farmgate: Will Wheat Markets Recover In The Long Term?
Wheat producers harvested a bonanza in crop revenue the past two years, but wheat prices have been sluggish along with the US and world economy. Which of the Jekyll and Hyde personalities will wheat producers see in the next decade? Will prices be high as commodity buyers purchase acreage; will prices be low because of slack demand; or will they be somewhere in between? Let’s polish the crystal ball.
Assuming the wheat economies for the US and world remain healthy in the next ten years and demand remains strong, prices for wheat will recover from the current low levels. That is how ag economists Richard Taylor and Won Koo at North Dakota State University look at the future for wheat growers. Their forecast calls for increased wheat trade and prices over the next ten years.
To establish a baseline of wheat production, consider the fact that over the past 20 years world production has increased from 521 million tons to 612 million; with the EU the largest producer, followed by China, and the Former Soviet Union. The US produced about half of what was grown in the EU, and other significant producers included Canada, Australia, India, and Argentina, with all of those countries supplying 84% of world production. Last year world trade was 101 million tons, and that represented 17% of world production, with the US among one of the major exporters. Taylor and Koo report a dramatic change in the world wheat market in the past decade with government policies encouraging production, but the market has been impacted by the ethanol industry. During that time world export prices floated between $3 and $5, but beginning in 2007, surpluses fell to 30 year lows before a slight recovery last year.
Another dynamic in the wheat market is the increase in yields of 422% in China and 203% in India. Worldwide yields are up 128% in the past five decades. Total production has increased by 520% in India and 403% in China, and 73% in the US. The EU produced 5.2 tons per hectare in 2008, while China was at 4.71 and the US was at 3.05 tons per hectare.
Based on production trends, Taylor and Koo project world wheat trade to increase nearly 24% from the 73 million tons exported in 2008 to more than 90 million in 2018. They say, “The high wheat prices seen in 2007 and 2008 should not return because the recession lowered demand and increased production increased supply and carry-over stocks. All wheat prices are expected to return to more normal levels and slowly increase throughout the projection period.”
By 2018 US production is expected to increase 24% above the average of the past 3 years, but will be much lower than production of the late 1990’s. They expect a 52% increase in soft red wheat because of the low starting point from short acreage in 2008. Total wheat harvested is expected to increase from 51 million acres to nearly 58 million in 2018, with yields rising from 41.3 bu. to 46.8 bu. per acre. At the same time, exports and ending stocks are expected to increase.
Canadian production is expected to increase 5% over the recent production, but domestic consumption will rise along with exports and ending stocks for the next 10 years
European Union production will increase 6.7%, consumption by 5%, but exports are expected to decrease because newer member countries are not wheat exporters, but importers. EU ending stocks are expected to rise through 2018.
Australian wheat production will grow 90% through 2018 because the recent baseline was a series of droughty crops. Wheat consumption will rise 4%, and exports will rise 114% because of the recent crop failures.
Argentina will see production drop 9% from the recent average, but rise 30% over the droughty 2008 crop. Consumption will rise 16%, but exports will drop 26%, and ending stocks will rise 13%.
Importing countries across Asia will curtail their purchases nearly 50% over the next 10 years, but that is because of the shift in India from being both an importer and exporter depending on its own production and surplus stocks from year to year. China will continue to be a major importer, but is also a substantial producer of wheat.
Summary:
The future of the wheat market is largely dependent upon the economic recovery, and if the predicted income growth does not occur, then import demand for wheat will grow slower and prices will be softer. Prices are not expected to return to levels of 2006-2008, but the weak dollar will encourage foreign demand and prices should return to the $4.90 to $5.40 range. World exports will rise and African countries will be a growth market.
Posted by Stu Ellis on November 5, 2009 12:57 AM to farmgate