OVERVIEW FOR 2019/20

Global production is marginally lower with a smaller crop for Morocco. Global trade is raised slightly with stronger demand from China and Turkey. Higher exports for the European Union, Kazakhstan, and the United States more than offset lower shipments from Canada. The projected U.S. season-average farm price is unchanged at $4.55 per bushel.

WHEAT PRICES

Domestic: Prices for U.S. wheat classes were mixed during the month of January. Hard Red Winter (HRW) dropped $7/ton to $230. Soft Red Winter (SRW) gained $1/ton to $252 as supplies of that class remain tight. Both classes showed notable declines toward the end of the month based on favourable rains for 2020/21 wheat as well as on concerns of slowing exports. Soft White Winter (SWW) gained $8/ton to $241 on firm export demand. Hard Red Spring (HRS) dropped $19/ton to $259 likely pressured by easing logistical constraints in the Pacific Northwest.

Global: Exporter prices showed mixed direction during the month of January. Argentina’s price skyrocketed with a rapid pace of shipments. Local supplies are tightening as exporters marketed a large portion of the crop in advance, anticipating a higher export tax. Russia’s prices rose as supplies there have become seasonally tighter. EU prices were steady during the month. U.S. HRW weakened slightly, improving its competitiveness with the European Union and Russia. Canada’s prices dropped but remain elevated based on lingering transportation backlogs. Australia’s prices eased slightly but are still uncompetitive based on tight supplies.

Month Ending Prices for Major Wheat Exporters

Month Ending

Argentina

Australia

Russia

EU

US

Canada

November

$197

$265

$208

$208

$223

$238

December

$208

$286

$218

$217

$237

$266

January

$240

$282

$228

$217

$230

$253

Source: IGC

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

Shift in Market Dynamics in Southeast Asia’s Wheat Demand

As the population grows and per capita incomes rise in Southeast Asia, consumer tastes and preferences have shifted to include more meat and wheat-based products in their diet. However, the region’s tropical climate limits wheat production, requiring imports to fill increasing wheat demand for both food and feed uses. Since 2013/14, Southeast Asia’s total wheat imports have increased by over 60 percent to 26.7 million tons in 2018/19 and are forecast at 27.5 million tons for 2019/20. Indonesia and the Philippines are the world’s second- and third-leading wheat importers (after Egypt), accounting for approximately two-thirds of the region’s wheat imports.

Trade: A Shift in Suppliers

The main suppliers to Southeast Asia are the United States, Ukraine, and Australia, followed by Canada and Russia. Typically, Australia is the main supplier due to its proximity, supplying nearly 40 percent of the wheat in 2016/17. However, 3 consecutive years of drought have resulted in low supplies and high prices allowing competitors to gain market share.

Indonesia has historically been Australia’s largest market until 2018/19 when shipments fell by over 60 percent from the prior year. Despite the free trade agreement signed in March 2019, this price sensitive economy shifted its supplier from Australia as wheat quality in Ukraine and Russia has improved while remaining price competitive. Similarly, Vietnam’s free trade agreement with Australia also created a preference for Australian wheat which once accounted for over 70 percent of Vietnam’s total imports; however, with competitive pricing, Russia now dominates the market despite phytosanitary concerns that temporarily halted its shipments.

Food: A Shift from Rice to Wheat

While rice is still the staple, demand for wheat-based products, such as noodles, pasta, bread, and pastries, has been growing in the region. Noodles are the primary wheat-based product consumed in Southeast Asia, except in the Philippines, the only country in the region where more bread is consumed than noodles. The Philippines purchases nearly all of its wheat for food consumption from the United States as millers have a preference for the high quality that ensures consistency in final products. This has made the country the top importer of U.S. wheat in the region (and second globally). Millers in Thailand also prefer high-quality wheat for baked goods, importing supplies from both the United States and Australia. Noodles make up approximately 70 percent of Indonesia’s wheat for food use, while baked goods account for just 20 percent, and the remaining 10 percent is used for making biscuits.

Feed: A Shift from Corn to Wheat

Indonesia, the Philippines, Vietnam, and Thailand account for nearly all of Southeast Asia’s commercial feed production. Corn is the preferred feed ingredient with significant domestic production making it ideal and cost effective. However, in the last decade, plant disease, weather conditions, price, and policy issues have encouraged the industry to incorporate imported wheat as an important feed ingredient. This is particularly true for the Philippines where imports of feed wheat nearly tripled in the last decade as it is no longer just a feed substitute. High corn prices in the Philippines and Indonesia initially drove feed mills to substitute wheat into feed rations. Furthermore, a policy restriction on corn imports has pushed the Indonesian feed millers to rely on imported wheat feed to fulfill demand. On the other hand, Thailand’s January 2017 import restrictions continue to require importers to purchase domestic corn prior to importing feed wheat at a 3-to-1 absorption ratio. Wheat feed use in both Thailand and Vietnam peaked in 2016 but has since declined. Exporter uncertainty due to animal disease outbreaks, coupled with increased quarantine measures in Vietnam, has reduced their imports for feed wheat.

Demand Remains Strong

Internal challenges, such as policy restrictions, increased quarantine measures, and changes in consumer preferences, along with external challenges, such as weather, diseases, and logistics, all play a role in the region’s dynamic wheat trade. Despite these challenges, overall wheat demand in the region remains strong.