GLOBAL- Wheat buyers globally are reducing their purchase of future supplies which means that consumers could feel price spike impacts sooner than they did in the past, an analysis by Zawya has revealed.

Citing key players in the sector, Zawya reported that buyers in key importers across Asia, the Middle East, and Africa are now making so-called forward purchases of supplies for only about two to three months of their future demand versus typically buying supplies of up to six months.

When these buyers stock up for up to six months, they shield consumers from the effects of price volatility.

However, with lower stockpiles and fewer forward deliveries locked up, consumers already struggling with food inflation, especially in poorer countries, will feel the impact of a price spike more quickly.

Wheat millers and end users have become more conservative in their purchases because of market volatility,” said Phin Ziebell, an agribusiness economist at National Australia Bank.

Instead of accumulating more, millers and other wheat buyers are winding down their stockpiles.

Thus, global wheat inventories in 2023 are expected to decline to 269.34 million tonnes, from 276.70 million a year ago, according to the U.S. Department of Agriculture (USDA).

Stockpiles in Egypt, the world’s No. 1 wheat importer, are forecast to drop to 3.4 million tonnes by the end of June, the lowest in 18 years.

Additionally, inventories in India, the world’s second-largest wheat consumer, are estimated to be 12.6 million tonnes in June, less than half of the stockpiles two years ago.

This downward trend in forward purchases partly links to the Ukraine war, which set in motion a series of supply chain disruptions and volatile prices globally.

Before the Russian invasion of Ukraine, traders would typically agree to sell forward cargoes to millers, known as going short, without the physical grain at hand, to buy cargoes closer to the actual delivery date.

Today, they would rather buy cargo before and then sell to millers to ensure they can price their stock correctly and mitigate any potential losses, according to Ole Houe, director of advisory services at agriculture brokerage IKON Commodities in Sydney. 

Today, Russian wheat prices are quoted at about $340 a tonne, including cost and freight (C&F) for delivery to Southeast Asia compared with U.S. hard red winter wheat priced at around $390 a tonne.

Before the war, Black sea wheat for Asia typically went for about $260 a tonne.

Extension of Black Sea Deal is vital

However, according to Houe, all hope is not lost as “There is plenty of wheat available from the Black Sea and Australia and prices could get cheaper in three months from now. But if Russia stops exporting, things will dramatically change, wheat could get $50 a tonne more expensive.”

While the Black Sea Grain Initiative allowed Ukraine to export its agricultural produce over the black sea, Ukraine has repeatedly accused Russia of delaying inspections of ships carrying Ukrainian agricultural goods, leading to reduced shipments and losses for traders.

As Ukraine is renegotiating the terms of this initiative, Yuriy Vaskov, Ukraine’s deputy minister of restoration, says the country would fight for an increase in the number of inspection teams to eliminate the accumulation of vessels waiting for inspections.

Additionally, Mykolaiv’s ports, which accounted for 35% of Ukrainian food exports before the Russian invasion, will likely join the initiative and boost the global supply of grains, thus reducing the volatility of prices soon if the Russia-Ukraine war does not escalate.

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