Friday, October 02, 2020

 

U.S. wheat growers hit sales jackpot in China

Increased exports are attributed to the trade agreement signed by the two countries, but Canada is unlikely to benefit from that development

The United States has been selling wheat to China like gangbusters in early 2020-21.

There is already 1.47 million tonnes on the books as of Sept. 10, a 2,357 percent increase over year-ago levels.

“China is definitely in the market,” said U.S. Wheat Associates (USW) spokesperson Steve Mercer.

“We have to chalk that up to Phase 1, there’s no doubt.”

In the Phase 1 trade deal with the U.S., China committed to buy an additional US$32 billion of U.S. agricultural products over 2017 baseline levels in 2020 and 2021.

It appears wheat will be one of the beneficiaries of that deal.

This year’s purchases between June 1 and Sept. 10 are already approaching full-year levels in the pre-trade war era when China bought 1.6 million tonnes of U.S. wheat in 2016-17.

China has rapidly become the second biggest buyer of U.S. wheat so far this marketing year after barely buying any last year.

Sales include 921,000 tonnes of hard red winter wheat and 380,000 tonnes of hard red spring wheat.

Mercer said there is no doubt that Chinese millers are in need of high quality wheat. If it was up to them imports would be even higher but the government is in control of the wheat trade.

Bruce Burnett, analyst with MarketsFarm, said Canadian growers are unlikely to benefit from the re-emergence of China as a big buyer of U.S. wheat.

If the U.S. had tight supplies of spring wheat Canada could fill the void left by U.S. wheat flowing to China, but the U.S. Department of Agriculture estimates 7.6 million tonnes of U.S. hard red spring wheat was carried out from 2019-20, which is well above the previous five-year average.

And this year’s crop was of good quality, so U.S. millers have plenty of supply.

Canadian wheat sales to the U.S. have been down in recent years. Exports that were as high as four million tonnes per year in the last decade fell to two million tonnes last year.

That could change if China buys copious amounts of high quality U.S. wheat, but Burnett said China doesn’t need wheat as badly as it needs U.S. corn and soybeans.

China is expected to end 2020-21 with 164 million tonnes or 51 percent of world wheat stocks.

He believes the only reason China is buying wheat is to help meet its Phase 1 commitments and to refresh its stockpile.

“If you’re carrying those massive stocks, you do have to rotate them,” said Burnett.

The newly imported wheat will likely replace supplies that were imported a few years ago and that older grain will be injected into the Chinese market.

Burnett is reticent to guess how much U.S. wheat China will import by the end of the year because the purchases are tied to the Phase 1 agreement, which has been a volatile pact.

“A lot of it will depend on the whims of politics,” he said.

The U.S. recently won two World Trade Organization disputes regarding China’s wheat import policies.

China has agreed to work toward filling its 9.6 million tonne tariff rate quota (TRQ) for wheat imports.

USW believes Chinese millers would fill most of that TRQ if they were allowed to properly respond to market signals.

No comments: