GENEVA (Reuters) - The global grain market needs more U.S. wheat to make up for tightening supply in other major exporting zones, but China will be able to keep shunning U.S. soybeans in its trade tussle with Washington, grain merchants said on Wednesday.
U.S. soybean shipments to China have dried up in recent months after Beijing raised tariffs on the most valuable U.S. agricultural export to the country.
After sweeping up as much of Brazil's last soybean crop as possible, an early start to the South American country's next harvest should allow China to continue avoiding U.S. supplies for now, traders told the Global Grain conference in Geneva.
"I think they (China) will find a way around that issue because the supply gap is definitely narrowing," Gary McGuigan, president, global trade at Archer Daniels Midland said.
Customers in China he had spoken to recently were using different supply strategies but he said none mentioned buying U.S. soybeans.
With the start of the Brazilian harvest less than a month away, there was little threat to supply there, Adrian Isman, global head of grains at Louis Dreyfus Company, said. But he added there was more weather uncertainty in Argentina where the harvest cycle is later.
The chief executives of ADM and Bunge, another global grain merchant, have both suggested China may not need to buy U.S. soybeans to fill the gap until the next Brazilian crop.
A meeting between U.S. President Donald Trump and Chinese counterpart Xi Jinping scheduled at a gathering of the G20 group of economies in two weeks has raised hopes of a trade deal. However, traders at the conference said they were cautious after seeing the market swings this year following some of Trump's comments on Twitter.
In contrast to the soybean market, in which the trade dispute has fueled negative price sentiment, most traders saw upside to wheat prices, given few alternatives to U.S. exports to cover demand in the second half of the 2018/19 season.
"I definitely think there is going to be a milling wheat squeeze in the first half of 2019," ADM's McGuigan said.
"The U.S. is probably going to be the (key) supplier but to get wheat out of the U.S. with the carry system there you're going to have to pay up."
Weather-hit harvests around the world and declining availability in Russia after a rapid start to its export campaign have eroded global supply.
However, incentives to store, or carry, wheat on the U.S. market and a sluggish start to its export season could cap U.S. export volumes.
There was potential demand for 38 million tonnes of U.S. wheat exports in 2018/19, 10 million more than the U.S. government's forecast, but such a surge was no longer logistically feasible after the slow export pace so far, Dan Basse, president of consultancy AgResource said.