2019 Wheat Exports Game is On
The first full week of 2019 came and went without much data from the USDA thanks to the ongoing U.S. government shutdown. Without the expected January 11th reports being released – which included the monthly WASDE report and winter wheat planting intentions – the market is continuing to look at private market data and usual headlines.
For example, the Kansas Wheat Commission says that U.S. growers likely seeded 32.5 million acres of winter wheat this past fall, down about 200,000 acres year-over-year. Comparatively, last week, Informa Economics has estimated 019/20 U.S. winter wheat acres at 31.5 million. The KWC says that the decline was mainly attributed to the state of Kansas receiving about 3 times the normal amount of rainfall in October, the main month to plant. Moreover, they estimate that the Southern Plains’ states of Kansas, Oklahoma, and Texas will see hard red winter wheat acres down 10% year-over-year. For perspective, these 3 states account for about half of total U.S. winter wheat acres.
In Russia, domestic wheat prices have been steadily climbing over the past few months, but since global values haven’t matched the move, the thinking is that Russia is running out of exportable supplies. There is some buzz that the Russian government will subsidize transportation costs to pull wheat from parts of the country further from deep-water ports, but that’s entirely speculative at this point.
However, the U.S. Wheat Associates are expecting U.S. wheat exports to pick up in the coming months, thanks to the slower export pace out of Russia and limited supplies also in Australia after their drought-stricken harvest. Given the current pace of U.S. wheat exports though, the second half of the 2018/19 crop year will have to see a fairly robust campaign, and one where U.S. wheat prices are competitive against the likes of Canadian wheat prices.
With the U.S. government shutdown, the USDA hasn’t been releasing any U.S. export data either. Combined with the Christmas / New Year holidays, this means that we haven’t seen export data from the USDA since December 14th. With that in mind, through Week 28 of the U.S. wheat crop year, exports of all classes of American wheat have topped 11.2 MMT, but that’s down 9% year-over-year.
However, in the December WASDE, the USDA was predicting 2018/19 total wheat exports to top 27.2 MMT. The U.S. Wheat Associates thinks this is plausible thanks to “high quality and competitive pricing for select U.S. wheat classes. Currently, HRW and SWW U.S. wheat exports are tracking behind last year, while SRW, HRS, and durum exports are all up.
One specific destination for wheat exports that the U.S. is looking like it could lose is Japan. With the Trans-Pacific Partnership now open for business, the U.S., as of April 1st, 2019, will be at a disadvantage of $14 USD / MT, or 38¢USD and 51¢ CAD per bushel if converting metric tonnes to bushels. Right now, Canadian (non-durum) wheat exports are tracking well, up 21.6% year-over-year at 8.19 MMT.
The bigger question though is if this pace can continue to me the AAFC’s current full crop-year target of a record of 18.5 MMT of Canadian wheat exports. With Japan giving preference to Australian and Canadian wheat over U.S.-origin, and Australia having a bit less wheat to export, this export target is certainly within reach. To be explicit, Australia has average over 17.6 MMT of wheat exports the past year. However, this year, actual shipments are forecasted by the USDA to come in 40% below that at just 10.5 MMT.
Overall, there’s a window of opportunity for Canadian wheat, given short supplies in Russia and Australia. Now it’s just time to step out there and execute the robust export campaign that Ag Canada believes can take place.