Knowing the key drivers for world markets can help you make better marketing decisions. In this column, we’ll look at the fundamentals of the world wheat market.
First, the sellers. Among continents, Europe generated over half of 2018’s worldwide wheat exports, shipping $US21.5 billion worth of wheat, or 54 per cent of the global total. North America furnished 28 per cent of world exports. Australia was responsible for eight per cent of international sales for wheat, and seven percent came from Latin America.
Among these areas, the fastest-growing wheat exporters since 2014 are: Pakistan (up 3,853 per cent), Argentina (up 312 per cent), Russia (up 56 per cent) and Bulgaria (up 24 per cent). Growth in these countries will have a long-term impact on where we can sell our wheat, and will make the world market more competitive.
Counties with declining wheat exports over the past four years are: Germany (down 62 per cent), Poland (-51 per cent), Australia (-42 per cent), Lithuania (-42 per cent) and the U.S. (-30 per cent). These declines have been primarily due to drought. What will happen when production levels return to normal in these countries? The sellers that will accept the cheapest price will capture the sale. In this situation, the country closest to the end customer, with the lowest transportation costs, has a distinct advantage over their competitors.
Asian countries accounted for the highest dollar value of wheat imports during 2018 purchasing $US16.8 billion worth of wheat, or 40 per cent of global imports. In second place were African importers at 23 per cent, while 21 per cent of worldwide wheat imports went to Europe. Smaller percentages were sent to Latin America (10 per cent), and North America (five per cent).
Having Asia, Africa and Europe as the top three world wheat importing regions puts wheat from North America at a competitive disadvantage for a couple of reasons. First, their earlier harvests allow them to enter the market sooner and set the price. Second, we face higher freight costs to access those markets from North America. To be competitive, our higher freight costs must be offset by a lower net return to North American producers.
Ukraine and Russia begin harvesting wheat in June, a few months ahead of us, so when they enter the market they come with very aggressive pricing to keep out wheat from competing countries and to tie up buyers for a longer term. These countries traditionally sold wheat from June until December, but now that they are producing more, their selling season has stretched out to March and beyond.
Once the Baltic region runs out of supply, North America is the world’s default secondary supplier. With an extended Baltic selling season, North American wheat values will remain under price pressure for a longer time, with a shorter window for sales opportunities — the Australian crop comes off right after the North American crop.
Without a crop concern in a major wheat-exporting country to restrict supply, North American wheat will continue to face extreme competitive pressures. The low Canadian dollar helps keep the net returns to producers a little more palatable.
Weather rallies are usually short lived. If we see a weather rally in wheat futures like we saw last year in May/June, that may be a good opportunity to sell some new crop or buy options.
The global crop calendar
Knowing who is growing what, where and when can offer valuable insight into where and when crops will be harvested and what that may mean for world prices.
This graphic below is the “wheat” portion of a global crop calendar created by ADM. To see the whole calendar, which also shows harvest and seeding timings for other crops, visit ADM’s Australian website at admgrain.com.au, look for the “quick links” section, and select “ADM Global Crop Calendar.”
If you’re looking for more detail, the United States Department of Agriculture has created monthly maps highlighting major crop progress by country. Find these by typing “USDA monthly crop stage calendars” into your search engine.