WHEAT

PRODUCTION

Table 3. Wheat production (million tonnes)

Another good crop confirmed in 2005 and early prospects for 2006 crops are favourable

As of mid-November, most of the main 2005 wheat harvests were complete, and planting of the 2006 winter crops was well underway or already completed in most major producing countries in the northern hemisphere. Early prospects are generally favourable for the newly-sown crops and tentative estimates point to a larger area sown in some countries. FAO’s forecast for world wheat production in 2005 now stands at 618.8 million tonnes, 4.7 million tonnes more than the previous forecast in September but 1.3 percent down from the record output in 2004. Since the last report, a significant upward revision has been made to the forecast for Australia, where favourable precipitation in September and October continued to improve prospects for the crop, and estimates have increased for some countries in Asia and in Europe CIS, after the completion of their harvests. These upward adjustments have more than offset some downward revisions, most notably in South America, where the harvest in Argentina is not progressing as well as earlier anticipated, and in the North America, where the final harvest result in the United States, after the completion of the spring wheat harvest, was lower than expected.

In Far East Asia, latest information confirms wheat production has risen again in 2005, reaching 192.4 million tonnes, some 3 percent up from last year and the largest crop since 2000. Larger crops in China and Pakistan contributed mostly to this year’s increase. In India, production remained virtually unchanged from 2004. Planting of the winter wheat crop for harvest next year is underway throughout the region. In China (Mainland), planting has been completed under generally satisfactory weather conditions. Early indications point to an increase in the area sown by about 1 percent compared to last year. In India and Pakistan the outlook for wheat production in 2006 is favourable reflecting ample water reserves and government incentives to farmers in both countries to encourage wheat production.

In the Asian CIS countries the aggregate wheat harvest in 2005 is estimated at about 23.6 million tonnes, nearly 2.4 million tonnes up on the reduced level of the previous year. Dry weather is reported to have favoured the latter stages of the harvest but could have a negative impact on the winter planting of the 2006 crop.

In Near East Asia, latest estimates confirm a record wheat output in 2005. Production recovered sharply in Afghanistan after drought last year, and production remained above the recent average in Iraq, the Islamic Republic of Iran, Syria and Turkey. Early indications for the 2006 crop are generally satisfactory. In Turkey, planting has been completed in most parts of the country under favourable moisture conditions. Wet hampered fieldwork somewhat in late October but drier weather in early November allowed planting to progress again and the final area is expected to be unchanged from the recent average. In the Islamic Republic of Iran, the arrival of rainfall in early November improved the planting prospects after previously dry conditions.

In North Africa, winter wheat planting for the 2006 harvest is underway. The new season started favourably around mid-October with the arrival of welcome rains for planting and establishment of crops after last season’s adversely dry conditions. The latest estimate of the 2005 wheat output stands at 14.6 million tonnes, slightly up from earlier expectations but still some 15 percent below last year’s good crop, despite a record crop in Egypt. Drought conditions affected production throughout most of the subregion with the exception of Egypt where the crop is mostly irrigated.

In eastern Africa, the 2005 aggregate wheat production in the subregion is forecast at about 2.5 million tonnes, slightly down from 2004 but still about 11 percent above the average of the previous five years. In Ethiopia, where harvesting of the crop has started, prospects are favourable reflecting good rains during the season. Output is expected to increase slightly from the good level of the previous year. In Sudan, where the crop was harvested earlier in the year, output was estimated at about 467 000 tonnes, 17 percent higher than the previous year and well above average.

In southern Africa, the 2005 wheat crop is currently being harvested, and output is tentatively forecast at 2.1 million tonnes for the subregion, less than anticipated earlier but still an improvement over the drought-reduced crops of the two previous seasons. The downward revision is primarily due to the effect of dry weather on yields in parts of South Africa, the subregion’s main producer, where output is now estimated 9 percent higher than last year, but still below the average level.

In Central America and the Caribbean, harvesting of the 2005 secondary rainfed wheat crop in Mexico, virtually the sole producer of the subregion, is underway in the main producing states of Tlaxcala, Mexico and Guanajuato. Production is expected to be similar to last years’ good output. The main season wheat crop, harvested earlier in the year, showed a substantial recovery from the 2004 same season output, adversely affected by inadequate water supplies. In aggregate, this year’s wheat production is estimated to increase by almost 25 percent to 3 million tonnes. Planting of the main 2006 irrigated winter wheat crop has started under favourable weather conditions in central and northern growing states.

In South America, harvesting of the 2005 winter wheat crop is underway throughout the subregion. Latest forecasts put the subregion’s aggregate production at about 20 million tonnes, almost 21 percent below the record crop of 2004 and some 8 percent below the five-year average. This mainly reflects a sharp decrease in production in the main producing areas of Argentina and Brazil as a consequence of reduced planted area due to adverse dry weather conditions at the beginning of the season. In particular, in Argentina, 2005 wheat harvest is officially forecast between 11.8 and 12.3 million tonnes, about 25 percent below last year’s record crop.

In North America, the conclusion of the spring wheat harvest in the United States revealed that yields had not been as high as earlier anticipated, partly due to early-summer disease problems, and the official estimate for aggregate wheat production in 2005 has been revised down to 57.1 million tonnes, which would be about 3 percent down from 2004. Prospects for the new winter wheat crop, which was mostly sown by the end of October, are satisfactory but not as favourable as at the same time last year. Dry conditions at the onset of the planting period hampered fieldwork and crop establishment. However, early indications suggest that there may have been a small increase in the hard red winter wheat area and a relatively large increase in the soft red winter wheat area, which had fallen sharply in the previous year. In Canada, the 2005 wheat season was generally favourable and the latest official estimates put output at 25.5 million tonnes, just slightly below last year’s output but some 13 percent above the average of the past five years.

 

In Europe, the last of the 2005 wheat crops were gathered over the past two months and the bulk of the winter sowing for the 2006 harvest has been completed. The 2005 aggregate output in the EU is estimated at 123 million tonnes, almost unchanged from the forecast in September and about 10 percent down from 2004. Although a large part of this decrease reflects a return to normal yields after the previous year’s bumper levels, a severe drought in the Iberian Peninsula also contributed significantly to the lower output. The prospects for the newly-sown winter crops are reported to be generally favourable in most of the central and northern parts of the EU reflecting generally satisfactory weather conditions for planting and establishment of the crops. In the south, the moisture availability in southern Spain and Portugal has improved somewhat with the arrival of rains in October and November but the planting season has nevertheless been delayed by the earlier dry weather. In the east, the late maize harvest in Hungary, because of wet weather, has impaired the normal progress of wheat planting there. Early information for some of the EU key-producing countries indicates that the area may have increased in France but is lower in the United Kingdom, and sharply lower in Spain. The Balkan countries gathered smaller wheat crops in 2005, following a return to average yields after the bumper levels in the previous year, but some areas experienced losses due to heavy summer rainfall. Condition for planting improved in the Balkans in October when some drier weather set in after a particularly wet September.

In the European CIS countries, the completion of the 2005 wheat harvest in the past two months has brought with it an upward revision to the production estimate for the year. The aggregate output of the subregion, which is mostly accounted for by the Russian Federation and Ukraine, is now estimated at about 67 million tonnes, some 2.4 million tonnes up from 2004. Early prospects for the 2006 crop are uncertain. Latest estimates indicate that an aggregate area of 15.8 million hectares of winter wheat has been planted in the subregion, around the level of last year. However, lack of rain in September and much of October caused a delay in planting and it is reported that some winter cereals did not sprout in parts of the Russian Federation and Ukraine. Some rains in late October improved the situation for planting and emergence. The late planting and sprouting may affect cereal yields, particularly in Moldova where rains have been rather scarce over the past couple of months.

In Australia, as of late-November the 2005 wheat harvest was well underway. The prospects for the crop continued to improve throughout September and October with adequate rainfall in most of the major producing areas. The latest official report in late November forecast output at 24 million tonnes, 2 million tonnes more than expected in September and almost 18 percent up from 2004.

TRADE

Wheat trade revised up sharply but still below the previous season

The FAO’s forecast for world trade in wheat^1/ in 2005/06 (July/June) has been raised by 2 million tonnes since the previous report to 107.5 million tonnes. This month’s revision reflects higher forecasts for several countries, including Algeria, Egypt, Brazil, India, Iraq, and Nigeria. However, even at this higher level, international wheat trade would remain well below the previous season’s estimated volume, mostly due to an anticipated sharp fall in wheat imports by China and Pakistan.

Total wheat imports by the developing countries in 2005/06 are currently forecast to decline to about 84 million tonnes. This would be 1.7 million tonnes more than was anticipated earlier, but nearly 2 million tonnes lower than the estimated volume in 2004/05. Most of the reduction is expected in Asia where wheat purchases by China (Mainland) are forecast to drop by over 4 million tonnes, driven by an increase in domestic production and a further slight decline in per caput consumption levels. In Pakistan, despite the massive earthquake in October, wheat imports are forecast to drop, by nearly 1 million tonnes, as a result of this year’s increase in domestic production. The earthquake affected the mountainous regions of Kashmir and North West Frontier Province which are not cereal producing areas. In Turkey, because of large supplies, the forecast for wheat imports has been lowered by 400 000 tonnes since the previous report to 600 000 tonnes, unchanged from the previous season. In late August, Turkey raised customs duty for durum wheat from 60 percent to 100 percent, and for milling wheat, from 85 percent to 130 percent. However, several countries in Asia are forecast to import significantly more wheat in 2005/06. Imports by India are forecast to rise to 1 million tonnes from only 100 000 tonnes in 2004/05, driven by rising domestic consumption and reduced stocks. In Iraq, given the strong pace in foreign purchases of wheat and wheat flour in recent months, total imports are now expected to reach at least 3.3 million tonnes, up 600 000 tonnes from the previous season. In the Republic of Korea, larger purchases of feed wheat are expected to drive up total imports to 3.8 million tonnes, up 300 000 tonnes from the previous season.

In Africa, the forecasts for imports by several countries have been raised since the previous report. In Egypt, in spite of a record domestic production this year, attractive export prices from the Black Sea and strong domestic demand are driving up imports to 7.5 million tonnes, only 300 000 tonnes down from the previous season’s level. Wheat purchases by drought-hit Algeria and Morocco are forecast to increase sharply this season. Among other countries in Africa, fast-rising domestic demand in Nigeria is boosting imports, especially from the United States. As a result, the forecast for wheat imports by Nigeria is estimated at 4 million tonnes, up 1 million tonnes from the previous season. According to a recent report by the United States Department of Agriculture, Nigeria has overtaken Japan as the biggest market for United States wheat exports.

 

Wheat imports by most countries in Central America are forecast to remain largely unchanged at the previous season’s levels. However, imports by several countries in South America are forecast to rise. The largest increase is expected in Brazil where the anticipated decline in production coupled with reduced domestic supplies of quality wheat are giving rise to bigger imports. In North America, imports by the United States could also increase in 2005/06. The recent ruling by the United States International Trade Commission, which no longer considers the trading practices of the Canadian Wheat Board as harmful to United States’ farmers, may encourage imports from Canada. The ruling is expected to give way to the elimination of the 11.4 percent tariff, currently imposed on imports of Canadian hard red spring wheat. In Europe, smaller wheat purchases are expected from the Russian Federation due to this year’s larger domestic supplies. In the EU, despite a 10 percent drop in wheat production in 2005, imports are unlikely to increase as supplies remain adequate because of high inventories.

Turning to export prospects for this season, higher wheat sales are forecast for Australia, the EU, and several CIS countries, mostly due to larger exportable supplies and reduced availabilities in other exporting countries such as Argentina. Exports from the Russian Federation are forecast to reach 9 million tonnes, the highest sales since the peak in 2002/03. The Russian Federation’s exports to non-CIS countries are expected to rise sharply, supported by its lower prices which has raised its export competitiveness and already led to faster sales during the early months of the current marketing season. Export sales from the EU are gaining more ground in recent weeks, supported by a weaker Euro against the US dollar and firmer export prices from the Black Sea. The recent slide in the Euro is also helping the EU to reduce export refunds (subsidies) as internal prices become more in line with world levels.

UTILIZATION

Total wheat utilization rises, driven by higher food and feed usage

World wheat utilization 2005/06 is forecast to rise to 625 million tonnes, up 11 million tonnes, or nearly 2 percent, from the previous season and 2 million tonnes more than was reported in September. Feed use of wheat is currently forecast to reach 118 million tonnes, up 8 million tonnes, or 7 percent, from the previous season and 4 million tonnes higher than was anticipated earlier. Large export supplies of feed wheat from the Black Sea region have given rise to its usage in several European and Asian markets where supplies of coarse grains are tight.

Most of the total wheat utilization is destined for human food consumption, which is forecast to reach 440 million tonnes, around 1.2 percent up from the previous season. At this level, world per caput wheat consumption remains stable at around 68 kg for the third consecutive season. In both the developing and developed countries, the estimated per caput levels are stable at around 61 kg and 95 kg respectively. However, among the most populated developing countries, per capita wheat consumption in China is expected to decline slightly in 2005/06 to 70 kg. This compares to 70.5 kg in 2004/05 and the high of 78 kg reached in the late 1990s. In China, strong economic growth, urbanization and rise in income are contributing to higher consumption of more high-value products such as meat, vegetable oils and sugar.

STOCKS

Wheat stocks decline

World stocks of wheat for crop years ending in 2006 are put at 166 million tonnes, 7 million tonnes, or 4 percent, less than their opening level. The decline in world wheat reserves is mostly driven by stock reductions in major exporting countries (down 1 million tonnes in total) as well as in China (down 4 million tonnes) and a handful of other countries such as Brazil, Turkey, and Morocco. In China, higher production this year is not sufficient to prevent a further decline in stocks as imports are also forecast to decrease. Among the major exporters, the biggest reduction in stocks is expected in the EU following a decline in this year’s production and improved export prospects compared to the previous season. Based on the latest estimates, the ratio of this season’s ending wheat stocks to the projected world utilization in 2006/07 could fall to 26 percent, 1.2 percentage points below this season and well below the 10-year average of nearly 35 percent. This decline, however, is mostly driven by sharp cuts in stocks in China since the beginning of this decade while aggregate wheat stocks held by major exporters still represent 32 percent of the world total, nearly unchanged from the previous season and the highest in 2 decades.

 

PRICES

Prices are up from last year but may not rise much further

International wheat prices are mostly higher compared to the previous season. However, the increase of prices has been limited by generally lower import demand and large supplies of feed wheat from the Black Sea region. In November, the US wheat No. 2 export prices averaged US$167 per tonne, unchanged from its September level but US$5 per tonne more than in the corresponding period last year. In the US futures market, recent weeks have been marked by wheat quotations approaching the previous season’s levels and by late November, the March 2006 wheat futures contracts at the Chicago Board of Trade (CBOT) were quoted at US$115 per tonne, a drop of almost US$8 since September but similar to the corresponding values for March 2005. With the exception of Argentina, where prices have increased sharply in view of this year’s large decline in domestic production, currently, the supply and demand fundamentals in the world wheat market do not point to prices strengthening. In addition, the recent strength in the US dollar against most currencies, the Euro in particular, is expected to intensify export competition with other major wheat exporters (all but Argentina) and this may also weigh on international price developments in the coming months.

 

1. Including wheat flour in grain equivalent.