Competitive Pricing Suggests Rebound in EU Wheat Exports
EU wheat exports are beginning to improve after sputtering for much of the first half of 2018/19. During July-December 2018, EU exports struggled to contend with the record pace of Russian exports. EU wheat prices normally trade at a premium to Russian prices, especially during the last 2 years as Russia’s supplies have been extraordinarily large. However, in recent months, Russia’s supplies have tightened and its prices have become less competitive. EU wheat, on the other hand, has become cheaper and is now showing its largest price discount to Russian wheat since May 2016.
The price relationship between EU and Russian wheat has a major influence on the pace of EU exports. During the months when EU wheat is at a major price disadvantage to Russia, its monthly exports are often below 2.0 million tons. Conversely, when EU wheat prices are at parity or a discount to Russia, EU exports tend to be much larger. This occurred in the spring of 2016, when EU wheat was exported at a pace well over 3.0 million tons per month. The pace of EU exports is expected to rebound modestly in the coming months to meet USDA’s revised 2018/19 projection of 23.0 million tons.
With improved price competitiveness, EU wheat is now positioned to take a more prominent role in supplying wheat to major importing countries in Africa and the Middle East. Egypt, the world’s largest wheat buyer, has recently pivoted from primarily purchasing Russian wheat in its government tenders to sourcing mostly European wheat (especially French and Romanian), due to this price discount. EU wheat is also competitively priced for Sub-Saharan Africa markets such as Kenya and Nigeria after being relatively uncompetitive in those markets during the first half of the July/June trade year. Other major markets such as Algeria, Morocco, and Saudi Arabia are expected to continue as major buyers of EU wheat in the coming months.
OVERVIEW FOR 2018/19
Global wheat production is lower this month mainly on smaller crops in Iraq and Kazakhstan. Global consumption is reduced mainly in India. Global trade is nearly unchanged amid a plethora of offsetting changes to importers. Exports are raised for the European Union but lowered for the United States. The U.S. season-average farm price is unchanged at $5.15 per bushel.
WHEAT PRICES
US: Overall U.S. wheat prices were down during the month of February amidst continuing strong international competition. Hard Red Winter (HRW) fell $17/ton to $223, Soft Red Winter (SRW) declined $15/ton to $212 and Soft White Winter (SWW) lost $7/ton. On the other hand, Hard Red Spring (HRS) rose $4/ton to $258 on weather-related logistical delays in the northern United States.
Global: Global exporter quotes were mostly down in February on intense market competition and reports of good new-crop conditions in key Northern Hemisphere countries. Black Sea prices declined relatively less than other suppliers, improving the competitiveness for EU and U.S. wheat. Both the European Union and the United States are expected to have a stronger pace of exports in the coming months due to reduced Black Sea supplies and more competitive prices. Australia prices dropped the most during February but remain high relative to other major exporters.
Month Ending Prices for Major Wheat Exporters

Month Ending

Argentina

Australia

Black Sea

Canada

EU

US

February

$235

$283

$234

$253

$221

$223

January

$243

$313

$246

$265

$240

$240

December

$233

$313

$239

$250

$238

$231

Source: IGC
Note on FOB prices: Argentina - 12.0%, up river; Australia - average of APW; Fremantle, Newcastle, and Port Adelaide; Black Sea - milling; Canada - CWRS 13.5% St. Lawrence; EU - France grade 1, Rouen; US - HRW 11.5% Gulf
U.S. Wheat Price Competitiveness Improving
As Russia’s wheat supplies have dwindled, U.S. wheat has seen an improvement in competitiveness. For the first time in 5 years, U.S. HRW is maintaining a price discount to Russian wheat. In recent years, both Russia and the European Union have made significant inroads into Western Hemisphere markets, especially Mexico. However, considering the current price relationships and the logistical advantage which U.S. wheat holds, such competition will likely be minimal in the coming months.
With its improved pricing, U.S. wheat is also competing into more distant markets. U.S. wheat has regained market share to Egypt and Nigeria, following several years of lower exports to these markets amid ample Russian supplies. Total U.S. commitments (accumulated exports plus outstanding sales) to Egypt, if shipped, would represent the largest exports to that market in 6 years. Sales to Nigeria have also surged in recent months with the improvement in U.S. prices.
Strong Finish Needed to Reach U.S. Export Estimate
U.S. export sales have picked up significantly in recent weeks and total commitments are above last year at this time. The pace of sales and shipments will need to pick up in the coming months to reach USDA’s revised (June-May) marketing year forecast of 965 million bushels (26.3 million tons). The United States continues to have strong, steady demand from traditional buyers such as Japan, South Korea, and the Philippines. This, combined with unusually large sales to more competitive markets, improves the outlook for U.S. exports during the spring months.