If true, reports of major purchases of U.S. wheat by Egypt and China could help reduce stocks and boost prices
Wheat markets received a shot in the arm last week with reports that two big international customers would be purchasing large volumes of U.S. wheat.
S&P Global Platts, a British commodities analytics firm, said Egypt is expected to buy 1.5 to 1.7 million tonnes of U.S. wheat in 2018-19.
The firm said at least three Panamax vessels of U.S. wheat are being loaded and new deals for 200,000 to 400,000 tonnes were being negotiated for shipment to Egypt.
Egypt’s state buyer has imported 180,000 tonnes of U.S. wheat to date compared to 95,000 tonnes the previous three years.
S&P said the sudden interest in U.S. wheat is due to a sharp rise in the price of Russian 12.5 percent protein wheat, which is becoming scarce. Prices are the highest they have been in four years.
Shortly after the Egypt story broke, Bloomberg News reported that China is considering buying three to seven million tonnes of U.S. wheat to help spur a trade deal. There have been no sales of U.S. wheat to China since March.
If the Egypt and China reports turn out to be true, it would help mop up what the U.S. Department of Agriculture expects to be an oppressive 26.5 million tonnes of ending stocks and boost wheat prices.
Steve Mercer, spokesperson for U.S. Wheat Associates, said the two reports are just rumours right now.
“There is no confirmation that Egypt is going to take that much or even if they’re going to buy (any) U.S. wheat,” he said.
“Everything about China is just rumour. We’re just watching and waiting. Who knows?”
Mercer said Russian wheat is still on the market, but it is getting more expensive as exporters are forced to pull it in from further away. U.S. soft red winter and hard red winter wheat have become comparable in price to Russian wheat.
“There is no doubt that U.S. wheat is more competitive today than it has been for quite a long time,” he said.
Weekly U.S. grain export reports are no longer being published because of the partial government shutdown, but export inspection data shows 516,643 tonnes of wheat were inspected and/or weighed for export for the week ending Jan. 17. That is a lot more weekly volume than there was earlier in the crop year.
The report shows that 117,542 tonnes of the wheat that was inspected was destined for Egypt.
The last weekly export report published by the USDA showed 16.67 million tonnes of wheat had been shipped as of Dec. 13, 2018, which was 2.2 million tonnes below the same time the previous year.
The USDA is forecasting 27.22 million tonnes of exports in 2018-19, which is 2.7 million tonnes more than the previous year. For that to happen a lot more wheat needs to move in the second half of the campaign.
“The pace is going to have to be pretty high. We’re going to have to make up some ground,” said Mercer.
“If Russia does shut off exports, that would be a very good sign for U.S. hard red winter and potentially soft red winter exports.”
Arlan Suderman, chief commodities economist with INTL FCStone, said wheat fundamentals are not bullish even if the USDA’s export target is met because there would still be bloated ending stocks.
However, prices could still appreciate as Black Sea wheat supplies tighten up, which appears to be happening.
APK-Inform is reporting that Ukraine’s agriculture ministry wants exporters to stick to volumes agreed to in a memorandum. They have already shipped 71 percent of that volume, including 83 percent of milling wheat volumes.
“That is not like a raging bull market, but it does mean the rising tide starts to lift markets around the world,” he said.
Suderman thinks China’s state grain buyer could very well make some sizeable “good faith purchases” of wheat before the end of the crop year to appease U.S. trade negotiators.
That would dramatically change the wheat supply-demand balance sheet and drive up prices. He believes China would mainly be interested in U.S. spring wheat.
IEG Vantage, which was formerly Informa Economics, is forecasting 13.8 million acres of U.S. spring wheat in 2019, a four percent increase over last year. Suderman said the increase will be more than that if the China rumour becomes reality.