OVERVIEW FOR 2020/21

Global production remains a record, but is lowered this month with reduced production in the European Union, Morocco, Russia, and the United States. Global consumption is lowered mainly on reduced feed and residual use in the European Union. Global trade is also down as reduced shipments from the European Union more than offset higher exports for Australia. U.S. exports are unchanged with the projected U.S. season-average farm price also unchanged at $4.60 per bushel.

OVERVIEW FOR 2019/20

Global production is virtually unchanged this month, while global consumption is lowered with reduced feed and residual use in the United States and the European Union. Global trade is up with slightly larger imports for China, the European Union, and Turkey. Exports are raised for the European Union, Russia, and Canada. U.S. exports are unchanged and the estimated U.S. season-average farm price is lowered $0.02 per bushel to $4.58 per bushel.

WHEAT PRICES

Domestic: Prices for all U.S. wheat classes trended lower following the release of the June WASDE based on expectations of a larger global wheat crop and generally favorable conditions as the U.S. winter wheat harvest advances. Wheat prices found some support toward the end of the month based on the NASS Acreage report, which indicated smaller-than-anticipated plantings of key crops including spring wheat, corn, and soy. Prices continued to rise in recent days with reports of diminished production outlooks in the European Union and Russia. Hard Red Winter (HRW) is now at $227/ton, while Soft Red Winter (SRW) sits at $219, Soft White Winter (SWW) at $227, and Hard Red Spring at $244/ton.

Global: Prices for most major exporting countries fell during the month of June, mainly influenced by seasonal harvest pressure with global wheat supplies expected to be record-large. Russia was pressured lower as harvest approaches with relatively favorable conditions to date. EU prices declined, despite some lingering concerns over dryness in some Member States. Canada’s prices also declined on seasonal pressure and expectations for a large crop. U.S. prices moved lower as well with the U.S. winter wheat harvest now more than halfway complete, but losses were limited by market reactions to the NASS Acreage report. Australian prices plummeted as quotes now reference new-crop prices, which reflect expectations of a much larger crop. On the other hand, Argentina edged higher on seasonally tightening supplies. Prices rebounded in recent days with expectations of smaller crops in the European Union and Russia.

Month Ending Prices for Major Wheat Exporters

Month Ending

Argentina

Australia

Russia

EU

US

Canada

April

$238

$288

$227

$220

$232

$230

May

$240

$278

$220

$221

$226

$238

June

$241

$225

$198

$208

$218

$228

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

Philippine Imports of Milling Wheat Surge While Duties Implemented on Turkish Flour

The Philippines is currently the world’s third largest wheat importer, with demand for wheat flour and milling wheat nearly doubling in the last decade. Its expanding population, coupled with increasing per capita income, has contributed to a surge in consumption of wheat-based products, mainly bread and noodles. The Philippines milling industry purchases nearly all of its milling wheat from the United States for its quality and consistency. While the Philippines imports the vast majority of its milling wheat in the form of wheat grain, it also imports flour (largely from Turkey), which competes directly with the domestic milling industry and indirectly with U.S. wheat.

Economic incentives created by Turkey’s Inward Processing Regime have enabled it to become one of the largest exporters of flour globally. In 2011/12, Turkish flour nearly doubled its exports to the Philippines, threatening not only the local milling industry but also U.S. wheat shipments. The surge in Turkish flour imports contributed to reduced U.S. wheat purchases in 2012/13 when shipments fell by nearly 20 percent. Imports of the competitively priced flour continued to grow until 2014/15 when the Philippines Tariff Commission placed anti-dumping duties on Turkish flour for 5 years, resulting in reduced Turkish flour imports year over year. In fact, Philippine imports of milling wheat, mainly supplied by the United States, saw substantial growth as consumption surged through the years.

In 2019, with the expiration of antidumping duties looming, the industry began filing a petition for an extension. In June 2020, the Philippines Tariff Commission agreed to review the request for a 5-year extension, with duties to remain in force pending the outcome of the review. Today, the Philippines is the second largest market for U.S. wheat. Without the extension, Turkish flour would likely re-enter the market and compete against the domestic milling industry, creating challenges for U.S. wheat exports once again.

Growing Opportunity for U.S. Wheat Exports to Brazil this Summer

Brazil’s recently opened and expanded tariff-rate quota (TRQ) coupled with a seasonal slowdown in Argentine shipments over the next few months will provide an opportunity for U.S. wheat exports to capture some of that market. In late 2019, Brazil opened its 750,000-ton duty-free TRQ for all non-Mercosur suppliers, which eliminated the 10 percent import duty within the quota. Non-Mercosur suppliers, such as the United States, are now in a more competitive position with Argentina. However, with abundant Argentine supplies resulting in record-large shipments during its peak months, December through March, there was little opportunity for U.S. wheat to capitalize on the TRQ availability. It is typical for Argentine shipments to slow in April based on tightening wheat supplies and competition with corn and soy for export capacity. In its peak export months, Argentina exports to a variety of markets, but primarily focuses on shipping to Brazil in the slower months.

Now that Argentina’s supplies have tightened and its prices are less competitive, Brazil is turning to outside sources and recently announced that an additional 450,000 tons will be permitted for duty-free import this year as domestic prices rise amid a weakening real. With the TRQ allocation now at a total of 1.2 million tons, U.S. wheat exports to Brazil are in a favorable position. While Canada and Russia will likely compete within the TRQ, the United States is expected be the greatest beneficiary based on a combination of competitive pricing, freight advantages, and historical relationships with buyers. As of week 5 of the new June/May marketing year, U.S. total commitments to Brazil are already the largest in 4 years. All of this year’s U.S. commitments to Brazil are HRW, which is likely to continue as the predominant class exported to this market in the coming months.