When the 2013/14 marketing year began on June 1, the USDA projected total U.S. exports would fall nearly 10 percent from the previous year.
The agency forecast exports at 25.2 million metric tons (MMT).
Despite this pessimistic outlook just four months ago, U.S. commercial sales-to-date have soared, thanks to a perfect combination of several factors.
First, Brazil and China, two intermittent and traditionally low-volume U.S. customers, started purchasing high volumes of U.S. wheat.
According to USDA, total outstanding sales and accumulated exports of all U.S. wheat classes through Sept. 19 were 17.7 MMT, up 38 percent from the 2012/13 year-to-date total and 25 percent greater than the five-year average.
Excluding Brazil and China, however, wheat sales to the rest of the world lag behind the five-year average by 18 percent. Without the help of these two countries, only soft red winter (SRW) sales are outpacing average sales on the strength of a bumper crop and competitive export prices.
In the last five years, combined sales to Brazil and China never exceeded 4 percent of total U.S. exports. This year, sales to these two countries alone are responsible for 36 percent of total sales to date.
Signs for increased U.S. wheat purchases by Brazil emerged in February when its government announced that in April it would temporarily eliminate a 10 percent import duty normally applied to wheat imports from outside the Mercosur trading block. Severe supply shortages and export barriers in Brazil’s main supplier, Argentina, limited the country’s sources for large volumes of quality wheat.
In the initial announcement, Brazil authorized 1.0 MMT of non-Mercosur wheat to enter the country duty free between April 1 and July 31. The government has extended those parameters several times, currently allowing up to 2.74 MMT through the end of November.
With the duty lifted and armed with trade and technical information from U.S. Wheat Associates (USW), Brazilian millers have already purchased 2.5 MMT of mostly hard red winter (HRW) in 2013/14 on top of nearly 400,000 metric tons imported during April and May of the 2012/13 marketing year.
Didn't see China coming
China’s buying spree may have been even more difficult to foresee. The country is mostly self-sufficient in wheat production and has averaged just 1.7 MMT of total imports from all origins the last five years. Nevertheless, poor weather led to a disappointing domestic crop, which forced the government to secure supplies from outside the country.
In May, USDA predicted China would double that average and import 3.5 MMT. However, USDA currently projects total Chinese imports to reach 9.5 MMT, which would be the most since 1995/96. U.S. sales (of mostly SRW) to China have already exceeded 3.9 MMT.
Another contributing factor to better-than-expected U.S. commercial sales is a less severe reaction to a potential market disrupter.
Many feared the discovery of unapproved genetically modified (GM) wheat plants in a single Oregon wheat field in April would significantly hurt 2013/14 wheat sales. In reality, the event has had a meaningful, but limited impact. Several Asian markets temporarily suspended new sales of white wheat following the GM event, but did not cancel any existing purchases.
South Korea resumed regular purchases on July 9 and Japan followed a month later.
As of Aug. 1, white wheat sales to the North Asia region were 44 percent lower than the same date a year earlier and total world sales were behind 2012/13 by 20 percent.
With all customers back to regularly purchasing white wheat, the gap has narrowed. White wheat sales to North Asia were 30 percent lower than 2012/13 and world sales were 8 percent behind on Sept. 19.
Overall, analysts have predicted U.S. weekly sales to slow for more than a month, but each week’s sales met or exceeded expectations.
As the U.S. wheat harvest season concludes, supply is strong and high protein wheat is an excellent relative value.
Analysts might not see the opportunity, but customers certainly have. The United States will continue to sell high quality wheat to whoever comes knocking, including friends who may not knock often.
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