June 19, 2014

 

 

The US may soon be overtaken by the EU as the world's top wheat exporter by next season due to high freight rates, which help strengthen the union's suppliers control on nearby markets in the Middle East and expanded sales in Asia, according to Reuters.

 

"We (the US) are losing market share. The EU sellers have this year become more aggressive, and we already have an aggressive posturing coming out of the Black Sea region," said Shawn McCambridge, a senior grains analyst with Jefferies Bache.

 

"The Asian markets' buyers have been testing out some Black Sea supplies. It's similar to what we saw a couple of years ago in Egypt. We were traditionally the primary supplier, year in and year out. Now we are a minor supplier," he added.

 

The rise of the EU has been solidified with Romania joining traditional top wheat suppliers, France and Germany. "We've seen a huge rise in exports by Romania in the past few years as several multi-national trading houses increase origination purchases there," said a trader.

 

Romania emerged as a major supplier to Egypt during the 2013/14 season and is geographically well placed to serve other customers in 2015. These countries include Turkey, where the crop has been damaged by drought.

 

"They (Turkey) will be requiring imports for their milling and flour export industry," said Sarah Nightingale, an independent consultant and former trade policy manager for the Grain and Feed Trade Association (GAFTA).

 

Markets, which previously depended on the US, have currently came under the dominance of the EU, Ukraine and Russia.

 

Increased freight costs have affected US sales to importers such as Egypt, the world's top wheat buyer, while its shipments to another buyer, Iran, have been upset by political tension, a development which in turn benefits Germany.

 

"There is no such thing as a captive market in the international grains trade, and the US has the handicap of higher ocean shipping costs to the major African and Middle Eastern buyers," a European grain trader said. "One example is Jordan, which only a decade ago was almost part of the US domestic market. Now the US hardly gets a look in against competition from cheap Black Sea supplies."

 

Meanwhile, South Korean feedmakers are among those who are looking more to EU and Black Sea suppliers. "Currently, we are expecting more supplies from Europe and the Black Sea as we hear good harvest forecasts," said a source at one of South Korea's major feedmakers. "However, actual deals are made for worldwide origins, and suppliers usually decide at the last minute which origin to supply depending on prices at that time. The worldwide origins include East Europe, the US, Canada and Australia."

 

US wheat exports have been falling since the early 1980s, when they peaked at more than 48 million tonnes. Biotech advances in corn and soy crops have been blamed for the declining popularity of the crop with US farmers.

 

According to a USDA forecast, US wheat exports in the 2014/15 season will reach 25.2 million tonnes, the smallest volume in five years. The EU is expected to ship 28 million tonnes, its second-highest volume after a record 30 million in 2013/14.

 

Still, according to Vince Peterson, vice president of overseas operations at U.S. Wheat Associates, the US has some markets with good potential in South America, Southeast Asia and west sub-Saharan Africa.

 

"We have markets (for which) we hold a geographical advantage, in particular, South America and Central America. The problem is (that) beyond that circle, it becomes difficult to compete," analyst McCambridge said.