U.S. Snatches Market Share in Wheat as France, Canada Suffer

October 25, 2016 03:25 PM
wheat field

The U.S. will capture a higher share of the global wheat market this season as poor weather that’s hurt French and Canadian crops helps the second-largest exporter step up shipments from a 44-year low last season.

U.S. wheat exports are forecast to rebound 26 percent in the year that began June 1 to 26.5 million metric tons, according to U.S. Department of Agriculture data. The nation’s share of global wheat exports is also estimated to rise to 15 percent, the highest in three years, from 12 percent last season.

Growing U.S. stockpiles have helped push down prices and lure buyers. U.S. wheat futures in Chicago hit a decade low at the end of August and are now trading at about $4.02 a bushel.

U.S. Wheat Chart

Apart from increasing exports in its traditional markets in Latin America and Asia, the U.S. is expected to expand its footprint in North Africa, according to a USDA report dated Oct. 12. European Union wheat has lost market share in that region because of low output and quality problems.

The Philippines, Mexico, Japan and Brazil have been among the biggest buyers of U.S. wheat this year. Other countries that have also boosted purchases include Algeria and Indonesia.

Top Exporters

“The U.S. is in the strongest position to export quality wheat out of all the top exporters including Canada, EU and Australia, which have been hit by quality concerns,” said Benjamin Bodart, a director at farm adviser CRM Agri-Commodities in Newmarket, England.

France, the EU’s biggest wheat producer, saw its soft-wheat output plummet 32 percent to 28 million tons this season after excessive rains cut yields to the lowest in three decades. Wheat that can be exported to the EU and countries outside the bloc is estimated at 5 million tons this season, down 60 percent from last year, according to Soufflet unit AIT Ingredients.

The French Ministry of Agriculture warned of quality being too poor to meet requirements of large buyers including Algeria and Morocco. Its loss in the global market has been the U.S.’s gain, with Algeria set to buy 193,740 tons from America since the marketing year began, according to the USDA. This is the largest commitment for this time of year in nine years, USDA data shows.

“It’s simply a function of the poorer crop in France, ” said Mike O’Dea, a risk management consultant at INTL FCStone Inc. in Kansas City, Missouri. “The French would typically take those sales. Right now, we’re filling the void from the lack of supply from the EU.”

Red Wheat

Sales of hard red winter wheat, the bread variety grown in the U.S. plains, have been particularly strong, according to Vince Peterson, vice president of overseas operations at U.S. Wheat Associates. Spring wheat, which has high protein, also has seen rising demand, partly as Canada’s crop quality dimmed from rain and snow, he said.

The relative quality advantage that is giving the U.S. a leg up comes at a time when the nation’s wheat stocks have swelled. U.S. wheat inventories at the end of the marketing year on May 31 are forecast to rise to the highest in 29 years, according to the USDA.

The country has had a far higher market share in past years, reaching as high as 29 percent less than a decade ago. The U.S. grip on the global market has steadily declined since peaking at more than half of shipments in the 1970s.

Russia, the world’s largest wheat exporter, has been hurt lately by rising oil prices that have strengthened the ruble, pushing up prices for its sales abroad.

Gains in the ruble from rising oil prices may keep benefiting the U.S., according to Tracey Allen, an agricultural commodities strategist at JPMorgan Chase Bank NA in London. The lender sees oil prices reaching $60 per barrel by the end of 2017 compared with about $50 currently.

“We could see the pace of U.S. exports sustaining over the next six to eight months on the back of its huge stock availability, and an expected moderation in the dollar,” Allen said. “Higher oil prices and corresponding strength in oil-producer currencies may weigh on the relative export competitiveness of countries like Russia.”

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