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WHEAT: WORLD MARKETS AND TRADE
MONTHLY HIGHLIGHTS:
Large Production, Record Use Expected to Balance: World wheat supply in 2005/06 is forecast to be up again due to higher
carryin stocks and another expected large global crop - the second largest in
history. World consumption is forecast to climb to a record with both higher
food use and animal feeding. Steady population growth is expected to expand food
use, especially in South Asia and North Africa. Also, there could be some
additional growth in industrial use in Europe with the building of more ethanol
plants. Wheat feeding is expected to be up throughout Europe and the Former
Soviet Union due to smaller corn and barley crops.
World production and use are expected to nearly balance next year, resulting in
only a slight drawdown in global ending stocks. This decline will be driven
primarily by the continued shrinking of China's stocks, while exporter stocks
are expected to climb to the highest level in 12 years. The combination of
larger world supplies and strong competition will likely pressure export prices (See
PDF version for chart).
HIGHLIGHTS FOR 2005/06
Selected Exporters
Export competition is expected to intensify with abundant supplies expected in nearly all significant exporters. The EU-25 will begin next year with large intervention and free stocks. Prospects for another huge crop are anticipated to pressure domestic/internal prices and help make EU wheat more competitive. Stronger import demand in Mediterranean markets will likely provide opportunities for expanded EU shipments.
The level of total exports, though, will ultimately depend on Commission policies on export restitutions and intervention sales. Canada's exports are also forecast higher, as a return to normal quality will make spring wheat more attractive next year. Durum exports are also likely to be up, as demand from North Africa is expected to be larger, and European demand expands due to a decline in durum area.
Even with larger forecast supplies, Australian exports are projected to fall due to reduced demand in key markets, especially China and Pakistan. Poor old crop exports due to the smaller crop in 04/05 will also contribute to the decline. Argentine exports are expected to drop even though production is forecast to remain fairly steady. With the past harvest already largely committed, exports during the first half of 05/06 will be down sharply.
Exports from the Former Soviet Union are expected to be up again with replenished stocks and good crops. Sales from Russia and Ukraine are expected to grow again; and with shipments to the EU capped by quotas, more will go to Mediterranean or even Asian markets. Exports from Kazakhstan are also expected up with a crop recovery anticipated.
Despite the second largest crop in history, Indian exports are estimated to be down because of tight stocks, expanding food consumption, and the assumption that the government will not subsidize exports. (See PDF version for chart) Even so, some unsubsidized wheat will likely flow to nearby markets such as Bangladesh. Syrian exports are expected to be steady next year as the government tries to maintain stocks at about a year's consumption level.
While production is expected to be up slightly, United States wheat exports are expected to fall 2.5 million tons. Stronger competition from Europe and the Black Sea region in Mediterranean markets, enhanced Canadian competition for spring wheat markets, and smaller purchases by China are forecast to combine to pressure exports. Ending stocks are subsequently expected to expand to a 4-year high (See PDF version for chart).
Selected Importers
Total world import demand is expected to be down slightly from last year with a shift from Asian to Mediterranean markets. Smaller expected harvests in North Africa, especially Morocco, after years of bumper crops is expected to lead to higher soft wheat and durum imports. Egyptian demand is expected to be unchanged, maintaining it as the world's largest and highly competitive market.
Middle East demand is also expected to increase with Saudi Arabia possibly importing substantial quantities for the first time in decades as production drops due to reduced government price support. Imports by Iraq are projected to rise in order to build larger buffer stocks. Israel imports are likely to increase slightly due to more feed-quality wheat from Russia and Ukraine. Iran, the world's largest wheat importer in 1999/00, is expected to once again require very little imported wheat as production surpasses use.
European imports are expected to be unchanged from last year. For the EU-25, feed-quality wheat imports are capped by quotas, which are expected to be filled by ample Russian and Ukrainian supplies. High-quality imports are also expected to be the same as last year, although there will likely be a shift towards more durum and possibly less spring wheat.
Larger carryin stocks will partially offset lower production in Brazil, with imports only expected up slightly. With a rebound in production, Mexican imports should fall from this year's record level.
In Asia, two major markets are expected to reduce imports due to larger crops. With acreage expanding for the first time in 9 years due to government programs and higher prices at planting, Chinese imports are forecast to fall from 7 to 4 million tons. In contrast to last year at this time, China has done little forward purchasing. With a near record crop, Pakistan is also expected to cut imports as the crop looks to be sufficient to build stocks and supply increased domestic use (See PDF version for chart).
In Sub-Saharan Africa, Nigerian imports are projected to continue to grow with consumption. With the second smallest crop in over a decade expected in South Africa, imports are likely to remain at a high level, especially as substantial quantities will continue to be needed for re-export to bordering nations.
United States imports are expected to be unchanged from last year with continued durum imports from western Canada as well as soft wheat from Ontario. Spring wheat shipments will likely be minimal due to countervailing duties.
PRICES:
Domestic: U.S. wheat prices were under pressure for most of April on expectations for a good new crop and continuing large global supplies. Higher basis premiums due to tight supplies of high protein spring wheat helped DNS prices, while weaker demand depressed SRW prices.
For the week ending May 6, and compared to a month earlier, average HRW prices were $2 a ton lower, while SRW were $5 a ton lower. HRS prices rose $4 a ton, while SWW gained $1 a ton (See PDF version for chart).
TRADE CHANGES IN 2004/2005
Selected Exporters
Selected Importers
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