Insight Focus
The Israel-Iran conflict has ruffled wheat markets. A rapid short-term rally followed by a sharp price collapse in just two weeks highlights the market’s instability in today’s turbulent world. Amid improving production forecasts and ongoing geopolitical tensions, the wheat market remains highly sensitive, poised for swift reactions as new data emerges.
Israel-Iran Conflict Shakes Wheat Markets
The last couple of weeks have seen volatility in the world’s wheat markets, as demonstrated in the charts below for both Paris and Chicago.
The vertical lines in each chart represent the beginning and end of the Israel-Iran conflict.
As seen in the charts above, Israel’s initiation of attacks on Iran rocked the wheat markets. Driven by the potential impact on oil prices, commodities followed oil sharply upwards, with fears that the conflict could escalate and draw in other nations on a wider and larger scale.
However, without significant escalation, it never seemed likely that this conflict would be in the same league as Russia’s invasion of Ukraine in 2022 in terms of upward price risk. This was due to the relatively limited importance of Israel and Iran in global agricultural commodities markets—unlike Russia and Ukraine, who are both major exporters of wheat.
Source: USDA
The upside was driven by large fund short positions being reduced, which pushed values upward.
US involvement—specifically, the direct bombing of Iran’s nuclear facilities—stirred concerns over the weekend of June 21–22. However, the market showed very limited upside at the opening of the subsequent trading session. Prices soon turned and continued downward as the warring parties speedily agreed to a ceasefire, without prices thus far returning to those heights.
Improved Forecasts Weigh on Wheat Markets
Weather has proven helpful to much of the world’s wheat crops in recent weeks and months, leading to improved production forecasts. This has contributed to the market’s generally bearish tone.
Following the swift ceasefire agreement between Israel and Iran, the market returned its focus to fundamentals and the continually improving crop estimates. With harvest now underway and gathering pace, the accuracy of these estimates will remain under scrutiny in the weeks and months ahead.
There are a multitude of predictions putting Northern Hemisphere crops significantly higher than expected during the winter months. Improving production figures in the EU, Black Sea region, and the US led the most recent International Grain Council (IGC) report to raise its global wheat crop forecast for 2025 from 806 million tonnes to 808 million tonnes.
Source: International Grains Council
Tariff Relief Sparks Optimism
US President Trump has announced that his administration and the Chinese government have signed a trade agreement—a positive step towards rekindling global economic stability.
We saw the Trump tariffs back in April rock wheat market confidence, as participants feared global economic pressures, leading to reduced demand as finances came under pressure.
An agreement on tariffs between the world’s two largest economies is welcome news for the wheat market. Trump’s additional suggestion of a US-India trade deal on the horizon could help restore some—if not much—of the lost confidence in wheat demand for the year ahead.
If global economic fears subside, an increase in demand could spark more activity from the world’s major importers. This could, in turn, potentially draw the funds in to buy, as they still sit on impressively large shorts.
In Conclusion…
- Once again, war, improving crop forecasts and politics have pushed wheat markets up—and pulled them back down again.
- With much to consider in the weeks and months ahead, any combination of hostilities, harvest figures, global economic shifts, or geopolitics could trigger the next market swing.
- The upcoming June 30 Stocks and Acreage Report from the USDA could be the first to provide yet another ingredient to add to the mix.
- As always, there’s never a dull moment in the world of wheat!
