U.S. Losing Market Share to Cheaper Russian Wheat

The U.S. and Russia, two of the world’s top wheat suppliers, are competing for global market share, but Russia’s weak currency and declining transportation costs are enabling Russian shippers to undercut the cost of U.S. cargoes by about 16%.

Over the past 20 years, the U.S.’s control of the global wheat market has been weakening as output from the Black Sea region has grown and buyers are opting for alternate suppliers. Crashing oil prices and concurrent socio-political factors have resulted in the ruble falling by 45% over the past year – the biggest decline for any global currency, making Russian exports more competitive, while the Baltic Dry Index, which gauges freight costs is down 22% over the past year.

This competition is only intensified by two consecutive bumper harvests which have led to the largest stockpiles in 30 years according to the International Grains Council.

Nigeria, one of the top U.S. wheat buyers and the largest economy in Africa, has reduced its U.S. wheat purchases by almost 50% over the past five years, while Russia and Ukraine now account for up to 17% of the country’s imports – up from 1% two years ago according to the U.S. Department of Agriculture (USDA). Meanwhile, Mexico has reduced its U.S. wheat purchases by 7.5%, as the Black Sea now accounts for 12% of its wheat imports – up from zero just two years ago.

"It's clearly a price issue as much as anything," said Amy Reynolds, a senior economist at the IGC in London. "The Black Sea region has good-quality grain at a good price, and prices in the U.S. do appear to be too high to be justified."

Despite Russian exporters having to deal with a newly enacted export tax, the USDA estimates that Russia will export a record 23 million tons of wheat this year – just shy of the expected 25.2 million tons expected to be shipped from the U.S., which has seen its global market share drop from 30% in 2008 to 16% today.

The U.S. however, still holds a geographical advantage in the Canadian and Latin American markets, and although Mexican purchases from the U.S. have declined, it still remains the country’s number two customer behind Japan. Nigeria however, is an equal nautical distance from both the U.S. and Russia, and because of this, has become a point of contention between the two suppliers.

Worldwide bumper crops including record output in France indicate that global market competition will only intensify as the IGC expects global wheat trade to top 148 million tons this season. And if Russia can maintain its discount of about $34 per ton compared to U.S. wheat, buyers will opt for the lower price when possible.

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