Analysis: As wheat prices rise, consumers around the world vote with their feet

  • The use of wheat has been seen to decline as buyers shift to cheaper products
  • Rice, corn to replace grain for human and animal consumption
  • Price-conscious consumers in Asia, the Middle East and Africa struggle
  • World wheat consumption declined more than USDA forecasts

SINGAPORE / JAKARTA, Aug.3 (Reuters) – Global wheat consumption is headed for its biggest annual decline in decades as record inflation forces consumers and businesses to use less and replace wheat with cheaper alternatives. in a context of growing food insecurity.

Consumers may face even higher wheat prices in the second half of 2022 as importers, who until now have been supplying cargo purchased several months earlier at lower prices, pass on costs since wheat prices have soared to highs of ten years in May.

Global wheat consumption in July-December could decline 5% -8% from a year ago, analysts, traders and millers say, much faster than the 1% contraction predicted by the U.S. Department of Agriculture.

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“There will be a decline in the demand for grain for animal feed in Europe and China. The demand for grain for human consumption has also slowed in major importing countries around the world,” said Erin Collier, an economist at the Organization. United Nations for Food and Agriculture.

“The high prices have raised food security concerns in parts of Asia and Africa, where countries are unable to secure sufficient supplies from the international market.”

Millions of people are facing rising food costs and insecurity after the Russian invasion of Ukraine and adverse weather conditions in major exporting countries pushed cereal prices to all-time highs. Read more

Benchmark wheat futures jumped 40% this year to a record high in March before retreating recently, although physical prices remain high.

Wheat shipments from the Black Sea region are priced at around $ 400- $ 410 per tonne, including costs and transportation for delivery to the Middle East and Asia. Prices have fallen from the peak of around $ 500 per tonne reached a few months ago, but remain well above last year’s average of around $ 300.

“Wheat supplies are still very limited,” said Ole Houe at IKON Commodities brokerage in Sydney. “We are not sure how much grain will come out of the Black Sea and there are adverse weather conditions in other exporting countries.”

Countries that could struggle with grain imports include Yemen, South Sudan, Sudan, Syria, Ethiopia, Afghanistan and Sri Lanka, FAO’s Collier told Reuters.

As rising costs strain household budgets, protests have erupted around the world with people taking to the streets from China and Malaysia to Italy, South Africa and Argentina. Read more

In Indonesia, the second largest buyer of wheat in the world, consumption has already decreased in the first five months of 2022 and is expected to decline more as higher costs will fuel the supply chain.

Yan Aisa Allamanda, a 37-year-old baker in Jakarta, is paying about Rs 10,000 ($ 0.6720) per kilogram for wheat flour, up from about Rs 8,200 at the beginning of the year.

“I had to raise my selling price … but I fear higher prices will discourage consumers,” he said.

RELEASE

As consumers cut back on purchases, bakers and noodle makers are replacing wheat with rice.

“Wheat flour prices are almost on par with rice – automatically there will be a shift,” said Franciscus Welirang, president of the Indonesian Flour Millers Association.

He noted that the last time wheat flour prices increased significantly, Indonesia’s consumption fell by 4.5%.

As wheat prices rose, Vietnam’s 5% cracked rice was priced at around $ 404 per ton, essentially unchanged from the end of 2021.

Brazil, the largest market for US wheat, saw purchases decline by more than 3% in the January-June period, even as the country paid 20% more for staple food, according to data.

“In northeastern Brazil, perhaps consumers will replace wheat-based products with regional ones, such as tapioca,” said Roberto Sandoli, senior risk manager at HedgePoint Global Markets.

FOOD FOR ANIMALS

Burning grain prices are also changing the ingredients farmers use to feed their animals.

The French agricultural office FranceAgriMer predicts that the demand for wheat feed will decrease by 13% to 3.9 million tons in 2022/23 from 2021/22.

“The decline in wheat consumption in the EU is mainly a consequence of the very cheap maize,” said Helen Duflot, analyst at Strategie Grains. “Then, of course, there is the economic question.”

In Vietnam, one of the world’s fastest growing feed markets, rice is replacing wheat.

A purchasing manager at a Ho Chi Minh City plant said the government asked him to source alternatives during the supply chain disruption.

Thailand earlier this year increased its corn import quota to 600,000 tons from 54,700 tons and cut import duties to alleviate a tightened feed market, Bangkok-based traders said.

In response to the change in feed use, the USDA reduced its global wheat consumption forecast for the 2022/23 marketing year to 784.22 million in July, down 1.77 million tons from the June estimate and 6.29 million tons less than the previous year.

SHOT OF THE BLACK SEA

Shoppers in Africa and the Middle East have been affected more than other consumers by the Black Sea disruptions from the Russian invasion of Ukraine and have been forced to switch to more expensive suppliers like Germany and France.

There are hopes of a resumption of Black Sea supplies after Russia, Ukraine, Turkey and the United Nations signed an agreement last week to unblock Ukrainian wheat. The first grain ship to leave Ukraine was safely anchored off Turkey on Tuesday. Read more

But the market remains skeptical that Black Sea trade can achieve a more significant return.

“We are not very optimistic about Ukrainian grain supplies,” said a trader in Singapore. “It is not in Russia’s interest to allow large volumes of grain exports from Ukraine with the war going on.”

($ 1 = 14,880,0000 rupees)

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Reporting by Naveen Thukral in Singapore and Bernadette Christina in Jakarta; additional services by Ana Mano in Sao Paulo, Mark Weinraub in Chicago, Gus Trompiz in Paris, Chayut Setboonsarng in Bangkok and Phuong Nguyen in Hanoi; editing by Gavin Maguire and Sam Holmes

Our Standards: Thomson Reuters Trust Principles.

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