What is in this article?:
• In the wheat market, the true price is best determined by fair market practices, but several players have tried recently to be a low-cost alternative to the traditional five exporters.
For a comparison, U.S. offers on March 15 from the Gulf were $293/MT for soft red winter (SRW) and $326 for 12.0 percent protein hard red winter (HRW).
The results of this price disparity means Russia’s domestic consumers are now paying a premium for their wheat when world wheat prices have dropped. In contrast, export customers like Egypt benefited from buying Russian wheat cheaply when world wheat prices were higher.
The other non-traditional player helping to shape the export market this year is India. The country is the world’s second largest producer of wheat but rarely exports significant quantities.
For five consecutive years starting in 2000/01, India exported at least 1.5 MMT, including a record 5.65 MMT in 2003/04. But since 2004/05, the country has exported between 23,000 MT and 891,000 MT each year, accounting for less than 1 percent of total world exports.
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This year, India is working aggressively to export surplus wheat supplies. Yet, significant quality concerns deter even the most price sensitive buyers from purchasing Indian wheat, even though the government-set minimum export price has been around $300/MT since early February, the lowest on the market at the time.
USDA does predict total Indian exports will reach a record 6.5 MMT in 2012/13. However, India cannot compete with higher quality wheat supplies unless it has a substantial price advantage.
The highest bid in India’s most recent export tender was $307/MT. In contrast, world wheat prices have fallen more than 10 percent in the past month and both U.S. and Australian wheat are at or below $300/MT.
As a result, Indian sales will likely dry up unless the current price dynamic shifts. India’s government is understandably hesitant to lower the price any further to compete in the export market. Although the calculations vary by source, Indian wheat exports at prices less than $315 to $325 FOB require the government to spend scarce budget resources to subsidize those exports because of their high domestic support price.
Besides costing money, subsidized exports violate India's WTO commitments. Those export subsidies are in addition to a minimum support price and production subsidies that are generally calculated to cover 40 to 70 percent of a grower’s fertilizer costs and 70 to 90 percent of irrigation and electricity costs.
To read more about India’s poorly managed wheat production system, visit Wheat Letter, March 6, 2013.
Both Russia and India demonstrated at different points this year that the lowest cost provider can attract a lot of business in a short period of time. These suppliers have also shown how quickly unstable and unpredictable government intervention can deter demand and distort market prices.
As we have said and will say again, the U.S. wheat store is always open with a reliable supply of high-quality wheat for any wheat food. And today, U.S. wheat is available the lowest prices of this marketing year, making it an even better deal for our overseas customers.
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