Canada Markets

Wheat market watchers were encouraged this week with a return to the market by Egypt, the world's largest wheat buyer, after several months on the sidelines, as well as additional Chinese business. Egypt bought 180,000 metric tons, which will be supplied by Romania and Ukraine, while the USDA announced a sale of 360,000 mt of soft red winter wheat to China. This sale confirmed rumors that have been swirling in past days.

Various sources have suggested that adverse weather in China has had detrimental impacts on the crop. This first came to my attention with a Western Producer article titled "Chinese Wheat Crop Could Miss Target," with Neil Townsend of the CWB suggesting that excessive rains in wheat-growing areas of China have led to lodging, crop write-offs and potential down-grading in approximately 20% of the crop.

In recent days, DTN China Correspondent Lin Tan has suggested that China is set to increase imports due to impacts to the quality and size of the current crop due to adverse weather. China bought 1.5 million metric tons from the U.S. in May and was suggested to be looking for an additional 2 mmt to 3 mmt.

Yet a third reference, a Dow Jones interview with INTL FCStone released Wednesday has also suggested that "there is a lot of speculation in China of 15% to 20% lower production, as well as lower quality, due to continued rains in key wheat growing areas."

As seen on the attached chart, China's wheat imports have ranged from 50,000 mt to 6.75 mmt in the past 10 years. The average over the past 3 years is 2.35 mmt, while over the past 10-years the average is close to 2.5 mmt. While production has matched usage in 2012/13 and has been previously expected to do so again in 2013/14 according to the USDA, a reduction of 10% to 20% in production would significantly impact this balance and could cut deeply into the country's ending stocks.

Canada may be positioned well to supply wheat to China should their needs increase. According to Lin Tan, DTN China correspondent, "China imported 3.7 million tons of wheat last year -- 66% was from Australia, 17% from the U.S., and 11% from Canada." He goes on to suggest Canada has supplied the greatest share so far this calendar year. As indicated in Statistics Canada's export data, Canada has shipped 639,194 mt of wheat this crop year (August 2012 to April 2013) to China as of April, with an additional 105,000 mt of wheat equivalents in flour exports.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

(CZ)

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