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Palouser
Senior Advisor

Implications of wheat's future

In a discission with Pritchh below under 'Inspections still strong' I revisited the basic global trends regarding wheat (Production, Consumption and Inventories) and confirmed and thought about one aspect, consumption.

 

The rule for consumption for wheat, rice or other primarily for human consumtion is that it is relatively inflexible regardless of price. 2007-8 was a classic example, and it carried corn and soy up with it for a bit. However, wheat production has rocketed up in the last 5 years. Latest reports put production in the area of 700MMT global production - above the 5 year average, though 2011-12 had a similar output.

 

The real surprise is that wheat consumption is rising fast. The momentary pause in 2011-2012 resulted in consumption going over production by over 20 MMT. No doubt feed is a component, and some areas produce not much better than feed for the most part.

 

The forecast for year ending inventories 2013-14? About the same as last year, even though course grain feed costs will be considerably lower and more available. The feature to think about is if this is a fast rising production scenario then how much of the consumption is 'inflexible' in regards to future year's production.

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8 Replies
c-x-1
Veteran Advisor

Re: Implications of wheat's future

as is known, my angle on the grains is strongest from the charting perspective, but do delve somewhat into the economics of each major grain/oilseed.

   Wheat is still in an up-trend on the wkly/monthly charts since 2005, albeit in a less steep one than C/B. Also, one look at the latest WASDE report and it can easily be seen world ending stocks for wheat are still down about 12-13% from 2011-12 mktg yr and not forecast to increase in 2013-14

 

i've read and it also is making more common sense as i learn that wheat is the LEAST elastic of the sector - b/c more of it goes directly into processing for human consumption...

 

back to the charts, Chi wheat is hugging the bottom of a several year up channel - which indicates next most likely move will be up - to test the top of channel coming in about $10.00 mid-winter...

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pritchh
Senior Contributor

Re: Implications of wheat's future

Wheat use rises slowly, All teh sudden martians on Mars didn't start eating pasta.

 

Human use inches higher,  period. Feed use isis steady and comes and goes some based on alterrnatives,  ie low US corn supply in 12/13 increeased feed use a good amount. Expect to see US 13/14 USDA feed use to be revised lower.  Corn is 4.16  , not 8$. Look over the yrs when exports started out high,  it 90% of the time it evens out. We just grew a record world wheat crop, the mkt is looking for a clearing price, not there yet it seems.  Use in 13/14, will look it up, may be up X% but price may keep going lower. 

 

Anyone can talk until they are blue in the face, dig up supposed bullish headlines for 52 wks straight,

but base AgEcon 101, price the most important findamental, dominates the equation.

 

iIsn't wheat future as it always has been, it is  COMMODITY , trending towards the cost of prod.

 

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Palouser
Senior Advisor

Re: Implications of wheat's future

I guess you aren't going to be any help explaining the phenomena of wheat consumption rising as fast as production.

 

My guess is global rises in standard of living in the area of food in addition to what population increases there are. China being the best example. Whatever it is, I'm surprised at the rate of increase in consumption.

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ray h.
Senior Contributor

Re: Implications of wheat's future

    Pay attention to the weather factor,mother nature can change the whole picture by next harvest.The world produces a lot of wheat yes.Now realize that over 50% of the major production areas are inconsistant producers.It is probable that enough of the inconsistant production areas will have a hickup this season to ramp up price by25%.One major area  in mind has a one in every three year at least almost train wreck!

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ag-?
Veteran Contributor

Re: Implications of wheat's future

Wheat has lost acreage in united States over last 30 years and my guess is that will continue until wheat has more cosistent rate of return to Corn and Soybeans. Also wheat supplies that are held in countries like China, India, and several other countries add to total world supplies but never come to world market they are held in reserve in case of emergencies. I think as world were heading for disaster of wheat shortages where countries that are producing supplies could all come up short in production on crop year  and world inventories will not be able to support demand until crop can be produced. What today is felt like adequate supply on hand because we have made it through production declines before with these inventories is going to get caught when production fall even further and more wide spread than tthought possible. Wheat is being grown on smaller acreages and land that as of today has higher risk of loss of production because corn and soybeans have been bidding  land away with higher rates of returns so wheat has dropped or reduced down to small minority acreage.

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pritchh
Senior Contributor

Re: Implications of wheat's future

FWIW   " guess you aren't going to be any help explaining the phenomena of wheat consumption rising as fast as production."  is that your focal point, not sure what you are trying to say. The collective, human consumprion ,rises nodestly over time, that isFACT. Population rises a modest % / year. Oil from oil seeds definately rise with increasing stds of living, documented and grains for feed use in developing countries are rising, IE hogs/pork, CHina- I don't have the stats. By far ag econ analysis sees producion/supply as the variable most responsive to net Supply/Demand. Bllions of consumers consume daily, not double today because osts are 3$ i/o 5. Price "makes" it happen, 2-3 yrs of wheat Px well above the CoProd, invites expanding planting. There is the response. If you look at 80 yrs of supply/demand, you see production rising as fast as consumption, supply moves, fills the need. For anytime prices are enough over the C.O.Prod, repeating ,producers respond.  OR production rises as fast as needed to meet consumption/demand.  My guess is global rises in standard of living in the area of food in addition to what population increases there are. China being the best example. Whatever it is, I'm surprised at the rate of increase in consumption.""

Should be rising but don't have the stats handy, this isn't a last's wk's export # thing or mkting season to date but need to graph,10 yrs human use of wheat in china to get a handle on this.

 

Ray H, sorry , you were not happy with one of my postings last wk, apologies, I would have to reread to see what I said. 

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c-x-1
Veteran Advisor

Re: Implications of wheat's future - charts to contemplate

world wheat production and consumption, respectively: over the longer trend, stocks/use " appears" to be slowly becoming smaller - decide for yourself (i zoomed way in & used a ruler) - however, last 3 yrs we know production is in a downtrend while use continues it's steady climb - figure crunch time is just around the corner.

 

from agmanager.info

 

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c-x-1
Veteran Advisor

Re: Implications of wheat's future - charts to contemplate

interestingly enough, despite China's approximate 36-37% increase in population since 1990, their wheat consumption rate has remained static.

 

"the rest of world" is where most of the acceleration is occuring in both prod and use-wise.

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