Miller Magazine Issue: 118 October 2019

19 NEWS MILLER / OCTOBER 2019 the continuing drought, especially severe in the coun- try’s eastern regions. In Argentina, with larger wheat area than last year, potential production had retained – until now – a good chance of exceeding last year’s level; however, the dry weather in September and now a fall in temperatures are in the process of quashing this once favourable outlook. Furthermore, the situation in North America is also a source of concern: the spring wheat is still being harvested because of the excessive rainfall that in turn could also harm grain quality – particularly in Canada. Consequently, global wheat production is ex- pected to increase by around 35 million tons (Mt) to 735 Mt (+5%). However, this growth is smaller than originally envisaged, the last few weeks having seen production forecasts tumbling further. ROBUST DEMAND Global demand for wheat is on rise this year. It is im- portant to take this phenomenon on board because the additional consumption that the world’s exporters will need to service during 2019/20 stands at almost 20 Mt: one half of the increase concerns animal feeds, whilst the remainder relates to the milling, starch and ethanol industries. GROWING INDUSTRIAL DEMAND Rising industrial demand for wheat in the starch and ethanol industries is centred for the most part on Europe. Tumbling wheat prices have reinvigorated margins over cost for producers of wheat-based ethanol; essentially, this is the case in the UK, where the wheat price has fall- en sharply in tandem with this year’s very large harvest and the necessity to liquidate as much merchandise as possible during this first part of the new marketing year whilst trading regulations re- main certain (before the situation is muddied by the troubled waters of Brexit). Demand for wheat in starch production is growing on account of expanding production capacities in the northern and eastern parts of the EU. RISING DEMAND FOR HUMAN CONSUMPTION AND MILLING In milling, Europe is not taking the lead: on the contrary, the outlook for European millers is fairly morose because a number of countries (mostly in Africa) are reducing their imports of European flour as they develop their own flour producing sectors. By contrast, wheat requirements for milling are projected to rise in sub-Saharan Africa (+1 Mt), the Mid- dle East (+0.8 Mt), Southeast Asia (+1.6 Mt), India (+1.3 Mt) and South America (+0.7 Mt) after stagnating, or fall- ing, in 2018/19. This was partly because some countries were unable to secure their usual supplies of grain in 2018/19 due to conflicts or economic problems. Furthermore, some Asian countries (Bangladesh, for example) prioritised consumption of rice over wheat for reasons of cost. Structural growth in demand for human consumption (in line with rising populations in Africa and changing dietary habits in Asia) combined with larger wheat harvests in countries with limited importing ca- pacities (various Middle Eastern countries and Afghani- stan, for example) should permit growth to re-establish this year. Higher demand for wheat in animal feed sector With supply on the rise, wheat becomes more easily accessible, especially in terms of direct on-farm con- sumption by animals. But wheat’s position as an ingredi- ent in industrial animal feeds is also flourishing because its price – although higher than the price of maize – is much more competitive against other compound feed ingredients than last year. Despite the African swine fe- ver epidemic in Asia having severely reduced the total animal feed requirement, an additional 10 million tons of wheat is still set to be consumed in the animal feed sector globally between now and mid-2020. STRONG TRADE AND LOW STOCKS Consequence: global wheat trade should surge during 2019/20 (by around 9 Mt to 164 Mt). This will push the