As wheat prices skyrocket, customers throughout the world vote with their feet

Global wheat consumption is on track for its steepest yearly decrease in decades as record inflation compels consumers and businesses to use less grain and replace it with cheaper alternatives in the context of rising food insecurity.

Consumers may expect even higher wheat prices in the second half of 2022, as importers, who until now had delivered cargoes purchased several months earlier at lower rates, pass on the costs incurred in May when wheat prices reached a decade high.

Analysts, merchants, and millers predict that global wheat consumption in July-December will decline by 5%-8% compared to the same period last year, which is far quicker than the US Department of Agriculture’s prediction of a 1% decline.

“The demand for wheat as animal feed will decline in Europe and China. According to Erin Collier, an economist at the Food and Agriculture Organization of the United Nations, the human consumption demand for human consumption has also slowed in key wheat-importing nations.

Food security concerns have increased in sections of Asia and Africa when countries cannot acquire sufficient supply from the international market due to high pricing.

After Russia’s invasion of Ukraine and unfavorable weather in vital exporting countries drove cereal prices to all-time highs, rising food costs and insecurity threatened millions.

Futures contracts for benchmark wheat Wv1 soared 40 percent this year to a record high in March before falling recently. However, actual wheat prices remain high.

Wheat shipments from the Black Sea region to the Middle East and Asia are estimated to cost between $400 and $410 per tonne, including freight. A few months ago, prices reached an all-time high of over $500 per tonne, although they remain significantly higher than last year’s average of roughly $300.

“Wheat supplies continue to be quite tight,” said Ole Houe of IKON Commodities in Sydney. “We do not know how much wheat will emerge from the Black Sea, and other exporting nations are experiencing poor weather conditions.”

FAO’s Collier told Reuters that Yemen, South Sudan, Sudan, Syria, Ethiopia, Afghanistan, and Sri Lanka are expected to struggle with wheat imports.

As growing costs strain household finances, protests have erupted across the globe, with individuals taking to the streets in China, Malaysia, Italy, South Africa, and Argentina, among other countries.

In Indonesia, the second-largest wheat importer in the world, consumption has already decreased through the first five months of 2022, and a further reduction is anticipated as higher prices ripple through the supply chain.

A 37-year-old baker in Jakarta, Yan Aisa Allamanda, pays approximately 10,000 rupiahs ($0.6720) per kilogram for wheat flour, up from about 8,200 rupiahs earlier this year. “I was forced to raise my selling price… I believe increasing pricing would deter buyers, however,” she said.

As consumers reduce their spending, bakeries and noodle producers are substituting wheat for rice.

Franciscus Welirang, chairman of the Indonesian Flour Millers Association, stated that “wheat flour prices are nearly equal to rice prices; hence, a shift would occur.

The last time wheat flour prices climbed dramatically, Indonesia’s consumption fell by 4.5%, he added.

Vietnam’s 5pc broken rice RI-VNBKN5-P1 was quoted at approximately $404 per tonne, essentially unchanged from late 2021.

Brazil’s largest market for US wheat decreased purchases by more than 3 percent from January to June while paying 20 percent more for the staple.

Roberto Santoli, senior risk manager at HedgePoint Global Markets, stated, “In the northeast of Brazil, consumers may switch from wheat goods to regional ones, such as tapioca.”

Animal fodder

The substances that livestock farmers use to feed their animals are also shifting due to the soaring cost of wheat.

The French Agricultural Office FranceAgriMer predicts the need for wheat feed will decrease by 13 percent to 3.9 million tonnes in 2022/23, compared to 2021/22.

According to Strategie Grains researcher Helen Duflot, the decrease in EU wheat consumption is primarily due to the low price of maize. There is also the economic issue.

In Vietnam, one of the world’s animal feed markets with the quickest growth, rice is replacing wheat.

A buying manager at a mill in Ho Chi Minh City stated that the government had instructed them to find alternatives due to supply chain disruptions.

Bangkok-based traders reported that Thailand upped its corn import quota to 600,000 tonnes from 54,700 earlier this year and reduced import charges to alleviate a tight feed market.

In reaction to a shift in animal feed use, the USDA lowered its global wheat consumption forecast for the 2022/23 marketing year in July to 784.22 million tonnes, down 1.77 million tonnes from its June estimate and 6.29 million tonnes below the previous year’s consumption.

The Black Sea struck.

Since Russia invaded Ukraine, Black Sea outages have hit Africa and the Middle East more than other users, forcing them to move to more expensive suppliers such as Germany and France.

After Russia, Ukraine, Turkey, and the United Nations inked a deal last week to unlock Ukrainian grain, there are expectations that Black Sea supplies may resume. On Tuesday, the first grain ship to depart Ukraine successfully anchored off the coast of Turkey.

However, the market remains skeptical about the Black Sea trade making a significant comeback.

“We are not very enthusiastic about Ukrainian wheat supplies,” a Singaporean dealer stated. In light of the current conflict, it is not in Russia’s best interests to permit Ukraine to export substantial quantities of food.