Thinking About Asian Wheat Needs
While the tariffs have been a key headline out of China, few voices are addressing the nation’s weather challenges and the impact on yield potential. While the tariffs will curb demand in China, production limitations exist due to drought, flooding, and pest problems across the country.
The China National Disaster Response Center said that at least 3 million acres of farmland has been affected by drought, flooding, and typhoons.
On the demand side, the real storm is the ongoing depreciation of the nation’s currency against the dollar. The USDA said that the Chinese renminbi slumped 9.4% against the U.S. Dollar in the two months leading up to their September GAIN report. Naturally, that downturn has impacted China’s buying power.
With that in mind, the country will continue to plow forward with its ethanol mandate in just 15 months. The country plans to dispose of a lot of its state-owned grain inventories by processing corn, wheat, and rice for biofuels.
As the chart below notes, wheat production, but more notably, ending stocks have risen steadily over the last decade, with the amount of wheat in inventory now higher than expected production.
Nearby in Japan, they’re one of the world’s largest wheat importers, but it’s unlikely that any of it will be coming from the United States in 2018/19. More explicitly, what had been the U.S.’ most reliable wheat export market has turned into a graveyard as the U.S. backed out of the Trans-Pacific Partnership trade deal, giving Canada and Australia preferential treatment to a 6-million-metric-tonne-per-year market.
Last month, the Japan Flour Millers' Association announced plans to alter its ASWJ noodle blend ratio to 80% Australian Noodle Wheat 1 or ANW2 and 20% Australian Premium White Noodle. For perspective, Australian Noodle wheat has a protein basis of 9.5% to 11.5%, while Premium White Noodles range from 10% to 11.5%.
The decision affects specifications from January 2019 onwards. According to reports from traders, Japanese didn’t like the noodles that were being produced from the existing quantity. For the 2017/18 calendar, Australia shipped 924,000 MT of wheat to Japan.
By comparison, Canada sent 1.245 MMT of wheat (excluding durum) during the same year to the Asian country.
Last year, in 2017/18, Japan was the 3rdlargest destination for Canadian non-durum wheat and the fifth-largest for durum with 1.572 MMT and 186,100 MT shipped over respectively.
Japan has been a consistent buyer, purchasing more than 137,000 MT in eight out of the 12-month crop year in 2017/17.
While non-durum Canadian wheat exports this year are tracking 16% higher than 2017/18, we also know there’s quite a lineup of boats waiting to be loaded at West Coast ports. Thus, with Japan looking to buy more Canadian wheat, and these boats ready to be loaded, are Canadian wheat exports set to accelerate?
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