Wheat, Weather and the Winds of Change

In recent weeks expectations of hot, dry weather in a number of the world’s major wheat exporting regions have set global grain markets on edge.  Some grain traders fear that a relatively small crop, such as the one that was harvested in 2010 may roil trade patterns and government policies this year.  

According to the U.S. Department of Agriculture (USDA) Foreign Agricultural Service (FAS) estimate released earlier this month, a global wheat trade measuring 145.1 million metric tons (mmt) will account for 21 percent of this year’s wheat consumption for the planet. 

Since the 2000/01 crop year, annual international wheat trade has ranged between 17.4 and 22.4 percent of overall wheat consumption.

According to the FAS report, more than 90 percent of the world’s wheat production comes from a relatively modest number of wheat growing regions of the globe.  The largest supply region is North America at 44.8 million metric tons (mmt), (30.8 percent of the total, with the U.S. at 27.5 mmt and Canada at 17.3 mmt).  The Black Sea region is the second largest supply region at 35.5 mmt, (24.5 percent of the total, with Russia at 21.0 mmt, Kazakhstan at 9.5 mmt and Ukraine at 5.0 mmt).  Australia is the third largest region at 21.5 mmt, (14.8 percent of the total). The European Union is fourth at 16.5 mmt, (11.4 percent of the total)  Argentina is fifth at 10.5 mmt, (7.2 percent), and Turkey sixth at 4.0 mmt, (2.8 percent).

Forecasts for an extremely hot, dry summer in the U.S. southern plains states have raised concerns about the hard red winter wheat crop that is grown in that area.  While normal weather is predicted for the rest of the North American continent’s wheat growing areas, anticipation of rising prices may incite some farmers to hold back their crops for better returns in the future.

The Black Sea region is also facing some dire weather conditions that either have had or may have an inpact on winter and spring wheat crops.  Grain traders still have in their collective recent memory drought conjditions and devastating wildfires in Russia and Ukraine that forced exports controls that disrupted markets in the 2010/11 crop year.  Grain industry analysts are already reducing their estimates of Russian production and exports for the new crop year. 

Total global wheat end-of-crop-year supplies are projected to be 197.0 mmt, slightly less than the 200.1 mmt level of two years ago, before the Black Sea drought.  Despite all the concerns about adequate supplies in 2010/11, end of year stocks fell only 3.4 mmt to 196.7 mmt. 

Earlier this month, the FAS projected that global stocks of wheat on June 30, 2013 will be 188.1 mmt, down 8.9 mmt from this year.  This includes a forecast for a global wheat production decline of 17.0 mmt in 2012/13 to 677.6 mmt, with U.S. production up 6.7 mmt and Canada up 1.7 mmt. 

FAS forecasts that the other major exporters will see production go down. Russian production is expected to decline by 0.3 mmt, Ukraine by 8.9 mmt, Kazakhstan by 7.7 mmt, the EU by 5.4 mmt, Australia by 3.5 mmt, Argentina by 2.4 mmt and Turkey by 1.3 mmt.  

While demand for low quality wheat for animal feed may be off slightly this year, demand for high quality wheat products remains high.  The world’s leading wheat importer for the 2011/12 marketing year is Egypt at 10.5 mmt, (56 percent of consumption).  The EU-27 countries are the second largest importer at 7.5 mmt for 2011/12, (6 percent of consumption).  EU wheat buyers tend to focus on high quality wheat delivered to various country locations for bread and pasta making.  The third largest importer is Brazil at 7.0 mmt (63 percent of consumption).  Indonesia imports 6.7 mmt, (100 percent of consumption); Japan 6.4 mmt, (95 percent of consumption); Algeria 6.1 mmt, (68 percent of consumption); South Korea 5.4 mmt, (100 percent of consumption); Mexico 4.8 mmt, (64 percent of consumption); and Nigeria 3.9 mmt, (100 percent of consumption). 

The importance of both the supply of wheat and its accessibility in terms of price can be important not just in an economic sense but also in a political context. Most foreign policy analysts now agree with an assessment published in the February 24, 2011 edition of Great Lakes-Seaway News highlighting the importance of wheat prices and supply in the political uprisings in the Middle East now known as the “Arab Spring”.  Grain traders and political leaders would be wise to exercise caution in a world where wheat supplies fluctuate.