A world full of low-quality wheat

A general demise in world commodity markets isn't the only thing dragging the price of wheat down. Good old market fundamentals are also at work. Global wheat production for 2008-09 will be 680 million tonnes, according to the latest USDA estimates. That's up from 610 million last year and it shatters the previous record of 630 million.

I called Bruce Burnett today because I wanted to know the size of the market for high-quality wheat, on average. Burnett is a market analyst with the Canadian Wheat Board. He emphasized that this number can vary widely from year to year, but he said that in general, 30 to 35 per cent of world wheat traded is what we in Canada would call "high quality" milling wheat. The amount of wheat traded is 100 to 120 million tonnes per year. The rest is consumed within the countries that produce it. So let's say the amount of high-quality milling wheat traded per year is 35 million tonnes.

This is big enough, I would think, that Canada could sharpen (or should that be "re-sharpen") its focus on serving this market and avoid the mass-produced low- to mid-quality wheat. Of course we can't control the weather, which can turn our good intentions sour. But keeping our exports focused on only the high-end customers may be the only way we can keep producing wheat profitably in Canada in light of rapidly expanding production in Former Soviet Union countries in particular. FSU export-ready wheat supplies will reach 28.6 million tonnes for 2008-09, according to  USDA numbers, up from 21.9 million last year.

Burnett also noted that global supply of No.1 good quality wheat remains tight, even with the rise in overall wheat production. "Supply of high quality wheat is still not up to comfortable levels," Burnett says. That should mean wider price spreads between high and low quality for 2008-09.