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OVERVIEW

For 2017/18, record global production is little changed this month. Global trade, already at a record, is forecast up from last month. Imports are forecast up for Bangladesh, Kenya, Turkey, and Vietnam, more than offsetting cuts for India and South Korea. Higher exports for Argentina, Pakistan, Russia, and Ukraine more than offset lower forecasts for the European Union and the United States. The U.S. season-average farm price is raised $0.05 to $4.65 per bushel.

PRICES

Domestic: Overall, most U.S. wheat prices rose during February on concerns of drought conditions in Hard Red Winter (HRW) areas. These stronger prices make U.S. wheat less competitive globally in light of fierce export competition from Argentina and Russia. HRW jumped $15/ton to $255, while Soft Red Winter (SRW) surged $19/ton to $213. Soft White Wheat (SWW) gained $14/ton to $217.

Conversely, Hard Red Spring (HRS) remained unchanged at $278/ton, with a sharply lower premium over HRW. Contributing to the relative weakness of the HRS price is the expectation of more planted area of this class in 2018/19. The price spread between HRS and HRW has changed dramatically during the current year, after reaching more than $100/ton in July 2017 when drought in the Northern Plains severely impacted the HRS crop. As weather concerns have shifted from spring wheat areas to winter wheat areas, the price spread has narrowed considerably to only $23/ton.

Turkey and Kazakhstan Top Global Wheat Flour Exporters

Most of the world’s wheat trade is in the form of grain due to the greater perishability of flour as well as the desire to mill in-country and capture value-added benefits domestically. Some countries even have disproportionately higher tariffs on wheat flour to encourage wheat grain imports. Still, there are a few countries that import large volumes of wheat flour, often due to limited domestic milling capacity. Kazakhstan was the largest flour exporter for several years following the removal of EU wheat flour export subsidies. Turkey surpassed Kazakhstan in 2012/13 and has been the world leader ever since.

Kazakhstan’s largest markets are mainly in Central Asia – Afghanistan, Uzbekistan, and Tajikistan. Afghanistan, which accounts for most of these exports in the last 2 years, continues to import flour as its recently expanded milling capacity remains insufficient to meet demand. Kazakhstan has a well-established relationship with these markets, which together account for more than 90 percent of its flour exports.

Turkey, on the other hand, exports to a wider variety of markets. Turkey’s flour exports have become globally relevant due in part to its Inward Processing Regime (IPR). This policy improves the competitiveness of Turkish flour exports as high domestic wheat prices would otherwise make exporting economically difficult. Under the IPR, flour exporters are able to import wheat (for processing and re-export) without the 130-percent duty that would otherwise be assessed. Milling by-products such as bran are valuable in the domestic market, which further contributes to the profitability of flour exports. These exports have been challenged in the last few years by importing country policies. For example, the Philippines and Indonesia were once major flour markets for Turkey, but have since imposed duties to prevent economic harm to their domestic millers. As exports to those countries have declined, Turkey has expanded shipments to Iraq, Sudan, and Syria. Turkish wheat flour continues to find a home in growing markets where milling capacity is underdeveloped or where domestically-milled flour is higher in price. Turkey is expected to continue dominating global trade in wheat flour for the foreseeable future

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