With an improved trade environment and financing tools, Iraq has become the second largest buyer of U.S. wheat. Nigeria, which buys more than 2.0 million metric tons, is the No. 1 U.S. wheat customer.

Iraq, still subsidizing food for their citizens, uses the U.S. hard red winter (HRW) wheat to make bread, said Dawn Forsythe, U.S. Wheat Associates spokesperson.

In 2005, between June 1 and November 22, Iraq purchased the most wheat ever from the U.S., at 1.9 million metric tons. That compares with just 370,000 metric tons in 2004.

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Until now, the most wheat that Iraq ever imported from the U.S. within one marketing year was 1.17 million metric tons in 1983/1984.

Following the 1970s and 1980s, when the U.S. garnered up to half of the Iraq wheat imports, Australia became the main source of wheat for Iraq. Because of trade sanctions, the U.S. was out of the Iraq wheat market in the 1990s.

Forsythe said while it was hard to gauge Iraq's wheat purchases during Saddam Hussein's era, as recently as 2002 total Iraq imports were just 1.6 million metric tons. In 2005, USDA estimated Iraq's total wheat imports at 3.8 million metric tons.

"As their (Iraq's) economy begins to strengthen and as normalcy returns to the population, their wheat consumption should go up," Forsythe said.

Coupled with the fall of Saddam Hussein, a change in their marketing system has allowed Iraq to make U.S. wheat purchases more easily in recent months, Forsythe said.

"Their tender specifications and terms were changed to allow U.S.-based companies to compete in those tenders," Forsythe said. "Prior to the changes, the wheat tender offers favored the Australian wheat sellers who had a lock on the market through the 1990's and the United Nation's Oil for Food Program."

Under the Oil for Food Program, Iraq built up a poor credit rating, forcing countries including the U.S. to require cash for purchases.

Shortly after the Iraq war started, with a loosening of the government leadership, Iraq was able to begin to improve its credit. Recently, the U.S. Export/Import Bank started a new credit program for Iraq to facilitate another step toward credit worthiness for Iraq's trade, Forsythe said.

In addition, Forsythe pointed out that in 2005, a group of Iraqi wheat buyers visited the International Grains Program located at Kansas State University. A move she said paid big dividends for the U.S. wheat industry.

"I really do think it's a matter of the Iraqi's coming to Kansas, gaining a lot of knowledge about how the U.S. market system works. Plus, our USDA representatives in Baghdad have been very supportive of the U.S. wheat industry," she said.

With Iraq trying to build up its supply, the U.S. wheat industry expects another good year of trade.

"Hopefully, our total U.S. wheat exports go up in 2006 as well as our percentage of the marketshare," Forsythe said.

Mike Krueger, World Perspectives, Inc. analyst, says the market impact question is no longer will Iraq purchase U.S. Wheat, but instead how much.

"With Australia still our main competitor in Iraq, I see them doing a significant portion of business with the U.S. in 2006," Krueger said, adding that hard wheat supplies - around the world and in the U.S. - have been shrinking compared to soft wheat. If they purchase a sizeable quantity from the U.S. that will help the U.S. wheat market," he says.

Though Iraq's purchases of HRW wouldn't push the wheat market $0.50-$0.60 per bushel higher, increased demand from other countries could propel prices higher, Krueger said.

Growers in Russia and Ukraine had trouble planting their wheat crop last fall, and a lower price outlook is giving Northern Plains growers in the U.S. reason to plant 5%-10% less spring wheat, preferring instead to plant corn or soybeans. As a result, Krueger estimates a smaller world wheat crop for 2006