Wheat holds up well as global exports collapse

by Morton Sosland
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Considering the frequency with which the present economic downturn is being compared to the Great Depression, it is important for grain-based foods to recognize that the global wheat industry’s experience this year has been hugely better than what happened in that earlier time. Although comparable statistics are not available, it should be sufficient to note that wheat exports from the United States at the height of the Great Depression dipped below 10 million bushels in the 1935-36 crop year and that global trade in wheat, the predominant grain then moving in world commerce, suffered a similarly disastrous setback. That is in sharp contrast with this year’s record in global wheat shipments, as well as U.S. shipments that are more than 100 times the volume at the low point in the 1930s.

According to the World Trade Organization, the volume of all goods and services moving in world trade in 2009 will be down by 9 per cent from 2008, which is the sharpest reduction since World War II. Developed nations will suffer the greatest falls, with their export volume projected to drop by at least 10 per cent. Developing nations, including some that provide principal outlets for export shipments of wheat, will see export decreases of no more than 2 to 3 per cent, the W.T.O. forecasts.

While demand for wheat is definitely not free from the impact of a global economic downturn as severe as the current period, it is obvious that global wheat business has happily displayed the ability to do much better than the total economy. Accounting for this performance and its difference from what occurred in the 1930s is not all that simple. It is tempting, for instance, to ascribe wheat’s 12 per cent world export increase this season to its role as an essential food, but the same condition ruled in the Depression. It is apparent that the nations that are major importers of wheat have mustered the resources to safeguard their domestic food supply. The choice often has been between buying wheat or coarse grains. The latter has lost out, as reflected in the drop of 20 per cent in global coarse grain trade to a four-year low. Domestic crop variations and an expanding global supply of distillers dried grains account as much for what is happening to coarse grains as does caution attributed to slowing economies.

Understanding the dynamics facing the grain trade in this period is important because of the way wheat is performing so differently from exports in general. The latter is falling further than overall business. This is explained by several factors, including the broad geographic spread of the economic setback, the way newly-evolving global supply chains have accelerated trade decreases and the shortage of trade finance capacity that has delayed or halted numerous transactions. Many governmental steps designed to address the business downturn have affected trade finance availability. These work in concert with steps to restore credit for business. Here the W.T.O. has even sought to play a role as an "honest broker" working to ease the availability of trade finance in the same way governments seek to loosen credit.

The one generally cited horror of the Great Depression that looms over the current unsettled business situation is protectionism. Viewed as a threat to economic recovery, the risk of aggravated protectionism is very real. In the case of wheat, interference with trade first appeared more than a year ago when countries sought to hold down domestic prices by limiting exports. Now that prices have fallen back, the real concern has to be that steps taken by numerous countries aimed at protecting domestic industries may spread to wheat and agriculture. Nothing is more counter to the well-being of an industry like grain-based foods. It also must be viewed as a real threat that would change what has been a relatively unscathed wheat trade into a battered victim.

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