Farmers in key wheat-exporting countries are holding back on sales, despite global wheat prices dropping to their lowest levels in four years. This reluctance is creating a supply shortage that could impact flour mills and push prices higher if global production falters.
Typically, flour mills purchase wheat three to four months in advance, but millers across Asia and the Middle East are facing a tight supply. Traders and millers report that mills in Indonesia, the world’s second-largest wheat importer, are covered for just two months, while mills in the Middle East are holding stocks for a maximum of 45 days.
The reduced supply means flour mills have little buffer against a potential price surge. Global wheat reserves are already projected to fall to a nine-year low, exacerbating food inflation concerns.
The reluctance to sell stems from slumping wheat prices, which have fallen to their lowest since 2020, driven by abundant production in Australia and Argentina and favorable growing conditions in major exporting regions like the U.S. and the Black Sea.
In Australia, the world’s fourth-largest wheat exporter, wheat sales are running at half the pace of last year, with only 500,000 tons contracted for November shipments. In the U.S. and the Black Sea region, farmers are holding onto their stocks, hoping for higher prices in the future.
A trader at an international trading firm in Singapore explained, “Farmers are not happy with the current price being offered to them. Farmer selling is very slow, and it’s not just Australia—other exporting countries are facing the same situation.”
In the physical market, Black Sea wheat with 12.5% protein is being offered at $265 per metric ton, down from $275 in recent weeks. Australian Premium White wheat is priced at around $280 per ton, down from $290.
Cordell Kress, a wheat farmer from Idaho, stated, “If you are not needing money right away, it’s better to store it and hope for better prices or some other issue in Russia or Australia that will drive prices up.”
In Australia, farmers are opting to sell other crops, such as chickpeas and canola, instead of wheat to maintain cash flow, according to Rod Baker of Australian Crop Forecasters.
The low supply of wheat, coupled with high interest rates, is making it difficult for millers to stock up, leaving them vulnerable to price spikes. A flour mill purchase manager in Dubai noted, “Lower supply cover does leave us vulnerable, but with high interest rates, it doesn’t make sense to hold large stocks.”
Despite strong production in the Southern Hemisphere, global wheat stockpiles are expected to shrink to a nine-year low by mid-2024, according to the U.S. Department of Agriculture. The situation could worsen if Northern Hemisphere crops face weather-related setbacks before harvest in July.
However, there is some relief as Russian farmers, who had been withholding their crops, are now selling them due to favorable interest rates. Yet, Russia’s supply could be dwindling, as the country’s export quota for wheat between February and June is expected to be nearly three times smaller than the 29 million tons it exported last year.
As global wheat supplies tighten, the world’s flour mills are bracing for potential price increases, with limited stockpiles and vulnerable supply chains.
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