top of page
Search

Deciphering the Demand for Wheat




A tight wheat market has been a topic of conversation for four years. We’ve globally braced for a dwindling supply as we watched pandemic related supply chain obstacles unfold, war in high production regions of the world, and grain hoarding disputes arise.  Yearly estimates remained conservative and in general, global wheat supplies have exceeded predictions for the better. While wheat prices have been low, supply and demand have felt somewhat stable. However, India’s move to import wheat might reveal a tighter market than we realized.


We are midway though the Northern Hemisphere harvest and the market is fairly volatile. Wheat importers and exporters is an ever shifting dynamic. We’ve been discussing this scenario for years but, what exactly is contributing to the current supply obstacles and is there an opening here for American wheat farmers?


What do American Wheat Farmers Need to Turn a Profit?

Wheat prices have had a long stretch of trading low. Surplus U.S. corn crops have worked to push wheat out of the grain market.  Meanwhile, Russia’s expanding wheat production has flooded the market with cheap wheat.  The average American farmer still investing in wheat production and hoping to stay competitive needs a prolonged streak of wheat selling at $7 a bushel in order to have a profitable season. 


Operational costs have remained high. Even with a slight bump in trading prices during the start of the harvest, U.S. farmers haven't been optimistic about recuperating inputs let alone experience a significant income boost. Duty free imports of wheat into India could change the tide for American farmers and raise the price of wheat across the globe.


India

India has been self-sufficient in its wheat production. Since the 1970’s they've been able to grow enough to match consumer demand. For the last six years, they have imposed import duties of 44%. Eliminating duties is intended to open up trade that has long been closed. We don’t think of India as an importer. They are a huge market, now open and obstacle free.


India is expected to import upwards of 3-5 million metric tons of wheat, up from 120,000 metric tons last year, to rebuild their own strategic reserves and boost food security in the country. They also hope open trade will help lower the cost of wheat and wheat products for consumers. For prospective, Egypt, one of the world’s largest wheat importers, imports 12 million metric tons annually. So, this new Indian demand is large enough to have a significant impact on global markets. 


Russia

Russia has held the spot of top wheat exporter for a decade. It is the logical supplier of wheat to India because of its proximity and price. Russia is battling their own wheat harvest issues. 

They have scaled their operations and export wheat all over the globe. Their abundant supply has driven wheat prices down and pushed American farmers out of the market.  For the first time in years, drought and frost have depleted yields. Estimates suggest a decrease of 12 million metric tons under the initial projections. How much they are able to export and where it goes remains to be seen.  But, decreased supply here could give the U.S. a competitive edge once again.


France and Germany

In the EU, France and Germany have also experienced lower crop yields due to heavy rain and have asked for government assistance to infuse the sector with cash flow. In the meantime, the EU will need to purchase additional wheat. Their main concern is the protein content of the wheat they purchase since it is destined to become milling wheat.  They will likely look to Canada or the United States to fill in the gaps. The U.S. harvests are so far producing good to excellent grade wheat this year making them a strong option as an EU supplier.


Canada

Canada’s wheat harvest yields are coming in under spring projections, meaning that Canadian farmers likely planted fewer wheat crops than they did in 2023. The country was hoping for a high yield year after last year’s drought. To come in under last year’s numbers will surely tighten the global supply and affect high protein milling premiums in other countries. Canada has held a strong agricultural position. A diminished wheat yield here is a bit worrying for global supply numbers.


Turkey

In another twist, Turkey, a top importer of wheat, has banned imports for the sake of protecting the country's farmers against the cheaper priced Russian wheat.  While the ban is intended to secure domestic prices there is some speculation that prolonged bans could result in Turkey depleting their own supplies to the extent that they become one of the largest importers of wheat. 


China

China is the largest importer (13.6 million metric tons) and producer of wheat (137 million metric tons).. They also have the biggest surplus of non tradeable wheat. Like India, feeding an enormous population requires a significant amount of wheat and while China can grow it, they cannot grow enough to meet their domestic demand. As their population grows they will continue to import more wheat. More buyers will certainly drive up the price of wheat and with uncertainty over exactly how much there is in the world, the U.S. could find a competitive edge.


Australia and Argentina

China and India may both be looking to Argentina for wheat in the future. Argentina’s wheat production is projected to be 25% larger than last year.  Australia is also traditionally a large exporter of wheat, but like Canada, they are battling drought conditions that are decreasing crop yields. Meanwhile, other players in the southern hemisphere are bolstering supply chains and scaling production. Both Brazil and Argentina have become strong agricultural competitors for the United States and they have the potential to mimic Russia and infuse the wheat sector with a low priced product. This is a growing concern for American farmers when it comes to commodity grain production.


The American Farmer

U.S. wheat prices are expected to come into range with global prices and bring us back as a competitive player in the sector. Demand has increased with big markets like China and India seeking suppliers. The American wheat supply chain is solid and wheat quality is excellent which is an important factor for large market buyers aiming to secure food supplies for growing populations.


It takes a little bit longer for diminished wheat production to reflect in international trade negotiations. India’s move to open up trade could be the beginning of a truly tight wheat market and an uptick in price per bushel for the American farmer.


5 views0 comments

Comments


bottom of page