CORVALLIS - Wheat growers in the Pacific Northwest are keeping a close eye on how Pakistan reacts to the nuclear tests recently conducted in India.
The concern is that Pakistan will retaliate against India with nuclear testing of its own and be subject to the same U.S. economic sanctions now in place against India, according to Jim Cornelius, Oregon State University Extension economist.
This year, Pakistan has been the biggest customer for white wheat grown in the Northwest, accounting for almost half of all export sales. "Eighty to 90 percent of all Northwest wheat is sold in the international marketplace and this year Pakistan bought nearly half of that, so you can understand why wheat growers are worried," said Cornelius.
During the first 11 months of the current market year, Northwest wheat exports have totaled 5.2 million metric tons, with 2.2 million metric tons valued at roughly $250 million going to Pakistan. Japan has been the second largest buyer at 1 million metric ton.
Because sales to Pakistan are made through the U.S. Export Credit Guarantee program, economic sanctions would put them in jeopardy. Under this program, the U.S. government steps in and pays the seller if the country buying the wheat fails to pay for it.
Sanctions would not put an immediate stop to sales because current loan guarantees would be honored. But future loan guarantees would be forbidden as long as sanctions remained in effect, according to Fred Woods, public policy specialist with the U.S. Department of Agriculture.
Complicating the situation is a drop in world demand for wheat that has caused prices for Northwest wheat to fall 28 percent, from $4.64 to $3.32 a bushel, in the last year.
"The drop in world demand means the major wheat exporting areas - Canada, Australia and Europe - have large stocks of wheat and could step in to meet demands if sanctions force the United States to stop selling to Pakistan," Cornelius said. "We could lose the market."
This is not the first time political events have threatened Northwest wheat markets. Cornelius noted that Iran was a big buyer of Northwest wheat in the 1970s. Economic sanctions against Iran after its revolution cut off sales and it took a number of years for Northwest growers to find new markets.
"Imposing sanctions on Pakistan would add to an already grim market situation for Northwest wheat producers," Cornelius said.