Canada increases wheat shipments to China

China’s wheat crop is down this year, and the trade war with the U.S. is forcing buyers to look elsewhere

Canada’s share of China’s milling wheat market could be on the rise because of a trade spat between China and the United States.

The U.S. increased tariffs on US$34 billion of Chinese imports effective July 6. China has threatened retaliatory tariffs on a wide variety of U.S. products, including agricultural goods.

U.S. Wheat Associates and the National Association of Wheat Growers issued a joint news release July 6 saying Chinese customers already stopped buying U.S. milling wheat in March in anticipation of a 25 percent import tariff being placed on the product.

“Today, damage to the livelihood of America’s hard-working farm families is no longer just a threat,” stated the release.

Chinese flour mills typically purchase about 550,000 tonnes of U.S. wheat annually worth $145 million.

It appears as though some of that business is already shifting to Canadian milling wheat.

“I have been noticing a significant uptake in shipments to China,” said Cam Dahl, president of Cereals Canada.

Canadian wheat shipments to China were 979,000 tonnes through the first nine months of 2017-18, up from 295,000 tonnes for the same period the previous year. That is more than a three-fold increase.

Dahl said it is impossible to tell how much of the increase is due to the trade war, but it likely had some impact. However, he warned that these things can be fleeting.

“One must be cautious in thinking that changes are long-term when they’re because of a political environment like this,” he said.

Neil Townsend, senior market analyst with FarmLink Marketing Solutions, said there is another reason Canada could expand its market share in China in 2018-19.

“They did have a problem with their wheat crop this year. In certain regions it was down 20 percent from expectations. In other regions it could be a little bit more,” he said.

Townsend figures China’s crop will fall 10 to 15 million tonnes short of the U.S. Department of Agriculture’s production estimate of 129 million tonnes.

He said there are a number of reasons why the wheat market could get “exciting” in 2018-19.

“I think the wheat market is undervalued for what the world fundamentals are suggesting,” said Townsend.

“Am I talking about a $1 per bushel increase? No. But it’s easy to see a pathway back 30 to 40 to 50 cents.”

He believes the market is too focused on good growing conditions in North America and forgetting about other important exporting regions of the world.

It is dry in Russia and Ukraine. Europe’s crop monitor is forecasting a 14 percent decline in Russian winter wheat yields and a 10 percent contraction in its spring wheat yields compared to last year.

SovEcon says parts of southern Russia urgently need rain to prevent a “potentially damaging drop” in grain yields, according to a Reuters story.

As well, a Reuters poll of European forecasters is calling for a four percent reduction in European Union soft wheat production.

There are also problems with Australia’s wheat crop due to drought.

“This is kind of a perfect storm for Canada,” said Townsend.

About the author

Comments

Markets at a glance

Copyright © 2018. All market data is provided by Barchart Market Data Solutions. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. To see all exchange delays and terms of use, please see disclaimer.

explore

Stories from our other publications