As wheat prices soar, the world’s consumers vote with their feet

Global wheat consumption is heading for its biggest annual decline in decades as record inflation forces consumers and businesses to cut back and replace grain with cheaper alternatives amid mounting food insecurity.

Consumers could face even higher wheat prices in the second half of 2022, as importers, who have so far delivered freights purchased at lower prices several months earlier, pass on the costs from when wheat prices hit a decade-long high in May goods.

Global wheat consumption could fall 5 percent to 8 percent in July-December from a year ago, analysts, traders and millers say, much faster than the US Department of Agriculture’s forecast of 1 percent contraction.

“There will be a decline in the demand for wheat for animal feed in Europe and China. The demand for wheat for human consumption has also declined in key importing countries around the world,” said Erin Collier, an economist at the Food and Agriculture Organization. of the UN.

“High prices have raised food security concerns in parts of Asia and Africa, where countries are unable to obtain adequate supplies from the international market.”

Millions face rising food costs and uncertainty following Russia’s invasion of Ukraine, and adverse weather conditions in key exporting countries have pushed grain prices to record highs.

Benchmark Wv1 wheat futures are up 40 percent this year to a record high in March before recently retreating, although physical prices remain high.

Wheat shipments from the Black Sea region are estimated at about $400-$410 per tonne, including costs and freight for delivery to the Middle East and Asia. Prices have fallen from a peak of about $500 per ton reached a few months ago, but remain well above last year’s average of about $300.

“Wheat stocks are still super tight,” said Ole Houe of IKON Commodities brokerage in Sydney. “We are not sure how much wheat will come from the Black Sea and there is unfavorable weather in other exporting countries.”

Countries likely to struggle with wheat imports include Yemen, South Sudan, Sudan, Syria, Ethiopia, Afghanistan and Sri Lanka, the FAO’s Collier said. Reuters.

As rising costs weigh on household budgets, protests have erupted around the world with people taking to the streets from China and Malaysia to Italy, South Africa and Argentina.

In Indonesia, the world’s second largest buyer of wheat, consumption fell as early as the first five months of 2022 and a larger decline is expected as higher costs move through the supply chain.

Yan Aisa Allamanda, a 37-year-old baker in Jakarta, pays about 10,000 rupiah ($0.6720) per kilogram for wheat flour, compared to about 8,200 rupiah earlier this year.

“I had to increase my selling price… but I fear that higher prices will discourage consumers,” she said.

Switch off

With consumers buying less, bakers and noodle manufacturers are replacing wheat with rice.

“Wheat flour prices are almost the same as rice – there will automatically be shifts,” said Franciscus Welirang, president of the Indonesian Flour Millers Association.

He noted that the last time wheat flour prices rose significantly, Indonesian consumption fell 4.5 percent.

While wheat prices have risen, the Vietnamese 5 pc broken rice RI-VNBKN5-P1 was trading at around $404 per tonne, largely unchanged from the end of 2021.

Brazil, the largest market for US wheat, saw purchases fall more than 3 percent in the January-June period, even though the country paid 20 percent more for its staple foods, data shows.

“In Brazil’s northeast, consumers may be replacing wheat products with regional ones, such as tapioca,” said Roberto Sandoli, senior risk manager at HedgePoint Global Markets.

animal food

The prices of red-hot wheat are also changing the ingredients that farmers use for animal feed.

The French Farm Office FranceAgriMer predicts that wheat feed demand is likely to fall by 13 percent to 3.9 million tons in 2022/23 from 2021/22.

“The decline in wheat consumption in the EU is mainly due to very cheap maize,” said Helen Duflot, analyst at Strategy Grains. “And then of course there is the economic issue.”

In Vietnam, one of the world’s fastest growing animal feed markets, rice is replacing wheat.

A purchasing manager at a factory in Ho Chi Minh City said they have been asked by the government to find alternatives amid supply chain disruption.

Thailand had increased its maize import quota from 54,700 tons to 600,000 tons earlier this year, and cut tariffs to ease the tight feed market, Bangkok traders said.

In response to changing feed usage, the USDA lowered its forecast for global wheat consumption for the 2022/23 marketing year to 784.22 million in July, down 1.77 million tons from the June estimate and 6.29 million tons. lower than the previous year.

Black Sea hit

Buyers in Africa and the Middle East have been hit more than other consumers by disruptions to the Black Sea since Russia’s invasion of Ukraine, and have been forced to switch to more expensive suppliers such as Germany and France.

There are hopes of a resumption of Black Sea supplies after Russia, Ukraine, Turkey and the UN signed an agreement last week to unlock Ukrainian grain. The first grain ship to leave Ukraine safely anchored off the coast of Turkey on Tuesday.

But the market remains skeptical that Black Sea trading delivers more meaningful returns.

“We are not very optimistic about Ukrainian wheat deliveries,” said a trader in Singapore. “It is not in Russia’s interest to export large quantities of grain from Ukraine with the ongoing war.”

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