Wheat: Living On The Edge
The wheat market has certainly taken quite a tumble in the past few weeks. Since recent June 1st highs we've seen London wheat fall 14%, with Paris down 13% and Chicago wheat 12.7% lower. That's some pretty hefty losses in just a fortnight.
For those that would blame the influences of the "outside markets" crude oil has actually risen 9% during the same period.
So what is it with wheat? Good old-fashioned supply & demand?
Lets have a look at supply, or to be a bit more specific world trade. According to the USDA the world's largest wheat exporters in 2008/09 will be:
The US, the EU-27, Russia, Canada, Australia, Ukraine & Argentina. These are the top six nations that keep much of the world supplied with wheat.
Let's have a look at their production prospects for 2009/10:
So the top six exporting nations that account for over half of world production and 87.5% of global trade in wheat are set to see their output fall by almost 50 MMT in the year ahead.
Indeed, it looks a nailed-on certainty that Argentina won't even have any wheat to export at all in 2009/10, and will probably be a net importer (despite the fact that the USDA currently has them down to export 4 MMT next season).
So it must be world demand that's falling then? The world's top six importers, and their likely requirements for 2009/10, according to the USDA:
So the top importing nations are seen using 4 MMT less in 2009/10, well that's handy, if they were planning on buying it from Argentina, they'll probably find that it isn't available anyway!
So where's the rest of the production shortfall coming from, how are we going to feed the world? Global stocks of course. So with global wheat stocks having been in steady decline since 1998/99, we've had one decent harvest to help replenish them before we start digging into them again.
And what happens if Australia have another El Nino drought year? That could wipe another 10 MMT off world supply quite easily.
We do like to live on the edge don't we?
For those that would blame the influences of the "outside markets" crude oil has actually risen 9% during the same period.
So what is it with wheat? Good old-fashioned supply & demand?
Lets have a look at supply, or to be a bit more specific world trade. According to the USDA the world's largest wheat exporters in 2008/09 will be:
The US, the EU-27, Russia, Canada, Australia, Ukraine & Argentina. These are the top six nations that keep much of the world supplied with wheat.
Let's have a look at their production prospects for 2009/10:
2008/09 (MMT) 2009/10 (MMT)
---------------------------------------------
US 68.0 57.0
EU-27 151.7 132.5
Russia 63.7 58.0
Canada 28.6 23.4
Australia 21.5 22.0
Ukraine 25.9 18.0
Argentina 8.3 7.7
---------------------------------------------
Total 367.7 318.6
---------------------------------------------
So the top six exporting nations that account for over half of world production and 87.5% of global trade in wheat are set to see their output fall by almost 50 MMT in the year ahead.
Indeed, it looks a nailed-on certainty that Argentina won't even have any wheat to export at all in 2009/10, and will probably be a net importer (despite the fact that the USDA currently has them down to export 4 MMT next season).
So it must be world demand that's falling then? The world's top six importers, and their likely requirements for 2009/10, according to the USDA:
2008/09 (MMT) 2009/10 (MMT)
---------------------------------------------
Egypt 9.5 8.5
Iran 8.5 6.0
EU-27 6.5 6.5
Brazil 6.0 5.7
Algeria 5.6 5.4
Japan 5.5 5.5
---------------------------------------------
Total 41.6 37.6
---------------------------------------------
So the top importing nations are seen using 4 MMT less in 2009/10, well that's handy, if they were planning on buying it from Argentina, they'll probably find that it isn't available anyway!
So where's the rest of the production shortfall coming from, how are we going to feed the world? Global stocks of course. So with global wheat stocks having been in steady decline since 1998/99, we've had one decent harvest to help replenish them before we start digging into them again.
And what happens if Australia have another El Nino drought year? That could wipe another 10 MMT off world supply quite easily.
We do like to live on the edge don't we?
