Canada a raised threat for soft wheat exporters

The relatively low quality of Canada's, huge, wheat harvest could see more of it ending up with buyers such as Egypt, threatening the dominance of the likes of France and the US in these markets.

The US Department of Agriculture - expanding on high-profile crop estimate revisions in Tuesday's Wasde crop report said that an upgrade to a record 154.3m tonnes in the forecast for wheat trade in 2013-14 reflected expectations that low prices will spur import demand, especially for lower quality grain.

Wheat-importing countries are "taking advantage of" the boost to supplies in exporting countries such as Australia and Canada "to import and use more competitively priced, lower quality wheat", the USDA said.

Countries expected to buy more included Egypt, the top wheat importer, which now looked on track to ship in 10m tonnes, 500,000 tonnes higher than previously thought, and up 1.7m tonnes from last season, when the country's financial crisis dented its ability to fund purchases.

"This year, the Egyptian economy and import potential is expected to be supported by sizeable financial assistance pledged by Saudi Arabia, United Arab Emirates, and Kuwait," the USDA said.

A stronger pace of wheat purchases by Egypt's Gasc grain authority, which has bought some 3m tonnes at tender so far this season, "gives an indication that the country is on the way to import wheat quantities that are closer to its usual level of imports".

'Mammoth crop'

However, while the likes of France and the US would be expected to lift sales to Gasc as 2013-14 progresses, as the typical early season dominance by Black Sea wanes, Canada may pick-up trade this time as it sells down a harvest upgraded to a record 37.5m tonnes.

Canada wheat output and (exports)

2013-14: 37.5m tonnes, (23.0m tonnes)

2012-13: 27.21m tonnes, (19.0m tonnes)

2011-12: 25.29m tonnes, (17.4m tonnes)

2010-11: 23.30m tonnes, (16.6m tonnes)

2009-10: 26.95m tonnes, (19.0m tonnes)

Source: USDA

"Although logistical problems, especially the railway system, could hold back export activity, the mammoth crop should find its way to world markets," the USDA said.

"Given the lower quality of this year's Canadian wheat, it is possible that it could be competitive in countries such as Egypt that usually do not import from Canada, given the typically high quality of Canadian wheat output."

Lower protein

Canada's, predominantly, high protein spring wheat crop usually exceeds the needs of many importers.

Red spring wheat protein levels, Prairie states, and (2012 result)

Manitoba: 13.4%, (14.3%)

Alberta: 12.8%, (13.6%)

Saskatchewan: 12.7%, (14.1%)

All western Canada: 12.9%, (13.9%)

No 1 wheat: 12.8%, (13.6%)

No 2 wheat: 12.8%, (14.1%)

No 3 wheat: 13.3%, (14.4%)

Source: Canadian Grain Commission. 2013 data accurate as of November 26

However, the protein level for red spring wheat this year is, at 12.9% from the main Prairie producing states according to Canadian Grain Commission data, down 1.0 point year on year, and below average levels of about 13.6%.

This is true for Number 1, Number 2 and Number 3 grades, and particularly for the Saskatchewan crop, for which protein levels came in behind those in Alberta and Manitoba.

'Low-to-mid protein crop'

Some erosion has emerged too over the quality of the Australian crop, which on quantity was also upgraded, to the country's third biggest on record.

Results from the first 70% of the harvest show that the "quality profile continues to deliver a low-to-mid protein crop", said Josh Martin, head of trading and risk management at AWB, the Cargill-owned grain handler.

Nonetheless, Australian wheat prices "have strengthened on the back of good domestic and export interest", Mr Martin said. 

"A small Australian wheat carry over from the 2012-13 season has also meant pipelines into domestic export channels are being replenished, resulting in good demand."

A weakening Australian dollar, which dropped on Thursday below $0.90 to Aus$1.00, is also boosting the appeal of Australian exports.

On the Sydney futures market, Australian wheat for January closed on Friday at Aus$300.00 a tonne, matching the highest for a spot contract in more than a year.

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