Czapp Explains: The Basics of Wheat

  • This Explainer will help you understand the key fundamentals and market drivers in wheat.
  • A lot of this information has been covered in previous, longer articles, which are linked throughout.
  • If there’s anything wheat-related you’d like to learn about in 2022, please contact will@czapp.com.

 

Wheat plays a direct and indirect role in feeding the enormous global population.

Whatever your position in the food supply chain, wheat will likely play an important part, from the producer to the end consumer’s plate.

A greater comprehension of the main aspects of wheat and the markets will undoubtedly set your business on a firm footing to manage the risks posed by market volatility and the interaction between differing types of the grain.


The Basics of Wheat

Wheat is a grain, grown over a larger area of land than any other crop – approximately 550 million acres. Putting that in context, 1 acre is of similar size to a football pitch, so a vast area on a global scale.

Second only to corn/maize in production, the world’s wheat harvest is estimated to total a huge 778.6m tonnes in 2021/22.

With origins dating back some 10,000 years, it’s long been a staple of the human diet.


Types of Wheat

Being a resilient crop grown across our planet, the weather plays a critical part in the types of wheat grown in various areas.

Winter wheat is planted in the autumn, thus allowing germination and establishment of a green carpet of crop prior to the harsher winter weather. It can happily survive under a layer of snow before continuing to grow as the temperatures warm in spring, leading to harvest in the latter summer months.

Spring wheat is often produced where adequate growth cannot easily be established prior to early, long, and harsh winters. When soil temperatures warm, farmers will plant their wheat in the spring, which in turn germinates and grows quickly to be harvested in the latter summer months.

Hard and soft wheat varieties have differing uses, with higher quality hard wheat usually being of greater value than soft wheat. Winter varieties are either hard or soft, while springs are hard and of higher quality specification and thus value than their winter counterparts.


Wheat Planting & Harvesting Schedules Around the World
 

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Growing Wheat: The Farmer’s Perspective

A wheat farmer is not just a tractor driver who nurtures his crop from planting to harvest. Planning the most suitable variety for soil type, climate and market are paramount. Combine this with the best agronomic knowhow to produce the highest possible yield and quality required by the market. Add in the complications of the post-harvest cleaning, drying, and storing and one realises the talents demanded of today’s producers.

Wheat is usually grown in rotation with other crops to avoid the total crop failures that are associated with the monoculture of continuous wheat growing. This can be seen with diseases such as the soil borne fungus, take-all.

Often, using a 3-to-7-year rotation of crops including wheat, other cereals, legumes, oilseeds, and root crops enables good sustainable management of soil structure and nutrients, while containing the prevalence of soil borne diseases.


The Biggest Influencers in the World of Wheat

The charts below detail the major producers, importers, exporters, and ending stockholders.  

It’s interesting to note that the two largest producing countries, together with their end stocks, are also the two most populous countries in the world, China, and India.

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With combined production at 246.5m tonnes, they are responsible for 31.6% of the world’s wheat production (778.6m tonne), while their combined ending stocks at 169.02mmt occupy a staggering 60.4% of the world’s 279.95m tonnes total.

They do not figure in the export chart as both maintain large wheat reserves to ensure food security for their huge populations.

Excluding China and India, we see that the largest producers are unsurprisingly the largest exporters as well.

The large importing nations of North Africa, although wheat producers, are unable to grow enough to be self-sufficient in wheat.

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Southeast Asia and the Middle East, as other large importing regions, are unable to cultivate the wheat needed, thus are destined to be big buyers year on year.

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The Wheat Market and Pricing

Much of the pricing of wheat revolves around the futures markets based in the main trading regions of the world. Type, quality, and quantity specifications, as well as currency denominations, reflect the individuality of wheat grown in the relevant region.

The futures markets, used by the grain traders and user/processors, enable hedging and mitigation of risk associated with buying or selling physical wheat.

There are a number of different contract types used when trading physical wheat, which accommodate the requirements and risk appetite of farmers selling to, or users buying from, traders.  


Concluding Thoughts

Wheat is not just wheat. There are numerous types and an enormous number of different varieties and contract specifications that make up the world market for a commodity with such a large volume produced.

Recent years have shown huge price volatility, which we can expect to continue in the markets for the foreseeable future.

The weather is a constant reminder that little is truly predictable with a commodity exposed to the elements.

The better your understanding of the fundamental commodity, the better your decision making is likely to be.

“If you’re not willing to learn, no one can help you. If you’re determined to learn, no one can stop you.”


Other Insights That May Be of Interest…

Hard Wheat vs. Soft Wheat

Winter Wheat vs. Spring Wheat

How Crop Rotation Drives Price Spreads

Global Wheat Futures

How the Wheat Market Really Works 

The Farmer’s Wheat Contract: Protection and Pitfalls 

The World’s Largest Wheat Users and Importers