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U.S. wheat farmers are open for business
Finally, the nation’s beleaguered wheat farmers had momentum on their side. China began importing U.S. wheat, while other wheat-producing nations faced weather and geo-political forces limiting their exports.
In early March, U.S. wheat prices began to move upward, signaling a bit of bullishness for the first time in several years.
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And then COVID-19 hit, stalling the momentum.
Still, global wheat trade continues, and the U.S. is uniquely poised to retain its status as the supplier of choice of wheat to the world, says Vince Peterson, president of U.S. Wheat Associates.
“I think there were a number of things in the wheat business that provide some positive outlook for us,” Peterson explains.
- The USMCA Trade Agreement has passed, giving open market access for U.S. wheat to Mexico, which imports some 3.8 million metric tons (144 million bushels) of wheat from the U.S. each year.
- The U.S.-Japan Trade Agreement gives the U.S. wheat access to the Japanese market on equal basis with Australia and Canada.
- The China trade agreement has been agreed upon, which should open that country's 9.6 million metric tons tariff rate quota obligation. Of that, Peterson says wheat could make up about four million metric tons (147 million bushels) of the quota each year.
“Had this virus not happened, I think we'd be enjoying some bigger market rises and increases in business that maybe has been tamped down a little bit because of the circumstances we're in right now,” says Peterson, who in 2017 became just the fourth president of U.S. Wheat Associates, a Washington, D.C.-based organization that cultivates international markets for U.S. wheat farmers. U.S. Wheat is funded by farmer checkoff funds and led by a group of farmer-directors. It also receives cost-share funding through USDA Foreign Agricultural Service.
Opportunity in China
China represents a growing opportunity for U.S. wheat consumption, Peterson says. The nation has two business opportunities: replenishing the nation’s diminished supply of government-held wheat, and the private sector milling business, which buys and processes wheat not currently grown by China’s farmers. The milling industry has some tariff exemptions that can be exploited to buy these higher value classes of wheat, including spring wheat, higher protein hard red winter wheat, plus soft red and white, he says.
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“That's the group we really are anxious to see come into the marketplace and start buying imported wheats,” Peterson explains.
Open for business
During the U.S./China trade tussle, China turned to several countries, including Canada, Russia, Ukraine, Kazakhstan, Romania, Australia, and Argentina – to feed China’s wheat needs the past few years. However, COVID-19 has changed the global wheat export business, Peterson explains.
“If China turns to those countries, they're getting exactly the answer they don't want to hearl; they’re putting caps on exports,” he says. “They're responding to their domestic market interest to suppress prices, keep supplies at home, keep prices low and protect their own populations at the expense of everybody else.”
Thus, China, Taiwan, and other countries are seeking U.S. wheat. And, the federal agencies charged with keeping export lanes open are all open for business.
“We are happy to tell them that in the case of the U.S., not only are we still open, but also everything is rolling almost as it is under normal circumstances,” Peterson says.
Business as usual?
In the wake of COVID-19, there is chatter about whether global food trade should continue to be open and free.
U.S. consumers, Peterson argues, are accustomed to readily available supply of fruits, vegetables and protein. “We have free trade right now, so that growers and all these places can gravitate to their best, most economical use of land and what they can produce,” he says.
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U.S. farmers grow about twice as much wheat as this nation consumes, which makes exports essential. The global food trade is not as simple as it was in the 1970s, when the U.S. had just a few major export customers. Back then, government agencies bought commodities, as opposed to the private sector food businesses making purchases today. They were also spread throughout the globe. In 1980, then President Jimmy Carter canceled 17 million metric tons – nearly 625 million bushels – of U.S. wheat, corn, and sobyean exports to Russia, a move that nearly crushed U.S. wheat farmers, as competing countries quickly filled the demand.
In response, the newly formed U.S. Wheat Associates worked to build markets through market assistance, usage and training programs. Meanwhile, the global wheat trade has become more sophisticated.
“The world market is much bigger now and has grown in population, trade and consumption. But our geographical spread has narrowed. We no longer have to send wheat three quarters away around the world to get to somewhere, because Russia is sitting right there,” Peterson explains.
Central and Latin America, and the Asian Pacific countries are a logistical fit for U.S. wheat exports in a more sophisticated wheat-buying environment.
“They’re buying our wheats because they fit some part of the formulation of those products, just like our millers do in the United States,” he says. “So I think it’s a much more sophisticated outlook where we are today and where we’re going to be in the next five, and 10, and 20 years than where we have just come from.”