US Set to Outpace Russia as World’s Top Wheat Supplier

The US Department of Agriculture (USDA), in its February 2017 Grain Outlook, has cut its forecast for Russian wheat exports in the 2016/17 crop season for a second time, by 500,000 tons to 28.5 million metric tons (MMT), as reported by Bloomberg on February 10th, 2017. USDA has cut Russia’s wheat export forecasts based on the slower-than-anticipated pace of trade. Russia was the world’s largest wheat exporter in the 2015/16 crop season. With the ruble strengthening to the highest since mid-2015 and currencies slumping in the biggest buyers of Russian wheat, Egypt and Turkey, added to the cost of imports. Russia surpassed the US in terms of wheat exports for the first time in the 2015/16 crop season, after the devaluation of the ruble and a record crop boosted exports.

On the other hand, the USDA raised its forecast for US wheat exports in the 2016/17 crop season by 5.8%, or 1.5 MMT, to 27.5 MMT, based on the brisk pace of sales and shipments.

According to the USDA, Russia had exported about 60% of the expected total by early February 2017, compared with 80% achieved by Ukraine. The current predictions, which are for the season ending in June 2017 (2016/17 crop season), represent a 12% increase in Russian shipments compared to the last season and a 26% gain from the US.

Among the other major wheat exporting nations, Argentina’s exports are forecast to increase 500,000 tons to 9.5 MMT on a faster pace of shipments. Kazakhstan’s exports are forecast to decline 1.0 MMT to 7.5 MMT on tighter exportable supplies. Ukraine’s wheat exports are forecast to rise 800,000 tons to 16.5 MMT based on lower domestic use and strong demand from the Asian markets.

Wheat prices rally in January 2017

For the 2016/17 crop season, the USDA has forecast US wheat production at 62.9 million metric tons (MMT) and global production at 748.2 MMT. This is higher than the US wheat production of 56.1 MMT and global wheat production at 735.6 MMT in the 2015/16 crop season.

On the other hand, US wheat consumption is forecast at 33.9 MMT and global wheat consumption at 735.9 MMT. This is higher than the US wheat consumption of 32.0 MMT and global wheat consumption at 709.6 MMT in the 2015/16 crop season.

For the 2016/17 crop season, the USDA has forecast US wheat exports at 27.5 MMT and global exports at 178.3 MMT. This is higher than the US wheat exports of 21.9 MMT and global wheat exports at 172.1 MMT in the 2015/16 crop season.

On the other hand, US wheat imports are forecast at 3.4 MMT and global wheat imports at 175.6 MMT. This is higher than the US wheat imports of 3.1 MMT and global wheat imports at 168.7 MMT in the 2015/16 crop season.

The USDA also stated that global wheat production remains at a record, but is reduced in February 2017 due to lower production in India and Kazakhstan. Global wheat trade was boosted to a new record, with higher imports for China, Morocco, and Vietnam more than offsetting cuts for Ethiopia, the EU, and South Korea. Larger exports from Argentina, Ukraine, and the US are partially offset by reductions in Kazakhstan and Russia. The US season-average farm price is raised $0.05 to $3.85 per bushel.

In the domestic market, USDA stated that prices for most wheat classes were up during January 2017, underpinned by 2017/18 US crop prospects as well as a weakening dollar. On January 12th, 2017, USDA released its Winter Wheat and Canola Seedings report, which estimated US winter wheat area to be the lowest in over 100 years. Hard Red Winter (HRW) was up $11/ton to $202, while Soft Red Winter (SRW) gained $10/ton to $184. Soft White Winter (SWW) surged $33/ton to $220, while Hard Red Spring (HRS) jumped $29/ton to $284, both supported by adverse weather conditions which slowed deliveries to Pacific Northwest ports. Furthermore, the growing gap between HRS and most other wheat classes is indicative of tight supplies of high-protein wheat in the global market.

Southeast Asian imports rising

According to the USDA, Southeast Asian wheat imports have more than doubled over the past decade, mainly due to a shift towards more wheat-based diet products. Furthermore, feed and residual use in the region has more than doubled due to rapidly rising demand from the livestock, poultry, and aquaculture sectors. While food use is expected to rise, the growth of feed and residual use for the region is forecast to slow in 2016/17.

Indonesia and Thailand are forecast to import less feed-quality wheat than the previous season due to policy restrictions on feed wheat imports in both countries. Also contributing to Thailand’s reduced use of wheat is higher rice feeding from non-food-grade rice stocks. However, lower imports for Indonesia and Thailand are offset by surging imports for Vietnam, where demand for feed grains continues to rise.

Among the major importers, China’s imports is predicted to rise 500,000 tons to 4.0 MMT as high-quality wheat is in strong demand for blending with the lower-quality domestic crop. On the other hand, imports from the EU are forecast to fall by 500,000 tons to 6.0 MMT on the slow pace of trade.

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