November 29, 2007
U.S. Wheat Associates is the industry’s market development organization working in 90 countries on behalf of America's wheat producers. The activities of U.S. Wheat Associates are made possible by producer checkoff dollars managed by 18 state wheat commissions and through cost-share funding provided by USDA’s Foreign Agricultural Service. For more information, visit www.uswheat.org or contact your state wheat commission.
In This Issue:
1. Take Advantage of Knowledge and Service
2. From the Heart: A U.S. Wheat Grower Talks to Customers
3. Supporting In-Kind Food Aid
4. U.S.-Libya Trade Relations Continue to Improve
5. Australian Election Signals World Wheat Marketing Change
6. Spring Wheat Revalued; New Crop Discounts Weaken
7. La Niña Shouting for Attention
8. U.S. Wheat Industry News
1. Take Advantage of Knowledge and Service
The story behind Tunisia’s recent purchases of U.S. hard red spring (HRS) and durum offers an important glimpse into how those who buy and process wheat can use the experience and knowledge of the people representing U.S. wheat producers in more than 90 countries to solve problems and increase operational efficiency.
This North African country produces plenty of durum in most years to cover its domestic needs. This year, when actual volumes collected turned out to be well below what had been expected by the government, Tunisia's Office of Cereals (OCT) found itself uncovered.
OCT developed an import program for bread and durum wheats to help cover domestic needs through July 2008. As an emergency measure, Tunisia purchased more than 75,000 metric tons of U.S. durum in September. However, additional import orders were delayed and by October, Tunisia still needed a lot of durum when world supply was shrinking fast and prices were skyrocketing.
The initial response from OCT was to call for adding a significant amount of bread wheat into the grist in all durum mills. USW and the Northern Crops Institute in Fargo, North Dakota, provided samples of composite pasta, but the Tunisian Chamber of Millers (TCM) saw this potential solution as technically unmanageable. At this point, OCT and TCM asked USW to step in as a neutral third party with the technical experience to help address the issues. This was possible because USW has earned a respected place in the Tunisian market from its technical service office in the capital of Tunis. USW has 16 offices throughout the world devoted exclusively to serving wheat buyers and users.
USW Marketing Consultant M. Salah Mahjoub and Regional Technical Director Peter Lloyd began a series of separate meetings with OCT and TCM, leading to a joint meeting in late October. As a result of the collective effort, Tunisia now has a workable solution to their immediate needs and a long-term process to manage its grain needs.
Based on advice to quickly cover its needs under the plan, OCT bought a significant amount of U.S. wheat over the past two months, including 25,000 metric tons of HRS (as a high-quality blending wheat) and an additional 63,000 metric tons of U.S. durum.
2. From the Heart: A U.S. Wheat Grower Talks to Customers
Jim McDonald, a wheat grower from Idaho and a former USW Chairman, USW Secretary-Treasurer Janice Mattson and USW Vice President of Marketing Programs Rick Callies recently traveled to meet U.S. wheat buyers and users throughout Asia. Mr. McDonald was invited to speak to the Filipino-Chinese Bakers Association at an induction ceremony for its new officers during a stop in the Philippines.
Though directed specifically to Filipino customers, his remarks are from the heart and apply equally to customers around the world. Here are excerpts from Mr. McDonald’s talk.
“On behalf of U.S. Wheat Associates and wheat growers from Idaho and all across the United States, I want to thank the Filipino-Chinese Bakery Association for inviting me to speak to you, and to help honor those folks who are stepping up into leadership positions today.
“It sure is nice to be back in the Philippines. This is my third visit here – all because I have the good fortune to be a wheat grower from a country that exports about half of the wheat we grow every year.
“It is a rare treat to plant the seeds and harvest the crop at home – and then travel half-way around the world to visit the people who mill the grain and use the flour to bake nutritious, high-quality products for consumers here in the Philippines.
“Wherever we travel, U.S. wheat growers talk a lot about the reliability, the choice and the value of our milling wheat. I believe you also use reliability, choice and value to back up the excellent baked products you produce and sell. In that way, the vision we share for what we sell became the basic ingredients of our 45-year partnership. I also believe that our working relationship is – and will continue to be – a recipe for success.
“Nothing could serve as a more important symbol of that success than the recently renovated training facility we are meeting in today. I can only imagine what the training is like here for you and the people who work for you. But as a farmer, I do understand that you can’t learn how to farm and grow your business only from a book. You also need hands-on experience. I am sure bakers need that experience, too – to feel and work the dough in their hands.
“This facility gives you that opportunity. And U.S. Wheat Associates is honored that you continue to invite us to participate in the training that goes on here. For example, since you made your investment here, we have held several baking courses led by Mr. Boy Ng, our technical consultant here in the Philippines. In addition, we have sponsored several courses taught by instructors from the American Institute of Baking in Manhattan, Kansas.
“I want you to know U.S. wheat growers remain committed to helping you improve your already strong technical knowledge. It is very important to use every resource in our partnership when the short supply of wheat in the world has forced flour prices up to new highs at the same time freight and other raw material prices are also increasing.
“We believe your association’s history of success indicates you will meet this challenge. As you look ahead, we hope it will make it easier to know you have a partner in U.S. Wheat Associates. We applaud your leadership…your hard work…and your commitment to your customers. We are proud to play at least a small part in the noble work you do.
“Thank you for that opportunity…and we wish you the best of luck for future success.”
(To see a photo from the event, click on "Wheat Letter" at www.uswheat.org.)
3. Supporting In-Kind Food Aid
by Liz Jayankura-Jones, Trade Policy Specialist
USW and NAWG have been working as part of a coalition of agriculture commodity groups and the maritime industry to support in-kind food aid in the new U.S. Farm Bill. As it stands, the House version of the new Farm Bill includes an authorization for $400 million that the U.S. Agency for International Development (USAID) could use for famine assistance under the International Disaster and Famine Assistance Program of the Foreign Assistance Act. The Foreign Assistance Act currently includes existing authority for USAID to conduct local and regional purchase (LRP).
The Senate Committee on Agriculture, Nutrition, and Forestry, however, approved Farm Bill language granting $25 million per year for four years for a pilot LRP program under P.L. 480, Food for Progress. This would essentially create a pilot program under the U.S. Department of Agriculture for authority that already exists with USAID.
U.S. wheat has consistently been a leading source for food aid in the world with donations totaling 1.19 MMT, or $210 million, in 2006. In-kind food aid is a win-win situation in which U.S. food producers donate their bounty to feed the poorest of the poor.
4. U.S.-Libya Trade Relations Continue to Improve
by Rebecca Bratter Coleman, Director of Policy
The U.S. and Libya have begun “very preliminary” discussions about the possibility of negotiating a Trade and Investment Framework Agreement, according to Assistant U.S. Trade Representative for Europe and the Middle East Shaun Donnelly. The Administration hopes to intensify the dialogue in the weeks ahead, Donnelly recently said at a conference sponsored by the U.S.-Libya Business Association.
Down the road, Libya could be a potential partner for a free trade agreement as part of President Bush’s vision for a Middle East Free Trade Area. The Bush Administration is working hard to increase US-Libya trade ties and will sponsor a commercial mission to Libya early in December. The Department of Commerce also hopes to post a commercial attaché in Tripoli by the middle of next year.
Libya has been a customer of U.S. wheat in the past but is now primarily buying from the EU and Canada. USW recently attended a luncheon event with Dr. Ali Al-Esawi, the Minister of Economy, Trade, and Investment, who communicated his desire to reinstate purchases of wheat from the U.S.
USW also discussed ongoing visa problems with Dr. Al-Esawi. It has been nearly two years since Americans working for USW have been able to obtain visas for travel to Libya for regular trade service visits to promote U.S. wheat. Fortunately, as a Tunisian citizen, USW Marketing Consultant M. Salah Mahjoub can travel in Libya and is actively working for U.S. producers to educate and assist wheat buyers there.
“USW’s independent position as a market development organization and not a commercial exporter is important to both the government officials and private managers in Libya,” Mahjoub notes. “The service we provide in that role is respected.”
Here in the U.S. USW staff will also request assistance in the matter of visas through meetings with high-level contacts at the Libyan mission in Washington, D.C.
5. Australian Election Signals World Wheat Marketing Change
The world wheat market is a lot closer to fair and open competition after Australia’s Labor Party, led by Kevin Rudd, defeated Prime Minister John Howard’s Liberal Party in parliamentary elections on November 24.
Labor promised to end more than 60 years of wheat export monopoly control in the wake of a wheat trading scandal involving the export State Trading Enterprise AWB International that, in Labor’s words, “exposed the failures of the current export marketing arrangements.”
According to an “Australian Wheat Export Marketing” policy document released in October, Labor proposes a new model which “increases choice to growers by offering a number of selling options. Rather than forcing growers to sell their export wheat through a monopoly exporter as is currently the case, under Labor’s plan there will be a single desk with multiple accredited exporters.”
The U.S. wheat industry believes export State Trading Enterprises like AWB and the Canadian Wheat Board (CWB) inherently distort world wheat trade and has been working at the direction of producer leaders to remove these free trade barriers. AWB and CWB can and do use their monopoly power to set different prices than an open market would have otherwise dictated for different markets, often using U.S. wheat prices as a benchmark. That ability artificially affects the true value of wheat sometimes at the expense of buyers and usually at the expense of wheat producers.
“Competition works for wheat buyers and producers,” says USW President Alan Tracy. “Assuming Australia’s new government fulfills its promise, this change will definitely improve the way the world wheat market functions.”
Tracy has often repeated a key point that the U.S. wheat industry has never had an issue with Australian or Canadian growers. In spite of the fact that the U.S. competes head-to-head in wheat export markets, he says the issue has always been with the trade distorting power of the export monopoly.
“Australian farmers are a competent lot,” he says. “We know change doesn’t come easily, but we believe Australian and, we hope, Canadian growers will eventually welcome the freedom to sell their grain whenever and to whomever they choose.”
To learn more about recent steps in the journey to truly open wheat marketing, visit the USW Web site at www.uswheat.org and click on “Wheat Letter” to access these back issues of Wheat Letter: Nov. 30, 2006; Dec. 28, 2006; April 5, 2007; April 19, 2007; May 3, 2007; July 27, 2007; Oct. 4, 2007.
6. Spring Wheat Revalued; New Crop Discounts Weaken
by Joe Sowers, Senior Market Analyst
Before beginning a strong rebound last week, wheat futures prices had fallen steadily for nearly two months. During the decline, U.S. HRS prices increased relative to soft red winter (SRW) by more than $50/MT. Meanwhile, as nearby (December 2007) futures prices fell, “new crop” prices did not, taking as much as $65/MT off the discount for grain to be harvested in 2008.
HRS at a Premium. The price decline of nearly every U.S. wheat class in October and November occurred as supplies in such competing exporters as Argentina and Russia became available to the world market. Supplies in those origins tend to compete with U.S. winter wheat. On the other hand, supplies in Canada, the major competitor with U.S. HRS, are much tighter than last year, increasing demand pressure on HRS supplies and driving up prices relative to other wheat classes. Just three months ago, SRW futures prices were at a 70 cent/bushel ($26/MT) premium to HRS. Since then, that relationship has reversed and HRS is now at a 74 cent/bushel premium to SRW.
(Chart posted online at www.uswheat.org)
Nearby futures prices at the Minneapolis Grain Exchange (HRS) and the Chicago Board of Trade (SRW) show HRS moving from a discount to a premium over SRW.
USDA estimates that Canadian export reserves are down nearly 6 MMT (30 percent) from last year. But with 28 weeks of the marketing year still to go, U.S. supplies are also very tight as 87 percent of the HRS exports are already committed.
New Crop Discount Drops. During the recent general price decline, prices for grain in deferred positions, or “new crop” futures, gained considerable ground on nearbys. Much larger global planted area for the 2008 crop is expected to increase production potential and put downward pressure on new crop prices. Yet during the recent selloff, new crop prices remained fairly stable. At the end of September when prices peaked, SRW for December 2007 delivery was at a $2.58 cent/bushel ($95/MT) premium to July 2008 delivery. That premium fell as low as 81 cents/bushel ($30/MT) earlier this month.
(Chart posted online at www.uswheat.org)
SRW futures prices show the discount for new crop grain has decreased
The current dry conditions in the U.S. Southern Plains put yield potential at risk and will be supportive for new crop prices. That situation and a recent freeze in Argentina have contributed to the recent rebound in prices.
7. La Niña Shouting for Attention
Wheat market watchers have recently been commenting on dry weather in the heart of U.S. winter wheat country and increasing rainfall in parched Australia. Meteorologists with a knack for metaphor might explain this by saying it is the increasingly loud voice of the “Little Girl.”
La Niña and her “brother” El Niño are a naturally occurring cycle of large-scale changes in sea-surface temperature in the eastern tropical Pacific Ocean. According to the U.S. National Oceanic and Atmospheric Administration (NOAA), easterly trade winds strengthen and cold wells up on the equator and the west coast of South America during La Niña. After years of study, meteorologists have identified fairly consistent trends in how these phases impact the weather. The implications for world wheat production, of course, are more relevant.
NOAA indicates that La Niña conditions often support below normal rainfall in the U.S. Central Plains in the fall (hard red winter production) and in the Southeast in the winter (SRW production). The Pacific Northwest (white wheat production) is more likely to be wetter than normal in the late fall and early winter when La Niña is well-established. The impact trend in the Northern Plains (HRS and durum production) tends to be neutral. On the other hand, parts of Australia are typically wetter than normal during La Niña phases.
(Maps posted online at www.uswheat.org.)
La Niña’s potential impact in the U.S. is illustrated in these precipitation forecast maps from NOAA (Nov. 15) for 2008 from January to March (left) and March to May (right). Brown shades indicate below normal and green shades indicate above normal.
8. U.S. Wheat Industry News
On the Road. This is a busy travel season for USW staffers and board member producers. In addition to the recent Asia Board Team trip, over the past few weeks: Senior Market Analyst Joe Sowers presented a wheat supply/demand update to wheat buyers at a series of Crop Quality Seminars in the EU and at a meeting of the Arkansas Wheat Promotion Board; Chairman Ron Suppes (Kansas) and Vice President of Overseas Operations Vince Peterson attended the Latin American Millers Association (ALIM) conference in Lima, Peru, where the group celebrated its 25th anniversary and USW Regional Vice President Alvaro de la Fuente was recognized as one of ALIM’s founders; Vice-Chairman Michael Edgar (Arizona) and Director of Communications Steve Mercer attended the National Association of Farm Broadcasters annual meeting in Kansas City, Mo., where they participated in an annual interview event with National Association of Wheat Growers CEO Daren Coppock, President John Thaemert and Director of Communications Melissa Kessler. In addition, USW President Alan Tracy and Vice President John Oades will soon travel to Muscat, Oman, to represent U.S. wheat growers on the program at the 18th Annual International Association of Operative Millers Mideast & Africa District Conference & Expo.
Transportation and Logistics Seminar. About 70 representatives of wheat buying groups and millers in Mexico, rail executives as well as staff and producer board members from several U.S. state wheat commissions this week participated in a Transportation and Logistics Seminar sponsored by USW in Mexico City. USW Regional Vice President Mitch Skalicky reports that one of the highlights of the event was discussing a newly published USW Export Manual on Shipping Wheat from the U.S. to Mexico. “Key players in the Mexican milling industry believe the best way to access high quality U.S. wheat is though direct rail shipment and this event is part of the process to bring Mexican buyers, transportation executives and U.S. wheat producers together,” says Steve Wirsching, Assistant Regional Director.
New USW Office Contact Information. USW’s Washington, D.C., office will move to a new location effective Dec. 15, 2007. Please note that the current general telephone number will not change, but there is a new fax number. USW staff will have individual telephone numbers and will share those as needed. All email addresses and the USW Web site address remain the same.
The new address for mail and shipping will be:
U.S. Wheat Associates, Inc.
3103 10th Street, North
Suite 300
Arlington, VA 22201
USA
Phone: (202) 463-0999 (Unchanged)
Fax: (703) 524-4399 (New)
www.uswheat.org |