U.S. wheat exports shifting from price sensitive markets to quality destinations

Over the past 20 years, roughly 10 million metric tons (MMT) of U.S. wheat exports have shifted from price sensitive markets to quality-driven markets, a report by the U.S. Wheat Associates said.

Consumption in quality-driven markets in Southeast Asia and Latin America increased an average 2 percent annually over the past ten years, according to USDA. However, the strength of the U.S. dollar continues to weigh on U.S. exports, transforming the relatively low prices U.S. farmers are receiving for their wheat domestically into prices that are equal to or greater than those paid in prior years by international buyers, the report said.

In 1995-96, the top ten destinations for U.S. wheat included Egypt, Pakistan and Sri Lanka, whose respective governments purchased large quantities of wheat for subsidized food programs and strategic reserves. Thus, these markets were very price sensitive. While some liberalization has occurred in these markets, subsidized food programs and strategic reserves are still the primary uses for imported wheat.

Rounding out the top destinations in 1995-96 were markets that value quality: Japan, Mexico, the Philippines, South Korea, Taiwan, Nigeria and the European Union, the report said, addig that these markets continue to be top ten destinations for U.S. wheat.

“Over the past five years, U.S. wheat exports to these seven countries averaged 12.9 MMT compared to 9.78 MMT in 1995-96, an increase of 32 percent, while total consumption increased 26 percent, indicating increased usage and preference for U.S. wheat despite prices often higher than from other sources,” the report said.

Since 1995-96, wheat consumption in other quality-driven markets has also grown. Southeast Asian markets, including Indonesia, Thailand, Vietnam and Malaysia1, have grown an average 5 percent annually. U.S. exports to the region grew 27 percent to 1.47 MMT in 2014/15, according to Global Trade Atlas data. U.S. wheat exports also increased 44 percent to Latin and South America with 5-year average sales of 5.87 MMT compared to 4.07 MMT in 1995-96.

In 2014-15, countries from Southeast Asia and South America — Indonesia, Thailand and Brazil — became top ten destinations for U.S. wheat. In total, the top ten destinations represented 48 percent of U.S. wheat sales during that marketing year. Countries in Central America, including Colombia, Guatemala, Peru, Venezuela and the Dominican Republic, were in the top 20 destinations for U.S. wheat and accounted for another 11 percent. See the latest USW Commercial Sales report for the resulting increases in wheat exports to the increasingly quality-driven markets in Southeast Asia, Latin and South America, the report said.

It, however, poited out that despite the value these markets place on quality, the strength of the U.S. dollar makes U.S. goods relatively more expensive for consumers in other countries. Japan is historically the number one buyer of soft white (SW) wheat. The average price for 9.5 max protein SW is down 1 percent from 2014/15 at $300 per metric ton (MT). However, the Japanese yen weakened against the U.S. dollar year over year resulting in Japanese importers paying an average 6 percent more for 9.5 max protein SW this year.

Similarly, average 12.0 protein hard red winter (HRW) prices from the Gulf have fallen 18 percent, but U.S. HRW prices have increased an average 14 percent in Brazil due to the weakness of the Brazilian real, the report said.

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