Spend Matters welcomes a guest post from James Hutchings of Mintec.
As the world looks back at the size and quality of this season’s northern hemisphere wheat crop, we are now in a good position to review the harvest and consider the future.
World wheat production is expected to reach 709m tons in 2013/14, a new record and up 8% from last season. While US production will fall, production in Canada, Australia, the EU, Russia, and Ukraine will all rise significantly. Despite the increase in production, the availability of high quality wheat is a concern, as a number of major exporters including Russia and Ukraine have suffered from poor weather, harming wheat quality. The concern over high quality wheat led to the recent increase in prices.
China is set to increase its wheat imports substantially this season, as the quality of its domestic production has also been harmed by poor weather. A significant proportion of its production (up to 20m tons of its 121m ton crop according to some local reports) has been downgraded to animal feed quality. This is expected to lead China to increase its imports by 6.5m tons to 9.5m tons, the highest level since 1995/96, and China will become the world’s joint largest importer with Egypt, who will also import 9.5m tons.
This growth in Chinese demand will be satisfied by increased imports from the US, Canada, and Australia. Despite its drop in production, the US will remain one of the world’s largest wheat exporter, and exports will rise by 3m tons to 30m tons.
World wheat consumption is forecast to reach 706m tons, up 3%. The world wheat market will return to a surplus and stocks will rise. However, the significant supply deficit seen last season has left a stocks-to-use ratio of around 25%. Below this level, the market is considered to be tight and would be more vulnerable to any supply shocks, and it’s potentially more likely to see price rises. The drop in production and rise in exports will leave the US with a stock-to-use ratio of less than 20%, the lowest since 2007/08.
So while wheat will enter a global supply surplus again this season, concerns remain regarding the quality of wheat from some major producers and the drop in US stock levels. Attention is now shifting to the southern hemisphere harvests due in the coming months in Australia and Argentina. The quality and quantity of these harvests will be of particular interest this year as any unexpected drop in these harvests may lead to price movements due to the low level of high quality wheat stocks.