World Grain - December 2008 - 18

GRAINMARKETREVIEW

Wheat
Supply and demand fundamentals,
global financial turmoil continue to
put downward pressure on prices
by Melissa Alexander

Indicative wheat export prices
U.S. No. 2 hard red winter wheat,
ordinary, FOB, Gulf
475
450
425
400
375
350
325
300
275
250
225
200
175
150

(in U.S. dollars per tonne)

2006-07

2000-01

Nov*

July 2008

1997-98

2003-04

May

1994-95

Sep

Mar

1991-92

1988-89

1985-86

1982-83

1979-80

1976-77

1973-74

Jan 2008

Nov

Sep

July 2007

May

Mar

1967-68

1970-71

Nov

1964-65

Jan 2007

Sep

1961-62

July 2006

Amid continuing worldwide financial turmoil and a weakening
economic outlook, prices for grains and other physical commodities
have taken huge hits in recent months. For wheat, supply and demand
fundamentals have only added more pressure.
Since setting a record high of $450 a tonne in March, wheat prices
as of mid-November had dropped by nearly 50% to $230. The price
declines occurred in two major waves, the first from March to August *Mid-month figure
as global financial markets continued to unravel and the Northern Source: U.S. Department of Agriculture
Hemisphere wheat harvest loomed. The second wave occurred as the
World wheat production year-on-year change
financial meltdown intensified, investors stampeded into cash hold(in 1,000 tonnes)
ings, the U.S. dollar soared, crude oil prices crashed and evidence 85,000
pointed to a global economic recession.
At the same time, the wheat market confronted a major turnaround 70,000
in its supply/demand outlook. After exceptionally tight supplies at 55,000
the end of the 2007-08 marketing season, 2008-09 has seen a record- 40,000
tying jump in production, underscoring the old market saying, "The
25,000
cure for high prices is high prices."
For 2008-09, the world is projected to harvest a record wheat crop 10,000
of 682.4 million tonnes, up 12% from 2007-08 production of 610.6 -5,000
million, according to the latest report from the U.S. Department of Ag-20,000
riculture (USDA). The extraordinary 71.8-million-tonne jump equals
-35,000
the previous record year-on-year production gain seen in 2004-05.
Stunning harvest increases have occurred throughout the Northern -50,000
Hemisphere, led by the European Union's (E.U.) record 150.6 million
tonnes, up 26% from 2007-08. Although average yields did not quite
match the 2004 record, harvested area was higher amid very strong
* Projected
prices during planting.
Another record 2008-09 crop comes from Russia, with 63 mil- Source: U.S. Department of Agriculture
lion tonnes harvested, up 27.5% from the previous season. The spring crops in the E.U. and Russia.
World wheat ending stocks in 2008-09 are projected at 145.3 milwheat crop is close to average, but USDA described the winter wheat
lion tonnes compared with 119.4 million at the end of 2007-08. Sigharvest as "huge."
In the U.S., 2008-09 wheat production was put at 68.03 million nificantly, the stocks-to-use ratio at the end of 2008-09 is projected
tonnes, up 21% from 2007-08, while Canada's production jumped at a comfortable 22%, just one season after it fell below 20% for the
36% to 27.3 million tonnes. Ukraine's wheat output showed the big- first time since at least 1960.
World wheat trade for 2008-09 is forecast at a record 124.3 million
gest year-on-year percentage increase of 83%, rising to 25.5 million
tonnes, 8% higher than the previous record in 2006-07. E.U. selling
tonnes, the highest since 30.4 million in 1990-91.
In the Southern Hemisphere, Australia's crop should rebound to 20 so far in the current year has been aggressive, the USDA noted, with
million tonnes, up 53% from the drought-plagued 2007-08 harvest, export licenses through the first 19 weeks of the season nearly double
despite poor conditions in South Australia, Victoria and parts of New the pace of the past few years.
But some analysts caution the global economic slowdown could
South Wales. Among the world's major wheat producers, only Argentina is expected to see a harvest decline, with output estimated at 11 crimp wheat trade, with credit and financial market conditions also
million tonnes versus 16.3 million in 2007-08, based on persistent playing a role. During the recent meltdown, defaults on some grain
purchases and problems obtaining credit were reported. A collapse in
dryness in northern areas.
On the consumption side, the USDA projected 2008-09 total use bulk freight rates also has raised fears about the financial health of
WG
at a record 656.5 million tonnes, up 6% from the previous season. shipping lines and the effects on grain trade.
Feed use, estimated at 124.1 million tonnes in 2008-09, will inWe want to hear from you - Send comments and inquiries to
worldgrain@sosland.com. For reprints of WG articles, e-mail reprints@sosland.com.
crease by about 31% from the previous season, spurred by large
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