It came as a shock when China canceled record shipments of wheat from the United States in March. But what is behind the surprising measure of the world's largest wheat importer?
On March 8 there were 240,000 tons of wheat and on March 15 there were even 264,000 tons of wheat that actually had to be delivered to China from the United States. But contracts for American winter wheat were canceled by the Chinese side, so American exporters would be left with 504,000 tons of wheat or would have to find another buyer. Australian wheat shipments were also affected in March. Chinese wheat importers canceled around one million tonnes of Australian wheat shipments or postponed them until the second quarter.
The number of canceled quantities temporarily pushed futures on the Chicago Commodity Futures Exchange for future wheat deliveries to their lowest value since August 2020. The fact that more than half a million tons of US wheat were canceled gave a lot to talk about to the grain merchants there. According to data from the United States Department of Agriculture (USDA) dating back to 1999, it was the largest amount canceled to date.
“These cancellations show that China can buy wheat cheaper from other countries,” Ben Buckner, senior grains analyst at AgResource, a Chicago-based industry information service, told Bloomberg news agency of Beijing's surprising move.
Higher inventories and better weather
In any case, the days of rising prices for grains and other agricultural products seem to be over for now. According to USDA figures from March 28, corn stocks recently increased by 13 percent and soybean stocks by nine percent. However, the largest increase in stocks was recorded in wheat, with 16 percent.
In addition to the increase in stocks, the improvement in weather conditions is also causing a drop in prices, Thorsten Tiedemann, CEO of Getreide AG in Hamburg, explains in an interview with DW. “In most regions we had more than enough water supply and therefore good conditions for good crops.” Last year things were completely different, with longer dry spells and other negative factors such as frost occurring in some regions.
Russia remains a great actor
The situation in cereals and oilseeds is therefore generally more relaxed than a year ago. “Overall, we have a decent corn crop. This is the green product that dominates the feed grain market. We also have a large supply of soybeans and soybean meal, now also in the future,” stresses Tiedemann. “Especially because Argentina and Brazil will have a decent harvest in the coming weeks.”
Furthermore, Russia can still export many millions of tons of wheat. “Russia will probably have a market share of around 29 percent of global exports in the next fiscal year 2024/25,” Tiedemann said. The fact that Russia has had large harvests in recent years and is likely to do so this year has contributed to a global relaxation in wheat markets, explains the Hamburg grain expert. “93 million tons are expected in Russia, which in turn will allow Russia to export more than 50 million tons of grain.”
May 2022 price record is a long way off
In February 2024, according to data specialist Statista, global grain prices were 22.4 percent lower than in February 2023. After Russia's attack on Ukraine, international wheat prices reached a new high record of more than 522 US dollars in May 2022. The dollar rose. Since the Food and Agriculture Organization (FAO) began keeping records in 1990, never has it been paid more for a ton of wheat.
At the time, there were fears that exports from the two major wheat exporters, Russia and Ukraine, would decline sharply as a result of the war and that supply bottlenecks would occur.
Ukraine is not as important a wheat exporter as Russia, the world export champion. In 2022/23, the Russian Federation exported around 47.5 million tonnes of wheat, followed by the EU with more than 35 million tonnes. Canada was third with around 25.5 million tonnes, Australia fourth with around 32.3 million tonnes and the United States with over 20.25 million tonnes. Only then did Ukraine follow in the first year of the war with around 17.1 million tons of wheat.
Impact in the United States
The impact on American agriculture so far has been limited. Wheat has not played as dominant a role there as before for a long time. “The number of wheat farms has declined dramatically over the past two decades as many American farmers shift to more profitable products like soybeans and corn. The number of wheat farms in the U.S. has declined by more than 40 percent since 2002, according to census data. “, calculates Nathan, Owens presented it in an analysis for the specialized magazine Agriculture Dive.
If the majority of American farmers voted for Donald Trump, it would be too shortsighted, says Michael McDougall. “Farmers seem to have a bad memory,” the managing director of Paragon Global Markets told Bloomberg. “He started a trade war with China that hurt American farmers for a while because China imported fewer American agricultural products. Then Trump had to compensate American farmers.”
At the time, Trump gave American farmers about $28 billion to mitigate the fallout from his trade dispute with China. That helped American farmers' net income reach its highest level in seven years in 2020.
However, it is probably clear to many American farmers that even tens of billions in aid would not be enough if Trump implements his plans if he is re-elected. In August, he announced that, as re-elected president, he would impose a 10 percent tariff on all goods imported into the United States. Possible retaliatory measures by other countries and damage to US exports could hardly be offset.
Climatic influences as a central factor
Future climatic conditions are decisive for the future harvest. The example of Argentina shows how drastic climate influences can be, with wheat exports plummeting from 17.65 million tonnes in 2021/22 to just 4.68 million tonnes in 2022/23. The reason: excessive drought and late frosts. Although Argentina traditionally exports mainly to other Latin American countries, in good harvest years millions of tons of wheat go to Asia. In the future, exports are expected to increase, especially to China, according to the trade magazine Miller Magazine.
China occupies a unique position in the international wheat market. The Middle Kingdom is both the largest producer of wheat in the world and, since 2022/23, the largest importer. Despite its considerable domestic production of around 137 million tonnes, China remains dependent on significant quantities of international wheat deliveries. This applies to both food and feed consumption. Since 2020/21, China has imported an average of about ten million tonnes.
“Domestic production has struggled in the current marketing year with problems attributed to excess moisture, resulting in lower production and a higher proportion of feed-grade wheat,” Miller magazine writes. While Australia, Canada, France, the United States and Kazakhstan were the largest sources of China's wheat imports, China has actively sought to diversify its suppliers in recent years.
As the world's largest wheat exporter, Russia plays an increasingly important role for Beijing. There are also more and more wheat trading partners, such as Argentina.
China on track for bigger wheat harvest
Commodity experts are relying on reports from the Chinese meteorological authority from early March. According to this, snowfall in the country's main winter wheat-producing areas between January and February increased soil moisture. Most plants would have safely survived the winter dormancy. Additionally, only minor frost damage is expected in some areas of the wheat-producing regions of Jianghuai and Jiangnan, S&P Global Commodity Insights reports. The growth stage of the crop is largely the same or better than the same period last year. In 2023, a significant part of the wheat crop was damaged by unforeseen torrential rains and could only be used as feed wheat.
“In general, you have to be a little more careful when looking at the wheat balance for next year,” Thorsten Tiedemann warns against excessive optimism. The situation would have improved significantly thanks to good stocks from the last harvest and ongoing exports from Ukraine.
“I assume that in 2024/25 we will have a reduction in stocks in the countries of origin of exports compared to previous years. The reason for this is, in part, lower harvest expectations and a slight increase in consumption due to lower prices Lower”.
According to the Hamburg grain expert, it can be assumed that prices could “rise explosively again” if crops fail somewhere or bad weather is reported.
Tiedemann gives the example of a bad harvest in the European Union. “If, for example, in France there were a dry month of May or June, I think the market could react very nervously again, because with yield expectations already half-hearted, in the future we would be heading towards a reduction in wheat stocks The situation remains the same right now, but “it doesn't have to stay that way.”
Author: Thomas Kohlmann