Wheat prices in the time of COVID-19

Did you see all those gaping holes in the baking supplies aisle? Empty grocery shelves are a strange and disconcerting sight in Canada where food shortages are rare. So if this sudden run on home baking has you wondering how it will affect the price of wheat, Bruce Burnett has some thoughts to share.

“There was this massive pull forward of demand,” says Burnett, director of markets and weather information with Glacier FarmMedia. Things are back to normal — flour is back on store shelves and mill demand is strong — but will that last?

The key word here is “demand.” Burnett says the sight of empty shelves creates a perception of higher demand when the reality might be quite different. “Usually when you’re looking at demand, it comes down to population plus per capita consumption.”

In Canada, waste numbers for wheat are usually very low — a per cent of a per cent — which means demand here doesn’t usually outstrip supply, even now, despite those empty shelves, he explains.

“The big question is, does this COVID situation impact long-term wheat buying strategies internationally?” And that, says Burnett, is what Canadian farmers should keep an eye on.

WHERE’S THE WHEAT

“Global wheat stocks are quite high, but over half of them are in China,” says Burnett. “At the beginning of June, which was the start of a new international crop year, there was more wheat in China than all other countries put together.”

The situation has an affect on both wheat importing and exporting countries. “It does cost money to have stock lying around,” he says. So the question is: are exporters going to hang onto wheat stocks longer than usual, and are importers going to buy more than usual to protect themselves against potential shortages?

“One thing to note is that through March, Canada saw record weekly wheat exports, excluding durum,” says Burnett. “Is this because countries are stocking up? Is it because Australia saw drought? It’s likely a combination of both factors.”

He can see some undercurrents rippling through wheat markets now. “Brazil and Egypt are the largest importers of wheat in the world,” he says. “The Chinese supplies are not available for these countries to purchase, so they rely on grain from Russia, Ukraine and Romania to supply their needs.

“But if buying strategies change, that could temporarily increase demand for wheat and, over the long-term, you could have this overhang of stocks. For instance, Kazakhstan stopped exporting flour for two months during (the pandemic) and its main importer of flour is Russia,” says Burnett, adding that this prompted Russia and Ukraine to hang onto their own wheat stocks. “They’re waiting to see how this year’s crop turns out before they resume sales.”

Strategies like these don’t really apply to countries like Canada and Australia, which typically have no concern about supplying their own domestic consumption, says Burnett. The empty shelves are more about processing delays than a shortage of grain.

“These are market dynamics farmers should pay attention to,” says Burnett. “What’s going to happen from now until when we sell our crop? Are countries going to be preparing for a second wave of COVID-19 and stock up?

“It’s important to keep an eye on things because they could have an impact on the markets,” he says. “At the end of the day, we still go back to demand — population and per capita consumption. People have to eat.”