Hot, dry weather in some major wheat exporting regions has caused world markets to react from fears of a short crop as occurred in 2010.  According to the Foreign Agricultural Service (FAS) of USDA estimates released in early May, wheat trade of 145.1 million metric tons (MMT) accounts for 20.9 percent of this year’s wheat consumption.  Since 2000/01, annual global trade has varied from 17.4 percent to 22.4 percent of consumption.  As the world population continues to urbanize and diets change, wheat trade will likely become more important.

Nine countries plus the 27 countries of the European Union provide over 90 percent of the wheat exported in 2011/12 marketing year.  The largest supply region is North America at 44.8 MMT, 30.8 percent of the total, with the U.S. at 27.5 MMT and Canada at 17.3 MMT.  The Black Sea region is the second largest at 35.5 MMT, 24.5 percent of the total, with Russia at 21.0 MMT, Kazakhstan at 9.5 MMT and Ukraine at 5.0 MMT.  Australia is the third largest region at 21.5 MMT, 14.8 percent of the total, and the EU-27 is fourth at 16.5 MMT, 11.4 percent.  Argentina is fifth at 10.5 MMT, 7.2 percent, and Turkey sixth at 4.0 MMT, 2.8 percent.

Market worries about supply are based on uncertainties in expected output and possible disruptions in exports by government policies.  Forecasts for dry weather in the southern plains of the U.S. which produces hard red winter wheat, after a devastating drought in 2011, have raised concerns in North America.  The other growing regions in North America are not facing weather concerns now and the U.S. and Canada will maintain open markets.  The Black Sea countries are all facing some weather stress in winter and spring wheat crops and have a history of imposing export controls in short crop years, including 2010/11.

Australia has produced large crops in recent years, but can have a 50 percent decline in output in dry years, and does not restrict trade in short crop years. Recent high prices may encourage more wheat planting in Australia.  The EU-27 is the world’s largest wheat producer and usually does not have wide variations in production.  It does not restrict exports.  Argentina’s production is less variable than Australia’s, but the government does regulate agricultural exports and would likely intervene to protect domestic consumers from higher wheat prices.  Turkey is both an importer and exporter and not likely to have much market impact.

The U.S. is important as the supplier that can meet additional demands if there is a short crop in another region or a policy intervention to limit exports.  In 2010/11 the U.S. exported 35.1 MMT of wheat, a 46.9 percent increase from 23.9 MMT the previous year.  In 2007/08 it exported 34.4 MMT a 39.3 percent increase from 24.7 MMT in 2006/07.  The FAS wheat export estimate for the U.S. for 2012/13 made in early May was 31.5 MMT, up 14.5 percent from 27.5 MMT this year.

Total global wheat end-of-year supplies on June 30 this year are projected to be 197.0 MMT, down slightly from 200.1 MMT two years ago just before the Black Sea drought.  Despite all the concerns about adequate supplies in 2010/11, end of year stocks fell only 3.4 MMT to 196.7 MMT.  That was nowhere near the recent low for stocks at the end of the 2007/08 marketing year of 125.6 MMT.  In early May, the FAS projected global stocks on June 30, 2013 to be 188.1 MMT, down 8.9 MMT from this year.  That assumes world production will decline 17.0 MMT in 2012/13 to 677.6 MMT, with the U.S. production up 6.7 MMT and Canada up 1.7 MMT.  All of the other major exporters are expected to be down with Russia down 0.3 MMT, Ukraine down 8.9 MMT, Kazakhstan 7.7 MMT, the EU 5.4 MMT, Australia 3.5 MMT, Argentina 2.4 MMT and Turkey 1.3 MMT.  Private forecasters are already reducing further their estimates of Russian production and exports for the new crop year.  This may be partly offset by India deciding to export up to 4.0 MMT of excess wheat stocks.

Global wheat consumption is projected by FAS to be down 7.9 MMT in 2012/13 to 686.5 MMT mostly due to less feeding of low quality wheat to livestock.  It will still be the second largest consumption year for the world and exceed the third largest year by over 30 MMT.  A large demand base has been built that will not be reduced without substantially higher prices.

Imports are concentrated in a few countries, but are spread among almost all countries.  The largest importer for the 2011/12 marketing year is Egypt at 10.5 MMT, 56 percent of its wheat consumption.  Egypt must unload four ships per week, all year, each containing 50,000 metric ton of wheat.  The EU-27 countries are the second largest importer at 7.5 MMT for 2011/12, 6 percent of consumption.  As large importers and exporters of wheat, the EU-27 is buying high quality wheat delivered to various country locations.  The third largest importer is Brazil at 7.0 MMT, 63 percent of consumption.  Indonesia is importing 6.7 MMT, 100 percent of consumption; Japan 6.4 MMT, 95 percent of consumption; Algeria 6.1 MMT, 68 percent of consumption; South Korea 5.4 MMT, 100 percent of consumption; Mexico 4.8 MMT, 64 percent of consumption; and Nigeria 3.9 MMT, 100 percent of consumption.  Any disruption of deliveries due to poor crops or changes in trade policies will be disruptive for these major importers.

The importance of wheat imports can also be seen on a regional basis.  For the 2011/12 marketing year North Africa, including Egypt and Algeria, is the largest importing region at 22.7 MMT, 55 percent of consumption. The Middle East, the second largest region, is importing 20.1 MMT, 36 percent of consumption.   The regions are major shippers of oil to the rest of the world, but importing wheat into the region is also important for the people in the region.

Wheat carryover supplies and production in 2012/13 look adequate for now, but major buyers should be cautious.  Traders have a saying that the grain crop is ‘lost’ four or five times each year because the weather is too cold or too hot, too wet or too dry, or due to some other condition like disease.  Rain or cooler weather can quickly change crop conditions for the better, or continued hot, dry weather can further hurt yields.  Consumers in urban areas depend on international trade to keep them adequately fed by maintaining grain flows regardless of yearly crop conditions.

Ross Korves is an economic policy analyst with Truth About Trade and Technology