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Why boycotting Canadian wheat is likely to backfire for Saudi Arabia

The sudden diplomatic dispute between Saudi Arabia and Canada took a lot of unexpected twists and turns this week, but perhaps none was more head-scratching than the kingdom’s threat to stop buying Canadian wheat.

Because they don’t buy much as it is. And if anything, they’re likely to need to buy more soon.

On Wednesday, the country’s official grain buying agency, the Saudi Grains Organization (SAGO), informed grain traders that it would no longer accept shipments of Canadian wheat or barley after Canada criticized Saudi Arabia’s arrest of political activists.

Canada is a major grain supplier to the global market, but Saudi Arabia isn’t a major buyer of Canada’s wheat. Data from the Canadian Grain Commission shows the country bought 68,000 tonnes of Canadian wheat in 2017, roughly the same as the year before. That’s a drop in the bucket compared to some other countries, like Indonesia with 1.5 million tonnes, and the U.S. with nearly that much.

So far in 2018, Saudi Arabia hasn’t bought any wheat from Canada.

As a desert nation Saudi Arabia imports hundreds of billions of dollars worth of food every year, so the plan — if it’s a serious threat — would presumably be to source grains elsewhere.

If that’s the case, Riyadh is likely to run into a problem: other countries don’t have much to sell right now.

The financial crisis of 2008-09 caused American farmers to plant less wheat, and farmers elsewhere in the world started planting more to take advantage and gobble up market share.

That all came to a halt this year, however, as crop yields and total acreage for wheat declined due to unfavourable growing conditions just about everywhere but North America.

Europe is on track to produce just 19.8 million tonnes of wheat this year, the lowest level since 2012. Germany is normally a wheat exporter, but has resorted to importing 400,000 tonnes of wheat to fill its own needs.

It’s a similar story elsewhere. “Dry conditions for seeding next year’s winter wheat crop extend from the southwest [Europe] Plains to France, though Ukraine and Russia are starting to trend wetter,” Bryce Knorr, a senior grain market analyst with Farm Futures, said in a recent note.”Now, a brewing El Nino warming of the equatorial Pacific threatens to slash Australian production by a third.”

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