Recent events in the wheat market have sparked a resurgence of interest, particularly regarding China’s substantial purchase of U.S. wheat. This acquisition, the first in over two years, has reinvigorated discussions and raised important questions about the state of wheat trade.
The U.S. Department of Agriculture (USDA) disclosed a noteworthy transaction involving 220,000 metric tons of U.S. soft red winter wheat destined for China during the 2023-24 U.S. marketing year, which commenced on June 1. What sets this sale apart is not only its considerable volume but also its designation as the first daily sale of U.S. wheat to any destination since November. Daily sales are typically announced when a single booking exceeds 100,000 tons, a threshold more commonly achieved by U.S. corn and soybean exports due to their larger volumes and more concentrated markets.
Notably, sizeable U.S. wheat sales to China have been scarce in recent years. The previous daily sale to China occurred in July 2021, involving soft red winter wheat. In July 2020, there were twin sales of hard red spring and hard red winter wheat, but such occurrences have been infrequent.
This infrequency of daily U.S. wheat sales sheds light on the challenges faced by the U.S. wheat market. Factors such as high global wheat prices and diminishing U.S. supplies have eroded the country’s share of the export market. The USDA projects that this share will plummet to an all-time low of 9% for the 2023-24 marketing year.
Despite the constraints in the U.S. wheat market, China has taken on a more significant role as a wheat trade partner. In the 2022-23 marketing year, China accounted for 7% of U.S. wheat shipments, ranking as the fourth-largest destination. Notably, a substantial portion of these shipments comprised white wheat, a key ingredient in Asian-style noodle production.
Australia, due to its geographical proximity to China and recent bumper wheat crops, has become China’s leading wheat supplier, covering over 40% of China’s wheat imports. However, the unfavorable El Nino weather pattern in Australia could impact this year’s harvest.
China’s recent U.S. wheat purchase should not be considered in isolation, as they secured up to 600,000 tons of French wheat just three weeks prior. While China consistently ranks among the world’s top three wheat importers, these imports represent a relatively small fraction of China’s annual wheat consumption.
China’s price support system, which tends to maintain grain prices above global levels, makes imported wheat more favorable than domestic supplies in certain circumstances. A decline in world wheat prices would further amplify this trend.
Despite intermittent competitiveness in U.S. wheat prices against rival exporters, Russia’s standing as a top wheat exporter has been reinforced by its abundant supplies. Following the conflict with Russia, Ukraine increased its wheat exports. However, logistical constraints at its Black Sea ports resulted in grain shipments being 51% lower in September compared to the previous year.
China’s significant purchase of U.S. wheat has brought attention back to the global wheat market and underlines the complex dynamics at play, particularly in the context of a changing trade landscape.
