The Food and Agriculture Organisation (FAO) Food Outlook report published yesterday confirms that wheat prices could decline in the new season.
Bakery firms across the globe are suffering from soaring costs due to the rocketing price of wheat blamed on a variety of reasons including a pull from emerging economies on already depleted global stocks and a global rise in biofuel consumption.
The FAO reports that favourable weather conditions and a greater confidence in more plentiful supplies in the new season have driven prices down sharply in recent weeks.
By mid-May, international wheat prices stood about 50 per cent below their peaks in late February, although it is important to note that by April, the price of United States wheat was still 80 per cent above the same period last year, according to the FAO.
Depleted old crop supplies, export restrictions and closure of the wheat export registry in Argentina, a major wheat exporter, continue to sustain prices in world markets.
Decline in wheat futures
Food Outlook confirms that recent declines in the US wheat futures have been "pronounced" driven by firmer prospects for a "significant increase" in this years American output as well as at the world level. US winter wheat is forecast up 17 per cent and the world level up 8.7 per cent.
"In May most US wheat futures fell to a five-month low in light of prospects for a record wheat crop this year", said the report.
Food Outlook confirms that in the bulk of the production increase is expected to come from the major exporting countries. In the northern hemisphere bigger harvests are expected in all regions with the exception of Asia, where output is expected to remain close to last years levels.
Situation in Europe
The report says that in Europe the aggregate wheat crop for 2008 is currently forecast to rise by nearly 13 per cent from last year's reduced harvest, "reflecting a larger area and better yield prospects."
Plantings in the EU were facilitated by the reduction of the compulsory set-aside requirement from 10 per cent to zero for the 2007/08 cropping season, said the report.
Better weather conditions than last year have particularly favoured production in countries situated in the eastern Black Sea zone such as Bulgaria and Ukraine. If normal growing conditions continue for the remainder of the season production in the EU-27 is forecast to reach about 138 million tonnes, up nearly 15 per cent on 2007's low output.
With regard to wheat imports into the EU it is anticipated that there will be a "sharp decline" as a result of the expected recovery in output.
Wheat shipments from the EU are also likely to "increase significantly" as a result of improved supplies.
Higher production and lower prices could boost wheat consumption, according to the report. World food consumption in 2008/09 is forecast to rise to 453 m tonnes, up 1.6 per cent from 2007/08. At this level world wheat consumption on a per caput basis would remain steady.
After falling to nearly a 30 year low, world wheat stocks by the close of the 2009 crop season are forecast to rise to 168 million tonnes, up 16 per cent. At current forecasts the world wheat stocks-to-use ratio for the new season is forecast at 26.4 per cent, nearly a 5 per cent increase from the 2007/08 low but below the 30 per cent at the start of the decade.
The strong demand for wheat, particularly for animal feed, will prevent wheat stocks and the stocks-to-use ration from any significant improvement than is currently envisaged.
However wheat inventories in major exporting countries are expected to rise, with expansion in the EU up 5.5 million tonnes.