26 June 2020
Wheat has seen minimal direct impact from the outbreak of COVID-19. Considered an essential food alongside its staple by-products flour and bread, any change to prices tends not to affect demand. Wheat, with a relatively stable demand base is considered one of the most income inelastic commodities, especially as it is grown in all regions of the world.
Weather is the most important factor for prices. Like all grains and oilseeds, wheat is an annual crop that is replanted every year. Each year’s crop is a function of that year’s weather, with changes in weather swinging global supply up and down by 10 to 20 per cent. If several of wheat’s major exporters – US, Europe, Argentina, Russia, Ukraine, Canada and Australia - have poor crops, prices are normally pushed higher. At present, Europe is having one of its worst crops in two decades, however this production loss to date has been offset by a strong rebound in supplies from Australia.
Long term, the impact of climate change has been the increased period of time between the last frost of the winter and the first frost of next winter, leading to increased growing windows for crops in the northern hemisphere. Crops such as corn and soybean, which require greater volumes of accumulated heat units in comparison to wheat, are now being grown in the Northern Plains of the US and the Prairies of Canada. So, while we have seen wheat planting fall in these regions, this has been more than offset by expansion in other regions.
However, volatility in other competing crops has seen knock-on impacts for the world’s wheat market. Initially, there was panic buying around the world at the beginning of the COVID-19 outbreak as concerns built that supply chains would struggle to operate in the new environment. This quickly passed however, and weather impacts on wheat production continue to remain the dominant driver of prices.
Chris Gadd, Macquarie agricultural commodities analyst