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Exportable wheat supply may remain tight in the medium-term

07 March 202210 min reading

“The aggregate stocks in the eight major exporters of wheat could hit their lowest in nine years at the end of the current season, with the stocks-to-use ratio for that group at less than 15%, potentially the lowest on record. Exportable wheat supplies might remain relatively tight in the medium-term, as demonstrated by the IGC five-year baseline outlook.”

Arnaud Petit 
Executive Director 
(IGC)


Feeling the effects of drought, pandemic, increasing geopolitical risks, rising fertilizer and energy costs, the global grain industry is looking for ways to cope with this tough period. There are concerns about loss of production and quality for the next grain harvest season due to insufficient fertilizer use and drought.

As the grain markets enter a period of increased volatility and uncertainty, Miller Magazine has engaged in an exclusive interview with Executive Director of International Grains Council Arnaud Petit to discuss the latest forecasts for global grain production, the effects of the pandemic on the industry and the preparations for the annual IGC Grains Conference to be held on 7 & 8 June 2022 in central London.

Pointing out that Covid-19 crisis has stressed the importance of local supply and food security even in the grains value chain,  Mr. Petit says, “Yet, the market reality shows us that global trade plays a strategic role in food security and sustainable food systems. Also, the crisis has highlighted the high degree of complexity of the global grains value chain”. 

International Grains Council released its latest Grain Market Report on 17th February. Can you share with us the key highlights of the report? 

Global total grains production in 2021/22 is forecast at a record 2,281m t, 3% higher year to year, as gains in maize (+71m t), wheat (+6m) and sorghum (+4m) more than compensate for reductions in barley (-13m) and other coarse grains (-8m). Linked to broad increases in consumption, particularly for feed, total use is seen rising by 2% y/y, to 2,286m, also a new peak. Cumulative stocks are forecast to drop to a seven-year low, including a modest year-to-year reduction in the major exporters. Mainly tied to a predicted pullback in Chinese maize imports, total grains trade is expected to dip by 1%, to 424m t.,


World soyabean production is forecast to decline by 15m t y/y, to 353m, on smaller harvests in South America owing to sustained suboptimal growing conditions. With supplies expected to tighten, utilisation is predicted to contract for the first time in 10 years, including falls in Brazil and Argentina – contrasting with prospects for record US uptake. Combined end-season inventories are expected to contract sharply, mainly on a sizeable reduction in the three majors. World trade is seen broadly unchanged y/y, at 161m t.

In the report, total grain stocks in 2021/22 are forecast at 596 million tones, marking a fifth successive drawdown. And inventories in the main wheat exporters are also set to tighten for a fourth successive season. Do you think the decreasing trend in stocks will continue?

Indeed, aggregate stocks in the eight major exporters of wheat could hit their lowest in nine years at the end of the current season, with the stocks-to-use ratio for that group at less than 15%, potentially the lowest on record. The situation is even more serious if we look at global milling wheat supplies, as drought contributed to unusually poor crops in Canada and the US this season. Exportable wheat supplies might remain relatively tight in the medium-term, as demonstrated by the IGC five-year baseline outlook (albeit that report was released more than one year ago in January 2021). The projections suggested that, in absolute terms, demand for milling wheat would remain the driver of consumption, therefore, supply prospects were to remain a crucial element of information for a bullish market. The situation in the global maize market might tighten somewhat in the medium-run despite projected productivity gains. China’s demand as well as domestic processing in some countries are expected to keep the market dynamic over the next five years.


What are Council’s global wheat and corn supply and demand prospects for 22/23?

Current grain prices should support plantings in 2022/23 despite inflated input costs and we expect the global area for wheat and maize to be relatively steady year-on-year. It may be still too early to forecast production volumes due to various uncertain factors, including the rate of fertilizer application and weather, notably in parts of the EU and the US. In terms of wheat consumption, we anticipate a 1% annual increase in the season ahead, broadly matching the prior five-year average. This is expected to be centred on food consumption gains in Asia. Steady growth is foreseen in food use, but potentially ample availabilities of alternatives, including maize, may cap wheat feeding in some consumers, notably in Europe and China. Nonetheless, assuming a continued uptrend in animal protein demand, projected global feed use is seen close to the prior year's record level.

Regarding maize and ahead of the northern hemisphere spring planting season, high input costs and limited nearby fertiliser supplies could potentially result in some pullback in maize acreage in some growers. However, given strong market prices, only minor reductions are expected in the US, Ukraine and the EU. Including tentative projections for further increases in South American sowings, which are at least seven months away, the global harvested area is seen little changed y/y, at a larger than average 204.1m ha. With significant uncertainty about levels of fertiliser applications, there is some potential downside risk to 2022/23 average yields. Assuming seasonal weather and better results south of the equator, production is provisionally placed around 2% higher y/y.

We have seen a dramatic increase in the prices of fertilizer. Given that it is the biggest input in crop production, how do you think grain producers will cope with high fertilizer prices? How the current price of fertilizer will affect farmers' planting decisions?

Despite a recent mild decline in urea values, international fertiliser prices remain significantly higher y/y amid gains in natural gas prices and some export restrictions. As northern hemisphere farmers prepare to apply inputs to 2022/23 winter crops emerging from dormancy, as well as consider spring planting options, the rise in input costs has led to significant uncertainties about possible supply implications for the coming season. As farmers plan their crops on a rotational approach, this limits the potential for broad swings between crops. But the opportunity/cost ratio, as well as limited access to finance, might reduce fertilizer application rates, with potentially lower yields or grain quality for the milling sector. But again, we are still far from the harvest in the northern hemisphere and other factors may have a significant impact.

The grain market focused on South American weather, namely La Nina. Why does La Nina matter?

The La Nina weather event brings excessive dryness to parts of South America, with a number of consequences. First of all, it has had a negative impact on 2021/22 maize and soybean production prospects in Brazil and Argentina. Secondly, it raises additional challenges for logistics. For instance, extremely low water levels on the Parana river have been a bottleneck for shipping from Paraguay to Argentina as the number of cargoes, and the tonnages carried, moving to Atlantic ports must be reduced.

What lessons do you think the world grain industry/market has learned from the Covid-19 pandemic? What will be the key trends for the grain market in the post-pandemic world?

It is right that the Covid crisis has stressed the importance of local supply and food security even in the grains value chain. Yet, the market reality shows us that global trade plays a strategic role in food security and sustainable food systems. Also, the crisis has highlighted the high degree of complexity of the global grains value chain. This is why the number of restrictive measures to trade is very few today. At the end of January this year, the IGC, together with the government of Ukraine, held a webinar on contingency plans in the grains sector, whereby experiences were shared, with members providing updates on national regulatory frameworks. We can observe a shift in the approach to contingency planning from the usual public stockholding to facilitation measures for the domestic market to work properly. The amount of information which public and the private sectors are ready to share is crucial, being critical to the smooth and efficient functioning of the world grains market.


IGC has added pulses in the definition of grain and started to update its members regularly. What is the motivation behind this decision?

Pulses are a staple food for many regions and, as such, there is a need to have comprehensive data on supply and demand and trade, with the IGC unique in providing detailed information for seven varieties of pulses. Reflecting growing demand, the trade of pulses in total is on a par with, say, rapeseed/canola. Yet, the availability of information on pricing is suboptimal compared to markets for grains and oilseeds, with few exporting origins providing regular export (fob) quotations. Again, the IGC is working with its members/partners to build a platform for the publication of world market prices.

IGC GRAINS CONFERENCE: A GLOBAL FORUM FOR GRAIN MARKETS

IGC Grains Conference will return in 2022 at a new venue in London. What are the topics to be discussed at the conference?

We are really excited to restart the next edition in person in London. The 2022 Conference will be held in a hybrid format on 7 & 8 June 2022 in central London. Featuring contributions from speakers in pre-recorded format and live, the event will focus on a number of key topics, including supply chain vulnerabilities, sustainability as well as related climate change mitigation policies, and will be centred around four main sessions:

• Economic growth, with a special focus on infrastructure and logistical investments required to cope with shocks throughout the supply chain;

• Sustainability criteria and new trade policies in agricultural commodities;

• Carbon trading schemes and their potential use as a tool to incentivise climate change mitigation measures in the grains trade sector;

• The future of biofuels within the context of renewable energy policy, particularly in the transportation sector.

Furthermore, day two of the event will include a number of commodity-specific workshops covering topical issues affecting markets for wheat, rice, oilseeds and pulses.

Addressing resilience to vulnerabilities in global food systems requires policymakers and private enterprises to share knowledge, expertise and opinions. As such, the International Grains Council (IGC) is uniquely positioned. Join this global forum where such discussions can take place, with the annual IGC Grains Conference bringing together key players from the public and private sectors. 

IGC Conference has a tradition of regional focus. What will be the regional focus this year and why?

Asia is one of the most dynamic regional markets for grains and oilseeds. Amid changing dietary patterns and consumer preferences, asymmetric market disruptions and price movements between wheat and rice provide some margin of manoeuvre for substitution. This year, the conference will address economic factors and trends within food-grain (wheat and rice) markets in key consuming countries in Asia.


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