|Global Market Analysis|
Against the backdrop of a decline in world wheat production in 2009 and somewhat tighter supply prospects for the new season, wheat price increases have gathered momentum in recent weeks. International wheat quotations began rising consistently at the beginning of March 2009, gaining at least 15 percent overall. In May, the price of United States' wheat (No.2 Hard Red Winter, f.o.b. Gulf) averaged USD 266 per tonne, the highest since September 2008 but as much as 43 percent down from March 2008, the month when prices averaged USD 480 per tonne, an all time high (in nominal terms).
Wheat prices have also moved up in the futures markets. Less than favourable growing conditions in the United States and the sharp drop in production in Argentina continued to provide support to futures in recent weeks. The weakening United States Dollar and developments in the macroeconomy, including oil price hikes and cautious optimism about the economic recovery, contributed to firmer wheat values. By the fourth week of May, wheat futures prices for September delivery on the Chicago Board of Trade (CBOT) rose to USD 229 per tonne, up 14 percent from the beginning of the month.
Table 2. World wheat market at a glance
* Derived from International Grains Council (IGC) Wheat Index
** Jan-May 2009
FAO’s latest forecast of global wheat production in 2009 stands at 656 million tonnes, some 4 percent down from last year’s record but still well above the average of the past five years. The bulk of the decrease is expected among the world’s top producing countries, in particular, the European Union, the Russian Federation and the United States. Recoveries are forecast elsewhere, such as in the Islamic Republic of Iran, Argentina and Syria, but while important at national/regional level, they will not be sufficient to offset the decline at the global level.
Table 3. Wheat production: leading producers (2008 and 2009)
* Countries listed according to their position in global production (average 2007-2009)
In North America, as of late May, the winter wheat crop in the United States is nearing harvest in the southern states but planting of spring crops, which has been severely delayed by adverse weather, is still underway in the northern parts of the country. Assuming on one hand a 7 percent decrease in winter plantings combined with an expected decline in the spring wheat area, and on the other hand, a return to average yields after bumper levels last year, overall output in 2009 is forecast to decrease by almost 19 percent to some 55 million tonnes. In Canada, with planting underway in May, current indications point to a wheat area similar to that of the previous year. Given a return to average yields after last year’s high levels, the country's aggregate wheat production in 2009 is forecast to decrease by almost 10 percent to about 26 million tonnes.
In Europe, wheat area is down in several major producing countries, particularly in the east of the region. In the European Union, wheat production is tentatively forecast at about 139 million tonnes, almost 8 percent lower than 2008’s record output. The decline is expected partly due to a 3 percent drop in plantings, with land being shifted back to oilseeds or voluntary set-aside after last year’s exceptionally high area, and also due to a return to normal yields after high levels in 2009. In the CIS countries of Europe, output is forecast to decline from last year’s bumper level. In the Russian Federation, despite an estimated increase in the winter wheat area, reduced spring plantings are reported to have led to a smaller overall wheat area. Assuming average yields, the crop is forecast at 55 million tonnes, almost 14 percent down from 2008. In Ukraine adverse spring weather has deteriorated crop prospects and output looks set to fall sharply from last year.
In Asia, prospects for the winter wheat crop in the Far East countries have improved as the season has progressed, due to the arrival of rains in many of the earlier drought-stricken areas of China. Output in that country is now forecast at 111 million tonnes, just slightly below last year’s level. In India, where the harvest is already underway, the wheat crop is expected to be similar to the 2008 level at about 78 million tonnes. Pakistan is one of the few major wheat producing countries where output is forecast to register a significant increase this year, with production there rising by some 9 percent to almost 24 million tonnes. In the Near East, wheat crop prospects are also favourable and levels are expected to recover from last year’s drought-hit crop, especially in the Islamic Republic of Iran, where an almost 40 percent rise in production could be witnessed. Similarly, in the Asian CIS, better conditions in Kazakhstan, the subregion’s main producer, should lead to a recovery in the wheat crop there after drought last year.
In the southern hemisphere, sowing of the 2009 winter wheat crops generally takes place from April through June. Below-average level of plantings is expected in South America, a response to expectations of poor wheat returns coupled with the impact of prolonged dry weather. In Argentina for instance, at the onset of the season, lower producer price prospects, high input prices and reduced access to credit already pointed to another below-average wheat area in 2009, but on top of that, a lack of rainfall could limit plantings even further. However, assuming a return to seasonal weather conditions for the remainder of the season, some improvement in yields from last year’s drought-afflicted levels could lead to a crop of about 10 million tonnes in the country.
In Oceania, early indications suggest farmers in Australia will aim to produce an output close to, if not larger than, last year’s good level. Although international grain prices have fallen sharply compared with a year ago, a significant weakening of its exchange rate against the United States Dollar means that prices for Australian producers denominated in their local currency remain relatively attractive. However, the final outcome will depend on rainfall in the main growing areas. As of late May, prospects were favourable in eastern parts where good rains fell during planting, but the situation was less certain in Western Australia. At this stage, based on the current planting intentions and assuming a normal weather pattern for the remainder of the season, the country’s wheat output in 2009 is tentatively forecast to increase by about 3 percent from last year’s level, to about 22 million tonnes, close to the record crop of 2003.
Wheat trade expected to decline sharply in 2009/10
As the current 2008/09 (July/June) season for wheat is drawing to a close, attention is now being shifted towards prospects for 2009/10. FAO's first forecast for wheat trade in 2009/10 stands at 114 million tonnes, down as much as 8 percent, or 10 million tonnes from the estimated 2008/09 record volume. Almost all of the anticipated decline would be concentrated in developing countries, especially those located in Asia and North Africa. At almost 90 million tonnes, aggregate wheat imports by developing countries in 2009/10 would be the second highest on record, although more than 9 million tonnes below the 2008/09 high. While world wheat production is forecast to decline in 2009, the anticipated reduction is not expected to give rise to a larger volume of imports. This is mainly because most of the decrease in world wheat production in 2009 is expected in wheat exporting countries, whereas many wheat importing countries are forecast to collect bigger crops and therefore likely to rely less on the international marketplace to meet their domestic needs. In addition, even in countries where production is forecast to decline, carry-over stocks are in many cases more than adequate to compensate for smaller crops.
Total wheat imports in Asia are expected to fall by nearly 8 million tonnes, or 13 percent. The bulk of the decline is expected in the Islamic Republic of Iran where, following timely spring rains, this year’s wheat production is forecast to rebound sharply from last year’s drought-reduced level helping the country to lower its imports to 3 million tonnes. Higher production is also likely to cut imports significantly in Pakistan and Turkey. Moreover, China (Mainland) and India are likely to remain net wheat exporters given the prospect for near-record production in both countries in addition to large carry-over stocks from the current season. In Africa, where total imports are forecast to decline, most of the anticipated decrease reflects smaller import demand in Algeria and Morocco in response to an anticipated recovery in domestic production. However, deliveries to Egypt, the world’s largest wheat importer, are forecast to increase further, to 8 million tonnes, because of rising demand and a slight decline in production. Imports by most countries in Sub-Saharan Africa are forecast to remain unchanged, totalling just over 12 million tonnes.
In other regions, wheat imports by numerous countries in Latin America and the Caribbean are forecast to either match or be slightly above 2008/09 levels. Higher imports by Chile, Peru and Venezuela are likely to be offset by a small decline in purchases by Mexico. Inflows to Brazil, the region’s largest importer, are likely to remain unchanged at 2008/09 levels of around 6 million tonnes. Given the continuing export problems in Argentina, Brazil’s main supplier, and more limited surpluses from Paraguay and Uruguay, Brazil may source substantial volumes from outside the Mercosur bloc. Elsewhere, in Europe, large carry-overs from the current season are envisaged to more than compensate for the anticipated reduction in production in the European Union, leading to some decline in regional imports.
Given the prospects for much smaller world trade in the 2009/10 season, competition among exporters for international market share is set to intensify. Aggregate supplies of wheat in major exporting countries are forecast to reach over 307 million tonnes, only 5 million tonnes less than in last year. Among the major exporters, only Australia and Canada are forecast to export more wheat into world markets, while shipments from Argentina, the European Union and the United States are likely to decline. Dry weather remains a major issue in the two major southern hemisphere exporting countries of Argentina and Australia. Another factor with an important bearing on the final outcome for production and hence exports in the two countries is policy. In Argentina, the export tax policy is discouraging wheat plantings. In Australia, last year’s abolishment of the single-desk export system resulted in deregulation for exports and that has given way to transport bottlenecks and delays in shipments in the latter half of the 2008/09 season. Among the CIS countries, shipments from the Russian Federation and Ukraine are forecast to decrease sharply after record sales in 2008/09, but still would stand as the second highest volume ever shipped. Both countries have large carry-overs and are expecting good harvests. Nonetheless, developments in exchange rates and freight will also be critical in determining the size of exports from the Black Sea countries to traditional, large wheat-importing destinations in North Africa and the Middle East. Exports from the landlocked Kazakhstan are forecast to increase significantly because of higher production. To expand its share in the lucrative markets of the Middle East, Kazakhstan is also building large terminals in the Islamic Republic of Iran.
FAO’s first forecast for global wheat utilization in 2009/10 is put at 655 million tonnes, up 1.6 percent from 2008/09 and over 2 percent above the long-term (ten-year) trend. High wheat prices resulted in a contraction in world wheat utilization in 2007/08 but improvements in world supplies, a return to more normal price levels stimulated higher wheat utilization in 2008/09 and this trend is likely to continue in 2009/10. While food consumption of wheat is expected to largely keep pace with world population growth, the increase in total utilization since 2007/08 is further driven by a rebound in its utilization for animal feed and industrial use (ethanol production), especially in the European Union.
World feed use of wheat is forecast to increase for the second consecutive season, reaching 127 million tonnes in 2009/10, up 5 percent from 2008/09 and as much as 24 percent higher than the season before that. Prospects for higher feed use in spite of the prevailing global economic slowdown primarily stem from an improvement in the wheat availabilities in the European Union. As much as 40 percent of its Member States’ domestic production could be used for feed reaching 60 million tonnes in 2009/10, up 7 percent from 2008/09, buoyed by large supplies and high prices of soy meal. The increase in feed use in the European Union contrasts with the expectation of small contractions in feed utilization in most other developed countries, particularly in the United States.
Wheat used for direct human consumption is forecast to reach 456 million tonnes in 2009/10. This represents an increase of roughly 1 percent over that estimated for 2008/09. At this level, per global average caput food consumption of wheat would remain stable at 67 kg. In the developing countries, total wheat used for food is forecast to reach 323 million tonnes prompting a slight decline, from 59.7 kg in 2008/09 to 59.4 kg in 2009/10, in average per caput intake. While figures vary considerably between individual countries, the small decline reflects marginal reductions in a few countries situated in Africa, but elsewhere, overall per caput food consumption levels are expected to remain similar to those in 2008/09.
World wheat inventories by the close of the crop seasons in 2010 are forecast to reach 192 million tonnes, up marginally from their opening level and 27 percent above the 30-year low of 152 million tonnes in 2008. In spite of an anticipated 4 percent decline in world wheat production, world inventories may show an increase, as overall supplies are forecast to slightly exceed expected demand in 2009/10. Reflecting this development, the world wheat stocks-to-use ratio is forecast to reach 29.8 percent, slightly higher than in both the 2008/09 season and the five-year average (2002/03-2007/08). This ratio would also be well over the 23.5 percent in the season before last when a tight world wheat balance pushed up world prices.
Total wheat stocks held by the major exporters are forecast to reach 45 million tonnes, down marginally from their opening level. Notwithstanding their lower production prospects, smaller wheat exports from them in response to the expected slowdown in world import demand in 2009/10 stands as the main reason for fairly stable prospects for major exporters’ ending stocks. In fact, the ratio of stocks held by the major exporters as a group to their total disappearance (i.e. domestic consumption plus exports) is forecast to reach 17.1 percent, compared with 17.6 percent in 2007/08 and only 10.7 percent in 2007/08.
The largest absolute increase in wheat stocks is forecast in China where ending inventories could reach 79 million tonnes, 6 million tonnes more than their opening level and the highest since 2002. Successive increases in wheat production levels in the country since 2006, amid a falling trend in per caput food consumption are among the main reasons for this sharp increase in its inventories. While China may export more wheat in the forthcoming season, the Government may be reluctant to release too much wheat into the domestic market as this could lower domestic prices and hence adversely affecting farmers’ income. Inventories in India, another major producer and stockholder, is forecast to remain unchanged at a five year high of 17.8 million tonnes. The country’s inventories would remain large given the expectation of another bumper crop this year and limited export opportunities. In the Russian Federation, usually the largest wheat stockholder among the CIS countries, inventories may decline by 1 million tonnes, to 7 million tonnes, in spite of a much sharper decline in production. In contrast to record export sales in 2007/08, more limited export opportunities in 2009/10 may prevent stocks to decline even more. A similar situation faces Ukraine where despite an anticipated massive production cut this year, stocks may decline by only 1 million tonnes, to 3 million tonnes, because of a likely reduction in exports instead.
|GIEWS||global information and early warning system on food and agriculture|