It isn’t necessarily bad.
In fact, the United States government’s decision to subsidize food aid exports could even help raise world wheat prices in the short term, market watchers say.
But behind the U.S. altruism may be an insidious export design, they fear.
“I suspect they’re not using this program just because they’re warm-hearted people that want to give food away to people who really need it,” said Mike Jubinville of Profarmer Canada.
“They’re just looking for a way to offload inventory and support farmers in their own country.”
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On the weekend, U.S. president Bill Clinton announced his administration will buy 83,000 tonnes of American wheat to give to five nations in crisis: Sudan, Ethiopia, Eritrea, Indonesia and North Korea.
The $250 million (U.S.) program should drive up American wheat prices by up to 13 cents a bushel, Clinton officials say.
If the money is used to buy surplus grain and give it to people who can’t afford to buy it on the world market, then Canadian farmers might benefit, said Brian White, the Canadian Wheat Board’s head of market analysis.
The 2.5 million tonnes equals about four percent of the U.S. wheat crop. Taking it out of the market could raise American domestic prices, which could then push up export wheat prices, White said. That’s because the world’s leading futures markets are in the U.S., so its domestic wheat prices have a heavy impact on world price trends.
Jubinville said there is evidence the food aid purchase is already strengthening wheat. On Monday morning both corn and soybean prices fell due to improving weather forecasts, but wheat stayed level and even rose a few cents.
Some don’t matter
Canadians don’t need to be concerned about subsidized wheat exports to four of the countries because Canada rarely sells wheat to them, Jubinville said.
But Indonesia is another matter. It is the Canadian Wheat Board’s seventh largest market, one that has grown dramatically since the 1970s.
“The wheat board has worked pretty hard over the past few years building market share and had been successful,” said Jubinville.
White said the U.S. dominated Indonesian wheat purchases in the late 1970s and early 1980s, often using food aid to bring sales. But since then, countries such as Australia and Canada have successfully moved into the market, leaving the U.S. with only about one percent last year.
White said the board fears the U.S. is trying to get back into the Indonesian market by giving food away: “Is part of the motivation that they’re trying to win back market share? Is this a new form of export subsidization?”
Jubinville said he was pleased to see short-term price strengthening, but was worried the U.S. has just launched another form of price war.
