It is these “fundamental” characteristics of the industry that we believe show where there are profitable investments. In these pages we present the data and interpret it in an easily assimilated fashion to allow sense to be made of the many confusing reports that are found elsewhere.
Production and Supply
Almost all countries in the temperate northern hemisphere produce wheat. A glance at the crop calendar will show that the critical periods are in May when temperature and moisture are critical for the crops planted in the winter in North America, the same concerns in June for the EU and Russia and then following into the harvest. By September planting coming around again with seed having to be in the ground by October. These months see the Southern hemisphere crop (with Australia the largest producer) beginning the growth cycle.
Fully 53% of wheat supplied by the major producers is consumed in those same countries. When it is seen that these include India and China, the EU and the USA, this means that overall growth prospects in these major economies play a critical role. Accordingly demand has been fairly flat in the USA and only slightly better in China in recent years but has pushed ahead steadily in India (+10% since 2007/08).
Seventy percent of world wheat imports are accounted for by the Middle-East and Asia (in the latter case South-east Asia and China account for the large part). These are growing economies and this is where demand pressure will occur. However political disruption in the ME could certainly impact trade prospects.
Key to an understanding of the market is the ratio of stocks to demand. In absolute terms stocks are now lower than they have been for two years, and this is reflected in a lower stock:consumption ratio. However the important feature is who carries the stock. The answer is that China has over 35% and so this volume is not available to the world market. Even so, the reasonable level of stocks in the EU and the USA will pressure prices.
Photo: rain fed wheat in Uzbekistan; a large amount of the world’s wheat supply is produced like this.