Can US Winter Wheat be Attractive in 2022?
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China is by far the largest Wheat producer globally, with 134.25 Mmt produced in 2020/21. It also relied on Imports to complete its supply. As such, the US represented a reliable source, representing 31.4% of China Wheat imports in Mar 2021. According to gov sources, in 2022, China wheat production will be the worst in history. Yet, there were no US Wheat imports in Mar 2022; in fact, China imported from France and Brazil and bumped Australia’s share up to 72% (+31.35% YoY).
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Figure 1: China March Imports March 2021 v. March 2022
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China Wheat imports are directly linked to cash prices. Australia had a record Wheat production in 2021/22 and is the cheapest available on the market. With La Niña 21/22, US Wheat production decreased to 44.79 Mmt, the lowest in years. As such, it became the most expensive on the market. In Mar 2022, the conflict in Ukraine led to a price surge along with the current inflation. Today, China has no incentive to buy Wheat from the US when it can source the same product, cheaper, worldwide. Without Chinese purchases, who is willing to buy the US crop?
Figure 2: 2022 Wheat CFR China Quotes
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US Wheat exports decreased almost 30% in Mar 2022 YoY. Since Jan 22, China imports have been virtually nonexistent, but Mexico represented nearly 20% of Q1 US Wheat exports. Mexico is continuing the trend that started in 2021, increasing its Mar US Wheat imports by 37% YoY. In 2022, US Wheat will continue to be attractive to its most consistent importer of Grains, Mexico.
Figure 3: Top 10 US Wheat Export Destinations In 2022 (Q1)
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Thanks to the USMCA free-trade agreement, the US can count on Mexico. In Q1 2022, Mexican US Wheat imports increased 7.69% YoY. However, US Wheat represented 88.5% of Mexico Wheat imports in Q1 2021 and lost 18.3% of market shares in 2022. Mexico is looking for cheaper supply sources, and Argentina could threaten these shares.
Figure 4: Mexico Wheat Imports Origin Distribution in Q1 2022
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In a Nutshell
US Wheat suffered droughts early in 2021, decreasing the supply available in 2021/22. In 2021, the US counted on China’s imports to export its product. However, even though the world’s largest producer will have its worst production in history, China did not import Wheat from the US in March 2022. Instead, China imported from countries like France or Brazil with lower supply, and massively increased Australian Wheat imports due to their cheaper costs.
Indeed, due to the lower 2021/22 supply and ramping inflation, US Wheat is the most expensive product available on the market, even with export taxes and freight. Therefore, China has no incentive to buy US products while this situation persists. Meanwhile, US Wheat’s largest importer, Mexico, continues to purchase the product thanks to the USMCA free-trade deal. However, despite representing the most significant part of Mexico Wheat imports, the US has started to yield market shares to cheaper competitors, such as Argentina.
Overall, US Wheat is not the most competitive product on the market, making it less desirable. Nonetheless, despite losing some of its Mexican market shares, the US will remain attractive to Mexico. Moreover, many countries in Central America, Western and Eastern Africa increased their product imports.
