Why is Wheat so Important?
For centuries, wheat has been one of the most important food crops cultivated by civilizations around the world. Evidence shows that wheat production began around 10,000 B.C., and that the Egyptians produced and baked breads in ovens over 5,000 years ago.
Today wheat ranks as the second most consumed grain in the world, trailing only rice in annual consumption.
Farmers can easily grow wheat in a multitude of different climates. The crop stays fresh for a long time and has a high nutritional value. These facts ensure that wheat will remain an important food staple and a valuable commodity for the foreseeable future.
Where is Wheat Grown?
Wheat grows all over the world on every continent except Antarctica. The crop has several varieties, and climate and soil conditions determine the types grown in specific locations. In the United States, for example, wheat grows in 42 states.
Hard red winter wheat grows in the Midwestern states of Kansas, Nebraska, Oklahoma and parts of Texas, while soft red winter wheat grows in the Great Lakes region and the Atlantic coast. Hard red spring wheat grows in the Northern Plains states of Wyoming, Montana, North Dakota, South Dakota and Idaho.
Global wheat production has increased steadily in recent years as emerging economies demand more food to feed their growing populations. The largest producers of wheat historically include the following countries:
Top 10 Wheat Producing Countries
|Rank||Country||Flag||Annual Production (tons)|
Russia is the largest exporters of wheat followed by the European Union, United States and Canada. North Africa, Southeast Asia, Sub-Saharan Africa and the Middle East are the largest importers of wheat.
What Is Wheat Used For?
Wheat is a member of the grass family and contains several essential vitamins and minerals including B vitamins, calcium, iron and protein. As a result, food products represent the major demand component for wheat.
Wheat used for foodstuffs gets classified by its end use into five groups:
- High protein, premium bread making
- Premium bread making
- General purpose bread making
- Biscuit and cake making
- Animal feed
In addition to foodstuffs, wheat is used in other industries:
- The pharmaceutical industry uses gluten in wheat to manufacture capsules.
- The paper industry uses gluten to coat paper products.
- The health and beauty industry use wheat germ, a part of the wheat plant rich in vitamin E, in soaps and creams. Wheat germ is also a healthy food source.
Wheat plays a small role in bioethanol production, although its use is limited compared to other crops such as corn. Wheat is also used to feed livestock.
What’s the Price of Wheat?
(Price of CFD not market price)
What Drives the Price of Wheat?
The price of wheat is usually highly correlated with the price of other grains such as corn and barley. Most of the economic and trade factors that move wheat prices affect agricultural commodities in general.
The biggest drivers of wheat prices are:
- The US dollar
- Supply/demand imbalances
- Emerging markets
- Ethanol subsidies
The US Dollar
The US currency is the world’s reserve currency. As a result, wheat, like other commodities, gets quoted in US dollars. Sellers of wheat receive fewer dollars for their product when the US currency is strong and more dollars when the currency is weak. Therefore, a strong US dollar depresses wheat prices, while a weak US dollar lifts them.
In addition, since the United States is a major exporter of wheat, its price will likely continue to be quoted in US dollars.
Governments often take actions that result in supply/demand imbalances in the wheat market. For example, in recent years, India has enacted import duties on wheat in an attempt to support domestic production. These taxes could lead to depressed demand for exports and lower global prices.
On the other hand, countries that subsidize wheat with tax or other incentives may cease to do so in the future. Farmers would then switch to growing other crops, which could cause wheat supplies to diminish and prices to rise.
Global demographic patterns are shifting. Population growth in the developed world is stagnant or declining, but Africa, Southeast Asia and the Middle East are experiencing a population boom. As the population in these areas increase, their demand for food will also grow.
Wheat is a nutritious food source that grows in a variety of different climates, so it will likely become a staple item in emerging markets. Also, as these countries grow wealthier, their consumption of meat will likely increase. Since wheat is an important source of livestock feed, this should also boost prices for the grain.
Of course, if major economic or political setbacks occur in these regions, wheat prices would probably suffer.
Weather conditions play a role in determining wheat prices. If crop yields suffer as a result of either too much rain or drought-like conditions, then prices for wheat could spike higher. On the other hand, ideal weather conditions could boost crop outputs and depress wheat prices.
However, the wheat supply is global, so poor growth conditions in one region of the world are often offset by favorable conditions in another area.
The United States government subsidizes corn farmers to help boost ethanol production. As a result, US farmers have increased corn acreage in recent years at the expense of wheat. This has resulted in a smaller output of wheat and has probably helped boost wheat prices.
The corn subsidies are politically controversial, and should they end, wheat production will probably increase and prices may head lower.