China’s large purchase of US wheat is rare, but not unprecedented

 Signs of life for the sluggish U.S. wheat market arrived on Tuesday with confirmation that China had purchased an unusually large volume of U.S. wheat for the first time in over two years.

The U.S. Department of Agriculture (USDA) reported a deal for 220,000 metric tons of U.S. soft red winter wheat for shipment to China in 2023-24, the U.S. marketing year that began June 1. That was the first daily sale of U.S. wheat to any destination since November.

Daily sales are announced when a single U.S. grain or oilseed booking exceeds 100,000 tons, which happens more commonly for U.S. corn and soybeans since those exports are much larger annually than wheat and the destinations are less diverse.

Large U.S. wheat purchases by China have been rare. The last daily U.S. wheat sale to China was in July 2021, also soft red winter wheat, and twin sales of hard red spring and hard red winter wheat were confirmed in July 2020.

Only seven daily sales of U.S. wheat to any destination were confirmed between 2021 and 2022, indicative of how high global wheat prices and falling U.S. supplies have squeezed the United States’ export share. USDA sees that share falling to an all-time low of 9% in 2023-24.

Despite shrinking U.S. wheat exports, China has recently played a heavier role in that trade, accounting for 7% of U.S. wheat shipments in 2022-23 as the No. 4 destination. Three-fourths of that was white wheat, commonly used to make Asian-style noodles.

Australia’s proximity and recent bumper crops have crowned it China’s top wheat supplier, accounting for more than 40% of imports, though the unfavorable El Nino pattern this year may curb the Australian harvest.

China’s recent U.S. wheat purchase was not a one-off, as it secured up to 600,000 tons of French wheat three weeks ago. China has been a top-three global wheat importer in the last few years, but those imports account for a very small fraction of annual Chinese wheat consumption.

Beijing’s price support system generally keeps grain prices in China above global ones, sometimes favoring imports over domestic supplies. A decline in world wheat prices would amplify this effect.

Weakness in U.S. wheat prices has recently made U.S. wheat competitive on-and-off against rival exporters, though abundant supplies in top exporter Russia have kept pressure on the global market.

Ukraine has exported more wheat than originally expected following the conflict with Russia, but its September grain shipments were 51% lower than last September, reflecting logistical limitations at Ukraine’s Black Sea ports.

Tags: China, wheat, USA