September 27, 2022
There is not a shortage of world wheat. But wheat stocks are tight enough, input costs are high enough and the uncertainty in the market is sufficient that wheat prices will probably remain historically high. There’s a lot of uncertainty (risk) in all the commodity markets.
Without the uncertainty in the markets, the current wheat supply and demand situation probably doesn’t support $8 plus wheat prices.
The 2022/23 marketing-year world wheat production is projected to be a record 28.8 billion bushels. The 2021/22 world wheat production was a record 28.7 billion bushels. The fact is that for each of the last four years, world wheat production has set a new record.
Between 2019/20 and 2021/22, world wheat use increased from 27.4 billion bushels to 29.2 billion bushels. The biggest increase in use occurred during the 2020/21 marketing year when world wheat use increased from 27.4 billion bushels to 28.7 billion bushels (4.7%). During these four years, wheat use increased 6.6%. Production only increased 2.9%.
From the 2019/20 marketing year to the projected 2022/23 marketing year, world wheat ending stocks declined from 11.0 billion bushels to a projected 9.9 billion bushels. The stocks-to-use ratio (ending stocks divided by use) declined from 40 to 34%.
The stocks-to-use ratio may be the best measure of how tight wheat stocks are. Comparing the current projected stocks-to-use ratio of 34% to the 10-year average of 34.4% indicates that world wheat stocks are expected to be slightly below average.
The wheat situation in the U.S. is slightly different than the world situation. The 2022/23 U.S. stocks-to-use ratio is projected to be 31.4% compared to a 10-year average of 42.7%. For the 2011/12 U.S. wheat marketing year, the wheat stocks-to-use ratio was 33%, and the U.S. average annual price was $7.24.
The U.S. hard red winter wheat stocks-to-use ratio is projected to be 38% compared to a 10-year average of 54% and down from 76% during the 2017/18 wheat marketing year. Hard red winter wheat stocks are projected to be 256 million bushels compared to a 10-year average of 429 million bushels.
U.S. wheat stocks are tight and support higher prices than the world wheat situation. Often, the world situation trumps the U.S. situation.
See, Applying drought lessons 10 years later
The reason for the uncertainty in the wheat market may be explained by reviewing the problems faced by the market since February 2019 (Figure 1). Starting in February 2019, COVID-19 disrupted the world wheat handling and transportation systems. The disruption was magnified when, in February 2022, Russia invaded Ukraine and 30% of the world’s exportable wheat was removed from the world export market.
Figure 1. Medford Oklahoma Daily wheat prices.
Source: Equity Marketing Alliance, Enid Oklahoma.
The COVID impact is mostly corrected. The uncertainty caused by the war is still having an impact. Note that Ukraine and Russia are exporting a limited amount of wheat; however, both countries have about as many bushels of wheat available for export as they normally do. The uncertainty is the quantity and the quality of wheat that will be exported.
The war has also lowered the number of oil, natural gas, fuel, and fertilizer exports. Removing these commodities from the market has resulted in higher production costs and higher wheat prices.
There are adequate amounts of wheat to meet world wheat demand. The continued uncertainty about the amount of deliverable wheat, reliability of transportation and the relatively high cost of production inputs are expected to continue to support wheat prices.
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