SASKATOON – It looks like the world wheat war isn’t over after all.
Back in February, subsidies under the U.S. Export Enhancement Program dipped below $10 (U.S.) a tonne, and some industry officials optimistically suggested that for the first time in a decade, wheat could soon be trading at full commercial values.
But since then EEP subsidies have climbed steadily. So far in May they have averaged $28.24 U.S. a tonne, the highest monthly average since September 1994 ($37.61 U.S. a tonne).
Steve Schuetz, a market analyst with Agriculture Canada, cited the European Union’s release of more wheat into export markets as the main cause.
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Less competition
The Europeans had so far this year kept a lid on exports to moderate domestic prices and encourage domestic consumption. That meant less competition on world markets, reducing the perceived need for subsidies.
“The U.S. realized they could start lowering their EEP subsidies and still get the business and the world buyers were just willing to chase up the subsidized prices,” said Schuetz. “But it’s that renewed competition from the E.U. now that is starting to widen it out.”
He said the E.U. has been exporting old-crop wheat in order to meet export goals and get intervention stocks down to more normal levels. And with expectations of a large 1995-96 crop, the E.U. felt it could increase exports without driving up internal prices.
Canadian Wheat Board market analyst Marvin Hildebrand also cites a shortfall in U.S. export expectations in recent months.
“Their export program looks like it might not reach the levels that some thought it would by the end of the crop year, so they’ve been getting a little more aggressive.”
But he said he thinks the Americans are being cautious because of concerns about their supplies of wheat going into the new marketing year.
Expected production
Last week the U.S. department of agriculture pegged the U.S. crop at around 2.32 billion bushels (around 63 million tonnes), about the same as last year but at the low end of trade expectations. Winter wheat is forecast to be 1.64 billion bushels, compared with trade estimates of 1.69 billion.
“We’ve always seen these things go in cycles higher and lower, depending on how hard they want to push the market,” said Hildebrand.
He said it would have been unusual for subsidies to remain in the $10 range, given that “there’s not much precedent for that in the last five years.”
In the first two weeks of May, EEP subsidies averaged $28.24 a tonne. The average for the past 12 months has been $26.26 a tonne.
Since Oct. 1, the U.S. has spent about $204 million subsidizing wheat sales under the EEP, only about one-third of the roughly $600 million amount available for the year. For all commodities, spending to date totals about $284 million compared with the budget of about $800 million.
