamentals tell you one direction, but geopolitics can flip it overnight.