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Wheat could be surprise winner in the partial US-China trade deal

Mounting speculation that China will work towards meeting its wheat-buying quota is creating new demand

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The potential that China could secure an additional five to six million tonnes of world wheat annually is underpinning the Chicago Board of Trade as wheat futures for March delivery climbed 1.1 per cent last Friday.

Chicago

IN THE agriculture world, news of the partial US-China trade deal has sparked a lot of buzz about soya beans. It turns out that wheat could actually end up being a bigger winner.

Speculation is mounting that China will work to fill its wheat-buying quota as part of the detente, creating new demand since it has failed to stick to the pledge in the past. Purchases of soya beans, meanwhile, are likely to be hampered by a deadly pig disease that is reducing demand for the oilseed used to make a key ingredient in hog feed.

Wheat prices are already reacting as traders expect that China will soon release the quota, according to Chicago-based consultants AgResource.

While the allotment - which is set by the World Trade Organization - could be filled by supplies from any country, it still means additional global demand at a time when international buyers have turned to American supplies.

If Chinese purchases were to reach the quota mark of 9.6 million tonnes, it would represent a huge jump in demand. In the six years until 2017, buying has averaged less than 50 per cent of the allotment.

"The potential that China could secure an additional five to six million tonnes of world wheat annually is underpinning Chicago Board of Trade wheat," Chicago-based consultant AgResource Co said in a report last Thursday.

Wheat futures for March delivery climbed 1.1 per cent last Friday in Chicago, heading for the third straight weekly gain. Soya bean and corn were little changed.

The potential sales to China would be well-timed for US farmers. Relatively tighter corn supplies in South America and wheat in top shipper Russia have made American grain more competitively priced, already prompting non-Chinese buyers to boost purchases.

In the week ended Dec 19, American exporters sold 715,000 tonnes of US wheat. That follows the previous week's sales of 868,600 tonnes, which was the most in six years, according to US Department of Agriculture (USDA) figures, excluding skewed data released after the federal government shutdown earlier this year.

China has not purchased significant volumes of American wheat since October. But, underscoring US wheat's competitiveness in world markets, other top Asian wheat importers - including Indonesia, Japan, the Philippines and Taiwan - have snatched up supplies in recent weeks, according to USDA data.

Corn could also benefit if China moves to fill grain quotas, but to a smaller degree. At 7.2 million tonnes, the allotment is not only smaller, but the Asian nation has historically done a better job of filling it, meaning that it would not represent a very big increase in demand.

"The impact on corn values is far less," AgResource said. BLOOMBERG