© Archyde.com. Harvesting wheat grains in a wheat field in France (Archyde.com Photo).
By Navin Tukral
SINGAPORE (Archyde.com) – With prices rising and volatile, global wheat buyers are cutting back on purchases of future supplies, but this increases their exposure to potential price hikes that will end up burdening consumers already suffering from food price inflation.
Buyers in major importing countries in Asia, the Middle East and Africa are making so-called forward purchases of supplies to cover needs for only two to three months, as opposed to regular purchases for up to six months, according to millers, analysts and traders.
It usually takes months for higher grain prices to be felt by consumers because mills have more supplies and can withstand the fluctuations. But with fewer inventories and fewer forward deliveries, consumers, especially in poor countries, will feel the impact of higher prices more quickly.
“Wheat millers and consumers are becoming more conservative in their purchases due to market volatility,” said Finn Zippel, agribusiness economist at the National Australia Bank. “Prices in the retail market remain high and food inflation is a very serious problem.”
Wheat futures on the Chicago Stock Exchange jumped to a record high in March following Russia invaded Ukraine, a major grain exporter. Bad weather in other producing areas has reduced supplies. Futures have fallen 48 percent since their peak last year, but grain prices remain high amid uncertainty over supplies in the Black Sea region and concerns regarding the crop in the United States.
Grain shipments from the Black Sea are continuing under a United Nations-backed agreement, but that deal is being renegotiated in talks starting this week amid the risk of war escalating between Russia and Ukraine.
As a result of the price hike, buyers are unwilling to take the risk of buying grain to cover future needs even though it exposes them to higher prices if supplies are tight, said Ollie Hoy, director of advisory services at Aikon Commodities, an agricultural brokerage in Sydney.
“There is a lot of wheat available from the Black Sea and Australia and prices might go down in three months from now. But if Russia stops exporting, things will change dramatically, and the cost of wheat might go up by regarding $50 a ton. For buyers, the wait may be worth it,” he added. Greater reward rather than risk.
Less stock
Mill owners and other wheat buyers liquidate their stocks. Global wheat stocks for the year to June 2023 are expected to decline to 269.34 million tonnes, from 276.70 million tonnes a year earlier, in the second annual decline, according to USDA data.
“Egypt, China and South Korea are likely to take the biggest hit, in my view,” said a German grain trader.
US Department of Agriculture data shows that stocks in Egypt, the world’s largest wheat importer, are expected to drop to 3.4 million tonnes by the end of June, the lowest level in 18 years.
Stocks in India, the world’s second-biggest wheat consumer, are estimated at regarding 12.6 million tonnes in June, less than half of stocks two years ago.
(Prepared by Rehab Alaa for the Arabic Bulletin – Edited by Hassan Ammar)
