Wheat Sales to China Halted: Prices Tumble to 2020 Low

Quick Look

• The latest cancellation involves 264,000 metric tons of U.S. soft red winter wheat, marking the third in recent days.
• Wheat prices have been falling, with soft red winter grain futures reaching a low not seen since August 2020.
• Strong competition, especially from Russia, and improved U.S. crop conditions contribute to the market dynamics.
• Due to USDA adjustments grain export has been lowered to its lowest in 52 years.
• Despite recent cancellations, weekly export inspections increased, with the Philippines and Mexico as top wheat destinations.

The U.S. Department of Agriculture (USDA) has confirmed a series of cancellations for U.S. soft red winter wheat sales to China. The most recent cancellation involved 264,000 metric tons. This follows two previous cancellations last week, totalling 240,000 tons. These events mark a significant shift, being the largest cancellations over three business days.

Following these cancellations, wheat prices have seen a noticeable decline from the highs experienced after China’s U.S. grain purchases in December. The price fall is attributed to strong global competition, particularly from Russia, and improved crop conditions within the U.S. In response to these market conditions, China has expanded its budget for grain and edible oil stockpiles, aiming to reduce its dependence on imports.

Wheat Futures Slide 19% Amid Cuts

The impact of these cancellations on the market is clear. Soft red winter wheat futures have dipped to $5.23-1/2 per bushel, the lowest point since August 2020, representing a 19% decrease from a four-month peak of $6.49-1/2 in early December. This downturn reflects broader market conditions, including the effects of international competition and domestic production prospects.

Moreover, the USDA has revised its wheat export estimate downwards to 710 million bushels for the marketing year that began on June 1, 2023. This adjustment marks the lowest forecast in 52 years, with a specific reduction of 10 million bushels in soft red winter wheat exports.

Exports Up Despite China’s Pullback

Despite the cancellations, the latest USDA report also shows an increase in wheat export inspections, totalling 402,874 tons, with the Philippines and Mexico as the primary destinations. This indicates a mixed picture, with some areas showing robust demand for U.S. wheat, contrasting with the cancellations from China.

Corn, soybeans, and sorghum export inspections also reveal varied trends. Annual comparisons show increases for corn and sorghum but a decrease for soybeans. Notably, China remains a significant destination for sorghum, highlighting its ongoing role in the global grain market.

Wheat’s Price Prospects Amid Russia’s Rise

Analysts now closely watch the wheat market for potential price trends, considering historical averages and crop conditions. With wheat prices averaging around $5.84 over the past 15 years, there’s speculation about whether prices will decrease before moving higher. Russia’s continued dominance in world wheat exports adds another layer of complexity to these predictions, influencing global prices and market dynamics.