FarmPolicy

April 29, 2017

Focus on Trade, and Wheat Export Issues

Recall that last week, the U.S. action took action against Chinese domestic crop subsidies at the World Trade Organization (W.T.O.).

In his weekly electronic newsletter yesterday, House Ag Committee Member Randy Neugebauer (R., Tex.) stated that, “I am very pleased the United States has initiated a new agriculture trade enforcement action against China at the [W.T.O.]. U.S. Trade Representative Michael Froman and U.S. Agriculture Secretary Tom Vilsack announced last week that the United States is bringing a case against China to challenge the support China has provided for its own wheat, corn, and rice crops. Like other countries, China agreed to limits on its domestic government support for agriculture when it joined the WTO. However, China has exceeded the limits it agreed to on corn, rice, and wheat by $100 billion in 2015 alone. Excessive government support, such as the market-price support China provides, artificially inflates the prices Chinese producers receive, causing overproduction that keeps out U.S. exports. China’s actions have created an uneven playing field for American producers who are following the rules. Moving forward, I hope U.S. trade officials also pursue enforcement action against unfair Chinese policies that impact other crops, such as cotton.”

Some agricultural observers have indicated that wheat farmers may have the most to potentially gain from the U.S. W.T.O. action against China.

Several variables are currently at play that are negatively impacting the profitability of wheat production in the U.S.

Reuters news reported yesterday that, “Farmers in Oklahoma, the No. 2 winter wheat producing state, face potential losses of roughly $55 an acre for wheat in 2017, according to Kim Anderson, an agricultural economist at Oklahoma State University.”

The Reuters article added that, “The world wheat harvest hit a record in 2016, sending nearby Chicago Board of Trade futures to 10-year lows below $4 a bushel.”

Meanwhile, Emiko Terazono and Heba Saleh reported yesterday at The Financial Times Online that, “For the world’s wheat farmers already reeling from decade-low prices due to bumper crops around the world, it is the last thing they wanted.

Confusion surrounding quarantine rules in Egypt has effectively taken the world’s largest wheat importer out of the international market, depressing prices, which are already weak from plentiful harvests.

Wheat sales to Egypt have come to a standstill after the government announced in late August that there would be zero tolerance for any traces of ergot fungus, a naturally occurring fungus, despite internationally accepted standards which allow for levels of 0.05 per cent.”

The FT writers noted that, “The Egyptian government, which provides subsidised bread to citizens, is the top buyer of wheat, but few traders are now willing to put in their offers in the state-run wheat tenders after the country’s authorities recently rejected vessels from Romania as well as Russia.”

Yesterday’s FT article added that, “The virtual absence of the world’s largest buyer comes as wheat markets are groaning under excess supplies.

“The Australian government recently raised its wheat production forecasts for 2016-17 to the second highest on record, while the US Department of Agriculture also increased its world production estimates for the same period to a new record high of 744m tonnes due to increases in India, Kazakhstan, Brazil and Australia.”

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