A GROWING mountain of wheat has cast a shadow over prices. PETER HEMPHILL reports
Last July, the US Department of Agriculture estimated this season's global wheat crop at 664.3 million tonnes.
Six months later, the USDA's estimate has ballooned to a whopping 691.5 million tonnes - the biggest crop yet.
Putting it into perspective, the difference between the figures is equivalent to Australia's total annual production.
More importantly, and ominously, the USDA has estimated global ending stocks to hit 210 million tonnes for 2011-12 - the highest ever.
While the world's farmers have continually been told they need to boost production to meet a big population explosion in coming years, it could be argued they have peaked too early.
The wheat mountain has had a depressing effect on prices, with Australian Premium White grade pegged at about $200 a tonne at port.
Some Victorian growers have complained they cannot profit if wheat prices are that low.
One grower told The Weekly Times last week, if prices continued at $200 a tonne, farmers would be better off not growing rather than go further into debt.
World wheat production has grown from 441 million tonnes in 1980-81 to these levels.
Consumption has kept pace with production, with the relative fluctuations between the two determining what happens to stock levels.
Where production and consumption head in the next four or five years will have an impact on prices.
If production follows trends over the past 30 years, it should end up about the 700 million tonne mark by 2015-16.
Consumption should end up slightly below that if it follows a 30-year trend, but could end up at 750 million tonnes by 2015-16 should it follow the course of the past five years.
The latter scenario is probably an "overly optimistic" prediction but going in its favour is a rising population and growing affluence in Asian markets.
Emerald Group Australia trading and marketing general manager Brian Dalitz said the market liked to have about three months' supply of grain stockpiled as a buffer against crop failure.
But it's a delicate balance.
If the stocks get run down, grain prices will increase, but governments start to get nervous about civil unrest.
Mr Dalitz said the market was comfortable if global ending stocks hovered between 160 million tonnes and 190 million tonnes.
He said once stocks fell below 150 million tonnes, market jitters set in and prices began to rise.
In 2007-08, stocks fell to 122.7 million tonnes and prices took off to record levels.
But that followed a period where, in eight out of the previous nine years, consumption exceeded production, progressively drawing down stocks.
In 2008-09, the world's wheat growers responded to the high prices and favourable weather to boost wheat production by 71 million tonnes and stocks quickly surpassed 160 million tonnes again.
Stocks have only grown since then.
Mr Dalitz said there would have to be a large drop in the area sown to wheat or crop failure somewhere in the world for global stocks to be whittled down enough to affect prices.
"But the northern hemisphere growers haven't planted less acres," he said.
"In the southern hemisphere, Argentina has become less relevant nowadays.
"And the Australian grower hasn't varied acres by any major move.
"That probably leaves it up to the northern hemisphere weather."
If there was no crop failure somewhere in the world, one of the only other ways for prices to rise for Australian growers was through the exchange rate.
In 2010-11, the Aussie dollar rose from 90 US cents to about $US1.10.
Mr Dalitz said it would need to drop about 15 per cent for Australian wheat growers to extract an extra $30 a tonne out of the market.
He said another scenario was a rally in soft commodity prices, following on from the recent lift in crude oil prices and a general turnaround in hard commodities.
But the level of wheat stocks will largely be the most influential factor on prices in the short term.
