2001-02 has been characterised by the significant reduction in world stocks. Importantly, this has included the individual stocks of the world's major exporters, such as the US, where stock levels have fallen 10 per cent in the past 12 months.
As we head into 2002-03, that leaves the market more open . .. However, balancing that to some extent was last year's big increase in production and exports from some of the less traditional global wheat suppliers. Partly as a result of that, we had the added weight of the slowest US sales program in the past 25 years.
Supply and demand 2002-03
2002/03 Market Outlook
- lower global stocks (down 10mt to 133mt in 2002/03)
- Further tightening of US balance sheet
- Potential North Amorican Hard and Spring Wheat Crop Problems
- Dryness In Canada
- Higher Chinese imports
- Big Increase in production in major 5 exporters
- Continued competition from non traditional exporters particularly India
- Greater compemion leading to smaller US sales program
- Better crops in the Middle East -lower Imports
Looking ahead to supply and demand for the coming 2002-03 season, the news is mixed for Australian wheat producers.
After lower production last season, we are expecting the world's big five wheat exporters - the US, the EU, Canada, Australia and Argentina - to collectively increase production and exports this season. In the European Union we are forecasting a production hike of 11 million tonnes following last year's weather-affected crop.
Production in Argentina is also tipped to lift following last year's flooding .. . In the world's biggest wheat exporting nation, the US, we are forecasting an increase in production (more tonnes/ha) despite the fact that US wheat plantings look like being the lowest since 1973.
Production from minor exporters will still represent a significant percentage of world trade. Larger carryout stocks from those areas - such as India, where stocks are tipped to be at a record level - will also ensure these non-traditional wheat exporters will continue to be an influence this year.
Who wants wheat?
For the past three years, consumption has exceeded production, a trend that, by the most basic laws of supply and demand, spells positive news for the producers.
Over the past three years too, world demand has been characterised by 'hand to mouth ' purchasing - and we would expect that trend to continue. With 'hand to mouth ' purchasing, there is naturally less reliance on stocks; and less reliance on stocks should make for a more demand-driven market in the future.
More immediate demand side issues that might affect Australian wheat prices include a slightly improved domestic crop outlook in Iran, after three years of drought.
The big swing factor in this side of the equation, though, remains China - the world's single largest consumer of wheat.
Despite the fact that they have huge domestic production to service this demand, there is real potential for China to develop into a large and consistent importer, potential that has increased following its accession into the World Trade Organisation.
By most analysis of Chinese stocks and use, they will have to come to the market and import wheat. At the moment, the trade is anticipating China to import about 1.5 million tonnes of the world's 2001--02 crop, and between 3 and 5 million tonnes in 2002--03.
World trade and protectionism in the US and EU
One important and ongoing factor overhanging the international market is the impact of the agricultural policies of our competitors, particularly the United States and the European Union.