Why boycotting Canadian wheat is likely to backfire for Saudi Arabia

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The sudden diplomatic dispute between Saudi Arabia and Canada took a number of surprising twists and turns this week, however maybe none was extra head-scratching than the dominion’s menace to cease shopping for Canadian wheat.

As a result of they do not purchase a lot because it is. And if something, they’re likely to want to purchase extra quickly.

On Wednesday, the nation’s official grain shopping for company, the Saudi Grains Group (SAGO), knowledgeable grain merchants that it might not settle for shipments of Canadian wheat or barley after Canada criticized Saudi Arabia’s arrest of political activists.

Canada is a serious grain provider to the worldwide market, however Saudi Arabia is not a serious purchaser of Canada’s wheat. Knowledge from the Canadian Grain Fee reveals the nation purchased 68,000 tonnes of Canadian wheat in 2017, roughly the identical as the yr earlier than. That is a drop within the bucket in contrast to another international locations, like Indonesia with 1.5 million tonnes, and the U.S. with practically that a lot.

To this point in 2018, Saudi Arabia hasn’t purchased any wheat from Canada.

As a desert nation Saudi Arabia imports a whole lot of billions of {dollars} price of meals yearly, so the plan — if it is a critical menace — would presumably be to supply grains elsewhere.

If that is the case, Riyadh is likely to run into an issue: different international locations haven’t got a lot to promote proper now.

The monetary disaster of 2008-09 precipitated American farmers to plant much less wheat, and farmers elsewhere on this planet began planting extra to take benefit and gobble up market share.

That each one got here to a halt this yr, nevertheless, as crop yields and whole acreage for wheat declined due to unfavourable rising circumstances nearly in all places however North America.

Europe is on observe to produce simply 19.eight million tonnes of wheat this yr, the bottom stage since 2012. Germany is usually a wheat exporter, however has resorted to importing 400,000 tonnes of wheat to fill its personal wants.

It is a comparable story elsewhere. “Dry circumstances for seeding subsequent yr’s winter wheat crop prolong from the southwest [Europe] Plains to France, although Ukraine and Russia are beginning to development wetter,” Bryce Knorr, a senior grain market analyst with Farm Futures, stated in a latest word. “Now, a brewing El Nino warming of the equatorial Pacific threatens to slash Australian manufacturing by a 3rd.”

Wheat costs up

Not surprisingly, that is pushing up wheat costs. Canada and the U.S. are two of the world’s largest producers of wheat, and farmers on either side of the border are seeing rising costs for their bumper crop.

The value of wheat within the agricultural buying and selling hub of Chicago has risen by nearly $100, or greater than 20 per cent, prior to now month, and a bushel was altering fingers for $578 US on Friday.

Analyst Dan Flynn, with the Value Futures Group in that metropolis, says costs abroad, the place the Saudis would presumably be shopping for their grains, are even larger. “The market tone stays bullish total as world crops are nonetheless in hassle,” Flynn stated. Wheat markets would possibly get much more costly in coming weeks, he stated, due to the scarcity of manufacturing in a number of main wheat exporting international locations, corresponding to Australia, Ukraine and Russia.

Saudis depend on barley

The Saudis are massive patrons of barley, too, however in that case they’ve been a serious buyer for Canada’s product — the second-biggest on this planet final yr, with 132,000 tonnes. That is nicely behind China, however forward of even the USA. Very similar to with wheat, the Saudis have but to purchase any Canadian barley this yr.

Barley like the type proven right here is primarily used as animal feed, however is additionally an essential ingredient in beer. (Kate MacNamara/CBC)

Ordinarily, being a big buyer would give a rustic extra leverage, however that is not the case for the Saudis this time round. That is as a result of one of many main makes use of for barley is as an animal feed, and plenty of international locations merely decide to use totally different crops corresponding to corn, oats or sorghum to feed their herds when costs for barley get too excessive.

“However the Saudis do not do this,” Winnipeg-based grain analyst Chuck Penner, of Left Discipline Commodity Analysis, says. “They only purchase barley.”

That over-reliance on barley is likely to backfire on Riyadh, simply as it could in wheat, as a result of poor harvests have precipitated the worth of barley to spike nearly as a lot.

“Our costs have truly simply within the final month or so been rallying sharply, and that is not going to change primarily based on this information,” Penner notes, including that the spot value for barley has risen by about 10 per cent prior to now few weeks.

Which is why his evaluation of the Saudi technique is blunt.

“I feel the Saudis picked a foul time to lower off a provider,” Penner says. “They actually haven’t got an entire lot of different choices.”

https://www.cbc.ca/news/business/saudi-arabia-wheat-1.4780595?cmp=rss

 

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