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Changing climates and wheat

06 June 20217 min reading

Although climate change is effective on grain areas in different parts of the world, according to the latest report of the International Grain Council, it is estimated that there will be no problems in world wheat production. It is predicted that wheat production will increase from 774 million tonnes up to 790 million tonnes. The drought experienced in Turkey this year will adversely affect the wheat harvest. It will be seen more clearly during the season how the lack of precipitation in Brazil and the very dry and cold weather in the USA will affect the production.

Ayten Çandar Işık Çandaroğulları Derya Flour and Feed Industry Board Member

The corona pandemic has reminded us how valuable the health sector, education, and most importantly agriculture. In the 21st century, we have witnessed that masks, health supplies even in countries with strong economies are insufficient and even health supplies that go to other countries for support purposes are confiscated. The pandemic slowed down the economy of all sectors, stopped some while regressing the others. We entered a global quarantine. History seems to be divided into 'pre-corona' and 'post-corona'. We saw that all of our analyzes, year-round planning, goals, and expectations lost their meaning. At the same time, we lost our ability to make long-term predictions and act strategically. During the stagnation or even regression of the countries and sectors, their primary goal has been to meet the basic food needs of their populations (flour, pasta, wheat, etc.). Therefore, one of the most important sectors has been the agricultural sector. Turkey has taken substantial measures during the pandemic process and continues to do so. It has brought with it the problem of access to food products or other products for the supply of basic necessities, particularly in foreign-dependent countries. Thus, the deterioration in the supply-demand balance of products led to an increase in prices in the short term. Such price increase and other adversities brought the significance of agricultural production to the fore.

Increasing unemployment, growth problems, high inflation problems, interest increases, fluctuating exchange rates, falling export figures, declining tourism sector, and many other problems due to the pandemic show us that nothing will ever be the same anymore. What is important at this point is to assess the damage in the crisis and predict what kind of an economy awaits us afterwards because the economy is in life. Indeed, it is life itself. After the pandemic is over, I guess that the production in China will shift to other countries, especially Indonesia, Malaysia, and Turkey. In this case, we should take advantage of this opportunity, invest in new sectors and increase our production capacity so that we can provide more added value to our country.

For example, in its latest report, the IMF increased its global growth forecast for this year from 5.5 percent to 6 percent. In the report, which pointed out that the world economy contracted by 3.3 percent last year, it was stated that the global economic growth forecast has been increased from 5.5 percent to 6 percent for this year and it has been revised from 4.2 percent to 4.4 percent for 2022.

When we look at the situation of wheat in Turkey and the world, it seems that even though there is no problem in production, the intense demands that will arise will determine the price policy and thus, price pressure will occur in the market. Due to the pandemic, many exporting companies are experiencing container shortages, high freight prices, and logistics problems on top of restrictions, quotas, and high taxation. In recent days, the increase in prices of products such as soybeans, sunflower seeds, and particularly corn, causes more demand for products such as wheat. Merely corn price has increased by 10 dollars within a few days and reached 280 dollars/ton. The price of barley and bran has seen substantial increases such as $225 and $ 200 respectively. While prices are increasing, one of the main reasons making the season unpredictable is climate change.

The drought experienced in Turkey this year will adversely affect the wheat harvest. However, the heavy rains experienced on a regional basis in recent days have severely damaged the wheat fields in many places. It will be seen more clearly in the season how the lack of precipitation in Brazil and the very dry weather and the very cold weather in the USA will affect the production.

When we look at Turkey, precipitation was 337.5 mm between October 2020 and April 2021 while it normally should have been 441.9 mm. The last year's rainfall which was recorded as 414.3 mm was 24% lower than normal and 19% lower than the previous year. Thus, precipitation across the country was lower than both normal and last year. Wheat and barley production is also expected to decline due to the dry weather. Şemsi Bayraktar, Chairman of the Union of Chambers of Agriculture of Turkey, predicted that the yield in Turkey would decrease by about 10% this year down to 18.5 million tonnes. It looks like this will be the lowest season since 2007.

While the wheat situation in Turkey courses in this direction, when we look at the world wheat situation, although there is no problem in production, the factors I have just mentioned (natural disasters, commodity prices, etc.) will determine the prices in the market. Prices in Europe have reached 216 Euro/ton, the highest level since 2018. During the season, it is estimated that the prices will reach 220 Euro/ton. At the same time, in the latest report prepared by the International Grain Council, it was underlined that there will not be any problem in world production, and it was emphasized that the demand for raw materials would be intense in order to secure themselves from all countries.

Stating that the world wheat production will reach 790 million tonnes, the council also predicted that the world wheat trade will be 188 million tonnes in the forthcoming 2021/2022 season with the increase in demand. The Council also predicted that while production is expected to decrease in Ukraine, European Union, Argentina, the USA, and Iran, it will increase in countries such as Australia, Russia, China, and India. However, predicting that the stocks will increase in the 2021/2022 season, the council noted that the carryover stocks, which were recorded as 289 million tonnes last season, will be around 298 million tonnes increase in the 2021/2022 season by increasing 9 million tonnes.

During such fast developments in wheat, flour industrialists had their primary objectives in capital management and financial management on top of wheat purchase, flour production, raw material supply, stock risk, and technological problems. 563 registered flour mills, which are actively working in Turkey, have increased from 50% to 85% by using their idle capacity during the pandemic period. However, collection and stock risks have also increased (risks such as overheating, infestation, flooding, etc. in the warehouse).

Another challenge for flour industrialists has been fluctuations in wheat prices. While Russia raised the taxes until June 2, it stated that it will announce weekly taxation in the roadmap it will follow. For example, it has set taxation at 28.1%/tonne for June 2-8. Thus, since the taxation will change on a weekly basis, the long-run change in prices is another uncertainty. Our factories, which operate with a low profit share in our highly competitive sector are faced with these problems, and at the same time, they have to allocate a budget for innovative technologies. Despite this, the flour industry has created an income of over $1 billion in return by exporting flour to 163 countries, and has become one of the sectors that provide the greatest support to our national income.

I wish everyone a nice and fruitful harvest. I also wish you health and a festival-like season.

"In every grain of wheat there lies hidden the soul of a star." (Arthur Machen)

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