China makes major U.S. wheat purchase

The United States has made its first big wheat sale to China under the new trade pact between the two nations.

The hope is that many more sales will follow and that will provide some much-needed support to moribund wheat markets.

U.S. Wheat Associates announced late last week that Chinese buyers bought 340,000 tonnes of hard red winter wheat. It is the largest sale since China implemented retaliatory tariffs on U.S. wheat in March 2018.

The news supported all wheat futures prices with the Kansas City Board of Trade hard red wheat futures finishing last week at US$4.69 per bushel, a 37 cent increase over the previous week.

As part of the Phase I agreement, China has agreed to live up to its World Trade Organization commitment to import up to 9.64 million tonnes of wheat at a one percent duty.

USW believes that Tariff Rate Quota (TRQ) will be fully utilized in 2020-21 if Chinese millers were allowed to respond to market signals as agreed to in the Phase I pact.

“This is the first sign that perhaps this will happen,” said MarketsFarm analyst Bruce Burnett.

He is encouraged that the sale is for delivery in the 2020-21 crop year because it helps set the tone for new crop wheat.

But he noted that there was very little market reaction to the announcement because it wasn’t a lot of tonnes being exported.

“The market is sort of yawning a little bit,” he said.

“I think it’s significant though. I don’t want to downplay it. It’s good news for the wheat market in general.”

The National Association of Wheat Growers also felt it was significant. The group issued a news release about the sale.

“NAWG hopes that this is just one of several steps towards implementation of Phase I of the new U.S.-China trade deal,” NAWG president Dave Milligan said.

Burnett has no doubt China intends to live up to its TRQ commitment to import nearly 10 million tonnes of wheat at a one percent duty. But whether that happens or not remains to be seen.

“I still view China as a price buyer. If prices get too far out of whack I don’t know if they will continue purchasing,” he said.

If China does continue purchasing that will be a very positive development for all wheat exporters, including Canada.

Burnett is not surprised that China’s initial purchase was U.S. hard red winter wheat because Kansas wheat futures were trading about 70 cents a bu. below Chicago wheat and 50 cents a bushel lower than Minneapolis wheat late last week.

That is an unusual situation. Kansas wheat is typically at a 25 to 35 cent premium over Chicago wheat, while Minneapolis wheat is usually at a 25 to 35 cent premium over Kansas wheat.

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