Global wheat prices surge, Guyana faces possible price increases

…as global supply tightens

Asian buyers are turning to Australian and Argentine wheat as disruptions to Black Sea exports, drought and rising production costs push global wheat prices higher, raising concerns for countries such as Guyana that depend on imported wheat for flour and other food products. Guyana could face further pressure on food prices as international wheat markets respond to disruptions in major exporting regions, with Asian importers already paying significantly more to secure alternative supplies. The latest developments come as wheat prices have reached their highest levels in about three years, according to reports from international media, amid attacks affecting grain shipments from the Black Sea, unfavourable weather in major producing countries and higher energy and transportation costs. The developments are significant for Guyana since wheat cannot be grown locally on a commercial scale and the country depends on imported wheat for its flour supply.

Asian buyers & alternatives
Reuters reported that Asian wheat importers have purchased at least 500,000 tonnes of Australian and Argentine wheat in recent deals as buyers seek to replace Black Sea cargoes delayed by attacks on vessels and grain-export infrastructure. According to the Reuters report, importers including Indonesia, the world’s second-largest wheat buyer, are paying substantially more for alternative supplies. One Asia-based trader told Reuters that bulk deals for Australian and Argentine wheat had been concluded over the previous one to 10 days to meet urgent requirements, with importers seeking alternatives for shipments that had not arrived from Russia and Ukraine. The price difference illustrates the pressure being created by the disruption. Reuters reported that buyers were paying about US$315 to US$330 per tonne, including cost and freight, for Australian Premium White wheat, while Argentine wheat was being traded at about US$310 to US$315 per tonne. That compares with approximately US$260 to US$280 per tonne for many Black Sea cargoes scheduled for August and September arrival. The report said benchmark Chicago wheat futures had risen about 35 per cent since late June, driven largely by the shortfall in Black Sea supplies.
Reuters also reported that CBOT wheat reached its highest level in three-and-a-half years after reports that Moscow had rejected a proposed moratorium on attacks in the Black Sea region and following overnight strikes on Ukrainian port infrastructure. US agricultural commodity group ADM said a drone strike on August 31 damaged its UEP grain terminal at the Ukrainian Black Sea port of Odesa, according to Reuters.

Black Sea supply under pressure
The Black Sea is a major source of wheat for international markets, with Russia and Ukraine among the world’s leading exporters. Reuters reported that Asian grain processors had booked between 2 million and 2.5 million tonnes of Black Sea wheat for July to September shipment, representing between 30 per cent and 50 per cent of import demand in the region. However, shipping delays have raised concerns that some of those cargoes may not reach their intended destinations. Indonesia, Bangladesh, Vietnam, Malaysia, Thailand and Sri Lanka are among the Asian buyers of Black Sea wheat identified in the Reuters report. Some millers have also turned to container shipments to meet immediate requirements, according to traders cited by the agency. The shift to alternative suppliers is significant because Australian and Argentine wheat currently costs more to deliver than many of the disrupted Black Sea supplies. For import-dependent markets, higher international prices can eventually feed through to the cost of flour and products made from flour, including bread, pastries, biscuits and other baked goods.

Drought adds uncertainty
The Guardian reported that wheat farmers in the United States (US) are also facing uncertainty because of drought, erratic weather and high production costs. The newspaper highlighted the experience of Kansas farmer Merrill Nielsen, who farms about 2,500 acres. Although wheat prices have risen, Nielsen’s farm has also been affected by higher diesel costs, while weather conditions resulted in the loss of his entire wheat crop in the spring. The Guardian reported that drought has spread across the southern Great Plains, while drought conditions in parts of the US and Europe have affected harvests. Joao Lampreia, a market strategist at Lisbon-based Freedom24, told the newspaper that weather conditions were sending concerning signals for wheat production. The Guardian also reported that Australia’s wheat plantings had fallen by 12 per cent amid expectations of dry conditions and higher fertiliser costs. This creates an additional complication for importers because Australia is among the countries being relied upon to replace some of the wheat affected by Black Sea disruptions.

El Niño raises concerns
The Guardian also reported that the possibility of a strong El Niño has raised concerns about agricultural conditions in the southern hemisphere. The weather phenomenon can have significant effects on agricultural production, although its impact varies by region. There is also a potentially positive side for some US wheat-growing areas. Mark Welch, an economist at Texas A&M University, told The Guardian that El Niño can bring wetter conditions to the southern Great Plains during the fall and spring. He pointed to the 2015-2016 El Niño, when the US recorded a record winter wheat yield. However, the uncertainty comes at a time when global wheat stocks are already under pressure. The Guardian reported that agricultural market researcher Dan Basse is concerned that the combination of weather-related production losses and geopolitical disruptions could push global food prices higher. The newspaper also cited figures showing that the Food and Agriculture Organisation of the United Nations (FAO) Food Price Index was 2.5 per cent higher in August than a year earlier.

Global prices already rising
Spanish financial publication Cinco Días also reported that wheat prices had climbed to their highest level in three years, citing disruptions in the Black Sea and climate-related pressures. The publication reported that wheat prices had increased 2.6 per cent in August alone and were 15 per cent above their level a year earlier, based on the FAO’s food price index. Cinco Días noted that Russia and Ukraine account for about one-third of global wheat trade and that attacks on bulk carriers and port infrastructure have reduced exports. The report said France and the US had also experienced poor harvests following droughts, while higher energy and transportation costs were increasing production and shipping expenses.
As supplies from traditional exporters become less certain, buyers are being forced to look farther afield. Australia and Argentina have therefore become increasingly important alternative sources. But those countries face their own challenges. Cinco Días cited analysts who warned that Australia’s production could be affected by El Niño. Mobeen Tahir, director of economic analysis at WisdomTree, was quoted as saying that Australian production could fall by about nine million tonnes if the weather phenomenon has the anticipated impact.

Climate pressures
Cinco Días reported that heatwaves in Europe had reduced the value of grain production, with France among the countries particularly affected. The publication also reported that Spain’s latest wheat harvest was about 30 per cent lower than the previous year’s, according to Ignacio Huertas, a sector professional and member of the board of the Association of Small Farmers. Farmers are meanwhile dealing with increased energy and fertiliser costs. This means that higher wheat prices do not necessarily translate into greater profits for producers. The Guardian similarly reported that US farmers are dealing with higher input costs even as wheat prices rise. Vance Ehmke, a wheat-seed seller in southwest Kansas, told The Guardian that demand for seed had increased but that dry conditions were making it difficult for wheat to germinate.

Guyana
In Guyana, the National Milling Company of Guyana Inc (NAMILCO) is the only flour mill that uses imported wheat from the US, Canada and other countries. The company has a production capacity of about 9.8 tonnes per hour, or 235 tonnes per day, and produces flour under its Thunderbolt and Maid Marian brands. Guyana has previously experienced the effects of international wheat shocks. In March 2022, NAMILCO announced a 15 per cent increase in its flour prices after the company said the price of wheat had risen by 40 per cent in the weeks following Russia’s invasion of Ukraine. The company also cited increases in freight, packaging, energy and other production costs. The Guardian reported that US wheat acreage has been declining for decades as farmers have increasingly found corn and soybeans more profitable to grow. The newspaper said harvested US wheat acreage was at its lowest level since 1877.