By Julie Ingwersen and Hallie Gu
CHICAGO/BEIJING March 12 (Reuters) - China is scooping up
supplies of U.S. white wheat to feed livestock, pushing export
forecasts for the grain usually used to make sponge cakes and
noodles to a 27-year-high.
The purchases are the latest disruption in commodities
markets caused by Chinese buying of grains and oilseeds during
the coronavirus pandemic, pushing prices of major commodity
crops to multi-year highs.
China has booked more U.S. white wheat this year than any
country besides the Philippines, the top buyer of the grain.
While U.S. producers have long tried to woo the growing Chinese
market for confectionary foods made from white wheat flour, the
recent purchases reflect a need for animal feed, Chinese traders
and analysts said.
On Tuesday, the U.S. Agriculture Department (USDA) raised
its forecast for exports of U.S. white wheat to 245 million
bushels, the most since 1994, due to strong demand from China
and South Korea.
In a sign of the varied pace of global economic recoveries,
USDA lowered its export forecast for the most common U.S. wheat
class, hard red winter wheat, citing lower demand to "several
Western Hemisphere markets."
While white wheat is not typically fed to animals, high corn
prices - benchmark U.S. futures Cv1 hit 7-1/2-year highs last
month - made it a viable alternative in China.
China is scouring the globe for feed grains as it rebuilds
the world's largest hog herd, which was ravaged by African swine
fever.
“Most of the imported wheat is going to the feed sector as
corn prices are high and there is profit (to import)," said Li
Hongchao, a senior grains analyst with trade website
Myagric.com.
China signed a trade deal with the United States in January
2020. More recent trade tensions between China and Australia,
which grows a slightly different hard white wheat, have also
sent China seeking alternative wheat supplies. Nine months into the 2020/21 wheat marketing year begun June
1, 2020, China's purchases of all U.S. wheat classes are at a
seven-year high of 2.9 million tonnes, according to USDA's
weekly export sales data. White wheat bookings represent about a
third of the total, at 947,863 tonnes as of March 4.
Chinese purchases of U.S. white wheat began ramping up in
November, after grinding to a near halt in 2018 and 2019 when
Beijing and Washington were in the thick of a trade war.
Prior to 2018, China had been building its U.S. white wheat
purchases, booking 228,000 tonnes in 2016/17 and 307,000 tonnes
in 2017/18. The U.S. wheat industry, anticipating the growth of
China's economy, has spent years cultivating a relationship with
China's flour millers and bakers.
"It's a growing middle class, and their interest (is) in
diversifying their diet," said Randy Fortenbery, an agricultural
economist at Washington State University.
Most U.S. white wheat is soft white wheat, grown in the
Pacific Northwest and beloved by bakers for its pale color and
low gluten strength, ideal for cakes and steamed breads.
'GOOD RUN-UP IN PRICES'
While the wheat has been cheaper than corn in China, where
feed grains are in high demand, it is earning U.S. farmers a
premium. The booming export market for white wheat has sent cash
prices at the Portland, Oregon, export hub hovering around $7.50
a bushel, up about $2 or 35% from July post harvest.
Idaho grower Cordell Kress says he sold about a third of his
expected 2021 white wheat harvest and has even pre-sold some of
his 2022 crop.
"That is more than usual. But we have had a pretty good
run-up in prices," said Kress, who grows about 3,000 acres (12
square kilometers) of wheat each year in southeast Idaho.
Even so, grain merchandisers and farmers do not expect much
of a jump in U.S. white wheat acres this spring, given strong
prices for competing crops like canola. While most of the U.S.
white wheat crop was planted last autumn, before the price
rally, a smaller portion is seeded each spring.
"Lots of things go into crop selection besides price," said
Kress. "I do what is best for my farm and the soil, and
typically that involves sticking to crop rotations," he said.