OVERVIEW FOR 2019/20

Global production is virtually unchanged, while global consumption is lowered mainly on reduced food, seed, and industrial (FSI) use in India as well as decreased feed and residual use in China and the European Union. Global trade is slightly lower with smaller imports for Japan, Brazil, and Uzbekistan. Higher exports for the European Union are expected to offset reduced shipments from Russia. U.S. exports are lowered slightly, and the projected U.S. season-average farm price is raised $0.05 per bushel to $4.60.

WHEAT PRICES

Prices for most U.S. wheat classes were up during the month of March, supported by strong domestic demand and large Hard Red Winter (HRW) sales to China. With the continued spread of COVID-19, consumers stocked up on wheat products, providing a boost to nearby wheat prices. HRW soared $18/ton to $240. Soft Red Winter (SRW) jumped $10/ton to $249 as supplies remain extremely tight. By the end of the month, HRW and SRW prices had eased back slightly from the highs reached several days earlier. Hard Red Spring (HRS) increased $6/ton to $262. On the other hand, Soft White Winter (SWW) declined $1/ton to $232, pressured by a weakening pace of export sales.

Global: All major exporter prices rose during the month of March, underpinned by rumors of potential market scarcity. Discussions surrounding potential export restrictions and stockpiling by importers supported prices. Russia’s prices jumped based on tightening domestic availability and expectations of upcoming export restrictions; however, gains were capped by a weakening ruble. EU prices spiked even further with strong demand continuing. U.S. HRW skyrocketed, diminishing its competitiveness with Russia and the EU. Canada’s prices increased only slightly, now reaching parity with HRW after holding a premium for several months. Canada’s transportation bottlenecks are starting to lessen which could encourage a stronger pace of shipments in subsequent months. Argentina and Australia saw their prices rise even further with seasonally tightening supplies.

Month Ending Prices for Major Wheat Exporters

Month Ending

Argentina

Australia

Russia

EU

US

Canada

January

$240

$282

$228

$217

$230

$248

February

$245

$266

$214

$209

$222

$238

March

$248

$277

$224

$223

$240

$240

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

Record Global Supplies for Wheat and Rice

In the wake of COVID-19, concerns have emerged over food security. Some countries have placed trade-restrictive measures, while others have issued tenders for more purchases. Consequently, prices have rallied for both wheat and rice, even though global supplies are at record levels and the share of stocks to consumption is historically high.

Wheat:Global wheat production is estimated at a record high in 2019/20. Major producers such as China, the European Union, India, Russia, and the United States have produced at levels that are more than sufficient to meet rising global demand. Furthermore, wheat harvests in major producing countries in the Northern Hemisphere are only a few months away.

Wheat ending stocks are also projected at a record with China holding about half of global stocks. Furthermore, India, the world’s third-largest producer, has ending stocks projected at a 7-year high on several consecutive years of bumper crops. The top eight global wheat exporters hold about 20 percent of global stocks. Although these exporter ending stocks are projected to tighten in 2019/20, they are at sufficient levels to support forecast trade.

Rice:Although several regions’ production levels are down year-over-year, a bumper 2019/20 global rice harvest is still expected, with production just around half a percent lower from the prior year record. Southeast Asian production is down on the effects of drought in the region, particularly in Thailand and Vietnam. China’s production was down slightly, but the government has been encouraging the early planting of rice for the 2020/21 crop. Western Hemisphere production is lower primarily due to the reduced U.S. crop last summer. Partially offsetting these declines is a larger crop in India, the second-largest producer.

Even with lower production, overall supplies are up from the prior year because of record carrying stocks. Stocks are particularly high in China and India, both major exporters. Despite the current tumultuous market and some production declines in Southeast Asia, 2019/20 ending stocks are still forecast 3 percent higher than 2018/19 ending stocks.

Although some trade-restrictive measures have been put in place, global wheat and rice supplies are at record levels and are large enough to meet global demand.

Impacts of COVID-19 Export Restrictions on Wheat Trade

As concerns grow for the global pandemic, COVID-19, food security and supplies of staple food grains have become a global focus. Despite sufficient global supplies and the upcoming harvest season (discussed on the cover), several key exporters have put in place various forms of trade restrictions in order to increase domestic food security. In particular, Russia, Ukraine, and Kazakhstan have each imposed export restrictions for wheat (among other commodities) for the months of April to June 2020, creating near-term regional and global supply concerns.

Export Restrictions:

Russia has an export quota that limits its total grain exports to countries outside of the Eurasian Economic Union (EAEU) to a total of 7 million tons for wheat, corn, barley, and rye through June 2020. Russia has exported over 28 million tons of wheat to date and is expected to export about 5 million tons during the quota period. With corn, barley, and rye exports projected at approximately 2 million tons during this period, total projected grain exports will not exceed the established quota.

Ukraine has established a wheat grain export quota for the current trade year of 20.2 million tons. To date, Ukraine has exported approximately 18 million tons of wheat. USDA’s forecast of 20.5 million tons, which includes wheat flour, leaves approximately 2.5 million tons for exports in the remaining 3 months of the year.

Kazakhstan had initially established an export ban on wheat flour but quickly cancelled the ban and imposed a monthly export quota. Beginning this month, Kazakhstan will allow a maximum monthly quota of 200,000 tons of wheat and 70,000 tons of wheat flour for export.

Despite these export restrictions, USDA’s forecasts for Ukraine and Kazakhstan remain unchanged due to faster-than-average pace of exports during the first 3 quarters of 2019/20 which are offset by slower-than-anticipated export volumes during the final quarter. Russia’s exports are lowered on slower pace over recent months and reduced trade anticipated in the fourth quarter. Conversely, EU wheat has become price competitive with ample supplies leading to a massive surge in exports to date. The European Union is expected to continue its higher-than-average exports in the final quarter, on par with Russia as the top global wheat exporter. Optimism for the end of its 3-year drought has another major supplier, Australia, dipping into its stocks with greater-than-anticipated exports.

Impacts on Major Import Markets

Russia and Ukraine are major exporters to price-sensitive markets such as Indonesia, Egypt, Bangladesh, and Turkey, which are easily able to shift to other suppliers. Indonesia, the world’s second-largest importer, has diversified its suppliers and can easily shift imports to a variety of other exporters such as Australia, which was historically its largest supplier. Egypt, the largest wheat importer globally, sources most of its supplies from Russia and Ukraine, but also imports from the European Union when prices are competitive. Similarly, Bangladesh imports mostly from Russia and Ukraine but also sources from a variety of other exporters, such as the United States and Canada. Turkey is also a major importer of Russian wheat. Its exuberant import pace during the first 3 quarters has boosted its stocks and fueled its flour exports.

As a landlocked country, Kazakhstan has become a major supplier to the region, particularly to Uzbekistan, Afghanistan, and Tajikistan, which rely heavily on Kazakh wheat and wheat flour. With Kazakhstan’s monthly export volume restricted to 200,000 tons in wheat (grain) and 70,000 tons in flour, these markets could face a potential shortage and will have to look to nearby suppliers such as Turkey for flour and the European Union for wheat. Imports for Uzbekistan and Tajikistan are revised down on slower pace to date and potential trade restrictions imposed by Kazakhstan.

Regulations Evolving:

Amidst the rapidly evolving global situation, COVID-19 has created a global concern for domestic food security and pricing surges. However, current global supplies of wheat and wheat products are more than ample with larger, competitively priced EU shipments offsetting Russia’s reduced exports.

Turkey’s Wheat Imports Skyrocketing Amid Growing Demand, Smaller Crop

Turkey’s wheat imports are projected to surge by more than 60 percent in 2019/20 to a record 10.5 million tons. More than 75 percent of this projection is already accounted for by trade data complete for June-February. Robust imports are driven by stronger consumption, tighter domestic supplies, and changes in government policy.

In recent years, demand in Turkey has trended higher with the presence of a large number of Syrian refugees who are highly reliant on basic staples such as bread. Furthermore, with negative GDP growth recently (pre-COVID) and purchasing power reduced, consumption of staples such as bread and pasta is rising. Coupled with lower domestic production, that growth in demand created a surge in imports.

Turkey is also a major exporter of flour and pasta with export demand record-large this year. Its Inward Processing Regime (IPR) allows for the importation of wheat duty-free if it is to be processed and re-exported. With import policies guided by downstream export demand, it is typical for Turkey’s imports to mirror its exports, in terms of total wheat-equivalent volume. For 2019/20, however, Turkey’s imports are expected to greatly exceed exports because of active purchasing by Turkey’s grain board (known as TMO). TMO reduced its domestic procurement when market prices rose due to a smaller crop and the depreciation of the Turkish lira. To contain prices, TMO has imported several million tons of wheat duty-free. Even with stronger domestic use and exports, Turkey is still expected to maintain an elevated level of stocks this year due to the aggressive pace of TMO’s imports.