On a global scale, world wheat buyers appear to be in a very favorable position to begin the new crop year.

In its World Agricultural Supply and Demand Estimates (WASDE) report, the U.S. Department of Agriculture (USDA) estimated 2012/13 world wheat supply will reach the second highest level on record at 868 million metric tons (MMT).

However, a closer look reveals a more fragile wheat market. In fact, there will be less wheat available this year to meet higher global demand.

The difference is China and India. The two largest wheat-consuming countries will account for more than 30 percent of total world supplies and total wheat consumption in 2012/13. Despite their abundant supplies, the two countries together accounted for less than 1 percent of world exports on average the past five years.

In order to meet such high domestic demand, supplies inside these countries are effectively unavailable to meet demand in the rest of the world.

In fact, USDA expects China will be a net importer of wheat for the second consecutive year in order to refill stocks of high quality wheat used to meet growing demand for western-style wheat foods.

In India, USDA estimates export of 2.5 MMT in 2012/13, which would be a sharp increase from the five-year average of 190,000 metric tons and just the fifth time Indian exports exceeded 2.0 MMT. If realized, Indian exports would still account for less than 2 percent of total world wheat trade.

USDA expects 2012/13 world wheat production and total supplies including China and India to be 1 percent and 5 percent greater than the five-year average, respectively.