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Ignore trade war talk: Produce quality wheat

wheat olton
Concentrate on producing milling quality wheat, and there will be buyers knocking at your door.

For wheat producers, trade with Canada has little or zero impact on Oklahoma and Texas wheat prices. Trade with Mexico has had, and will have, a major impact on Oklahoma and Texas wheat prices.

Mexico’s 5-year average annual wheat production is 132 million bushels. Domestic consumption averaged 275 million bushels, of which 17 million bushels were used as feed and 258 million bushels were consumed as food.

Mexico’s 5-year average annual wheat imports total 186 million bushels. Average annual U.S. exports to Mexico have been 128 million bushels, or 69 percent of Mexico’s imported wheat. Mexico exports have averaged 43 million bushels per year.

During the last five wheat marketing years (June through May), total U.S. exports have averaged 960 million bushels per year. Thirteen percent of U.S. wheat exports have been to Mexico. During the last five years, Mexico has ranked as either the No. 1 or No. 2 importer of U.S. wheat.

Export data show that since January 1, 2018, 41.2 million bushels of U.S. wheat have been exported to Mexico. Hard red winter made up 62.5 percent (25.7 million bushels) of the shipments, followed by soft red winter at 32.5 percent, hard spring at 4 percent, and soft white wheat at 1 percent.

Argentina is another major supplier of wheat to Mexico. Argentina aggressively sells wheat on the export market and, with or without trade disputes, is going to export all but about nine million bushels of its 700-million-bushel crop. (Argentina’s wheat ending stocks have been about nine million bushels for each of the last three years.) During the same time period, total Argentine exports have been right at 500 million bushels.

This implies that if Mexico wants to buy additional wheat from Argentina, it will be forced to pay a higher price to keep the wheat from going to Argentina’s current export customers.It also implies that if Argentina sells additional wheat to Mexico, other countries may come to the U.S. to buy wheat.

The bottom line on Mexico is that the U.S. has a transportation cost advantage over other suppliers to sell wheat to Mexico. Putting a tariff on U.S. wheat will drive up the cost of bread and flour for Mexican consumers.

Frightening fact: During the 2017/18 marketing year, Russia had a contract with Venezuela for monthly deliveries of wheat.

Canada imports about 18 million bushels of wheat each year, with about 13 million of those bushels purchased from the U.S. The U.S. imports about 125 million bushels of wheat each year and the majority is from Canada. The odds of Canada putting a tariff on U.S. wheat are near zero, and if Canada does put a tariff on U.S. wheat, there will be little to zero impact on Oklahoma and Texas wheat prices.

So, what does this information tell you? Ignore the news about trade wars. Concentrate on producing milling quality wheat, and there will be buyers knocking at your door.

From a price standpoint, changes in Oklahoma and Texas wheat prices will mostly depend on the quality of the 2018 hard red winter wheat crop and hard wheat production around the world. The “trade war” may become irrelevant.

The joker in the deck is Russia.


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