Tight global balance sheet and high prices of milling wheat may push its major consumers to expand their demand to the product that is currently classified as feed wheat, which, in turn, could tighten global corn balance sheet.
With Ukraine's wheat exports significantly lower because of the Russia-Ukraine war, and given India's recent export restrictions on wheat shipments, global milling wheat supply in the 2022-23 marketing year (July-June) could fall short of demand by 10mn t, US agricultural advisory AgResource's president Dan Basse told the GrainCom conference in Geneva yesterday.
A potential solution for large milling wheat-consuming countries may be the use of feed wheat as milling product. Feed wheat can be used as feedstock for flour production, according to market participants, with wheat classified at times as feed grade because of test weight, not contamination or quality measurements.
As a result, more countries could follow Spain in using feed wheat in flour production, which the country started doing because of steep price rises in milling wheat prices, intensified after Russia's invasion of Ukraine on 24 February.
And wheat prices are likely to continue seeing support from unfavourable weather in several major producing and exporting countries, and ongoing logistics issues in Russia — a key exporter enjoying weather conditions beneficial to wheat production.
Prospects of further wheat balance sheet tightening
The US Department of Agriculture (USDA) in its latest World Agricultural Supply and Demand Estimates report forecast the 2022-23 global wheat exports at 204.89mn t — compared with 199.89mn t this marketing season — with imports projected at 201.26mn t. But even this could be an optimistic export estimate, with India's wheat exports likely to see downward revisions in future reports on significantly lower output caused by adverse weather conditions.
The USDA's EU wheat export estimate of 36mn t for 2022-23 could also be revised down, as combined with beginning stocks and production estimated at 13.61mn t and 136.5mn t, respectively, this would leave the bloc with intolerably low ending stocks at 10.61mn t. If there are any downward revisions in production estimates, the EU-27's 2022-23 wheat exports could be closer to 30mn t, or even below this level.
US wheat output and export forecasts for 2022-23 — currently pegged at a respective 47.05mn t and 21.09mn t by the USDA — could also be revised down, with winter wheat crop conditions at record lows after severe drought hit major producing states at the start of 2022.
Stronger demand for feed wheat to tighten corn balance sheet
Upgrading feed wheat quality to milling wheat grade would alleviate the global supply crunch on the wheat market. But it would tighten corn balance sheet — as feed wheat prices rise further and near milling wheat prices, more animal feed producers will switch to corn. Especially this could be the case for southeast and east Asia, where producers have already shown feedstock flexibility by replacing cancelled volumes of Ukrainian corn with shipments of Indian wheat.
But global corn fundamentals are also already tight — especially with new legislation increasing the permitted ethanol percentage in petrol, for example, in the US.
And unlike wheat — of which Ukraine exported 18.2mn t since the beginning of this marketing year until the start of the invasion — the severe limitation of Ukraine's export capacity has already removed a potential 10mn t of corn from the global export supply this marketing season, with only 9mn t projected for export from the country in the next season.
