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Published June 18, 2014, 11:24 AM

EU poised to dethrone US as world’s top wheat exporter

The European Union is likely to surpass the U.S. to become the top world wheat exporter next season as high freight rates help EU suppliers tighten their grip on nearby markets in the Middle East and expand sales in Asia.

By: Nigel Hunt and Julie Ingwersen Reuters , Reuters

The European Union is likely to surpass the U.S. to become the top world wheat exporter next season as high freight rates help EU suppliers tighten their grip on nearby markets in the Middle East and expand sales in Asia.

A rise in freight costs has hurt U.S. sales to importers such as Egypt, the world’s top wheat buyer, while its shipments to another buyer, Iran, have been affected by political tension.

The EU, Ukraine and Russia now dominate many markets that previously relied on the U.S.

“There is no such thing as a captive market in the international grains trade, and the U.S. has the handicap of higher ocean shipping costs to the big African and Middle Eastern buyers,” a European grain trader says.

“One example is Jordan, which only 10 years ago was almost part of the U.S. domestic market. Now the U.S. hardly gets a look in against competition from cheap Black Sea supplies.”

Political tensions with Iran have not helped.

“The long-term political friction between Iran and the U.S. meant Iran bought from the U.S. only when its back was against a wall. Germany, and so the EU export figure, benefited from this,” one European trader says.

The U.S. Department of Agriculture has forecast that U.S. wheat exports in the 2014 to ’15 season will total 25.2 million metric tons, the smallest volume in five years. It expects the EU to ship 28 million metric tons, its second-highest volume after a record 30 million in 2013 to ’14.

U.S. wheat exports have been in long-term decline since the early 1980s, when they peaked at more than 48 million metric tons, as wheat has lost favor with U.S. farmers in part because of biotech advances in corn and soy crops.

Emerging force

The EU, in contrast, has been an emerging force as its traditional top wheat suppliers, France and Germany, have been joined by Romania.

“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,” one European trader says.

Romania emerged as a major supplier to Egypt during the 2013 to ’14 season and is geographically well placed to serve other customers next year such as Turkey, where the crop has been damaged by drought.

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

“I think Romania is one of the up and coming stars and could be a good origin for Turkey,” she adds.

With many markets in the Middle East now largely lost to the U.S., the next battleground might be Asia.

“We (the U.S.) 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,” Shawn McCambridge, a senior grains analyst with Jefferies Bache, says.

“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 adds.

South Korean feedmakers are among those increasingly looking towards EU and Black Sea suppliers.

“Currently we are expecting more supplies from Europe and the Black Sea as we hear good harvest forecasts,” a source at one of South Korea’s major feedmakers says.

“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 United States, Canada and Australia.”

The U.S. wheat industry appears resigned to losing its status as the world’s top supplier in the future.

“We’ve always thought that one of these days we are going to walk into the office, and the U.S. is not going to be the largest world wheat supplier,” says Vince Peterson, vice president of overseas operations at U.S. Wheat Associates.

“Other than saying that maybe ruins our morning coffee, does that really mean anything? As long as we have adequate access to the markets that value and are willing to pay for the wheat we produce, we are in pretty good shape.”

Peterson says the U.S. still has some markets with good potential in Latin America, southeast Asia and west sub-Saharan Africa.

“We do have our traditional customer base that tends to be loyal as long as the discount to other countries isn’t too wide,” Jefferies Bache analyst McCambridge says.

“We also have some 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.”

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