Wheat prices will certainly remain at a high level for the next six months. The limited supply, the decreased closing stock, a higher export volume in the European Union and the increased production costs are the drivers behind the high price. The high prices also affect the meat industry.
World wheat exports reached 199 million tons two years ago, an increase of 13% compared to one year earlier. The export value in that year was $45,3 billion. Russia ($7,9 billion), the United States ($6,3 billion) and Canada ($6,3 billion) have long been the largest wheat exporters. Their combined share comes in at 45%. The highest import volumes two years ago came from Egypt ($2,7 billion), Indonesia ($2,6 billion) and Turkey ($2,3 billion). Together, these three countries account for about 16% of the international market. In short: the year 2020 was a good year for the wheat market.
One year later, the challenges are much greater. The further embedding of the corona pandemic is generating high demand from retail. This while production in the large producing areas was disappointing. For example, the European Union experienced very unfavorable weather conditions, the weather phenomenon La Niña caused uncertainty about the yield in Australia and high input costs acted as a brake on cultivation. Exports were also subject to whims. Just think of the high prices for container transport by sea (more than $15.000 per forty foot container) and the delays caused by Hurricane Ida in the United States and Canada.
As a result of the above, the world wheat harvest is estimated at 777,9 million tons. Consumption is expected to be 1,6% higher than last year and 6% above the five-year average. As a result, the closing stock falls to 278,2 million tons. That is the lowest level since the 2016/2017 season. US inventories are even falling to their lowest level in fourteen years, at 16,2 million tons. The expected tight supply has pushed wheat prices, both on the Matif and CBoT, up significantly last year. The Matif reached a record price of €311,50 per tonne in mid-November. Chicago's CBoT rose to a nine-year high of $8,56 per bushel on the same day.
Wheat prices remain high
Although prices moved slightly down again in December – because the market turned out to be larger than expected – wheat prices are expected to remain at a high level for at least the next six months. That's what analyst Zanna Aleksahhina of market agency Mintec said in a webinar on Wednesday 19 January. "In the European Union, we expect the price to rise by 0% to 3% in the coming months. This is due to a lower supply, smaller stock, higher export volume and increased production costs."
The wheat price in the United States is rising slightly faster, according to Aleksahhina. Mintec calculates with a price increase of 0% to 5%. Here too, the small supply, lower inventory and high production costs will play a role in pricing in the coming months. By contrast, market agency IndexBox – based on figures from the World Bank and the United States Department of Agriculture (USDA) – is calculating a 2% price drop for American winter wheat, to $250 per ton. They foresee that consumption will be lower, because prices are relatively high compared to other grains.
Both Mintec and IndexBox expect global wheat trade to decline slightly in the coming months. IndexBox mentions a trading volume of 204 million tons. This is the result of reduced supplies from the United States and Russia. "US wheat does not remain competitive in foreign markets. In addition, the Russian government has imposed a quota on the export volume in order to maintain sufficient domestic stocks. The increasing supply from the European Union cannot fully compensate for this," writes market agency IndexBox in a report.
Also effect on the meat industry
High prices for grains, including wheat, are also spilling over into other industries; such as the meat industry. Prices for beef, poultry and lamb are expected to continue to rise this year, partly due to high feed prices. At the same time, these high input costs result in a lower output. A decrease in production is expected, especially in the United States and the European Union. Mintec forecasts US beef prices to rise 3% to 8%, to $4,63 to $4,86 per tonne. According to the market office, the European price will increase by 1% to 4%, to €4,24 to €4,37 per tonne.