World Wheat and Flour Market

07 November 201316 min reading
World wheat and flour market had a low-production season in 2012/13 compared to the previous season. This decrease in production induced important changes in wheat prices over the past period. However; we can say that the production expectations about 2013/14 season started in June affected the market extremely positive. The expectation for the new season as 696 million tons compared to the 665 million-ton wheat production in 2012/13 provided the prices to be at a more acceptable level again. The only problem with 2013/14 season is that the quality rate in many regions has decreased in spite of the increase in the production.   As a cultivated plant, wheat has the highest level of production in the world and is indispensable for the nutrition, trade and crop rotation systems of many countries.  Cultivation area and production of wheat increase in parallel with the population growth since it has no alternative especially in terms of nutrition. The world population was over one billion in 1802, around two billion in 1927 and over 7 billion in 2012. According to the estimates, the world population will reach 8.5 billion by 2020, 9.6 billion by 2030 and 12 billion by 2050.   World wheat production stood at 222 million tons during 1960s, it reached 586 million tons in 2000s and 650 million tons in 2012, paralleling the population growth.   World wheat consumption per capita was 70 kg in 1960s while it is now estimated to be around 100 kg pro capita.  World average wheat yield has reached up to 300 kg/da in recent years.  Up until now, increase in the world wheat production depended mostly on the increase in cultivation area but it is conjectured that in the forthcoming years world wheat production will be increased by enhancing the yield per unit rather than by enlarging the cultivation area.     WORLD WHEAT PRODUCTION AND MAJOR PRODUCER COUNTRIES According to the data obtained from the International Grains Council (IGC), wheat production standing at 679 million tons in the 2009/2010 season receded to 653 million tons by a decrease of 26 million tons in the 2010/2011 season. It reached to 695 million tons by an increase of 42 million tons in 2011/12 season.  World wheat production started to decrease again in the 2012/13 season, estimated to reach 655 million tons by a record decrease of 40 tons. However, an increase in production is foreseen in the 2013/14 season due to the draught facing certain regions.   IGC increased its decrease forecast of 38 million tons in its 26th September report to 41 million tons in the 31st October report. Accordingly; world wheat production will be at around 696 million tons in the 2013/14 season. World wheat production data from the Foreign Agriculture Service US Department of Agriculture (USDA) support those of IGC. However; in the forecasts about 2013/14 season, it is seen that USDA’s expectations are much higher. Forecasting the wheat production amount for 2913/14 season as 705 million tons in August, USDA increased it to 708 million tons in September.     Country-based analysis shows that a large part of the world wheat production is met by China, India, USA and Russia in 2012/13 season. According to USDA data, out of 655 million tons of world wheat production in the 2012/13 season, 315 million tons of wheat is produced in these four countries (China 121 million tons, India 94,8 million tons, USA 61,7 million tons, Russia 37,7 million tons). These four countries are followed by Canada with 27,2 million tons, Pakistan with 23,3 million tons, Australia with 16.7 million tons,  Ukraine with 15,7 million tons, and Turkey with 15,5 million tons.   When USDA data are reviewed; compared to 2012/13 season, it is seen that the highest decrease in wheat production is in Russia (approximately 18 million tons) and Kazakhstan (approximately 13 million tons) and the highest increase is in USA and India with approximately 8 million tons per each other.   In the forecast of USDA for 2013/14 season; it is predicted that wheat production of China that is among the largest wheat producers will remain at 121 million tons level, the wheat production will decrease 2 million tons in India and 4 million tons in USA. Forecasting increase in almost all of other countries; USDA points out that the highest increase will be realized by Russia (about 17 million tons), Kazakhstan (about 8 million tons) and Ukraine (about 7 million tons). If these forecasts are realized; Russia, Ukraine and Kazakhstan would almost reach their production amounts in 2012/13 season.   According to a region-based analysis of the world wheat production, countries in Eastern and South-eastern Asia, excepting the Former Soviet Union countries (12), are placed on the top with a production figure of 248 million tons in the 2012/13 season.  Asian countries are followed by European countries with a wheat production of 136 million tons. American continent takes the third place with a production of 111 million tons while the Former Soviet Union countries (12) rank fourth with 108 million-ton production.     World end-of-season wheat stocks, on the other hand, are estimated to recede by 19 million tons in the 2012/13 season.  An analysis of IGC data on end-of-season stocks reveals that the world wheat stock standing at 194 million tons in the 2010/11 and 2011/12 seasons is expected to decrease to 175 million tons in the 2012/2013 season. The world end-of-season wheat stocks forecast of IGC for the 2013/14 season is 182 million tons.   When end-of-season wheat stocks are analysed on country basis, China ranks first in the 2012/13 season with 53.9 million tons of stock, according to the data obtained from the USDA. China is followed by the, India with 24,2 million tons, USA with 19,5 million tons, Russia and Iran with 5,1 million tons, Canada with 5 million tons and Egypt with 4,5 million tons. According to the forecasts for the 2013/14 season, a decrease will be observed in the end-of-season stocks Egypt, India and USA and increase in the other countries mentioned.   WORLD WHEAT CONSUMPTION AND CONSUMPTION BY COUNTRY IGC figures on general consumption show that the world wheat consumption standing at 653 million tons in the 2009/10 season reached 657 million tons in the 2010/11 season by an increase of 4 million and reached to 696 million tons in 2011/12 season with an increase of 39 million compared to the previous season. IGC estimates that wheat consumption decreased to 673million tons in the 2012/13 season with a decrease of 23 million tons and forecasts a consumption level of 690 million tons for the 2013/14 season. This forecast indicates an increase by 17 million tons.   China, having the largest share in the world wheat production, also has the largest wheat consumption. According to USDA data; China consumed 121 million tons of wheat in the 2012/13 season whereas it produced 125 million tons. As it is understood from these data; China uses almost all of its production for the domestic consumption.  As another important producer, India has a consumption level of 83,8 million tons as opposed to 94,8 million tons of production.   USA, which ranked third with 61,7 million tons of production in the country-based analysis for the 2012/13 season, uses 38,3 million tons of its wheat production for domestic consumption. In the Russia, 33.5 tons of consumption takes place out of 37,7 million tons of production. These four countries, which ranked at the top in consumption as well as in production during the 2012/13 season, are followed by Pakistan, Egypt, Turkey, Iran and Ukraine with consumption figures of 23,9, 18.7, 17.5, 16,4 and 11,8 million tons respectively.   USDA does not forecast a substantial increase or decrease in the consumption of countries for the 2013/14 season and estimates the biggest decrease to occur in USA by approximately 3 million tons and increase in India with approximately 7 million tons.   When analysed on the basis of region, the world wheat consumption is again greatest in countries of Eastern, Southern and South-eastern Asia, excepting the Former Soviet Union countries (12), as was the case in world wheat production. According to USDA data; the quantity of wheat consumed by Asian countries during the 2012/13 season adds up to around 277 million tons.  Asian countries are followed by European countries with a wheat consumption of 125 million tons. Continental America takes the third place with a consumption of 80 million tons while Former Soviet Union countries (12) rank fourth in world region-based wheat consumption, consuming 71million tons of the wheat it produced.     WORLD WHEAT TRADE and COUNTRIES SHAPING THE WHEAT TRADE According to the IGC report, the quantity of wheat traded worldwide in the 2009/10 season is 128 million tons. World wheat trade volume decreasing to 126 million tons in 2010/11 season reached to 145 million tons in the 2011/12 season with a record increase.  In the 2012/13 season, on the other hand, the world wheat trade was realized in parallel with the decrease in production.  Estimating that the world wheat trade decreased to 141 million tons by a decrease of 4 million tons in 2012/13 season as compared to the previous season; IGC forecasts it to increase only 1 million tons in the 2013/14 season.  Accordingly; quantity of wheat to be traded worldwide during the new season will be around 142 million tons. According to USDA data, which differ from the IGC data by a few tons; world wheat trade that was 146,9 million tons in 2012/13 season will reach to 152,3 million tons level in 2013/14 season.   According to USDA data; four countries undertake a significant portion (79million tons) of the world wheat export (146,9 million tons) in 2012/13 season.  As a country shaping the world wheat trade, USA alone performed 27.6 million tons of the world wheat export in the 2012/13 season. Exporting 28,1 million tons of wheat in 2011/12 season; United States reached the highest wheat and flour export level of the last four years in the 2010/11 season with 36 million-ton export. The forecast export quantity of the USA for the 2013/14 season is at 30 million tons. Australia is another major actor in the world wheat and flour trade, taking the second place following the USA, with a wheat and flour export of 21,3 million tons in the 2012/13 season. Australia, which exported 18,4 million tons of wheat in the 2010/11 season, reached an export figure of 23 million tons in the 2011/12 season. Forecast export figure of Australia for the 2013/14 season is 19 million tons by a decrease of 2,3 million tons.  Canada follows Australia in world wheat export in 2012/13 season. According to USDA data; the export amount realized by Canada in 2012/13 season is 18,5 million tons. It is estimated to increase its export in 2013/14 season and will reach to 20,5 million tons level. Being another major actor of the world wheat trade, Russia suspended its wheat export in the 2010/11 season due to draught and the ensuing decline in production, exporting only 3.9 million tons of wheat while its export figure stood at 11,2 million tons in the 2012/13 season. It is forecast that Russia will increase its export amount to 17 million tons in 2013/14 season. Based on the world wheat export data of the 2012/13 season, Russia is followed by India, Argentina, Ukraine, Kazakhstan and Turkey with export figures of 8.6, 7.4, 7.1, 7 and 3.5 million tons respectively.   All of the numbers about world wheat trade given in the data of IGC and USDA here cover the wheat and flour export based on wheat. If flour export is taken individually, ranking of the countries changes completely.  The two most dominant countries in the world flour trade are Kazakhstan and Turkey. Kazakhstan is the leader of worldwide quantity-based flour export with an export quantity of 3.5 million tons during the 2009/10 season while the export quantity of Turkey –world’s second biggest flour exporter- was 2.6 million tons during the same period. While Kazakhstan exports to only 5 countries, Turkey makes export to more than 100 countries. While Kazakhstan gained 605 million dollar with 2,2 million-ton export, Turkey gained 843 million dollars with 2 million tons. According to the statistics of International Association of Cereal; Turkey and Kazakhstan realized the same amount of wheat export with 2,8 million tons.     Egypt has the biggest share of the world wheat import like in previous seasons. According to USDA data; Egypt imported 8.3 million tons of wheat out of 146,9 million tons of world wheat import during the 2012/13 season and forecasts suggest that it will remain at the top in the 2013/14 season, as well, with an import of 9.5 million tons. Brazil follows Egypt in world wheat import in 2013/14 season. It is forecast that realizing 7,5 million tons of wheat in 2012/13 season, Brazil will realize 7,7 million-ton import in 2013/14 season. In world wheat import; Brazil is followed by Indonesia with 7,1 million tons, Japan with 6,5 million tons, Algeria with 6,2 million tons, South Korea with 5,4 million tons.   Region-based analysis of the world wheat import shows that the countries in Asia, excepting the Former Soviet Union countries (12), have the biggest share of the world wheat import in the 2012/13 season with an import figure of 39.2 million tons.  Forecasts suggest that the countries in the Asian continent will carry out 45.9 million tons of wheat import during the 2013/14 season.  In terms of the world wheat import in the 2012/13 season, Asian countries are followed by African continent with an import figure of 39 million tons. According to the forecasts, Asian countries will import 39 million tons of wheat in the 2013/14 season. Having reached an import figure of 23,7 million tons of wheat and flour in the 2012/13 season, countries in the America will import 24.2 million tons during the 2013/14 season, according to the forecasts.  Countries in the Middle East, on the other hand, are estimated to import 23,6 million tons in the 2013/14 season. European and Former Soviet Union countries are taking a back seat in terms of import.   It is estimated that European countries, which imported 6.9 million tons of wheat in the 2012/13 season, will import 6.7 million tons during the 2013/14 season, whereas 12 Former Soviet Union countries, which imported 7.4 million tons in the 2012/13 season, will import 6.8 million tons in the 2013/14 season.     WHEAT AND FLOUR PRODUCTION AND CONSUMPTION IN TURKEY When we analyse Turkey’s historical developments in terms of wheat; we see that 2.5 million tons of wheat production in 1930s reached 10 million tons in 1967, 20.6 million tons in 2009 and 21.8 million tons in 2011. In 2012, it decreased to 20,1 million tons. Wheat production for 2013 is estimated to be around 22 million tons.   The rate of wheat production increase between 1930 and 2013 is 780%.  Such an increase in production was influenced by the increase in cultivated areas up to a certain point, with soil improvement and proper cultivation techniques becoming more influential at later times.  As a matter of fact, the size of wheat cultivation areas was 2.8 acres in 1930, reaching 8 million acres by 1967, which is the same level in 2011. In 2012, cultivation areas decreased nearly 5 million hectares.   On the other hand, yield per unit, standing at 92 kg/da in 1930, reached 125 kg/da in 1967 increasing by 35.9 % and hit 269 kg/da in 2011. It decreased to 267 kg/da in 2012. Both the reduction in cultivation areas and yield caused the production amount decreased in 2012. Between 1967 and 2012, the increase in cultivation areas was 1. % whereas the increase in yield surpassed 100%.   Population of Turkey was around 13.6 million in 1927, while it reached 74 million by 2012.  Accordingly; population growth between 1930 and 2012 is 444%, while the increase in wheat production is 780%, which has generally prevented Turkey from facing any serious bottlenecks in terms of meeting wheat demands. However, Turkey needs to resolve the problem of insufficient quality raw materials for the flour industry, which has significant contributions to the country’s economy.  In this context, decision of the Turkish Grain Board (TMO) to reduce protein-based purchases and type groups is considered to be an important development to bring a domestic solution to the problems faced by wheat-based industries, especially in terms of finding quality wheat.     STATUS OF TURKISH FLOUR INDUSTRY Milling is one of the oldest sectors in Turkey and developments in milling technology starting with stone mill led to an increase in the number of flour mills during 1950s alongside urbanisation and as of 1974, this process gained considerable momentum.   According to 2010 data, there are approximately 800 active flour mills in Turkey.  These active flour mills have an installed wheat milling capacity of approximately 40 million tons per year.  However, only 40 % of this capacity is actively utilized. Important factors to consider while determining the location of a flour mill in Turkey are prioritised as follows: proximity to raw material (40 %), proximity to market (29%), proximity to infrastructure (23%). Flour materials are mostly concentrated in central Anatolia, which is primarily due to the fact that the region has the largest wheat cultivation and production areas in Turkey.  Other important factors affecting site selection are proximity to market and infrastructure conditions of the region.   According to the study titled as “Development and Problems of Flour Industry in the World and in Turkey” and prepared by Prof. Dr. Birol AKGÜN; total flour production capacity in Turkey is approximately 32.5 million tons.  On the other hand, actual production is around 14.5 million tons, including exports.  Current production capacity in Turkey is approximately 2.5 times greater than the country’s total flour consumption.  Furthermore, the current flour production capacity of Turkey can meet the global flour trade of approximately 8-10 million tons, which may change by years, and can even produce 9.5 million tons of surplus capacity.   First of all, Turkey has a relatively great number of firms active in the flour industry when compared to the USA and European countries.  Therefore, most mills have to operate with low capacity.  Capacity utilization rates are around 90% in the USA and nearly 100% in England.  The world average is around 65%. However, this rate is only 40-50%.   TURKISH FOREIGN TRADE OF WHEAT AND FLOUR Turkey’s share in 8-10 million tons of average global flour trade, subject to change by years, is around 2 million tons. Turkey ranked first in global flour exports in 2005 and in recent years it has maintained the second place after Kazakhstan.  Nevertheless, Turkey is the leader of the world flour export in terms of value, since it produces higher quality flour thanks to its technological superiority. In the first five months of 2011, Turkey imported 679 thousand tons of flour to 75 countries, which generated an income of 324.3 million dollars. It is estimated the amount of flour exported in the whole year is 1,8 million tons and its value is 860 million dollars. Gaining 843 million dollars with 2 million-ton export in 2012, Turkey exports flour to more than 100 countries.        
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