Coffee Traders' Forum - A Discussion about Coffee Futures Trading


Coffee Traders Discussion Forum

Coffee Traders' Forum

The Impact Of Globalized Production

The globalization of coffee production is happening to a far less degree than wheat, but it is still happening. The explosion in Nam’s production in recent decades and the recovery of Honduran and Colombian production are good examples, but production is on the upswing among most origins. Traditional Arabica producing countries are also gearing up to produce the easier to grow and hardier Robusta. See below for an extreme example of globalized production.

---------------------------

THE IMPACT OF GLOBALIZED PRODUCTION ON WHEAT

Most of the world's wheat production is grown as winter wheat in the Northern Hemisphere, but Canada, Kazakhstan, Russia, and the United States have large spring wheat production, which is planted much later. Moreover, in the Southern Hemisphere, Australia and Argentina plant their winter wheat after the Northern Hemisphere's spring wheat.

While a handful of nations dominate wheat exports, there are many wheat-importing countries. However, most wheat is imported by developing countries with limited production potential.
Egypt remains the world’s largest wheat-importing country. Imports by Indonesia, which has the fastest growing wheat imports in Asia, are catching up and it has become the world’s second-largest wheat-importing country.

World wheat production increased from 500 million metric tons in the 1980s to more than 700+ today. During the same period, world wheat exports increased from 100 million metric tons to more than 180 today.

Due to foreign agricultural policies, infrastructural investments, low returns compared to other crops and currency fluctuations, U.S. wheat production declined from 75 million metric tons in 1982 to 48 today. Pegged at 70+ million metric tons today, Russia’s wheat production doubled during the same period.

DUE TO SIGNIFICANTLY DECREASED PLANTINGS AND THE HRS DROUGHT, US WHEAT PRODUCTION CONTINUED TO DECLINE SHARPLY DURING THE CURRENT CROP YEAR. CANADA’S CROP ALSO OFF AND AUSTRALIA’S CROP IS WAY OFF. ALL THREE ARE MAJOR EXPORTERS. IN SPITE OF THESE DYNAMICS, WORLD WHEAT PRICES HAVE COLLAPSED. THEY COLLAPSED BECAUSE THE LOST PRODUCTION REFERENCED BY THE THREE MAJOR PRODUCERS REFERENCED HERE WAS MORE THAN OFFSET BY RECORD PRODUCTION ELSEWHERE, PARTICULARLY THE FORMER SOVIET UNION. MANY WORLD WHEAT FARMERS ARE APPROACHING FINANCIAL RUIN, BUT SOVIET FARMERS ARE STILL EARNING A PROFIT. TO MAKE MATTERS WORSE, THE SOVIETS ARE CONSIDERING LIQUIDATING SOME OF THEIR BURDENSOME STATE STOCKPILE. CHINESE WHEAT QUALITY IS LOW, BUT THEY COULD DO THE SAME.

This author has little respect for large trading houses, but Goldman has questioned whether the current decline in commodity prices is secular rather than cyclical.