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World wheat balanced but tipping

06/20/2012 @ 8:27am

Global wheat production is satisfying consumption at the moment but it is a delicate balance that could be rocked if something does wrong, a leader of the World Bank's agricultural risk team told Dow Jones Newswires, adding that reducing food waste and storage losses are key to the future of international food security.

His comments come after a U.S. Department of Agriculture report regarded as a leading indicator on the harvest/consumption balance last week suggested there were adequate supplies. Market participants said the USDA monthly World Agricultural Supply and Demand Estimates report contained no great surprises, with wheat markets appearing adequately supplied assuming there are no major sudden weather or geopolitical issues to cut the harvest. The latter uncertainties are cause for concern.

"We're in a situation where we are basically eating what we produce," said Marc Sadler, team leader of the World Bank's Agricultural Finance and Risk Management Team.

He added that although global wheat consumption is still being projected as higher than production in 2012-13 by the USDA, such estimates are based on ideal growing conditions and "at this stage of the crop, its hard to get a feel for the outcome and factor in what could go wrong."

But despite the risk-off situation in the markets, Mr. Sadler said prices for agricultural commodities are continuing to rise.

"The problem is that markets are made up of perception, i.e., what will happen to the weather, what stocks we do or don't have," said Mr. Sadler. "On the stocks side, it's about knowing what we have at a household or country level, it's about knowing how much we have in the larder. At times the picture can look as if there is a shortage looming, when in fact there isn't," he added.

An initiative called AMIS, launched last year by the Group of 20 industrialized and developing nations, is attempting to provide an open global agricultural market information system to forecast the short-term market outlook for wheat, corn and soybeans.

"The problem is that we all have access to data on food stocks/production, but we all interpret it in different ways and this is a major issue," said Mr. Sadler. "The objective of AMIS is to get countries that represent 80%-90% of global production and consumption of grains around the table on a technical level to discuss how we all interpret the data, so that we can all come out with the same answer," he added.

As a planet, it is essential to learn how to produce food in a more efficient, sustainable manner, said Mr. Sadler. "This comes from reducing waste and storage losses. In a world of finite resources we need to be more efficient, and to get these goals we need to invest more. The more resources that we put into food, the more we will get [out]."

"This is a global reality--not only is the population increasing, but we are also seeing changing consumer patterns. It's obvious that a lot of these changes are linked to higher income and the higher consumption of protein," said Mr. Sadler.

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