U.S. HRW wheat production hit near-record lows in the 2022/2023 marketing year, driving high prices in the KC HRW Wheat futures contract that surpassed European milling wheat prices. However, as U.S. HRW production has increased in subsequent years, it has put downward pressure on KC HRW wheat prices relative to other varieties.

Wheat is a storable commodity, so current production conditions aren't the only factor influencing prices. In 2022, U.S. winter wheat stocks were at or near 10-year lows but have since grown. French wheat stocks have been steady or rising over the past few years, contributing to generally lower prices. Differing rates of growth in stored stocks between the U.S. and France/EU can cause disconnects in their relative wheat prices.

Planting, growing and harvesting conditions can impact both the size and the quality of a crop. Recently, conditions in the United States have led to a significantly higher-than-average percentage of the winter wheat crop being rated at “good” or “excellent.” Conversely, heavy rains throughout the season have led to the French Agricultural Ministry projecting the smallest crop since the 1980s.

Countries that import wheat typically maintain consistent trade flows with their supplier countries. For instance, Mexico and Japan primarily import from the U.S., while North Africa and the Middle East favor European wheat. Consequently, demand in specific importing countries can affect the price of one wheat variety or origin more than others. Over the past two years, increased import demand in Egypt, Turkey and Morocco has likely supported European wheat prices relative to U.S. wheat prices.

The United States and Europe aren’t the top global wheat exporters, so they often follow world market prices. Black Sea production and exports can alter U.S.-Europe price dynamics. Some European countries, due to proximity, import significant amounts of Russian wheat, so a large Russian crop can lower European prices more than U.S. prices.

The Black Sea region, led by Russia and Ukraine, has become the world's largest supplier of wheat. The conflict that began in February 2022 disrupted the global wheat market, causing all three Wheat futures contracts to surge by at least $100 per metric ton, with Wheat futures seeing the most significant spike.

China is the world’s largest producer and a significant importer of wheat. Domestic production levels influence its import demand. Given its market size and diverse sourcing, China can purchase wheat from the cheapest source available. In early 2024, China reportedly canceled shipments to renegotiate contracts as global wheat prices fell.

The relationship between the euro and the U.S. dollar significantly influences wheat spreads. Since the global wheat market is priced in U.S. dollars, a weak euro may drive up demand for European wheat and result in more bullish prices relative to U.S. wheat. When the euro is weak, European wheat becomes cheaper in dollar terms, potentially boosting demand and driving up its price relative to U.S. wheat. In the fall of 2022, the euro-USD exchange rate fell below 1.0 for the first time in five years, highlighting this dynamic.