Falling values for the ruble, Euro, and other currencies will give them an edge over American grain in 2015.
From a grain marketer’s standpoint, there are a lot of messy political and economic things happening in the European Union, Russia, and Ukraine.
Unfortunately for American wheat farmers, though, that probably won’t translate into greater exports in 2015. “We’re really not in a good spot to take advantage of this logistically,” said Cordon Sroka, a wheat analyst who presented Allendale’s wheat outlook during the McHenry, Ill.-based firm’s annual Ag Leaders Conference.
Or financially, given the U.S. dollar’s current strength. “What we’ve seen here is that as the Russian ruble has dropped in price, it is making a lot of exporters look to Russia to get very inexpensive wheat,” Sroka said. “We are seeing the same thing happen with Ukraine.”
Such effects will soon spread to the Eurozone as well, given the European Central Bank’s recent decision to stimulate the European economy. “Quantitative easing is going to have a major effect on their currency,” Sroka said. “With a less expensive euro, European wheat is going to look a lot more lucrative on the world market.”
That's too bad, given the importance of exports to the sector. Exports represent 45 percent of the demand for U.S. wheat, as the chart above shows.
In terms of world wheat supply and demand, Sroka did highlight a few wild cards:
- India, which is the second largest producer of wheat in the world. “The reason they don’t show up as a major exporter is because of their population,”Sroka explained. “They are also the largest consumer of wheat in the world.” However, the country also currently has a stockpile of wheat that is three times larger than required by its government; should India decide to release some of that wheat, it could affect prices and supply.
- China, which is the largest single-country producer of wheat in the world and a major consumer of the grain. “You always have to keep track of what is going on in China,” Sroka said.
Turning back to the U.S., he highlighted the surprise of the January USDA reports, which noted that farmers planted 2 million acres less than expected. “That was a little bit of a shock to the market,” he said. “We just didn’t plant as much as the trade was anticipating.”
Will that mean less U.S. wheat later this year? Sroka sounded doubtful. With winter wheat, “the increased yield [from better conditions] will make up some of those lost acres,” he predicted.
So might spring planting decisions. “With lower corn prices on the table right now and a little higher spring wheat price, we have to anticipate that with cheaper inputs, wheat may look like the more lucrative crop right now,” Sroka said.
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