On Monday, South Korea announced it was suspending Canadian wheat and flour exports.
The news comes days after Japan made a similar announcement due to the discovery of GMO plants in southern Alberta.
The Canadian Food Inspection Agency announced the discovery last week. None of the wheat – found beside an access road to an oil well – made its way to a grain-handling facility.
No animals or humans were affected by this grain… unless you start talking about the Canadian farmers who are going to lose two major customers for a while.
This is a difficult decision given Japan’s sizeable imports of wheat. Japan purchases about 6 million metric tonnes (MMT) of wheat annually, of which about 1.5 MMT is Canadian wheat. South Korean imports of Canadian wheat are around 235,000 MT per year.
The most basic questions are: where did these plants come from, and how did they get there?
An investigation is underway, and we’ll eventually know.
But there are other key questions that we can answer right now. Namely:
1. How long will the bans last?
2. Second, will other nations join in the suspension
3. How will this affect U.S. farmers?
4. What is the short-term impact on prices?
Let’s dig into all of them.
How Long Will the Ban Last?
It’s important to note that GMO wheat is not allowed to be grown in any commercial market.
Although there are no known safety risks, the standard practice is to suspend trade until these plants are isolated and ditched.
In this case, it was a small number of plants. Officials took seven plants for testing and destroyed the rest on the side of the road.
Japanese officials plan to travel to Canada this week to get more information on the grain, before making any changes to the ban. And this is a move they’ve made before.
Back in April 2013, unapproved GMO wheat from Monsanto was discovered in Oregon. Japan and South Korea, and Taiwan suspended imports in late May 2013. The ban was lifted in late July 2013. Assuming a similar path, it will likely be two to three months before this suspension is lifted.
It is worth noting that two other GM discoveries were made in the United States in recent years (in Montana in 2014 and Washington in 2016). No suspensions came out of these GMO discoveries though.
Will Anyone Else Suspend Imports?
Back in 2013, both Japan, South Korea, Taiwan suspended some imports.
The European Union increased testing of wheat imports as a result.
Thus, in the short-term, all eyes will be on Taiwan.
The Taiwan Flour Millers’ Association did recently issue an international tender to purchase 95,350 MT of #1 milling wheat, but it’s unclear right now if they have excluded Canada from this tender at the moment. Given their action back in 2013, it wouldn’t to see them not let Canada into the tender.
After these players though, it is unlikely that other nations will halt shipments given that none of these plants found their way into the food supply.
How Does It Affect Farmers?
U.S. spring wheat quality has looked very good over the last few weeks.
The USDA says that the U.S. spring wheat crop is rated 78% G/E.
That figure is 13 points higher than the 5-year average and 37 points higher than last year’s G/E rating at this time of year.
Given Japan’s strong demand for high-quality wheat combined with a recent downturn in prices, expect American farmers to capitalize.
On Tuesday, Japan’s Ministry of Agriculture put out a tender for 91,188 tonnes of food-quality wheat from the U.S. and Australia. The tender, which closes Thursday, is seeking U.S. Western White, Hard Red Winter, and Dark Northern Spring Wheat (with a minimum protein level of 14%). Unlike Taiwan, we definitely know that Canada was left off that tender.
This tender and potentially higher demand out of Japan or South Korea could be temporary saviors for American farmers. The ongoing trade spat between the U.S. and China is a significant blow to soybean farmers, as you’ve probably heard from the mainstream press and talking heads.
But China has been a big buyer of hard red spring wheat out of the PNW (i.e. Washington and Oregon) over the last two years. The bulk of that wheat comes out of Montana.
What Happens for Spring Wheat Prices
The Japan tender is a good reminder to get your wheat tested to know your protein levels. With international buyers lining up for high protein quality, we could see some significant premiums build the longer the Canadian ban lasts.
Canadian farmers, however, shouldn’t fret.
Increased demand for U.S. high-protein wheat will create higher demand from non-Asian countries (including U.S. millers) for the best crop possible.
From an international purchasing power standpoint, the strong U.S. Dollar will also make Canadian wheat more attractive as the summer months pick up.