With concerns over tightening wheat supply across major producers, end products such as bread and pasta in importing nations are becoming costlier. Apart from a likely decline in supply, export regulations imposed by countries like Russia and Belarus are also seen supporting wheat prices.
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Global wheat supplies are seen shrinking across key exporters Russia, the US and Canada due to weather vagaries like drought or floods. Led by reductions in these major countries, the US Department of Agriculture has lowered world wheat supply estimates for MY2020-21 by 16.8 million mt to 1.066 billion mt.
For Russia, the top producer, wheat output was reduced 12.5 million mt to 72.5 million mt on a likely smaller winter wheat harvest due to frost during February-March, said USDA. Russian wheat is typically used for baked goods.
Canada's wheat production was lowered by 7.5 million mt to a 10-year low of 24 million mt on drought across the Prairie provinces during July. The country is the biggest supplier of durum wheat, the premium quality wheat used to make pasta.
US wheat production is also seen down 1.3 million mt from the previous estimate to 46.2 million mt, due to similar drought and extreme dryness seen during July-August. The US is also an important producer of durum wheat, along with common wheat.
As supplies shrink and use for wheat grows steadily, prices have edged higher on tightness concerns.
Export prices of wheat have increased between 21% and 30% globally over the past year, with Russian wheat noting the sharpest increase.
According to Platts assessments, FOB Russia wheat 12.5% has gained 30% over the last year.
Prices of end products rising
Due to the rising wheat prices, end products are becoming expensive for the major wheat importers -- Egypt, Turkey, France, and Italy.
The largest wheat importer, Egypt, in a historic move, proposed to increase subsidized bread prices, which have been fixed for 20-30 years. The country is the largest bread consumer in the world, and has an organized program for subsidized bread, which is a politically sensitive commodity in the country.
Meanwhile in France, prices of packaged pasta are likely to rise an average 10% to 20% due to increases in durum wheat prices, according to reports.
In August, the syndicate of industrial pasta manufacturers in France and the French committee for industrial semolina said that climate change is endangering the pasta market.
"Far too abundant rains in Europe and an unprecedented drought in Canada are leading to a shortage of durum wheat and historic soaring world prices," they said in a statement.
They also asked that France secure supplies, by ensuring that part of crop remains in France. The country is Europe's largest wheat exporter, and typically caters to Algeria, South Korea and China.
Italy, the world's top pasta-producing country may also struggle to meet its requirement in MY2021-22 to continue its pasta production. Italy is the largest wheat importer in the EU and imported nearly 2 million mt of durum wheat from Canada and the US in MY2020-21.
Turkey, another major pasta producer, sources nearly half of its imported durum wheat from Canada where supplies are seen shrinking.
Apart from these consuming countries, the US has seen significant increase in bread prices. Wheat flour prices in the US have increased sharply over past couple of months and the Economic Research Service of the USDA predicted a 11-14% increase in wholesale wheat flour prices by December.
Consumption and trade
Global durum wheat supplies are expected to be particularly thin this year, with both Canadian and US durum wheat exports seen plummeting to the lowest since MY1964-65, according to the USDA.
With declining durum wheat supplies from Canada and US, Mexico and the EU gained the opportunity to increase exports in MY2021-22. EU durum wheat production forecast is up 7% to 7.7 million mt, while Mexico's crop is seen 9% higher at 1.3 million mt.
"However, these slight boosts to durum production are unlikely to offset declines elsewhere," USDA said.
Smaller winter wheat crop in Russia is partly offset by larger spring wheat output and sizable carryover at the end of MY2020-21, but as Russia continues to tax exports, it may lose market share to the EU and Ukraine -- both of which have comparatively larger crops.
Russia imposed a floating export tax on wheat to limit exports and ensure comfortable domestic supply. Belarus, another wheat exporting nation, has recently imposed a ban on wheat exports for six months due to a smaller harvest.
Major wheat exporters' quotes have risen sharply over the past month.
Australian prices, currently the highest among major suppliers, have increased nearly $60/mt compared with last year, reflecting higher demand amid tightening supply.
Ukrainian quotes have surged over $70/mt on the year amid expectations of a decline in supplies. Russian prices have risen nearly $90/mt during the year.
US quotes, too, reflect reduced availability of supplies. Canadian quotes have increased over $40/mt on persistent drought and a dire harvest outlook.
Though sources said that wheat prices may take a breather here as demand may deter at such high prices, a lack of clarity over production scenarios in Canada and other countries will provide prices a way forward -- for wheat, as well as end products.