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Accelerating structural trends emanating from within the global
grains market and exogenous developments are poised to re-shape the
wheat market. In world wheat production, wheat yields in the Former
Soviet Union (FSU) states have grown by about 60 percent to 2.58
tonnes per hectare since the collapse of the Soviet Union in 1991.
When expressed as a percentage of wheat yields attained in the EU,
the data suggests that wheat yields in the FSU region are catching
up and expected to converge in about 30 years. Convergence is
dependent upon agroclimatic conditions, the pace of adoption of
farming techniques from the EU, advanced seed technology from the
US and the commercialization of family farms, particularly in
countries like Ukraine. US all-wheat yields have grown by about 40
percent from 1991, with offsetting declines in planted wheat area
and largely stagnant growth in total wheat production.
Which emerging markets could be key players in the
future?
Despite accounting for a meaningful share of world wheat
production, India and China are usually not mentioned in the global
wheat supply conversation due to their limited roles in the wheat
export market. For context, China's wheat yields of 5.36 tonnes per
hectare are about 82 percent higher compared with 1991 and closer
to absolute levels seen in the EU. India's wheat yields at 3.53
tonnes per hectare are about 55 percent higher compared with 1991
and closer to absolute levels seen in the US, mindful that there
are significant differences in protein levels and uses of wheat
between these different origins. If India and China continue to
improve wheat yield potential at the same historical pace, the risk
is that both countries could play a relatively more active role in
global wheat trade flows. If the US-China trade agreement results
in meaningful purchases of US wheat for storage in 2020 and beyond,
China could turn into a meaningful net exporter of wheat in years
where there are production shortfalls in other major wheat origins.
The risks of climate change, expected to result in warmer winters
and less rainfall in the Northern Hemisphere exacerbates supply
disruptions.
Which other external factors are influencing global
markets?
Outside of the wheat market, the strength of the US dollar
roughly translates to more domestic currency received by wheat
farmers for the same dollar-denominated price. The US dollar has
been strengthening against the Russian ruble, Ukrainian hryvnia and
Indian rupee at least for the past 20 years. The competitive
advantage in farm labor accessibility and costs in non-US wheat
producers compound on the trend amid a low-price environment in
energy and fertilizer costs. Together, these trends highlight the
risks that some market participants might be underestimating the
extent and speed of the decline of role of the US in the global
wheat market.
Finally, shifting consumer preferences in some geographies such
as the rise of gluten-free and low-carbohydrate diets are expected
to weigh on the trend growth of wheat food use. Abundance of corn
relative to wheat could reduce feed wheat demand in the EU in
2020/21, but also provide a glimpse into a future where global
ethanol use growth stalls due to persistently low energy prices and
some countries hitting the blend-wall, resulting in more
competition from corn in feed use.
How will the global wheat market structure
reshape?
In summary, the wheat market in 2040 could look significantly
different from its current form. Global wheat benchmark prices
could be derived from one of the FSU countries. Wheat traders would
pay more attention to China's and India's wheat export prospects.
It would be a world where less wheat-based flour is consumed at
home and perhaps, an environment where wheat will have to find new
applications and demand channels. The risk is that we get there
sooner rather than later.