May 18, 2006

1. Kansas Wheat honors Nigerian mill executives

2. World wheat production and stocks falling

3. U.S. soft wheat production to rebound strongly, remain competitive in international markets

4. Crop conditions vary widely across the U.S.

5. Mexico buys wheat from California

6. Trade notes (Vietnam, EU, Libya, U.S., Peru, Colombia, Chile)

7. USAID publishes guidelines for Food for Peace

8. Second Indian wheat tender elicits controversy

9. The apology that AWB refused to give

10. Job opportunity: North Dakota Wheat Commission seeks marketing specialist

1. Kansas Wheat honors Nigerian mill executives
A prestigious group of flour mill executives from Nigeria was in Kansas last week and received special recognition, and appreciation, for their continued purchases of U.S. hard red winter wheat. Nigeria is the world's largest U.S. HRW wheat customer, purchasing over 2.6 million metric tons in 2005/06. Kansas is the largest producer of HRW. Nigeria's total wheat purchases from the U.S., as of May 4, stood at 3,111,000 metric tons, just 200 thousand tons behind the leading U.S. wheat customer -- Japan.

The group who visited Kansas represented eight milling companies. Representatives from wheat commissions in neighboring states and U.S. Wheat Associates officials from offices in Capetown and Washington DC joined the Kansans in paying tribute to the Nigerian milling industry.

"One of the reasons that the Nigerians are here today is so we can thank them for their business," said USW regional vice president Ed Wiese, who traveled from South Africa. "In this marketing year, we expect Nigeria to buy close to 100 million bushels of HRW wheat. That equates to about almost $470 million at the Gulf. Back that off the Gulf of Mexico, back up into Kansas, Oklahoma, Colorado and Nebraska, and we can see that’s a lot of money flowing into the economy."

"The Nigerians have continued to buy 90 percent of their wheat from the United States, but they’re becoming a lot more price sensitive," Wiese explained. "They’re also becoming extremely sophisticated grain buyers so I think this next year is going to be a very, very interesting year and very, very competitive year."

Nigerian wheat purchases from the U.S. have increased 38 percent over last year. Wheat imports are increasing as a result of increased consumption of bread, pasta and biscuit products -- which is largely driven by smart promotional campaigns by the mills. Since 1995, per capita wheat consumption in Nigeria has more than tripled from 6 kg to 20 kg. Biscuit consumption is mainly increasing among school-age children because biscuits are inexpensive and considered a snack food. Pasta consumption is also becoming a convenience food and, like bread, is readily available. Noodle consumption in Nigeria is showing steady growth, estimated at 5 percent annually, and is thought to be the equivalent of 100,000 MT of HRW. All bread flour in Nigeria is fortified by government legislation and has been well received by the public as being good for their health.

"We’ve got a really good working relationship with the Nigerians," said Wiese. "Often times around the world everybody thinks business is done strictly on price and for the most part I guess that’s true. But the 'relationship business' is also very important. Knowing cultures, getting to know people on a personal basis, adds a lot to the type of work that we do. It’s part of the intangibles. It’s one addition to the nuts and bolts type of work that we do every day through U.S. Wheat Associates. It’s maintaining good relationships with our buyers. It’s very important."

"We’re grateful to Kansas wheat farmers, all hard red winter wheat farmers and American wheat farmers, everywhere, for their checkoff dollars," Wiese said. "Without those checkoff dollars the type of market promotion work that we do would be impossible."

2. World wheat production and stocks falling
The 2006/07 global wheat outlook is for lower production and stocks. Global ending stocks are projected to be the lowest in 25 years. World wheat production, projected at 600 million metric tons (MMT), is down 3 percent from 620 MMT produced in 2005/06. The year before that, the world produced 629 MMT. Most significantly, production is down in the major exporting countries.

The U.S. Department of Agriculture released its initial assessments of U.S. and world wheat prospects in their May 12 World Agriculture Supply and Demand Estimates (WASDE) report.

U.S. wheat production is expected to fall 11 percent from 2005/06, to 51 MMT. The U.S. wheat-by-class projections for 2006/07 will be published in the July 12 WASDE but, in the meantime, USDA can report that the survey-based forecast of U.S. winter wheat production is down 12 percent because of increased abandonment and reduced yields due to drought. Total U.S. wheat supplies will likely be down 8 percent.

USDA expects wheat production to drop in the Black Sea region (from 92 MMT to 76 MMT). Forecasters also see a slight production decrease in Australia (from 24.5 MMT to 24 MMT) and Canada (from 26.8 to 26 MMT).

Wheat production in India is forecast to fall from 72 MMT in 2005/06 to 68 MMT this next marketing year. Imports for India are projected at 4.5 MMT, up from 200,000 tons in 2005/06.

Production in Argentina is forecast to increase from 12.5 MMT to 15.5 MMT. The EU should also see a better year, with production forecast at 125.5 MMT, up from 122.6 MMT. North African wheat production is also expected to improve, from 14.3 MMT to 18.7 MMT in 2006/07.

The latest WASDE report is available on the web site at http://www.usda.gov/oce/commodity/wasde/index.htm

3. U.S. soft wheat production to rebound strongly, remain competitive in international markets
by Joe Sowers, USW market analyst

While USDA’s initial estimates for U.S. wheat production in the 2006/07 marketing year confirm a dire situation for U.S. HRW supplies, the situation for soft wheats isn't so dire. Forecasts indicate a strong rebound in soft red winter wheat production. Soft white wheat production, generally grown in the Pacific Northwest, is expected to fall by only 135,000 MT or 2 percent of the total U.S. SW crop.

USDA's most recent World Agriculture Supply and Demand Estimates (WASDE) also shows an expansion in world soft wheat import markets, while production in the Black Sea region -- a major source of soft wheat -- is expected to fall. Expanded U.S. production combined with weakened international competition and stronger world markets provides optimism for U.S. soft wheat exports -- both white and red -- this year.

U.S. soft wheat producing states have had nearly ideal growing conditions this year. After wet conditions kept plantings very low for the 2005/06 crop year, SRW production this year is projected to rise substantially. The top three SRW producers -- Ohio, Illinois and Missouri -- are expected to increase production by 12, 50 and 58 percent respectively, representing a combined 1 MMT increase over last year’s production in those states. USDA projections indicate that total SRW production will be 10.1 MMT, 20 percent above last year.

During years with strong harvests, the Black Sea region is a major competitor in soft wheat markets, particularly in the Middle East. Due to extensive winterkill this year, USDA projects production in Russia and Ukraine to fall by 12 and 47 percent respectively, or 15 MMT. Due to the production decline in the region, exports are projected to decline by 35 percent or 7 MMT.

On the import side the biggest story is India. After 5 years of self-sufficiency, this year India’s import program is forecast to explode to 4.5 MMT. The WASDE projects imports by major soft wheat buyers Egypt, Mexico and Yemen to remain stable with last year.

On a FOB basis, U.S. soft white supplies are currently the most competitively priced milling wheat in the world. According to offers made to Egypt’s GASC (General Authority for Supply Commodities) on April 26, U.S. soft white wheat was priced at $134.54/MT compared to $135.95/MT for Canadian, $137.47/MT for French, $139.00/MT for Russian and $143.00/MT for Australian.

4. Crop conditions vary widely across the U.S.
Farmers in Oklahoma have not seen worse wheat conditions in their lives. Over 70 percent of the crop is growing in poor or very poor conditions, and wheat fields continue to be harvested for hay. Wheat was also cut for hay across many regions in Texas, with most conditions rated very poor to poor. In Nebraska, wheat conditions declined noticeably and rated 13 percent very poor, 20 poor, 31 fair, 30 good, and 6 excellent, well below last year. Near two-thirds of the crop in southwestern Nebraska counties was rated as poor or very poor. Wheat conditions in Kansas were rated 16 percent very poor, 23 percent poor, 36 percent fair, 23 percent good, and 2 percent excellent.

The U.S. wheat crop is faring better outside of the central and southern plains. Over 70 percent of the winter wheat condition in Washington is rated good to excellent, and Oregon reports that 66 percent of the winter wheat crop was rated in good to excellent condition. Idaho has the best winter wheat conditions in the region, with 87 percent rated good or excellent. Montana reports that winter wheat has been stressed due to dry windy conditions in select areas, but overall winter wheat is in better condition than last year, with 75 percent good to excellent. Wyoming checks in with 76 percent of their fields rated in good condition.

The soft red winter wheat conditions are generally good. Arkansas wheat fields are reported as 76 percent good to excellent, with 19 percent rated fair. Further east, the SRW growing conditions in Virginia are a little less optimal, with 46 percent rated good to excellent and 35 percent rated fair.

Farmers are still planting U.S. spring wheat. The U.S. spring wheat crop in North Dakota, South Dakota, Minnesota and Montana was 79 percent planted as of May 14, still behind the 2005 pace of 88 percent, but now slightly ahead of the five-year average pace of 72 percent. Emergence is nearly 50 percent, which is ahead of the five-year average although slightly behind normal.

Crop conditions are a measurement of the growing conditions, not of crop quality.

5. Mexico buys wheat from California
California wheat growers celebrated the opening of the Mexican wheat market last week with a press conference noting the first sale of California wheat since a nine year trade ban was lifted in 2005. Joining the ceremony was California Department of Food and Agriculture Undersecretary A.J. Yates and Mexico Consul General Alejandra Bologna.

"The California wheat industry has been anxiously awaiting the opportunity to offer wheat in this expanding market," said California Wheat Commission executive director Bonnie Fernandez. "There have been many people and agencies who worked to lift this restriction on both sides of the border. In the United States, the California Department of Food and Agriculture, U.S. Department of Agriculture, U.S. Wheat Associates, Wheat Export Trade Education Committee, National Association of Wheat Growers, the California Association of Wheat Growers and the California Wheat Commission all worked to bring this about. Special thanks go to California's Congressional delegation, who have stepped up on many occasions over the years to urge the removal of the ban."

"I'm pleased that Mexico has opened its market to California wheat," said Agriculture Secretary Mike Johanns later in the week. "Mexico's action supports science as the language for international trade. While governments need import measures that safeguard crops from disease, import regulations should be based on internationally recognized scientific guidelines."

Mexico banned wheat from the southwestern United States after the first detection of Karnal bunt in Arizona in 1996. In June 2005, the United States and Mexico agreed to recognize certain wheat-producing areas in California, Arizona, Texas and New Mexico as free of Karnal bunt, with the exception of those areas still regulated by USDA because of the disease. As part of the agreement, the United States now recognizes five Mexican states as meeting the requirements for Karnal bunt-free status.

Mexico is the third largest U.S. wheat buyer, at 2.6 million metric tons so far this marketing year.

6. Trade Notes
The United States and Vietnam have reached an agreement in principle on a bilateral market access agreement that will help clear the way for Vietnam’s accession to the World Trade Organization. Per capita wheat consumption in Vietnam last year is estimated at 14.6 kg per year, up three kilograms from the previous year's level and double the per capita levels in 1996 and 1999. Vietnam has purchased 14,100 metric tons of U.S. white wheat this marketing year, but Australia continues to dominate the market due to proximity, lower freight costs for smaller vessels and containers, price discounting and deferred payment schemes which amount to no interest credit.

A new EU fusarium toxin regulation will come into effect on July 1, 2006, with limits set at 1250 ppb for common wheat and 1750 ppb for durum wheat. Sampling and testing methods are covered in EU directives, but may be interpreted differently in the individual EU countries. There is still some uncertainty among farmers, traders, processors, inspectors and shippers about how the new EU regulations and directives will be applied.

Secretary of State Condolezza Rice announced this week that the United States is restoring full diplomatic relations with Libya. "We will soon open an embassy in Tripoli," the Secretary said. "In addition, the United States intends to remove Libya from the list of designated state sponsors of terrorism. Libya will also be omitted from the annual certification of countries not cooperating fully with United States anti-terrorism efforts."

In her opening statement to the U.S. Senate Committee considering Deputy U.S. Trade Representative Susan C. Schwab's nomination to USTR's top spot, Ambassador Schwab pledged to "work tirelessly toward fulfilling the President’s vision of a world where the free flow of commerce gives people everywhere more choices, more opportunities and more hope." She expanded on the Administration's "historic progress in opening markets and increasing both the quantity and quality of trade between the United States and other nations," noting that, in the last five years, Congress has approved free trade agreements with 12 countries – for a total of 15. Agreements with Oman, Peru and Colombia are pending, and agreements with 11 more countries are in negotiation.

On a lighter note, a representative from USW was privileged to attend a reception given by Peru's embassy here in DC, kicking off the efforts to obtain Congressional approval of the U.S-Peru FTA. The message wasn't the only fulfilling aspect of the reception... The next day, the Washington Post newspaper's food section carried a sparkling review of the fabulous Peruvian foods featured at the reception. See the review at http://www.washingtonpost.com/wp-dyn/content/article/2006/05/09/AR2006050900337.html.

Six technical staff members from the major cookie and cracker companies in Peru, Colombia and Chile recently travelled to the U.S., accompanied by USW/Santiago assistant regional director Miguel Galdos-Tanguis. The program provided the team with an excellent opportunity to understand the performance and difference between US soft red and soft white wheat in cookie and cracker applications, and provided our guests with information that will help them increase their production, quality and efficiency.

7. USAID publishes guidelines for Food for Peace
The U.S. Agency for International Development has published the final Food for Peace Public Law 480 Title II Program Policies and Proposal Guidelines for fiscal year 2007. The documents are available to interested parties for general viewing.

Individuals who wish to access the current guidelines should visit the Food for Peace Web site at http://www.usaid.gov/our_work/humanitarian_assistance/ffp/, or contact the Office of Food for Peace, U.S. Agency for International Development, RRB 7.06-102, 1300 Pennsylvania Avenue, NW., Washington, DC 20523-7600.

8. Second Indian wheat tender elicits controversy
by Rebecca Coleman, USW director of policy and government programs

The Indian Government floated a second tender for the procurement of 3 million metric tons of wheat on May 8. While this news is both welcome and notable for the size of the purchase, it has also been the source of tremendous frustration on behalf of the U.S. wheat industry and U.S. government officials as both continue to decipher and respond to the complicated tender terms.

The frustration stems from the fact that the tender terms are virtually impossible to comply with. They include prohibitive commercial terms, unjustified phytosanitary requirements, inconsistencies between the Indian government’s own phytosanitary requirements and the more stringent tender terms, weed seed requirements that are more appropriate for seed wheat rather than milling wheat, and a requirement to fumigate with methyl bromide in transit.

According to APHIS, Indian importing requirements that have to be met for APHIS to issue a phytosanitary certificate list only freedom from ergot, TCK, and granary weevil. While APHIS has submitted documentation to Indian officials demonstrating that these three restrictions are unwarranted, the tender document adds further phytosanitary requirements that are not in India’s published regulations for milling wheat. Particularly troublesome are requirements for complete freedom from a list of weed seeds, many of which occur in the U.S. and other wheat exporting countries, and the methyl bromide requirement. Methyl bromide is being phased out worldwide as an environmental hazard, and only a couple ports in Australia are known to have the capability to fumigate with methyl bromide. Adding to the frustration is the fact that the first tender, for 500,000 metric tons awarded to AWB, contained noticeably more relaxed terms, particularly with regards to the phytosanitary requirements for weed seeds.

A U.S. government trade team traveled to India in early May in an attempt to address the tender terms. While the Indians went through the motions of addressing U.S. concerns about the tender requirements, they also made it very clear that they had no intention of making significant modifications.

A revised tender was issued in response on May 16, with minor adjustments, but the terms are still problematic for U.S. bidders and suppliers of other origin wheat. The problematic tender terms suggest that the Indian government is utilizing this mechanism to pressure Indian farmers to sell more wheat to the state trading entity and thereby avoid the need to import at all.

There are a series of upcoming meetings on agricultural issues planned over the next few months, including a bilateral technical session between APHIS and their Indian counterparts, a US/India trade policy forum, and a visit to the U.S. by the Indian Minister of Agriculture. USW is working closely with all involved entities to ensure that issues of concern to the industry, including wheat terms, figure prominently on the agenda and will be addressed.

9. The apology that AWB refused to give
According to the Australian Associated Press, the text below is a full transcript of AWB's draft statement of contrition drawn up by former managing director Andrew Lindberg last winter and released by the Cole inquiry today. AWB went to court to try to prevent its release by the Cole inquiry, claiming it was privileged legal material. It contradicts Lindberg's public statements, under oath, of ignorance. The letter was drafted with the advice of American crisis communications guru Peter Sandman, but AWB decided not to issue the apology and, instead, fought against its public release.

Draft text:

1. As a result of the Volker inquiry into the OFF (oil-for-food) Program AWB accepts that in paying money for inland transportation and after sales service it paid money to the Iraq government in contravention of the UN sanctions.

2. Even though there were warning signs to some employees that this may have been occurring AWB did not challenge these payments and was not alert to the potential consequences of making these payments. For this we are truly sorry and deeply regret any damage this may have caused to Australia's trading reputation, the Australian government or the United Nations.

3. AWB in pursuing its constitutional requirement to maximise returns to the Australian farmer in selling their wheat took a commercial and technical compliance approach to the UN sanctions but failed to consider the broader purposes of the UN sanctions. This was a failure, at the time, of the culture, systems and procedures which the company deeply regrets and is committed to continuing to improve.

4. Even though the transaction concerning BHP Petroleum in recovering payment for a prior wheat shipment was well intentioned and AWB believed complied with the UN sanctions, it should not have occurred without specific authorisation of the Australian government and the United Nations. AWB regrets this did not occur.

5. Even though AWB relied on the United Nations' supervision and authorisation of each contract the company should have established its own internal systems of checks and balances such that it did not participate (and may have even aided stopping) the systematic and widespread abuse of the OFF program. We deeply regret and apologise for not having done so.

6. While AWB can ex-post rationalise its participation in the OFF Program and claim it did not have the benefit of hindsight or the complete picture, this does not excuse what occurred and is not offered as an excuse. We simply should have done better; and I am deeply sorry we didn't.