Wheat: Taking China Out Of The Equation

In 2008 global wheat supplies fell to a dramatic low sparking food rioting and the sharp spike in prices that we all remember so well. World supplies fell to below 2 1/2 months worth of consumption, and the ensuing panic pushed global prices to unprecedented highs.

Things have sure changed a lot since then, suddenly we are awash with wheat that nobody wants, we can hardly give the stuff away. World supplies have risen to a much more comfortable nigh on four months worth of demand, and global prices have fallen back accordingly.

Phew, what a relief that was then eh? We can all put our feet up and relax, the world isn't going to run out of wheat after all.

Just before I put the kids to bed to nod off in comfortable bliss, safe in the knowledge that Mrs N#3 isn't going to have to queue all night outside Tesco's to ensure we have a generous supply of extra thick sliced Warburtons for our breakkie in the morning. Where is all this wheat, I mean it is all there isn't it? We can get our hands on it, if we want it like? Just for our peace of mind.

We aren't doing anything daft like turning it all into biofuel because we think that we have so much of the blinking stuff, only to turn around and find that when push comes to shove and Mother Nature chucks us a googlie that toast is surprisingly indefinitely off then menu?

Just double check those numbers again for me will you old chap?

Right, look, here's the numbers. We'll use the USDA, they're pretty reliable aren't they?:

World Consumption(MMT) World Stocks(MMT) Stocks/Usage %
2006/07 615.77 130.64 21.22
2007/08 617.46 124.41 20.15
2008/09 642.52 165.05 25.69
2009/10 652.18 192.90 29.58
2010/11 667.49 193.93 29.05

There you go, little wobble around 2007/08, normal service resumed, job sorted night night sleep tight. Look if you're still worried I'll leave the landing light on, how's that?

What? You want me to take China out of the equation, just to put your mind at rest? Bloody hell, right here goes then, and don't ask me to do anything else, it's way past your bedtime now.

Chinese consumption has been very flat during this period at around 105 MMT, according to the USDA. China's share of world stocks however, has risen from 38.45 MMT in 2006/07 to a projected 62.89 MMT in 2010/11.

So although Chinese consumption is static, rest of the world consumption has grown steadily from 513.77 MMT in 2006/07 to a projected 562.69 MMT in 2010/11.

That means that world stocks to usage excluding China in 2010/11 is set to come in at 23.29%, or around 2 3/4 months supply. OK, that's tightish, but stop crying will you it's not that bad, we're not going back to the dark old worrisome days of 2007/08 here my lad.

What? I can't tell what you're saying why you cry like that, calm down lad, what is it? You've read on the Blog that world wheat production in 2010/11 might be significantly lower than what the USDA reckon? Surely not.

Right listen, I will do the sums one more time just to put your mind at rest. If we assume that the USDA are wrong, an absurd notion I know, but lets just assume it for now. They do still have Canada down to produce 24.5 MMT of wheat this year after all.

If Nogger's projections are correct and the world will only produce 646.9 MMT of wheat in 2010/11, where does that leave us? Well, even allowing for the fact that 4 MMT of the USDA's potential overstate is in China itself, that cuts the rest of the world stocks to usage to 20.16%.

Yikes! That's right back to where we were in 2007/08. Get your dressing gown on son, we're off to Tesco's....