OVERVIEW FOR 2019/20

Global production is marginally higher as upward revisions for Argentina and India more than offset reductions for Australia and Turkey. Global trade is raised slightly with much larger imports for Turkey. Higher exports for Argentina and Russia more than offset lower projected shipments from Canada and Australia. The projected U.S. season-average farm price is unchanged at $4.55 per bushel.

WHEAT PRICES

Prices for all U.S. wheat classes were down during the month of February, pressured by competitor prices and losses in other markets related to the widening spread of COVID-19. Hard Red Winter (HRW) dropped $8/ton to $222 and Soft Red Winter (SRW) fell $13/ton to $239. Soft White Winter (SWW) lost $8/ton to $233 and Hard Red Spring (HRS) eased $3/ton to $256.

Global: Exporter prices generally trended lower during the month of February, following other markets lower on rising concerns related to the spread of COVID-19. Russia’s prices dropped significantly on favorable new-crop growing conditions. EU prices also trended lower. U.S. HRW weakened slightly but still maintains a premium to EU and Russia. Canada and Australia both saw prices ease in the last month but are still relatively expensive. On the other hand, Argentina’s price increased even further with tightening domestic supplies amid a frenetic pace of exports.

Month Ending Prices for Major Wheat Exporters

Month Ending

Argentina

Australia

Russia

EU

US

Canada

December

$208

$286

$218

$217

$237

$263

January

$240

$282

$228

$217

$230

$248

February

$245

$266

$214

$209

$222

$238

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%), Vancouver

Argentina Exports Soar to Start New Marketing Year

Argentina’s exports are off to a blazing start in the 2019/20 marketing year. Typically, Argentina’s largest export months are December through March; the pace this year is even faster than normal with exports totaling more than 6 million tons, a record for December and January combined. Exporters were motivated to move wheat quickly based on expectations of looming policy changes. In December, Argentina’s newly elected government raised the export tax for wheat from approximately 7 percent to 12 percent. Before the crop was harvested, however, exporters had already aggressively sold much of the projected exportable supplies, anticipating the higher tax rate. Once the sales were made and the supplies procured from producers, the export tax was fixed in advance of shipping the product. With such a large supply sold in advance, shipments surged once the supplies became available.

Given that nearly all of Argentina’s 2019/20 wheat shipments had already been committed before the December tax increase, that action is expected to have little effect on 2019/20 exports. Early indications are that February shipments are back to seasonally normal levels. Over the next few months, exports seem likely to wane seasonally.

Argentina exports wheat to a variety of markets. Brazil is a year-round destination for Argentina, buying consistently to fulfill its needs. The United States and other suppliers may make some inroads into Brazil with the newly applied 750,000-ton tariff-rate quota in place, but Argentina is set to continue as the dominant supplier. In peak export months, Argentine wheat is competitive enough to reach a variety of other markets in Africa and Asia. Recently, Argentine exports to Southeast Asia (particularly Indonesia, Thailand, and Bangladesh) have flourished in light of tight Australian supplies.

Russia: Third Year as Leading Wheat Exporter

For the third year in a row, Russia remains the leading global wheat exporter. With 3 consecutive bumper crops, Russia continues to export large volumes and is now seeking new market opportunities. Favorable weather, combined with improved production technology, has improved yields and quality. With larger supplies, Russia has become increasingly competitive, gaining market share in price-sensitive importing countries.

Demand for Russian wheat is strong in price-sensitive markets. Currently, Egypt is the largest global importer, sourcing much of its demand from Russia. Russia typically dominates Turkey’s market, supplying more than two-thirds of its imports. Furthermore, a recent surge in Turkey’s imports has benefitted Russia’s exports. Turkey’s domestic grain board (TMO) has been authorized to import additional quantities of wheat duty-free in order to stabilize domestic prices. Egypt and Turkey together account for over one-third of Russia’s exports due to price competitiveness and logistics.

Distant, price-sensitive markets are also responding to Russia’s competitive pricing, causing a surge in shipments to markets such as Bangladesh, Nigeria, and Indonesia. Increased demand for feed-quality wheat in the Philippines has also created a spike in its overall wheat imports, with Russia as a major supplier.

In addition, improving quality and large supplies have led Russia to seek additional market opportunities, such as quality-sensitive markets where it had previously been limited. For example, Russia has gained access to Algeria and Brazil and aims to enter the Iraqi market in the near future. Improvements in Russian wheat quality have also stimulated recent discussions with the Philippines, a market that has generally purchased most of its milling wheat from the United States.

As it expands its scope and seeks new market opportunities, Russia is expected to remain a formidable export competitor.