September 18, 2003
World Wheat Stocks At Dangerous Level
Wheat output must increase substantially as world stocks dive critically low, a senior official at grains trader Nidera Handelscompagne said.
"In order to stabilise world stocks, we are going to need a production in 2004/2005 on the world basis in the range of 580-585 million tonnes," Brian Thomsen, managing director of one of the world's top grains traders, said at a two-day international wheat conference.
From data compiled by U.S. Department of Agriculture (USDA), global wheat stocks look to be at 23 percent of usage by the end of the 2003/2004 year, compared with 27 percent the previous year and 34-35 percent at the turn of the millennium.
"We generally consider 20 percent a critical low stock/use ratio. The last time we went to below 20 per cent was back in 1995/96," he said.
The world wheat market will enter into significant volatility below 20 percent, with the movement of wheat supplies across the globe distracted.
With no major increase expected in wheat acreage over the next three to four years after a decline in the past one to two years, Thomsen said the global output would depend on yield prospects, such as weather and varieties to be planted.
USDA data showed global wheat output stood at 547 million tonnes in the 2003/2004 year, down from 564 million tonnes the previous year and 581 million tonnes in 2001/2001.
But, according to analyst John Tjaardstra, assistant executive director of the International Grains Council, tight stocks won't necessarily lead to a further price increase, at least in the near term, if available export supplies remain adequate and global import demand declines.
"In 2003-04, the supply and demand picture for wheat will be one where consumption is expected to outpace production by a wide margin, especially as many northern hemisphere crops have turned out so much worse than previously forecast," he said. As a result, world ending stocks will be further reduced, for the fourth year in a row.
Non-Traditional Producers Needed
Looking at trade, Thomsen predicted the world's traditional exporters, such as the United States, Canada, Australia, the European Union and Argentina, were likely to recover their market share to about 80 percent in 2004/2005.
The market share of non-traditional exporters, including India, China, East European countries and former Soviet Union, will shrink to 20 percent after boosting it to 40 percent over the past two years, he said.
"But what is clear is the world needs supply from the emerging markets. The big five exporters are not in the position in the nearby future to fulfil the world demand on its own," he said.
"The big question mark is obviously when China will be out of de-stocking process and what kind of influence will that have on wheat exports as well as wheat imports," he said.
Referring to India, another new exporter in Asia, Thomsen said: "We expect them to continue exports in the next one to two years. The big question mark on India is price policy... and what kind of allocations they make for exports."
Turning to European Union (EU), which suffered major weather damages this year, he said he expected Brussels to take some measures to reduce exports, such as imposing export taxes.
Substantial Price Increase Unlikely
Unlike the mid-1990s, when prices rose to near historic highs, a sharp price increase this time around may be less likely limited, said Tjaardstra.
This is because the bulk of declines in ending stocks in recent years has been in the world's wheat importing nations, while the decline in stocks in major exporting nations has been much less significant, he said.
"The stocks in the five major exporters - the U.S., European Union, Argentina, Canada and Australia in 2003-04 would remain somewhat larger than in 1995-96," said Tjaardstra.
Another feature in the past two years has been the huge grain surplus in the Commonwealth of Independent States that entered export channels, and record shipments from countries such as India.
The aggressive export of wheat by the CIS and India, at very competitive prices, also helped to counter the impact of declining stocks, said Tjaardstra.
There is no doubt that world wheat and coarse grains stocks will be historically tight. But with available export supplies remaining adequate, especially if southern hemisphere wheat crops recover strongly, and a decline in global import demand, prices aren't likely to increase very much, said Tjaardstra.