GLOBAL wheat production and consumption estimates for the 2020-21 season were updated by the United States Department of Agriculture last week, and the changes were broadly in line with market expectations.

The USDA reduced total production as smaller crops in the European Union, Kazakhstan, Argentina and Turkey more than offset larger crops in Russia and Ukraine. Global consumption was lowered mainly on feed and residual use for the European Union. Exports were raised for Russia, Ukraine, and the US, and reduced for the EU.

Pakistan crop down, demand up

The biggest mover on the import side of the global equation was Pakistan after production from their recently completed harvest fell short of expectations. The USDA increased imports from 100,000 tonnes to 1 million tonnes (Mt), but further increases are expected if recent reports out of Pakistan prove correct.

The Pakistan Government estimates final wheat production ended up at 25.5Mt, slightly above the five-year average of 25.38Mt. While that represented a 1.2Mt increase on the 24.3Mt harvested in 2019, it was well short of the government’s target of 27Mt.

Wheat is one of the four main crops in Pakistan alongside rice, cotton, and sugarcane. It is grown during the “rabi”, or winter season, by around 80 per cent of the country’s farmers.

The planting season commenced on time in October last year, and the area planted was expected to be 9.2 million hectares (Mha), around 40pc of the country’s arable area. However, soaring costs of production and a low government support price discouraged some farmers from planting, and the area finished up at around 8.5Mha.

Early crop development was excellent on the back of favourable weather conditions. But heavy rains and localised hail over areas of the leading wheat-producing province of Punjab in March and April delayed harvesting operations and caused localised damage to standing crops.

Staple deficit

Wheat is an essential crop in Pakistan as flour is a food staple. The government has supposedly been storing surplus wheat since 2010. Yet, with the harvest season concluding less than three months ago, it is already hard to find wheat offered on the open market at the government’s fixed price, and flour is also being sold at inflated prices.

The USDA pegged domestic consumption at around 25.6Mt, but according to Pakistan’s Ministry of National Food Security and Research, the country’s annual wheat requirement is 27.5Mt. With low carryover stocks from last season and the lower than expected production, the balance sheet is now in deficit.

Around 60pc of Pakistan’s total wheat production is retained on farm for village and household food consumption, and for seed. The government normally buys around 25-30pc at harvest, driven by both food security and market intervention reasons. The private sector purchases the balance.

Back in May, a report surfaced that Pakistan would need to import 100,000-200,000t of wheat every month until April next year to control price hikes in the domestic market as local production was not sufficient to stabilise grain supplies. Additionally, 1Mt of strategic reserves or buffer stocks would be required to control price rises.

Some domestic millers are saying that the 2020 harvest was smaller than official estimates and the nation is on course for a 3.5Mt deficit. Yet private merchants were actually exporting wheat from Pakistan to neighbouring countries immediately after harvest.

A poor government-procurement program and corruption, within both the government and the domestic milling industry, are huge issues. One government official recently told the parliament that 6Mt of wheat had vanished from the market since harvest. If accurate, the shortage could result in severe food shortages during the upcoming winter.

Prime Minister Imran Khan’s government said it planned to meet the shortfall through imports and early release of buffer stocks. At the end of June, Khan’s cabinet approved the import of 2.5Mt of wheat. However, shipments did not immediately materialise as the private sector shied away; the selling price fixed by the government was lower than the cost of the imported wheat.

To bridge the difference, the Ministry of Food Security has abolished the duty on wheat imports for the private sector, stating that the 60pc regulatory duty and 11pc customs duty will not be levied. Additionally, the 17pc general sales tax and a 6pc withholding tax will not be collected, and the imported wheat has also been exempted from the Anti-Hoarding Act imposed by the provincial governments.

By the end of July, orders had already been placed by private merchants to import 300,000t of wheat, which will reportedly be shipped out of the Black Sea region over the August and September period. Purchases in the first two weeks of August total 120,000t, the latest being 60,000t booked late last week at US$227/t cost & freight for September shipment, again out of Black Sea ports.

Imminent 1.5Mt tender

In addition, submissions close today for the Pakistan Government tender announced earlier in the month. The international tender to buy and import 1.5Mt of wheat was issued by the Trading Corporation of Pakistan, which operates under Pakistan’s Ministry of Commerce. The wheat can be sourced from worldwide origins and offers, including cost and freight to the port of Karachi, have beens ought. Offers must be for a minimum of 200,000t.

Once imported wheat hits the market, the artificial shortage will theoretically be filled, and the price of wheat and flour should revert to the government-set prices. However, the hands of corruption are quite extensive in Pakistan, and there are no guarantees that all the imported wheat will be immediately available to the market.

The Pakistan tender was intentionally timed to coincide with the Black Sea harvest, and Australian wheat is unlikely to be competitive. Assuming the tender is fully subscribed, that is almost 2Mt of unforeseen demand for Black Sea wheat in the second half of 2020. And that may not be the end of Pakistan’s import requirements.

The smaller EU crop and unexpected Pakistan demand is excellent news for the Australian farmer. This means there will be less Black Sea wheat to compete with domestic exports into traditional Asian markets in the first half of 2021.