Wheat market update

Input costs
The U.S. tariffs on Canada and China will likely affect farm input costs. From Canada, we are concerned about a 25% tariff on fertilizer. About 90% of the western U.S.’s fertilizer comes from Canada.

• Fertilizer:  Approximately 90% of the potassium fertilizer used in the Western U.S. comes from Canada.
  • A $25 per ton “tariff” line item has been added to all potash invoices. Full pass-through of the 25% tariff could increase prices by more than $100 per ton for supplies sourced from Canada.  (Source: University of Illinois Farm Doc Daily)
  • While Canadian nitrogen makes up a small percentage of national consumption, the only local producer of nitrogen in the PNW is in St. Helens, Ore., which sources their natural gas (10% tariff) from a pipeline out of Canada.

Exports
Over 90% of Washington wheat is exported, and about 50% of all U.S. wheat production is exported. That means we rely heavily on overseas demand to support prices and support the livelihoods of Washington farmers.

Washington and U.S. wheat are rarely the low-cost provider, instead we differentiate ourselves on excellent, consistent, end-use (milling and baking) quality, and reliability of timely delivery. However, many markets are cost sensitive, shifting to other suppliers when the price dictates.  Any decrease in export demand due to higher costs compared to competitors will decrease the amount farmers can get for their product.

A major concern with tariffs is the potential loss of market share in any given market. We have past examples where tariffs were imposed on U.S. wheat or reduced for our competitors, and the U.S. lost market share that has never been recovered. We spend years, even decades, developing a preference for U.S. and Washington wheat. Competing in a commodity market with countries who can produce wheat at a much lower price is already challenging and difficult to compete. Added challenges and increased costs to our price sensitive customers is a tough blow to farmers who are already struggling.

Mexico
Mexico is the No. 1 export market for U.S. wheat, representing 15% of total sales in both value and quantity (five-year average). Those exports alone are valued at $1.16 billion, not to mention the indirect economic impact.

Mexico is not a significant customer of Washington wheat (although it is on an unusually high soft white import pace this year), but any decrease in demand for U.S. wheat depresses prices across the spectrum and will directly impact the bottom line of Washington farmers.

Inflation and high input costs have been a significant challenge in the last few years at the same time as commodity prices have dropped. Wheat farmers are price takers, meaning they sell their wheat for the price that the commodity market sets. They cannot raise prices when their production costs rise. Wheat prices are now at 2019 levels and average $1.50 to $2.00 below the cost of production in Washington.