OVERVIEW FOR 2019/20

Global production is up slightly as larger crops for the European Union and Russia more than offset reductions for Argentina and Australia. Global trade is raised slightly with stronger demand from Turkey. Higher exports for the European Union, Russia, and Ukraine more than offset smaller projected shipments for Argentina and Australia. The projected U.S. season-average farm price is lowered $0.10 per bushel to $4.60.

WHEAT PRICES

Prices for most classes of U.S. wheat rose during the month of October as harvest pressure abated. Rising corn and soy prices provided further support. Hard Red Winter (HRW) and Soft Red Winter (SRW) gained $6/ton and $9/ton respectively to $215 and $226. Soft White Winter (SWW) gained $3/ton to $231. On the other hand, Hard Red Spring (HRS) eased $5/ton to $272 but remains elevated partly due to lingering impacts of a multi-week, maintenance-related closure of part of the Pacific Northwest lock and dam system.

Global: Overall, exporter prices were mixed during the month of October. EU, Black Sea, and U.S. prices recovered from early season harvest pressure, supported by strong international demand. Black Sea prices were further underpinned by a slow pace of farmer selling in Russia. Canada’s prices eased with harvest pressure but remain somewhat elevated based on weatherrelated delays. Australia prices were relatively unchanged but remain uncompetitive in light of a smaller crop. Conversely, Argentina’s prices plummeted as it approaches the bulk of its harvest.

Month Ending Prices for Major Wheat Exporters

Month Ending

Argentina

Australia

Black Sea

EU

US

Canada

October

$196

$265

$210

$201

$215

$247

September

$228

$265

$190

$188

$209

$252

August

$229

$250

$188

$184

$196

$211

Source: IGC
*Note on FOB prices: Argentina- 12.0%, up river; Australia- average of APW; Fremantle, Newcastle, and Port Adelaide; Black Seamilling; EU- France grade 1, Rouen; US- HRW 11.5% Gulf; Canada- CWRS (13.5%), St. Lawrence

U.S. Wheat Exports Off to a Faster Start Than Last Year

U.S. exports are off to a faster start than the previous year based on improved competitiveness with other international suppliers. Last year, Russia’s exports got off to a booming start, which left U.S. wheat struggling to reach beyond its core markets. This year, on the other hand, U.S. wheat has been relatively price competitive in the early months of the June/May marketing year. As a result, U.S. total commitments (the sum of accumulated exports and outstanding sales) are up 11 percent from the same point last year.

Growing global demand and relatively tight competitor supplies are major factors influencing U.S. competitiveness this year. Russia’s prices are less competitive this year based on lower total supplies. Even though its crop is larger, Russia’s carryin supplies are much tighter than a year ago and farmer selling is reported to be relatively slow. Tight nearby supplies in Argentina and Australia also contributed to the competitiveness of U.S. exports. The pace of U.S. shipments could be even faster if not for the robust exports of the European Union and Ukraine.

It is worth noting, however, that U.S. exports did recover in the latter half of 2018/19 with improved price competitiveness as Russia’s supplies began to tighten. This year, however, U.S. wheat exports are not expected to see such a strong finish because Russia’s shipments are likely to be more sustained throughout the year. Additionally, Argentina’s exports are likely to surge in the coming months as it harvests what is still expected to be a record crop. The opening of Brazil’s 750,000-ton Tariff-Rate-Quota (TRQ) for non-Mercosur wheat is a bullish factor for U.S. wheat exports, but Canada and Russia are likely to capture a share of that business.

Kazakhstan’s Wheat Exports Projected at Lowest Level in More Than a Decade

Kazakhstan is typically the world’s eighth-largest exporter of wheat and wheat products, averaging over 7 million tons annually, mainly to its southern neighboring countries. Although generally lower yielding, the soft/semi-hard spring wheat produced is desired for its high protein levels and gluten content. It is ideal for making flatbread. Exports of durum, mainly shipped to Italy, Russia, and Turkey, represent less than 10 percent of Kazakhstan’s total wheat exports. Milling is also a large part of the Kazakh market as about half of the flour milled is exported.

Uzbekistan is Kazakhstan’s largest market, accounting for nearly a third of its total wheat and wheat product exports. Afghanistan is Kazakhstan’s second largest market overall and represents more than half of its flour exports. Tajikistan is a growing market for Kazakh wheat grain exports. To the east, China’s highly populous, developing economy has also become a major growth market for Kazakh wheat.

Despite its presence as a major global exporter, Kazakhstan faces many obstacles, such as logistics, tariffs, and competition. As a landlocked country, shipping to non-contiguous countries such as Tajikistan and Afghanistan proves challenging as it must be transported via rail through Uzbekistan, facing duties in both the transit country and the importing country. Similarly, shipments to Europe must transit through Russia. Furthermore, Uzbekistan has been growing its milling industry with the ability to produce flour at a fraction of the cost, rendering Kazakh flour less competitive in the region. The industry also faces TRQs and nontariff barriers, particularly in exporting to China.

Over the last several years, Kazakhstan’s wheat area has trended lower as producers have diversified into other crops. This year specifically, weather has been an obstacle to Kazakhstan’s production and exports. Severe drought and late-season rain have negatively affected the harvest. Hence, Kazakhstan is projected to slip to be the world’s ninth leading wheat exporter this year, falling behind Turkey for the first time in more than 20 years. At 5.2 million tons, Kazakhstan’s projected exports (July/June basis) are the lowest since 2005/06.