One of Canada’s largest wheat customers will likely increase its purchases in 2018-19, says an analyst.
China was Canada’s sixth largest wheat customer through the first 11 months of the 2017-18 crop year, buying nearly one million tonnes during that stretch.
And there are signs it will climb the ranks in the current crop year.
Xinhua news agency reported Aug. 24 that China would be releasing some of its state stockpiles of wheat due to a disappointing 2018 harvest.
Bruce Burnett, director of markets and weather with Glacier FarmMedia’s MarketsFarm, said it is not unusual for China to release wheat reserves but it is “exceptional” for it to happen so early in the marketing year.
That leads him to believe that the Chinese crop is smaller and of poorer quality than the 128 million tonnes the U.S. Department of Agriculture is forecasting.
His suspicions are corroborated by a report in the Dim Sums web blog, which said a spokesperson for China’s Administration of Grain and Commodity Reserves reported that purchases of wheat by all enterprises between June and Aug. 20 totalled about 42 million tonnes, 21 million tonnes or 33 percent less than the same time last year.
Farmers are holding onto their grain because they expect wheat prices to surge, and flour mills can’t find adequate supplies of wheat.
Growing conditions were particularly bad in China’s top wheat producing province of Henan. The blog quoted a Chinese wheat trader who was quoted in a Securities Times article.
“As I went from county to county in Henan, I heard about unprecedented declines in production,” said the trader.
Burnett said China’s wheat woes could boost Canadian exports to that important destination.
“I would suspect they would be interested in purchasing some higher protein wheats this year, just given the harvest difficulty they’ve had,” he said.
“Canada would be a likely supplier in that scenario.”
China won’t be buying spring wheat from the U.S. because it is embroiled in a heated trade dispute with U.S. President Donald Trump.
As well, it is doubtful that Australia will have much high protein wheat for export because of lingering drought in eastern Australia.
Most of the country’s high protein wheat is grown in northern New South Wales and southern Queensland, where the drought is rated as severe.
Burnett expects strong demand for Canadian wheat in other Asian countries as well because of expectations for reduced competition from Australia and Russia.
Agritel is forecasting 31.5 million tonnes of Russian wheat exports in 2018-19, well below the U.S. Department of Agriculture’s forecast of 35 million tonnes.
The European Union’s crop is also a disappointment. Agritel is forecasting a 15 million tonne drop from the previous year.
Statistics Canada is forecasting 21.6 million tonnes of Canadian spring wheat, down about three percent from last year.
“You are seeing a tightening wheat situation,” said Burnett.
“I think it’s very supportive for prices.”
The U.S. seems to be the one exception. The USDA is forecasting 15.9 million tonnes of U.S. spring wheat, up 51 percent from last year’s drought-ravaged harvest and 17 percent higher than the previous five-year average.