In response to the weakness ruling in wheat in the first half of 2008-09, which was a sharp reversal of previous exceptional strength, market analyses of wheat and wheat flour prices in the remainder of the season and reaching into 2009-10 have tended to focus on the impact of this season’s dramatic crop increases in countries of the northern hemisphere. Even as harvests in the southern hemisphere are just being completed at levels below the prior year, which is a likely forerunner of this year’s harvests in northern countries, assessments should not neglect changes on the demand side. The latter have been overlooked in the enthusiasm over production rebounds.
Global numbers from the International Grains Council are themselves revealing when it comes to appreciating the shifts under way. Yes, world production of wheat in 2008-09 reached a new record, of 687 million tonnes, up a whopping 13 per cent from the prior year. Considering that only a decade has passed since global production first surpassed 600 million tonnes, the new mark is striking evidence of the way global wheat crops directly respond to rewarding grower prices. A further measure of confidence about the supply side of the current global wheat equation is provided by the prospect that the ending 2008-09 carryover, projected at 155 million tonnes, represents a 32 per cent recovery from 117 million a year earlier. While this carryover forecast is still well below the recent peak above 200 million tonnes at the start of the 21st century, it reaffirms the adage that a season of carryover increase is characterized by downward pressure on prices. That this season’s ending stock will be 24 per cent of wheat use, up from a year ago when the total was less than 20 per cent for the first time in modern history, reinforces the apparent comfort about supplies.
This understandable enthusiasm in the wake of totally opposite supply and price performance from 2007-08 is what may have caused market participants to neglect equally significant changes on the demand side. This year’s record crop has been matched by a new high in global disappearance, forecast at 648 million tonnes. Demand does not always move parallel with crop size, as witness past sharp fluctuations in carryovers. That it has happened this season reflects how the peak crop included a large quantity of lower or feed quality wheat being raised in both Western and Eastern Europe. Thus, of the 34 million tonnes of additional wheat being used this season, 28 million, or 82 per cent, are being fed to livestock. It is also likely that a part of this expansion in non-food use is credited to industrial processing, for starch and for biofuels.
Another record on the demand side is in exports, where the total moving globally in 2008-09 is forecast at 118 million tonnes, the largest volume to move in world trade. While purchases for feed use play a role in the 7 per cent export increase, it is noteworthy that no single importing country stands out, that demand has enjoyed a rebound globally. It also is significant that the projections of global trade in wheat have increased every month since last spring, reflecting the way that this trade growth has been a surprise. In the nine crop seasons since the beginning of the 21st century, the annual world wheat crop has been larger than disappearance in only two, the current 2008-09 and 2004-05. The result has been a drawing down of ending stocks from well above 200 million tonnes.
Regardless of whether the expanding demand reflected in this season’s record export trade is a short-term response to weakness or a fundamental boost in consumption, low carryovers do explain the exceptional price volatility of the past 12 months. Current stocks are hardly equal to twelve weeks of consumption, which is a narrow margin in these treacherous times.
This article can also be found in the digital edition of Milling and Baking News, February 10, 2008, starting on Page 7. Click