NAPERVILLE, Illinois, Dec 5 (Reuters) - New contract lows in Chicago wheat futures this week are hardly indicative of global supply concerns, but traders might want to eye what's happening in the Black Sea region more closely.

Winter grains in top wheat exporter Russia are in the worst-ever condition, and Ukraine’s current shipping capabilities could soon come under threat. Russia and Ukraine accounted for a third of global wheat exports last marketing year.

Ukraine’s agricultural exports have faced challenges ever since Russia invaded the country nearly three years ago as port infrastructure has been a prime target for attacks. This forced Ukrainian grain exporters to seek an alternative route through Romania’s Constanta port on the Black Sea.

The frontrunner for Sunday’s Romanian presidential runoff has suggested halting Ukrainian grain exports out of his country if elected. The move could be popular with Romanian farmers, who have previously protested the transit of Ukrainian farm goods to preserve local markets.

It is unclear whether this ban is likely or even possible, but Ukraine’s involvement has had some positive economic impacts. Overall traffic of goods at Constanta in 2023 surged 22.5% on the year, largely owing to ongoing European Union-funded infrastructure projects.

But it could be problematic if Ukraine lost Constanta as an outlet under a worst-case scenario. Constanta handled 14 million metric tons of Ukrainian grain in 2023, accounting for roughly 30% of Ukraine’s total grain exports that year.

For the 2024-25 marketing year that began July 1, Ukraine’s wheat exports are seen falling 14% from the previous year. However, Ukrainian grain exports from Constanta in the first 10 months of 2024 have dropped 52% on the year as Ukraine has increased reliance on its own seaports.

This dampens the impact of a potential Constanta loss, but the continuing war with Russia means that threats to Ukraine’s seaports never completely vanish. Luckily for Ukrainian exporters, they had shipped half of the government-agreed wheat export volume for 2024-25 as of Nov. 13.

RUSSIA IN JEOPARDY

A top Russian official on Thursday said the winter crops are in poor condition, just one day after Russian analysts reported winter crops in the worst-ever health, citing data not usually made public.

The official also said the situation is not critical, but a deeper dive may suggest otherwise.

The analysts said at least 37% of winter crops are in poor condition compared with 4% a year ago, and this is the worst rating ever recorded. On average over the last five years, just 8% of winter crops are in poor shape by this date.

Further, only 31% of crops are in good condition versus 74% a year ago. The portion of crops in good condition is a 23-year low.

The last time Russia’s grains were in concerning shape ahead of the winter was in 2020, when about 22% of the crops were in poor condition as of early December. At the time, it was the worst rating in seven years.

Although the exact figure is not known, the share of good-rated crops four years ago was not a seven-year low, setting it apart from this season. The woes in both years were caused by dry weather during fall planting.

The 2025 Russian wheat harvest may already be starting in a hole. Farmers said last month they would sow less wheat this year in favor of more profitable crops, including oilseeds. Preliminary estimates have pegged the 2025 harvest close to 2024 levels, which were down 20% from the record 2022 result.

Wheat is a notoriously hearty plant that can recover from harsh conditions if weather turns favorable, so it might be difficult to drum up traders’ fears over Russia this early in the game.

But once the crop breaks dormancy in the spring, satellite imagery as well as recent weather data should offer good clues as to the state of Russia’s wheat crop, regardless of whether the government chooses to share the intel.

Karen Braun is a market analyst for Reuters. Views expressed above are her own.

Sign up here.

https://www.reuters.com/markets/commodities/dire-russian-crop-health-ukraine-export-risks-threaten-black-sea-wheat-braun-2024-12-06/