Less than a month after USDA reaffirmed its forecast of record wheat output in China during 2022-23, the country has set alarm bells ringing in the global commodity market.Last week, the country’s agriculture ministry raised concerns that the winter wheat crop could be the “worst in history”, according to a news report by Reuters.With crop prospects dampened in world’s largest consuming nation, is the global market at the brink of mayhem?
First, some context.Crop prospects may be dull, but China is nowhere close to running out of grain any time soon. Although Chinese demand accounts for nearly one-fifth of global consumption, it imports no more than 7 percent of annual national consumption. The command economy is big on ensuring self-reliance in food security, and maintains strategic reserves equivalent to a year national demand. For emphasis, these are just the ending stocks: peak reserve stocks level may run as high as 18-months of national demand during the post-harvest, procurement period!
Thus, although the Middle Kingdom shall not witness bread shortages, its reserves may come under significant pressure. Per the Reuters report, “rare heavy rainfall last year delayed the planting of about one-third of normal wheat acreage [for the winter crop]”. The delay is likely to make the crop susceptible to disease and winterkill, leading to yield and quality issues. “The amount of first- and second-grade crop may be down by as much as 20 percentage points”.
While the dangers emanating from Chinese wheat shortfall may not be immediate, they nevertheless spell doom for a global commodity market already jittery over Russian invasion of Ukraine. The conflict in the Black Sea region has cut-off import-dependent nations from as much as 30 percent of global supply.
Ignoring overtures by distressed countries to purchase its wheat, the Siberian bear has banned wheat exports till Aug-22 to ensure “domestic food security”. The announcement was made earlier this week and has further rattled international markets. The move is particularly shocking as it targets nations in Russia-led Eurasian Economic Union (Central Asian Republics, Armenia and Belarus), which have historically been dependent upon Russian grain exports.
Minus the Russo-Ukrainiansupplies, importing nations will now be competing for 150 million metric tons of exportable surplus- mainlyfrom Australia, EU, India, North America, and South America, against global import demand of 208 million tons. Meanwhile, crop report from China has dashed all hopes of country’s reserve stocks entering the export market to stabilize world prices.But as bleak as the short-term prospects may appear, the medium-term outlook also paints nothing but bedlam.
Unless the war in Russia reaches immediate resolution in less than a month, the limited window for spring crop plantation in mid-March may be missed, virtually cutting off Ukraine from global market for at least another year. The war-ravaged nation may not only suffer loss of crucial export revenue but may also continue to witness food shortages even after the dark curtains of military conflict are lifted.
The severe risks suggest that 2022 will not only herald food shortages in many countries, it may also bring fundamental shifts in global grain trade and consumption patterns, encouraging switch to alternate grains. Regrettably, the mood in Islamabad suggests that the calls for sanity are falling on deaf ears. Be very afraid.
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