19/2/24 Prices

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As with many major exporting nations around the world, France too now has many producers who will struggle to make a profit from wheat in 2024.
The combination of lower projected yields, higher input costs and poor prices could see gross margins there slip into the negatives by as much as 20% under the cost of production for many.
France and other EU states are not alone in this problem. Current values for wheat in Australia, Argentina and the USA will discourage production in 2024. The USA has already projected a fall in wheat area of more than 2.6 million acres.
If global production is reduced by a similar percentage as US acres it could signal the lowest world wheat production number since 2018-19 or 2015-16. The 2018-19 production period I’d like to forget, but what happened to wheat prices in 2015-16, (unimpressive chart attached). In 2015-16 the world wheat stocks to use ratio was 33.83%, opening stocks had built up over the previous 4 years.
Production at 735mt and consumption increased to 711mt, the stocks to use ratio continued to increase until 2018-19 when it slipped a little on the Australian drought before resuming increases right up until 2019-20, peaking at 39.43%. Since 2019-20 consumption has outstripped demand, this has seen the world wheat stocks to use ratio fall each year to now be at 31.5%.
If we were to see a 5% fall in global production, say to 746mt, and a fall in consumption does not correspond we end up with a world stocks to use ratio around 25.5%, that’s the lowest since 2007-08, (more impressive wheat chart attached).
If we were to see a corresponding fall in consumption of 5%, maybe because no one has any money, than the stocks to use ratio is closer to 32.13%, even worse than what it is now. The starting point for Chicago SRW wheat in 2007 was 428c/bu, using a CPI of 2.5%pa that is roughly comparable to 650c/bu today, so there isn’t a consumptive deterrent considering futures are now at 560c/bu. Remember high prices fix high prices, as do low prices fix low prices.

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