The Hindu Business Line : World wheat output may trail consumption once again

Global forecast
Usage set to reach the second highest on record; yields low.
Closing stocks estimates lowest in 12 years.
Availability of premium milling wheat uncertain.

G. Chandrashekhar

Washington DC, June 29 After the record harvest of 628 million tonnes (mt) in 2004-05, world wheat output is set to trail consumption for the third year in a row in 2007-08.

Even though aggregate production is forecast to rise from the weather affected 593 mt of 2006-07, usage is set to recover to reach the second highest on record.

The emerging demand-supply fundamentals will lead to further stock drawdown, with inevitable consequences on prices. The market has already taken congnisance of tightening supplies.

World wheat production prospects deteriorated in May and in the current month with hot, dry conditions in Ukraine, southern Russia and southeast Europe as also reduced plantings in Canada resulting in lowering of forecast output from earlier expectation.

Yields are expected to be lower. According to the latest assessment of London-based International Grains Council (IGC), world wheat production in 2007-08 is forecast at 614 mt, down 7 mt from May forecast, but an improvement over the previous year.

Yet, consumption too is expected to expand to 619 mt, up 6 mt from the previous year.

Closing stock

The availability of premium milling quality wheat is becoming increasingly uncertain. The forecast of closing stocks for the year is 111 mt, including 31 mt in the five major exporting countries, the lowest for 12 years, IGC pointed out.

Rising wheat prices are sure to result in some demand compression. For instance, imports by sub-Saharan Africa could be lower. Even Indian import volumes may not be as large as 4-5 mt initially anticipated.

Corn (maize) and oilseed (mainly soyabean, rapeseed) continue to rule strong on the back of sustained demand from bioethanol and biodiesel producers. This has lifted the entire grains sector.

Rupee effect

In addition to wheat, barley prices too have firmed up. India is entering the market for wheat at a wrong time, having missed the bus a few months ago.

The market is well aware of the country’s political compulsions to keep food-related inflation under check. A firming rupee has no doubt helped in recent months, but the potential for further appreciation of the currency appears rather limited.

Indian consumers will have to live with high wheat prices for the rest of the year.