Additional data on actual and projected wheat production and exports by Russia and neighboring countries have provided a much clearer picture of the world wheat market than just a couple of weeks ago. Importers are making needed changes to keep supply lines full for this marketing year. The long-term adjustments to trade in response to events of the past month remain uncertain.

Production and export estimates by the Foreign Agricultural Service (FAS) of USDA put Russia’s wheat crop this year at 45.0 million metric tons (MMT), down from 61.7 MMT in 2009/10 and 63.7 MMT in 2008/09, but roughly the same as the 44.9 MMT harvested in 2006/07. Exports are projected at 3.0 MMT for 2010/11, down sharply from 18.5 MMT last year and 10.6 MMT in 2006/07 from the similar size crop.

Ukraine’s production is estimated at 17.0 MMT, down from 20.9 MMT in 2009/10, but up from 13.9 MMT in 2007/08. Exports are estimated at 6.0 MMT for 2010/11, down from 9.3 MMT in 2009/10 and 13.0 MMT in 2008/09. Government officials indicate that Ukraine exports may be closer to 5.0 MMT as it implements an unofficial ban on exports and the government discusses a formal quota system. Kazakhstan production is estimated at 11.5 MMT, down from 17.0 MMT in 2009/10 and the smallest crop since 11.2 MMT in 2005/06. Exports are estimated at 6.0 MMT for 2010/11, down from 7.8 MMT in 2009/10.

Combined production of Russia, Ukraine and Kazakhstan in 2010/11 is estimated at 73.5 MMT, compared to roughly 100.0 MMT in 2008/09 and 2009/10 and 76.0 MMT in 2006/07 and 2007/08. Exports are expected to be 15.0 MMT in 2010/11 compared to an average of 36.0 MMT in 2008/09 and 2009/10 and 22.0 MMT in 2006/07 and 2007/08. The large 2008/09 and 2009/10 production and exports look more like the exceptions for the three countries than the new normal. The almost 60 percent reduction in exports from the average of 2008/09 and 2009/10 is due mostly to the extreme drop in Russian exports.

Total world wheat production is now estimated by FAS at 645.7 MMT, down from 680.3 MMT last year, but still the third largest wheat crop. Consumption for 2010/11 is estimated at 664.9 MMT, up from 651.8 MMT in 2009/10. World wheat trade for this year is reduced to 124.5 MMT compared to 132.6 MMT in 2009/10. Carryover supplies will be reduced from a record of 194.0 MMT at the start of the year to the second largest carryover of 174.8 MMT at the end of year.

Major wheat importing countries have rapidly adjusted to the market dynamics. After realizing Russia was restricting exports and Ukraine and Kazakhstan had substantially less wheat to export, importers turned to other major exporters with large supplies like the EU and the U.S. Countries wanting immediate replacement of wheat found that could be done, but at prices 50-60 percent higher than earlier contracts. Countries that had a choice have switched to rice imports as supplies are more than adequate and prices had not increased much compared to wheat prices. Some of the wheat that was to be exported to feed livestock will likely be replaced with feed grains like corn. Importers have also vowed to not sign contracts without optional origins including countries in different regions of the world so a regional weather problem would not cause contract cancellations.

As a large exporter of wheat, Russia has a responsibility to honor its commitments for exports. That Russian wheat exports can decline in one year’s time from 18.5 MMT per year to 3.0 MMT is hard to understand. By restricting exports so sharply, Russia has shifted all of the supply adjustment to importing countries. Wheat import prices increased by 50 percent and more at a time of adequate worldwide supplies. Russia had other options like exporting high quality bread wheat and importing feed grains to replace some of the 20 MMT or more of wheat fed to livestock; a market solution that would have benefited Russia and wheat importers.

Part of the problem in agricultural trade is the mentality of political leaders in some exporting countries that they must first meet domestic needs and the remaining supply is “surplus” available for export. If producers want to be seen as reliable suppliers, exports cannot be simply a place to move a “surplus”. Consumers in importing countries, be it wheat or any other food product, must be on equal basis with consumers within the exporting country for market access to supplies. That may be a hard concept for governments to accept, but it is at the heart of food trade. Consumers in importing countries are in no more of a position to skip a meal than consumers in countries that produce more than is needed domestically.

By holding down wheat prices, Russia and Ukraine are hurting domestic producers. Higher wheat prices support incomes by offsetting the smaller production of this year’s crop and provide increased incentives to plant more wheat for next year’s harvest. Winter wheat planting in Russia and Ukraine occurs in late August and September and some weather analysts see a wetter pattern developing in Russia that would replenish at least some soil moisture for the winter crop planting. Winter wheat planting will still be a higher risk decision than normal. According to USDA analysis, winter wheat accounts for two-thirds of Russia’s wheat production. One Russian government official speculated that winter planting could decline by one-third. The current price of wheat will shape producers’ decisions that will determine the wheat supply next summer. The failure of governments to think long-term on markets is already influencing wheat supplies a year from now.

Export restrictions and breaking existing contracts must become a point of debate at the WTO. Trade accounts for 18-19 percent of wheat consumption. For every exporter of wheat there is an importer acting on behalf of thousands of people who depend on wheat for an adequate diet. At a time when half the world’s population lives in urban areas and trade plays a growing role in achieving adequate diets, unilateral abrogation of contracts is not a viable option. Resolving this will not be easy, but is essential for trade to continue to grow and feed more people. The alternative is for food importing countries to develop less productive, higher production cost land which would not be good for consumers or the environment.