Iran Buys Wheat From U.S. For First Time in 27 Years

The Wall Street Journal

Iran this summer resumed buying U.S. wheat after a 27-year hiatus, a sign of the limited options for importers seeking large quantities of high-quality grain.

Since the 2008-09 marketing year began on June 1, Iran has bought more than one million tons of hard red winter wheat directly from the U.S., which is "a very large amount," said Bill Nelson, analyst for Wachovia Securities. The purchases mean at least 3% to 4% of domestic wheat exports for the marketing year will go to a country the U.S. hasn't done business with for more than a generation. Government sanctions don't prohibit U.S. agricultural exporters from doing business with Iran.

Drought is expected to slash Iran's domestic production by one-third this year. Iran is forecast to produce 10 million tons of wheat this year, down from 15 million tons in 2007-08, and to import 4.5 million tons, up from 200,000 tons last year, according to the U.S. Department of Agriculture.

Experts on Iran and food commodities said the move stemmed largely from necessity. The two countries are locked in a struggle over Iran's nuclear program, which the U.S. suspects is aimed at developing weapons and Tehran says is intended to generate electricity.

"Do you think Iran would come to the U.S. if they had any place else they could buy it?" said Jerry Gidel, analyst for North America Risk Management Services. "In general, they need wheat. They're searching the world for wheat. They're buying the U.S. because it's the only thing they can buy."

Robert Looney, a professor of economics in the department of national security at the Naval Postgraduate School, said Iran appeared to be trying to diversify its food sources in response to rising commodities prices. "Politically they would have a hard time domestically unless they had some other reasons justifying it," he noted.

But, he added, "One thing you don't want if you're the potential adversary of the U.S is being too dependent on the U.S. for food, unless you have a reason for believing there's going to be some kind of détente."

The State Department said it wasn't possible to divine the motives of the Iranian regime from the trade, but that it was pleased the trade was taking place.

Rob McInturff, a State Department spokesman, said the exports highlight the U.S.'s willingness to engage with the Iranian people even as it continues trade sanctions against the Iranian regime, which prohibit the export of technology but permit agricultural and medical trade.

"We have a longstanding policy...of engaging the Iranian people on the one hand while sanctioning the Iranian government on the other," Mr. McInturff said.

A spokesman for the Iranian mission to the United Nations said he wasn't able to comment.

Iran was a major wheat importer as recently as 2001-02, when it booked more than 5.3 million tons from sources including Australia, Canada, the European Union and Argentina, according to U.S. Wheat Associates, an industry group focused on promoting U.S. wheat sales. But exportable supplies are short in those countries, while the U.S. winter-wheat harvest is nearly complete, said Joe Sowers, senior market analyst for U.S. Wheat.

U.S. Wheat Associates did not address the issue when asked whether the purchases represented any larger, geopolitical developments. "We just know they bought a bunch of wheat," group spokesman Steve Mercer said. "We're happy about it."

Before its recent purchases, Iran hadn't imported any wheat from the U.S. since 1981-82, when it bought 728,000 tons, according to USDA data.

Iran can't look to Australia for large amounts of wheat, as domestic supplies there have been drained after two years of poor production because of drought.

Australia's 2008-09 crop looks better, but the full-scale harvest won't begin until the fall. Argentina's crop, meanwhile, is suffering from dryness and won't be cut until later this year. Canadians and Europeans are in the process of harvesting their winter wheat, though there are some concerns about quality in parts of the EU.