World trade in grains has been severely disrupted by the war in Ukraine. Prices have exploded and for the first time in a long time, food security is back on the political agenda in the western world. But how does global trade actually work and do we in the rich West actually run the risk of a food shortage?
Russia and Ukraine are major grain exporters on the world market. About 30% of the wheat exported worldwide comes from those two countries. This must have major consequences for grain prices and possibly also for food security. Or is the fork in the stem slightly different?
Let's first look at the grain market in the European Union. The European Commission keeps a close eye on the market and publishes, among other things, on market developments and the grain balance in the Netherlands crop market observatory. The last grain balance sheet dates from February 24 and gives a more nuanced picture of the European Union's dependence on grain imports.
The Commission distinguishes between two categories: wheat and coarse grains (coarse grains). The latter category includes barley, corn, rye, sorghum, oats, tritiacale and other grains. The European Union can meet its own grain needs to a very large extent, the overview shows. It is only a relatively small percentage that is imported from outside the European Union. For the current season (2021/2022 season), it appears that the European Union is a net exporter of wheat. For coarse grains imports and exports are virtually the same.
Relationships on a global scale
The Commission has less data available for the ratios at world level, but this is reported extensively by the American Department of Agriculture (USDA). If we look specifically at wheat, Europe is the largest producer in the world. The USDA estimates 2021 million tons for the 138,9 harvest. China follows with a production of 136,9 million tons and India is in third place with 109,5 million tons. Russia is in fourth place in this list and follows at some distance with 75,5 million tons. Ukraine is in seventh place with 33 million tons.
The total wheat harvest for the 2021/2022 season is estimated by the USDA at 1.066,3 million tons. This means that Ukraine and Russia account for 10% of world wheat production. Wheat consumption is estimated at 788,1 million tons. This means that inventory is being built up. The USDA estimates the ending stock (initial stock + production – consumption) that will carry over to the next season at 278,2 million tons.
The European Union is also at the top of the list of wheat exporting countries, with an export of 37,5 million tons. Russia follows in second place with 35 million tons and Ukraine is in fourth place with 24,2 million tons. Russia and Ukraine together account for 29,5% of the wheat traded on the world market. But it should be noted that a limited part, namely 19%, of the wheat harvest is traded on the world market. The top 5 wheat importing countries are: Egypt (13 million tons), Turkey (11 million tons), Indonesia (10,75 million tons), China (9,5 million tons) and Algeria (7,7 million tons). ).
After looking at these figures, a cool accountant will notice that there is more than enough wheat to compensate for the loss of Russia and Ukraine. The wheat is just not where it is needed. And on top of that, the export season for the 2021 harvest is already largely over and most wheat has already been exported.
Why then does the market react in such an extreme manner?
First of all, the logistics chains in the Black Sea region have been disrupted by the war. Ships that were on their way to load wheat in the ports of Ukraine have turned around and ships that were in the ports can no longer leave. Combined with a broader shortage of raw materials and disrupted chains in a global economy that is in the midst of a rapid recovery from the corona pandemic, experts say this is causing additional unrest in an already volatile market. The result is the rising prices we have seen over the past two weeks, which is further amplified by speculators looking to cash in on the current rally.
On paper, according to the USDA, there appears to be a significant supply of wheat. However, the estimated world ending stock is the smallest in five years. And due to the current uncertainty caused by the war in Ukraine, analysts say it is conceivable that countries will want to maintain larger strategic stocks of wheat. If that happens, it will create additional tightness in an already tense market. Much will depend on how wheat yields in the Northern Hemisphere turn out this year. But the growing season has yet to really start, so there is little to say about that at the moment.