Weekly Insights: Long-Term Wheat Outlook

Long-Term Wheat Outlook

 

The long-term report includes fundamental 10-year long-term forecasts for cotton, coarse grains, rice, soybeans, and wheat for 17 countries and regions. The major changes from the last long-term International Report in April 2020 was covered in “Weekly Insight: Long-Term Issues Impacting World Agriculture.” Resting in the background of the analysis are the past estimates of global population growth, both for individual countries and accumulating to the global situation. The United Nations (UN) publishes historical global estimates of population.

Per Capita Consumption and Domestic Consumption

The Asian Growth Center of China, India, Other Asia, and East Asia currently accounts for 52% of the world population, but by 2030 only accounts for 51%. The forecast assumes continued per capita consumption (PCC) increases as incomes improve.

Wheat PCC suffered in the early years of the 1990s with most of that laid at the feet of the Former Soviet Union (FSU). In 1990 while still together, the FSU PCC totaled 855 pounds, and by 1994, PCC was down to 584 pounds. The FSU bottomed at 494 pounds in 1998, but by then, there were enough gains in other countries and regions to stabilize world use between 200 and 220 pounds per person. World consumption forecast is at 214 pounds in 2021 and increasing to 220 pounds in 2030, or a gain of 3% over 10 years.

The FSU has become the global leader in trade (which is not included in PPC), which is why with a growing wheat crop FSU PCC decreases half of one percent. With no population growth, any increase in PCC will come from increased animal feeding. Ukraine corn production increases are allowing more corn to be fed and more wheat exported.

Australia is the wildcard for wheat PPC. USDA GAIN reported the recent decline in wheat PPC is the result of a shift of feeding wheat to feeding barley, primarily due to China imposing an 80.5% tariff on Australian barley. This is a good example of the games China plays. If China has a below average crop, a “breakthrough” will occur, and the 80.5% tariff will disappear.

China is now upset by Australia’s push for an international inquiry regarding the coronavirus and has found non-tariff reasons to ban lobster, timber, wine, cotton, beef, and barley. China said reductions in imports of Australian products like wine, coal and sugar were primarily the result of buyers’ own decisions.

The key to long-term growth in wheat consumption is the Asian Growth Center. Currently, those countries’ PCC ranges from 100 to 200 pounds annually. Over the last ten years, PCC has increased eight% and is forecast to increase 7% more over the next 10 years. Bread consumption is being pushed into the diet. Higher income does not necessarily translate into more bread consumption. Japan is a wealthy Asian country where bread consumption never really increased. In the poorer Asian Growth Center, bread is an inexpensive alternative to rice, but acceptance is not guaranteed.

 

Per Capita Wheat Consumption (top five)

Source: USDA and Higby Barrett

 

The domestic utilization forecast is derived from population and per capita forecasts. Population is projected by UN calculations to increase by 8.6% to 2030. Africa’s 10-year, 23% rate of population expansion will make feeding its general population a challenge. Wheat is on a modest upward trajectory for PCC.

The Asian Growth Center experiencing higher incomes is driving increased consumption of vegetable oil, meat, bread, fruits, and vegetables. Global wheat utilization is estimated at 762 MMT in 2021. China’s domestic consumption, at 132 MMT, is widening the gap with EU-28. India domestic consumption totals 101 MMT. Both China and India are essentially self-sufficient with wheat production offsetting use, although China does import wheat to meet certain milling needs. India imports when it has a production shortfall, but most years it is a small net exporter. With both countries, consumption of wheat is expected to increase at a slightly higher rate than production. Countries that make up the FSU will consume 77 MMT in 2021 whereas the U.S. will total 31 MMT. Africa domestic consumption has increased 25% over the previous 10 years and is forecast to increase 24%. The world forecast for 2030 is 833 MMT, up 9%.

Although durum is a small piece of the wheat market, a major change is occurring in that market. After crude oil prices declined to a lower level, Algeria instituted a policy reform to limit wasteful food expenditures. The government has shifted focus from local production towards more storage to increase the flexibility of durum importers. The result is where the semolina or pasta is produced. The increase in durum, semolina, or pasta imports will be offset somewhat by reducing waste.

 

Wheat Domestic Consumption (top five)

Source: USDA and Higby Barrett

 

Yields

Wheat yields are on a slower upward trajectory than those for coarse grains but stronger than those for rice. It should be noted that wheat growers wanted wheat to be non-genetically modified, which resulted in seed companies investing more resources into developing higher yielding genetically modified corn and soybean varieties. In October 2020, Argentina approved HB4 drought-resistant genetically modified wheat by biotechnology firm Bioceres SA. Higby Barrett is assuming the rest of the world will wait and evaluate how the market reacts before introducing more genetically modified varieties. Widespread adoption could increase yields and acreage, especially in poorer countries with drier climates.

The forecast for 2030 is 3.7 MT/HA, which would represent a gain of 7% from 2021. One area of major wheat acreage growth is FSU, which has a yield of 2.7 MT/HA in 2021. The impact of a lower-yielding country expanding acreage market share is a lower global yield forecast. FSU and Black Sea countries are a great example of countries that could benefit from drought resistant wheat varieties.

Harvested Areas and Production

Wheat production displays more modest growth potential over the next decade in comparison to the previous discussion for coarse grains. In 2020, the area totaled 222 million hectares. From 2011 to 2020, global wheat area barely grew, and for the next decade, it is expected to increase 2% on the strength of FSU countries. The 2030 production forecast of 831 MMT is up 9% over the decade. In comparison, the gain between 2011 and 2020 was 10%.

As Black Sea countries build an infrastructure system that enables exports of wheat, the incentive of growing wheat is greatly increased, which in turn, is driving exports higher. Under the USSR, the infrastructure was designed to funnel all the production into Russia. The ability to feed corn instead of wheat to the animals and export more wheat for hard currency continues to be a very popular option.

In addition, A La Nina weather year often results in heavy rains in Australia, which in turn results in great yields. The forecast is for Australia wheat production to increase from 15 MMT to 29 MMT which will push exports up from nine MMT to 19 MMT. Aside from the unpredictability of weather, if its main consumer does not allow imports, wheat world trade flows will be altered. So, 12 MMT of Australian wheat will be pushed onto the market. After two below average crops, soil nutritionists believe the level of unused fertilizer applications is extremely high. Would not be surprising for the Australian production to exceed 30 MMT.

Wheat is a very tough grass that can survive in dry weather with extreme temperatures. For this reason, much of the wheat area will not shift to other crops. If the countries in the Asian Growth Center greatly increase bread consumption, wheat acreage and production can be quickly increased to meet the demand.

 

Wheat Production (top five)

Source: USDA and Higby Barrett

 

Countries and Regions

Argentina, Australia, Brazil, Canada, China, India, Japan, Mexico, United States

Africa

Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde Islands, Central African, Republic, Chad, Comoro Islands, Congo, Egypt, Equatorial Guinea, Ethiopia, French Equatorial, French North Africa, French West Africa, Gabon, Gambia, Ghana, Ivory Coast, Kenya, Lesotho, Liberia, Libya, Malagasy Republic, Malawi, Mali, Mauritania, Mauritius, Morocco, Mozambique, Niger, Portuguese Guinea, Reunion, Rwanda, Sao Tome Principe, Senegal, Seychelles, Sierra Leone, Somali Republic, South Africa, Spanish Africa, Sudan, Swaziland, Tanzania, Togo, Tunisia, Uganda, Zaire, Zambia, Zimbabwe

East Asia

Indonesia, Malaysia, Singapore, South Korea, Taiwan, Thailand

European Union-28

Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom

Former Soviet Union

Armenia, Azerbaijan, Byelorussia, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine, Uzbekistan

Middle East

Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey, United Arab Emirates, Yemen

Other Asia

Afghanistan, Bangladesh, Brunei, French Pacific Islands, Fiji, Indochina, Khmer Republic, North Korea, Laos, Macao, Myanmar (Burma), Nepal, New Caledonia, New Hebrides, New Zealand, Other Pacific Islands, Outer Mongolia, Pakistan, Papua New Guinea, Philippines, Portuguese Timor, Sri Lanka, Tonga Island, Vietnam, Western Samoa

Other Europe

Albania, Bosnia and Herzegovina, Greenland, Iceland, Montenegro, Norway, Serbia, Switzerland

Other Latin America

Bahamas, Barbados, Bermuda, Belize, Bolivia, British West Indies, Chile, Colombia, Costa Rica, Cuba, Dominica, Dominican Republic, Ecuador, El Salvador, Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Martinique, Netherlands Antilles, Nicaragua, Panama, Paraguay, Peru, St. Kitts, St. Lucia, St. Vincent, Suriname, Trinidad-Tobago, Uruguay, Venezuela

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