Analysis: As wheat prices soar, global consumers are voting with their feet
- Wheat use declines as buyers shift to cheaper produce
- Rice, maize to replace wheat for human and animal consumption
- Price-sensitive consumers in Asia, the Middle East and Africa are struggling
- World wheat consumption set to fall more than USDA forecast
SINGAPORE/JAKARTA, Aug 3 (Reuters) – Global wheat consumption is heading for its biggest annual decline in decades as record inflation forces consumers and businesses to eat less and replace grains with less expensive alternatives. expensive, in a context of growing food insecurity.
Consumers could face even higher wheat prices in the second half of 2022 as importers, who until now supplied shipments purchased several months earlier at lower prices, pass on the costs from when Wheat prices hit decade highs in May.
Analysts, traders and millers say global wheat consumption in July-December could fall 5-8% from a year ago, much faster than the 1% contraction predicted by the US Department of Health. Agriculture.
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“There is going to be a drop in demand for wheat for animal feed in Europe and China. Demand for wheat for human consumption has also slowed in the main importing countries of the world,” said Erin Collier, an economist at the Food and Agriculture Organization of the United Nations.
“The high prices have raised food security concerns in parts of Asia and Africa where countries are unable to source sufficient supplies from the international market.”
Millions of people are facing rising food costs and insecurity after Russia invaded Ukraine and severe weather in major exporting countries pushed grain prices to unprecedented levels. Read more
Benchmark wheat futures jumped 40% this year to a record high in March before falling recently, although physical prices remain high.
Wheat shipments from the Black Sea region are quoted between $400 and $410 per ton, including cost and freight for delivery to the Middle East and Asia. Prices are down from the peak of around $500 a tonne reached a few months ago, but remain well above last year’s average of around $300.
“Wheat supplies are still very tight,” said Ole Houe of brokerage firm IKON Commodities in Sydney. “We don’t know how much wheat will come out of the Black Sea and there are unfavorable weather conditions in other exporting countries.”
Countries likely to struggle with wheat imports include Yemen, South Sudan, Sudan, Syria, Ethiopia, Afghanistan and Sri Lanka, FAO’s Collier told Reuters.
As rising costs weigh on household budgets, protests have erupted across the world with people taking to the streets from China and Malaysia to Italy, South Africa and Argentina. Read more
In Indonesia, the world’s second-largest wheat buyer, consumption has already fallen in the first five months of 2022 and a bigger drop is expected as rising costs trickle down the supply chain.
Yan Aisa Allamanda, a 37-year-old baker in Jakarta, pays around 10,000 rupees ($0.6720) per kilogram of wheat flour, down from around 8,200 rupees earlier this year.
“I had to raise my selling price…but I fear that higher prices will discourage consumers,” she said.
As consumers cut back on purchases, bakers and noodle makers are replacing wheat with rice.
“Wheat flour prices are almost at the same level as rice – there will automatically be a change,” said Franciscus Welirang, chairman of the Indonesian Millers Association.
He noted that the last time wheat flour prices increased significantly, Indonesia’s consumption fell by 4.5%.
As wheat prices surged, Vietnam’s 5% broken rice was quoted at around $404 a ton, largely unchanged from the end of 2021.
Brazil, the biggest market for U.S. wheat, saw its purchases fall by more than 3% in the January-June period, even though the country paid 20% more for the staple, according to the data.
“In northeast Brazil, consumers may substitute wheat-based products for regional products, such as tapioca,” said Roberto Sandoli, chief risk officer at HedgePoint Global Markets.
Burning wheat prices are also changing the ingredients farmers use for animal feed.
The French agricultural office FranceAgriMer forecasts that demand for feed wheat is expected to fall by 13% to 3.9 million tonnes in 2022/23 compared to 2021/22.
“The fall in wheat consumption in the EU is mainly the consequence of very cheap maize,” said Helen Duflot, analyst at Strategie Grains. “So of course there is the economic issue.”
In Vietnam, one of the fastest growing animal feed markets in the world, rice is replacing wheat.
A purchasing manager at a factory in Ho Chi Minh City said he was asked by the government to find alternatives amid supply chain disruption.
Earlier this year, Thailand raised its maize import quota to 600,000 tonnes from 54,700 tonnes and cut import duties to ease a tight feed market, traders based in Thailand said. Bangkok.
In response to changing feed use, the USDA in July cut its forecast for world wheat consumption for the 2022/23 marketing year to 784.22 million, 1.77 million tonnes lower than its June estimate and 6.29 million tonnes less than the previous year.
BLACK SEA BLOW
Buyers from Africa and the Middle East have been more affected 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 for a resumption of supplies from the Black Sea after Russia, Ukraine, Turkey and the UN signed an agreement last week to unblock Ukrainian grain. The first grain ship to leave Ukraine anchored safely off Turkey on Tuesday. Read more
But the market remains skeptical of a more meaningful return to the Black Sea trade.
“We are not extremely optimistic about the supply of Ukrainian wheat,” said a trader in Singapore. “It is not in Russia’s interest to allow large volumes of grain exports from Ukraine with the ongoing war.”
($1 = 14,880.0000 rupees)
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Reporting by Naveen Thukral in Singapore and Bernadette Christina in Jakarta; additional reporting by Ana Mano in Sao Paulo, Mark Weinraub in Chicago, Gus Trompiz in Paris, Chayut Setboonsarng in Bangkok and Phuong Nguyen in Hanoi; edited by Gavin Maguire and Sam Holmes
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