U.S. May Have ‘Problem’ Meeting Surging Wheat Demand

The U.S., the world’s largest wheat shipper, may not have the logistical capacity to meet rising global demand after rains cut the quality of the harvest in Canada and Australia, the United Nations said.

As much as 8 million metric tons of Australia’s wheat harvest may be downgraded because of excessive rains and Canada’s output suffered from wet weather, pushing importers to seek alternative suppliers, said Abdolreza Abbassian, an economist at the UN Food & Agriculture Organization, citing government estimates.

“Right now, the only country that would have such supply to compensate for the downgrade of Australia and also Canada would be the U.S.,” Abbassian said in an interview. “The problem is that the capacity in the U.S. for terminals to absorb enough milling wheat for shipment, it’s just not there.”

Increased demand from the U.S. may lead to supply bottlenecks, delaying deliveries and intensifying competition among importers, said Park Yang Jin, business manager at Seoul-based Daehan Flour Mills Co., South Korea’s largest milling wheat importer. This would help sustain a rally in Chicago futures, he said. The U.S. accounts for 27 percent of global wheat trade.

Tight Supply

Futures jumped about 64 percent since June 30, surging to a two-year high of $8.68 a bushel in August, after the worst drought in at least half a century in Russia, the world’s third-biggest grower last year. The March-delivery contract traded at $7.88 a bushel, up 0.5 percent at 3:21 p.m. Singapore time.

The premium paid in Portland by importers to avoid delays in shipment has risen as competition among importers of U.S. wheat intensified, Park said, without elaborating.

“On balance, I do see some reaction from the market this week because of the downgrading” of wheat quality in Australia and Canada, Abbassian said. “Prices could settle a bit lower as we go on, but could remain high in relative terms.”

As of Nov. 25, U.S. exporters have agreed to sell 23.2 million tons of wheat in the marketing year that began June 1, up from 14.8 million tons a year ago, according to data on the U.S. Department of Agriculture website. The sales contracts include the 14.5 million tons that has already been shipped, according to the data. The nation is forecast by the USDA to ship 34 million tons this season.

Import Demand

Import demand for milling wheat in the second half of the 2010-2011 season may be smaller than the first half, because buyers have already contracted most of their requirements, Abbassian said by phone from Rome.

Wheat exports from Australia may be 16 million tons, compared with an earlier estimate of 18.4 million tons, the Australian Bureau of Agricultural & Resource Economics & Sciences said Dec. 7. Rainfall delayed harvesting and reduced the crop’s quality. Australia is forecast to be the world’s fourth-largest shipper this year, according to the USDA.

The harvest in Canada, forecast to be the third-largest shipper, fell 14 percent from a year earlier to 23.2 million tons after wet weather in the growing season and early frost on the prairies curbed yields, Statistics Canada said Dec. 3.

The estimate was 4.3 percent higher than the agency’s September forecast of 22.2 million tons.

‘Alarming Dryness’

Farmers around the world need to expand harvests of wheat by 3.5 percent and corn by 6 percent in the 2011-2012 season to rebuild stockpiles and meet rising demand, Abbassian said.

“And yet we are seeing signs of rather alarming dryness in a number of Middle Eastern countries, especially major producers such as Iran, Iraq and Syria, and then add to that Russia,” said Abbassian. “This could already give us some sign that perhaps next year we’re not going to get a 3.5 percent” increase in wheat production.

Dry weather in Russia may keep the country out of the export market for another year, and it may rely on Kazakhstan and Ukraine to meet a domestic grain shortfall, he said.

Kazakhstan and Ukraine will probably send most exports to Russia, Abbassian said. “That could result in again less supply entering the world market and put more strain on supplies of other exporters.”

Still, he said weather conditions may improve next season, allowing the U.S., European Union, Canada and other big producers to boost harvests to make up for losses in other parts of the world.

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