WHEAT

PRICES

In spite of improved supply prospects prices remain strong

Good global crop prospects coupled with generally better supply outlook in major exporting countries could result in a modest decline in international prices. However, at the onset of the new season, stocks in major exporting countries are still small and this factor is contributing to continued price volatility in world markets. The United States hard wheat (HRW, No. 2, fob) averaged US$ 203 per tonne in May, down US$ 3 from April but still slightly above May 2006. Wheat futures on the Chicago Board of Trade (CBOT) lost some ground in recent months as good weather conditions increased chances of larger harvests in northern hemisphere countries. However, prices rose in recent weeks and as of late May, wheat futures for September 2007 delivery at the CBOT were quoted at US$ 186 per tonne, up US$ 31 from the corresponding period last year. The arrival on the market of newly harvested supplies is expected to add downward pressure on wheat prices in the coming months.

 

Table 2. World wheat market at a glance

PRODUCTION

Wheat production in 2007 is forecast to rise sharply

FAO’s latest forecast for world wheat output in 2007 stands at 629.6 million tonnes, representing a significant (5.2 percent) increase from 2006. In the northern hemisphere, where crops are furthest advanced, bigger harvests are expected in Asia, Europe and North America. In Asia, India’s production is forecast to rise well above trend. A record crop is in prospect in Pakistan, more than offsetting some reductions elsewhere in the region, the most notable being in China. In Europe, the aggregate wheat crop is currently forecast to rise by about 6 percent from last year’s somewhat reduced harvest. Despite predominantly hot and dry conditions during much of the spring, crops are generally faring better than last year, when some areas suffered severe weather-related reductions, particularly in the Iberian Peninsula and in the CIS countries. Moreover, the area due to be harvested this year is estimated to be much larger. In North America, the outcome for the wheat crop in the United States was rather uncertain during the past two months, following a spell of harsh, freezing weather in early April, but by late May, assessments revealed damage to be less than feared and the bulk of crops was still gauged in good to excellent conditions. This year’s harvest could turn out to be the largest since the record in 2003. Planting of the main soft wheat crop in Canada is progressing well but a smaller output is forecast because of farmers’ intentions to switch land to other, more profitable, crops. Elsewhere in the northern hemisphere, poor crops are expected in North Africa due to drought; Morocco is severely affected and its production could drop by over 50 percent. In the southern hemisphere, planting of the major 2007 wheat crops is just underway or coming up in the next few weeks. Early indications point to a smaller crop in South America, with a forecast reduction in Argentina more than offsetting a likely recovery in Brazil. In Oceania, the outlook for the winter wheat planting in Australia is favourable following the timely arrival of rains. Surveys earlier this year indicated Australian farmers were poised to plant a large area, should weather conditions allow it.

 

TRADE

Wheat trade almost unchanged in 2007/08

Global trade in wheat in 2007/08 (July/June) is currently foreseen to reach 109 million tonnes, nearly unchanged from the estimated level in 2006/07, but some 3 million tonnes above FAO’s first forecast for the new season reported in May.^1/ Total wheat imports into Asia are currently forecast to reach 46 million tonnes, down 2 million tonnes from 2006/07. The decline is mostly a result of much smaller imports by India, now expected to reach 3 million tonnes in 2007/08 compared with 6.5 million tonnes in the previous season but 1 million tonnes more than had been anticipated earlier. In spite of this latest revision, the forecast for foreign wheat purchases by India remains tentative because much will depend on the final outcome of this year’s harvest and price developments in the domestic market. In Bangladesh, the Government decided in March to waive the 5 percent duty on imports, a move expected to boost imports by at least 500 000 tonnes in 2007/08 to 2.8 million tonnes. Slightly higher imports are forecast for China in anticipation of a decline in domestic production. However, deliveries to most other countries in Asia are likely to change little from the previous season. In Africa, total imports are set to rise by over 2 million tonnes this season to 29.4 million tonnes. Most of the increase is expected in Morocco, where this year’s production shortfall may cause imports to rise by 1.2 million tonnes to 2.5 million tonnes. Similarly, dry weather conditions in South Africa, which are seen to hamper production, could give rise to larger imports. In South America, purchases by Brazil are forecast to decline by 500 000 tonnes, largely as a result of the anticipated increase in domestic production.

 

In contrast to the situation in 2006/07, export supplies in the new season are likely to be more abundant. Among the major exporters, the expected recovery in Australia’s production is likely to boost sales from that country. This, combined with higher shipments from the United States and the EU, could compensate for the anticipated reductions from Argentina and Canada. Amid latest concerns over current crop conditions, slightly higher exports are expected from the Russian Federation and Ukraine. In May, Ukraine lifted the export quota imposed in December 2007 to contain the rise in the domestic wheat prices.

UTILIZATION

Wheat total utilization to approach the long-term trend

Total world wheat utilization is forecast at 632 million tonnes, up 5 million tonnes from 2006/07 and close to its 10-year trend. Food consumption continues to account for over 70 percent of this total. In 2007/08, world food use of wheat is forecast to reach 450 million tonnes, nearly one percent more than in 2006/07, which would keep per caput consumption around 68 kg per year. Feed use of wheat is forecast to grow more rapidly than last season by roughly 4 percent. Strong coarse grains prices and improved wheat supplies are expected to drive up the use of wheat for animal feeding in 2007/08. Industrial use of wheat is also forecast to increase strongly, mostly reflecting growing use in Canada and in the EU for conversion into bio-fuels.

STOCKS

Wheat stocks to decline further despite higher production

Total wheat inventories by the close of the crop seasons in 2008 are currently forecast at 147.5 million tonnes, down 1.5 million tonnes from already low opening levels. At this level, the world wheat stocks-to-use ratio is forecast to reach 23 percent, slightly below the reduced level in 2006/07 and well under the 34 percent observed during the first half of the decade. Total wheat stocks held by major exporters are forecast to reach 41.5 million tonnes, up 5 million tonnes from their low opening level. Most of this increase is likely to occur in Australia where production in 2007 is expected to rebound from last year’s drought reduced level. Slightly higher stocks are also anticipated in the United States but inventories held by the other major exporters are likely to stay close or even decline from their opening levels, mostly as a result of larger domestic use and exports. The biggest decline is forecast for Canada where this year’s production is expected to drop by 3 million tonnes. As a result, the ratio of stocks held by the major exporters to their total disappearance (i.e. domestic consumption plus exports) is put at 15.9 percent, up from the 14.7 percent low in 2006/07. Among other countries, inventories are forecast to diminish in China, Morocco and Egypt but to increase in India if current forecasts for production and imports materialize.

 

1. Crop Prospects and Food Situation, No. 3, May 2007.