THERE is already a 25 million tonne deficit in the production of wheat under consumption demands globally.
That was the message from keynote speaker and vice president of overseas operations with grain traders, US Wheat Associates, Vince Peterson, when he discussed the conflict between long-term trends in world wheat production and consumption and examined global wheat decline over the last 30 years at last week's International Grains Conference.
Mr Peterson said the huge expansion of world plantings of more profitable crops, such as maize and oilseeds, over the past half century had come at the expense of the land area historically planted to wheat.
"This has produced competing and unsustainable trends looking into the future, as we look towards feeding the increasing world population as it grows from some 6.9 billion today and approaches 9.5b by mid-century," he said.
Mr Peterson questioned whether market forces should be left to dictate wheat production or whether doing that would only open the way for further price volatility.
The conversation surrounding global food security was started at the International Grains Council meeting in London in June and Mr Peterson believed long-term trends for the world wheat industry were headed in opposite directions.
One opposing factor was the wheat production land area and the other was wheat consumption trends around the world.
"We have to look at how those things come together on the path that we're on and we have to ask is that a pathway to stability in the marketplace or is that a pathway to increased and continued volatility?" Mr Peterson said.
"It begs the question, is the wheat market more sensitive and fragile than we first thought it was and I think the last six months has probably answered that question."
Over the last 20 years the global wheat market had been a relatively stable environment which was easily navigated with price and risk management strategies.
During that time (with exception to the 1995/96 season) wheat futures in the USA had a trading range of about $75 a tonne and growers thought the market was "volatile" when there was a drop of $75/t drop during that time frame.
In comparison Mr Peterson described today's global market as unpredictable, volatile and "absolutely hostile".
"Look at the five months in late 20007/08 when wheat prices went up $280/t in a five-month period in the US," he said.
"Following that, over a two-month period prices came down nearly $200/t.
"In June and July this year wheat prices rose $115/t over five weeks.
"The instability speaks to a worldwide problem."
Mr Peterson said the new American crop in May this year bought new hope to the American market because it was set to be the third of three record yielding crops in a row.
"We were going to be adding stocks to wheat and moving forward," he said.
"Growers thought they'd be giving it away because there would be so much wheat around."
Although this was the consensus Mr Peterson said "perception wasn't always a reality."
A review since May this year revealed Russia pulled out of the market, floods in Germany downgraded quality and up to 50pc of its crop was downgraded to feed which produced limited export capacity, there had been a similar situation in the northern plains of the USA and Canada at the end of spring and the east coast of Australia had suffered a similar fate.
"It has pushed us to the situation where we have record high prices but we have a 25 million tonne deficit in production under consumption this year," Mr Peterson said.
"Instead of growing stocks as anticipated in May, June and July, now we're going to be reducing world stocks."
The movement contributed to a 60pc rise in wheat prices during the five weeks from the end of June to the start of August.
"Let me draw your attention to last week," Mr Peterson said.
"Wheat prices have been sky-rocketing and have reached new highs at this range.
"We had a four-day price increase which is equivalent to 50pc of that old 20-year trading range that we saw year in year out.
"That's volatility."
The USA had lost 9m hectares of wheat land area over the last 15 years to corn, soybeans and other oilseeds.
"There's a deficit trend in wheat production and I don't see any abatement for it under the current price and profitability scenario of all the crops the world's producing," Mr Peterson said.
"One of the major reasons for that is the yield difference gains between corn and wheat over the time period."
Mr Peterson said wheat yields had improved in the USA about 1t/ha since 1970 and in the same time corn had doubled its production capacity from around 5t/ha to more than 10t/ha.
"You can imagine the profitability for the extra 5t/ha plus the high demand for it, that makes wheat the very poor cousin when it's looking to buy land from corn and soybeans," he said.
But Mr Peterson assured the conference that the USA wasn't alone in the scenario.
"Corn and oilseed production in Canada since 1960 has moved from almost zero to nearly 9m hectares today," he said.
"Wheat has declined from about 14m down to 9m over the last 25 years or so.
"It shows the same negative trend of wheat losing out to more profitable crops."
That trend had been repeated all over the world according the Mr Peterson.
"Since 1990 North America has collectively lost 14mha of wheat growing land, or about 40m tonnes of potential wheat production," he said.
"If we had that land area, with the market being so volatile, you could imagine the difference it could have made in the market today."
Wheat had traditionally been planted in two belts across the northern and southern hemispheres at about the 25th and 55th latitudes.
"If we look at wheat, corn, soybeans and oilseeds around the world we see some cropping patterns," Mr Peterson said.
"From about 1985 onward wheat has had a down trending land area devotion and this year's land area for wheat is exactly the same as 1968 so we've made precious little progress over time which is concerning.
"The area dedicated to corn has gone up by 60pc.
"Soybeans, canola, sunflowers and oilseeds all together have gone up 400pc.
"My premise is, as we go forward there may well be more land become available for planting wheat throughout Europe, like in Russia and the Ukraine for instance, but it might not necessarily come into wheat production and it will be subject to the same financial impact, returns, patterns and decisions as the rest of the world."
Mr Peterson predicted the world population would have increased to 9.3b people by 2050 and the majority of the growth would take place in less developed countries.
"In 1950 the world wheat consumption was 229mt compared to over 660mt today," he said.
"If we project this number out with the population growth, by 2050 the world consumption of wheat will be somewhere around 900mt.
"That's an increase of 240mt from today that has got to be filled somewhere and somehow.
"These are incompatible long-term trends and something has to stop."
The highest growth in population, the highest fertility rate and the highest world hunger figures fall in a latitudinal zone largely between the two wheat production latitudinal zones.
Mr Peterson believed if the world population was to reach 9.5b by 2050 there would be an increase in population of about 300m people in Latin America, one billion people in Africa and as many as 1.8b people in Asia.
"There's very little overlap in the population growth zones and the wheat producing zones except for a small part of northern Africa, the Middle East and northern Mexico," he said.
"The growing population is largely going to have to be fed by production in the other hemispheres.
"Trade volume will grow rather than production increasing in the tropical countries."
Mr Peterson said world trade hadn't really shifted largely over the last 30 years due to the EU and the former Soviet Union's internal trade patterns.
"By 2050 we're going to double world trade to about 250m tonnes of wheat which is a lot to move," he said.
"Everyone in the world including the USA, Canada and Australia will have a piece of the action."
