A record wheat harvest and slow consumption are pushing up the expected global carryover stockpile, which doesn’t bode well for South African wheat producers.
Wessel Lemmer, senior economist at Grain SA, said data from the US Department of Agriculture (USDA) indicates a global yield of 682,9 million tons for 2008/2009. This is up 11,9% from 610,2 million tons for the 2007/2008 season.
World consumption will only increase by 6,2% from 614,9 million tons in 2007/2008 to an expected 652,9 million tons for 2008/2009. The global carryover stock pile is thus expected to increase by 24,3%, from 119,4 million tons in 2007/2008 to 148,4 million tons for 2008/2009.
“South Africa is a nett importer of wheat, so our wheat prices are derived directly from the international prices – global events impact directly on our wheat producers,” Lemmer said. He attributed slower wheat consumption to the credit crisis and lower demand for commodities in the US. Jannie de Villiers, executive director of the National Chamber of Milling, predicted a short-term wheat price of between R2 500/t and R3 000/t. “These levels are not sustainable for South African producers. As a rule of thumb, they need the wheat price to be double that of maize, so they need roughly R4 000/t for wheat production to be sustainable,” he said.
Adding to local producers’ woes, international shipping costs have declined drastically. Last year, the shipping cost of wheat was US/t. Now it’s US/t. At an exchange rate of R10:US, that means a reduction of R400/t for local wheat producers, simply due to cheaper shipping, De Villiers said. He predicted that low commodity prices will encourage producers to establish GM crops instead, as they offer higher yield at lower risk. But there’s currently no GM wheat available, he explained.
“As a result, wheat will compete with other grain crops, and the laws of supply and demand will come into play in the medium term,” he said. “This will once again push wheat prices up to levels where producers can make a profit.” – Wouter Kriel
