Wheat

Phantipa Puangsumalee

In 2009-10, world wheat production is forecast to decline by 40 million tonnes and world wheat consumption is forecast to remain largely unchanged. While lower world production and relatively stable world consumption could provide support for price, the average world wheat indicator price (US hard red winter, fob Gulf ports) is forecast to decline by 4 per cent in the 2009-10 season mainly because of increased stocks.

The world wheat indicator price at the beginning of the 2008-09 season was more than US$300 a tonne, but fell to around US$250 a tonne in early 2009, as global production was estimated to increase to a record 687 million tonnes in the year. For 2008-09 as a whole, the world wheat indicator price is estimated to average around US$270 a tonne. As world wheat production is forecast to decline in 2009-10, there will be some support from lower world production for the world indicator price.

Nevertheless, world stocks have increased from their recent historical lows and are forecast to continue to increase in the short term. As a result, the world wheat indicator price is forecast to average lower in the 2009-10 season, compared with 2008-09.

World wheat production lower in 2009-10

The area sown to wheat is forecast to fall by around 1 per cent in 2009-10. The lower area planted to wheat is largely the result of easing world prices and relatively high farm input costs. World wheat production is forecast to fall by around 40 million tonnes in 2009-10 under the assumption that yields will be lower than the highs achieved in the previous season. Taking into account opening season stocks, global wheat supplies are forecast to be 3 million tonnes lower in 2009-10 compared with 2008-09.

In the five major wheat exporting economies (Argentina, Australia, Canada, the European Union and the United States), production is forecast to decline in 2009-10 by around 20 million tonnes. Although production is expected to increase in Argentina and Australia, the effect is likely to be more than offset by forecast lower production in the European Union, the United States and Canada.

In the Russian Federation, production is forecast to be around 11 per cent lower in 2009-10, at 55 million tonnes. Spring sowing in the Russian Federation was delayed because of unfavourable seasonal conditions. This is expected to have an adverse effect on yields and total wheat production in 2009-10.
In the European Union, the mandatory set aside rate (land left fallow) has been abolished. Despite the increased area available to be planted to crops, lower wheat prices are expected to lead to a 3 per cent fall in the area planted to wheat. Assuming average seasonal conditions, production in the European Union is forecast to be around 137 million tonnes in 2009-10, around 13 million tonnes less than the record achieved in 2008-09.

In the United States, the area sown to wheat is forecast to fall by around 7 per cent in 2009-10, compared with 2008-09. Production in the United States is forecast to decline by around 18 per cent in 2009-10 at 56 million tonnes. The major variety produced in the United States is winter wheat, with spring wheat representing only around 30 per cent of total wheat production. The United States Department of Agriculture reported on 16 June 2009 that around 29 per cent of the winter wheat crop was rated ‘poor or below’ and 44 per cent was rated ‘good or above’. This compares with a rating of 22 per cent for ‘poor or below’ and 47 per cent for ‘good or above’ at the same period a year earlier. Spring wheat planting for the 2009-10 season was delayed because of adverse seasonal conditions. The delay in spring sowing and a poorer rating for winter wheat growing conditions are factors contributing to a forecast decline in production of 12 million tonnes in 2009-10.

World wheat consumption to remain unchanged in 2009-10…

World wheat consumption is forecast to remain largely unchanged in 2009-10 at around
641 million tonnes. Wheat used for human consumption is forecast to rise. However, this increase is expected to be largely offset by lower use of wheat for livestock feed.

The use of wheat for human consumption accounts for more than 70 per cent of global wheat consumption. Wheat used for human consumption has been increasing by around 1 per cent a year over the past 10 years. In 2009-10, human wheat consumption is forecast to increase again by around 1 per cent.

The major contributor to changes in world wheat consumption has been the use of wheat for feed. In 2009-10, the feed use of wheat is forecast to fall by around 7 per cent. The largest consumers of feed wheat are the European Union and the Russian Federation, accounting for a total of 70 per cent of global feed wheat consumption.

The use of wheat for livestock feed in the European Union increased to a record 57 million tonnes in 2008-09. In 2009-10, feed wheat supplies in the European Union are forecast to decline and the use of wheat in livestock feed is expected to fall. Livestock numbers in the European Union are expected to decline in 2009-10 compared with 2008-09, which will contribute to lower demand for feed wheat.

Feed wheat consumption in the Russian Federation is also forecast to be lower in 2009-10. In the Russian Federation, livestock producers are forecast to substitute corn for wheat in livestock feed as a result of the price differential and the changes in availability.

The use of wheat for industrial purposes (mainly biofuel production) is relatively small compared with overall world wheat consumption. Over the past five years, industrial use of wheat has averaged around 2 per cent of total wheat consumption. In 2009-10, industrial use of wheat is forecast to increase to around 18 million tonnes, reaching around 3 per cent of total world wheat consumption.

….and world trade to decline in 2009-10

World wheat trade is forecast to decline by around 3 million tonnes (3 per cent) in 2009-10. Import demand is forecast to be lower in a number of key importing countries as domestic supplies increase. While total world trade is forecast to fall, the shipments from the five major exporting economies (Argentina, Australia, Canada, the European Union and the United States) in aggregate are forecast to rise slightly in 2009-10.

Import demand by Iran is forecast to fall in 2009-10 as domestic production is expected to increase. In Pakistan, production is also forecast to increase in 2009-10, largely because of government incentives. On 30 September 2008, the Pakistan Government announced an increase in the support price offered to domestic wheat growers from 625 rupee per 40 kilograms to 950 rupee per 40 kilograms. This has led to an increase in the area planted to wheat. In India, wheat production is forecast to be more than 75 million tonnes for the third consecutive year. This means the Indian Government will be able to purchase from domestic growers to satisfy its public distribution needs. There is speculation that the India Government will lift the ban on wheat exports, allowing the private sector to export wheat in 2009-10. However, there has so far been no official announcement.

Wheat stocks increasing

Global wheat stocks at the end of the 2009-10 season are forecast to be around 162 million tonnes, 7 million tonnes more than the closing stocks in the previous season. Despite this forecast increase, world wheat stocks remain at a relatively low level from a historical perspective.

Stocks of high quality milling wheat held by the five major exporters are forecast to increase in 2009-10 to around 49 million tonnes, an increase of around 3 million tonnes from the previous season. Much of the forecast increase is expected to be in the European Union and the United States.

China has traditionally held a large amount of wheat stocks, although the level of its holding has declined in recent years. In 2009-10, China’s wheat stocks are forecast to be around 44 million tonnes, accounting for 27 per cent of total world wheat stocks. This compares with a holding of 88 million tonnes, or around 43 per cent of total world stocks in 2000-01.

Australian production to rise in 2009-10

The area sown to wheat in Australia in 2009-10 is forecast to fall slightly to 13.5 million hectares. However, assuming a higher average yield for the coming year, wheat production in 2009-10 is forecast to be 22 million tonnes, nearly 572 000 tonnes more than the previous year.

Most of Queensland, northern and central New South Wales, western Victoria and South Australia have had relatively good starts to the 2009-10 winter cropping season. Average autumn rainfall was received in most areas and with further rain in early June, most farmers were able to finish sowing their winter crops. In southern New South Wales, eastern Victoria and Western Australia the start to the season has been poor, with below average rainfall received throughout autumn. The lack of autumn rainfall in these regions meant that many winter crops were dry sown or not sown during the optimal planting window as growers waited for rain. However, widespread early June rainfall has provided some relief, boosting crops that have been dry sown and enabling further planting to occur in these regions.

The Bureau of Meteorology in its latest season rainfall outlook (26 May 2009) for the June to August period indicates a slight increase in the odds towards below average rainfall in the grain growing regions of Western Australia, South Australia, Victoria and south-west New South Wales.

Domestic wheat prices to fall but remain relatively high

Forecast lower global wheat prices and an expected increase in domestic production are likely to result in Australian wheat prices being lower in 2009-10. The pool return for Australian premium white wheat (APW 10) is forecast to decline from an estimated A$300 a tonne in 2008-09 to an average of A$291 a tonne in 2009-10. Despite the forecast fall in price for the 2009-10 season, this is still a relatively high price from an historical perspective .

Australian exports to increase

Reflecting an expected better harvest than in 2008-09, Australian wheat exports (October to September marketing year) are forecast to increase to around 15.2 million tonnes in 2009-10. The value of these exports in fiscal year 2009-10 (July to June) is forecast to rise to A$6.2 billion.

Wheat outlook
			2007-08	2008-09	s	2009-10	f	% change
World
Production		Mt	609	687		647		– 5.8
– China		Mt	110	113		108		– 4.4
– EU 27		Mt	120	150		137		– 8.7
– India		Mt	76	78		78		0.0
– Russian Federation		Mt	49	62		55		– 11.3
– United States		Mt	56	68		56		– 17.6
Consumption		Mt	615	642		641		– 0.2
– human		Mt	446	446		451		1.1
– feed		Mt	87	111		103		– 7.2
Closing stocks		Mt	118	155		162		4.5
Trade		Mt	110	118		115		– 2.5
Exports
– Argentina		Mt	10	8		7		– 12.5
– Australia		Mt	7	13		15		15.4
– Canada		Mt	16	18		19		5.6
– EU 27		Mt	11	17		16		– 5.9
– United States		Mt	34	26		25		– 3.8
Price		US$/t	362	270		259		– 4.1
Australia
Area		’000 ha	12 578	13 552		13 508		– 0.3
Production		kt	13 569	21 397		21 969		2.7
Exports		kt	7 408	12 815		14 620		14.1
– value		A$m	2 990	5 160		6 157		19.3
APW 10 net pool return  a		A$/t	423	300		291		– 3.0
a Australian premium white wheat, 10 per cent protein. From 2008-09, the pool return is an estimated average across the major companies offering grain pools.