OVERVIEW FOR 2019/20

Global production is nearly unchanged as larger crops in China and Russia mostly offset smaller crops in Australia, Argentina, and Canada. Global trade is raised slightly with stronger demand from Turkey and Syria. Higher exports for the European Union, Russia, Turkey, and the United States more than offset smaller projected shipments for Argentina and Australia. The projected U.S. season-average farm price is lowered $0.05 per bushel to $4.55.

WHEAT PRICES

Prices for U.S. wheat classes showed mixed direction during the month of November. Hard Red Winter (HRW) and Soft Red Winter (SRW) gained $8/ton and $19/ton, respectively, to $223 and $245, supported by adverse conditions for newly planted (2020/21) winter wheat, tight supplies of SRW, and outlooks for smaller crops in key competitor countries. On the other hand, Soft White Winter (SWW) fell slightly, $3/ton to $228. Hard Red Spring (HRS) eased $5/ton to $264 but retains a large premium over the other wheat classes. Easing transportation backlogs in the Pacific Northwest likely contributed to weakening FOB prices for both SWW and HRS.

Global: Overall, exporter prices were mixed during the month of November. EU and U.S. prices continue to recover as a result of stronger international demand and smaller crops in Argentina and Australia where prices remain relatively unchanged. Russia’s prices eased slightly, making that origin increasingly price competitive. Canada’s prices eased with harvest progression but remain somewhat elevated based on the lingering effects of harvest delays and rail service interruption.

Month Ending Prices for Major Wheat Exporters

Month Ending

Argentina

Australia

Russia

EU

US

Canada

November

$197

$265

$208

$208

$223

$238

October

$196

$265

$210

$201

$215

$247

September

$228

$265

$190

$188

$209

$252


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

Shifts in China’s Wheat Suppliers

In the late 1980s/early 1990s, China was a global leader for wheat imports, importing as much as 15.9 million tons in 1991/92. With the world’s largest population, China began promoting its domestic agricultural production in the 1990s to ensure domestic food security and reduce import dependency through subsidies and minimum support price systems. This has assisted in the growth of China’s wheat production year-over-year to meet rising domestic consumption while simultaneously reducing the need for imports. Today, China maintains its position as the world’s leading wheat producer at 133.6 million tons in 2019/20 and holds about half of the world’s wheat stocks.

In 2019/20, China wheat imports are forecast at 3.2 million tons, ranking it tenth among major import markets. The United States has held as much as 60 percent of the market (2013/14); however, its share of the China market fluctuates vastly year-to-year as it competes with Australia and Canada wheat supplies. In 2018/19, exports of U.S. wheat dwindled amidst U.S.- China trade tensions to a meager 1 percent of China’s imports. Australia exports have also diminished, though largely due to 3 years of drought. As a result, Canada’s 2018/19 market share has nearly doubled from the prior year; neighboring countries, such as Kazakhstan, have also witnessed significantly higher trade with China.

In 2001, China became a member of the World Trade Organization (WTO) which opened a wheat tariff-rate quota (TRQ) of 9.6 million tons. Fulfilling the TRQ would propel the country to become the world’s third-largest importer. However, China’s TRQ system created risks and uncertainty for traders and was ruled in violation of the WTO in April 2019. Despite relatively high domestic prices that, based solely on economics, should trigger greater imports, China consistently falls well below filling the TRQ. It remains to be seen how the WTO ruling will change China’s import dynamics.

By-Class Summaries: Hard Red Winter
Hard Red Winter (HRW) is the largest class of U.S. wheat with Kansas, Oklahoma, and Texas being the largest producing states. Representing about 40 percent of production and exports, HRW is used to make general-purpose flour for many products including bread, rolls, and flat breads. HRW is exported to numerous markets with Mexico typically the largest.

2019/20 HRW Exports Ahead of Last Year’s Pace
HRW exports so far have proceeded at a faster rate than last year’s slower-thanaverage pace. As of November 28, HRW total commitments are up 35 percent compared to last year and nearly on pace to hit the year-end projection of 10.6 million tons (390 million bushels). Commitments to Algeria, Mexico, and Nigeria are particularly strong this year.

Russian Competition to Persist
Last year, Russia exports were extremely front-loaded. With large carryin supplies and rumors of impending export bans, exporters chose to move their wheat quickly. Russia wheat supplies became tighter later in the marketing year and eventually commanded a price premium, providing an opportunity for U.S. wheat to make a comeback in the second half. This year, on the other hand, Russia’s supplies are tighter as smaller carryin more than offsets a larger crop. Initial farmer selling was reportedly slow, which provided some price support and held back exports. With more supply remaining late in the (July/June) marketing year, the country’s exports are likely to be more sustained, which will provide more direct competition for U.S. HRW. Unlike last year, Russian wheat prices will likely remain at a discount to U.S. prices for the remainder of the marketing year. Abundant EU and Argentina supplies will also be major headwinds for HRW exports in the coming months. In view of these dynamics, U.S. wheat exports got off to a stronger start this marketing year, but the pace of shipments in the second half is likely to be less robust than last year.

By-Class Summaries: Hard Red Spring
Hard Red Spring (HRS) is the second-largest class of U.S. wheat, typically accounting for about 25 percent of production. It is a high-protein, strong gluten wheat used in making rolls, bagels, and pizza crust. HRS is also used to improve protein content in flour blends. North Dakota is the leading producer of this class of wheat. HRS is sought after for its quality characteristics and generally commands a price premium over other classes. HRS is commonly exported to the Philippines, Japan, Taiwan, and several other markets across Asia and Latin America. Interestingly, HRS is also exported to the European Union, which allows for duty-free imports of this class. While it is a major competitor for U.S. exports, the European Union imports highprotein wheat because nearly all of its production is lower-protein winter wheat.

HRS Exports Nearly Unchanged from Last Year
U.S. HRS exports are expected to reach 7.1 million tons (260 million bushels), down marginally from last year. Total commitments of this class as of November 28 are down 9 percent from last year. HRS has struggled to remain price competitive in recent months based on wet harvest conditions and infrastructural challenges. Relative to last year, sales to Asian markets have been weaker, more than offsetting stronger demand from Africa and Latin America.

Despite Reduced Australian Exports, Competition Remains for Asian Demand
Historically, the primary competition for U.S. HRS exports to much of the Asia-Pacific region comes from Canada and Australia. However, Australia is being pummeled with its third straight year of drought; hence, its role in the region has been reduced, providing opportunities for U.S. and Canadian wheat to expand their share. However, competition is still fierce as Canada has had back-to-back bumper crops with exports forecast to reach 24.0 million tons, the secondhighest on record. Much of its exports are high-protein spring wheat, similar to U.S. HRS. In addition to filling in for Australia in Asia, Canada has become the biggest supplier to China, compensating for lower U.S. shipments.

Also emerging to replace Australia are Argentina and Russia. While Argentine wheat is not as high in protein as U.S. or Canadian supplies, its shipping season is similar to Australia which has made it a natural alternative and allowed for massive expansion to the region. In the last few years, Russia exports have reached more markets in the region with some noting improvements in its quality.

By-Class Summaries: Soft Red Winter
Soft Red Winter (SRW) is the third-largest class of U.S. wheat production, often accounting for 10-20 percent of the total wheat crop. Grown in the eastern half of the country, SRW is a highyielding variety used to produce cookies, crackers, cakes, and some bread products. This year, the SRW crop was affected by rain at harvest time that reduced the size and quality of the crop. This, combined with larger HRW wheat supplies, has resulted in SRW holding a rare price premium over HRW wheat.

SRW Exports Off to Faster Start but Expected to Slow
SRW exports are forecast at 2.7 million tons (100 million bushels), down 22 percent from last year. Similar to HRW, sustained international competition is likely to contribute to a bleaker second half for SRW exports. Sales of this class outside of Latin America will likely be minimal in the coming months. Total commitments, however, are actually up from a year ago.

By-Class Summaries: White
Primarily grown in Washington, Oregon, and Idaho, white wheat is the fourth-largest class of U.S. wheat production typically accounting for 10-15 percent of the total U.S. crop. There are a few types of white wheat, but the most common is a soft winter wheat used in Asian-style noodles and confectionary products. Roughly two-thirds of the white wheat crop is destined for export with the vast majority going to East and Southeast Asian markets. Key markets such as Japan and South Korea have a preference for a soft white blend known as Western White.

White Wheat Exports Forecast Down Slightly This Year
U.S. white wheat exports are forecast at 5.2 million tons (190 million bushels), down 3 percent from last year. Total commitments to date are down 14 percent from last year, mainly with slower shipments to Indonesia and Japan. Australia’s ASW class has historically been a direct competitor to U.S. white wheat exports to Asia. Ongoing drought in Australia should provide some support for white wheat exports, as does generally steady demand in most major markets. The recently announced trade U.S. trade agreement with Japan is likely to help retain the U.S. share of that core market by lowering the mark-up paid on U.S. wheat to the same level obtained by major competitors, Australia and Canada.