Wheat could be surprise winner of the U.S.-China trade deal
In the agriculture world, news of the partial U.S.-China trade deal has sparked a lot of buzz about soybeans. It turns out, wheat could actually end up being a bigger winner.
Speculations is mounting that China will work to fill its wheat-buying quota as part of the detente, creating new demand since it's failed to stick to the pledge in the past. Purchases of soybeans, meanwhile, are likely to be hampered by a deadly pig disease that's 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 metric tons, it would represent a huge jump in demand. In the six years through 2017, buying has averaged less than 50% of the allotment.
"The potential that China could secure an additional 5 to 6 million tons of world wheat annually is underpinning Chicago Board of Trade wheat," Chicago-based consultant AgResource Co. said in a report Thursday.
Wheat futures for March delivery climbed 1.1% Friday in Chicago, heading for the third straight weekly gain. Soybeans and corn were little changed.
The potential sales to China would be well-timed for U.S. 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 tons of U.S. wheat. That follows the previous week's sales of 868,600 tons, which was the most in six years, according to USDA figures, excluding skewed data released after the federal government shutdown earlier this year.
China hasn't purchased significant volumes of American wheat since October. But, underscoring U.S. wheat's competitiveness in world markets, other top Asian wheat importers including Indonesia, Japan, 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 tons, the allotment is not only smaller, but the Asian nation has historically done a better job of filling it, meaning it wouldn't represent a very big increase in demand.
"The impact on corn values is far less," AgResource said.