Wheat Letter - March 15, 2012
U.S. Wheat Associates (USW) is the industry’s market development organization working in more than 100 countries. Its mission is to “develop, maintain, and expand international markets to enhance the profitability of U.S. wheat producers.” The activities of USW are made possible by producer checkoff dollars managed by 19 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. Original articles from Wheat Letter may be reprinted without permission; source attribution is requested. Click here to subscribe or unsubscribe to Wheat Letter.
In This Issue:
1. U.S. Wheat Value Meeting Growing Import Demand
2. U.S. Wheat Quality and Reliability Bridges the Distance Gap
3. Seco Promoted to Assistant Regional Director, South America
4. U.S. Wheat Industry Welcomes U.S-Korea FTA Implementation
5. U.S. Trade Policy Focus Will Help Farmers and Wheat Buyers
6. Wheat Industry News
Online Edition: Wheat Letter - March 15, 2012 (http://bit.ly/z084aB)
PDF Edition:  Wheat Letter - March 15, 2012.pdf
1. U.S. Wheat Value Meeting Growing Import Demand
By Casey Chumrau, USW Market Analyst
The U.S. wheat supply plays an important role in meeting growing global demand, and its value is evident in today’s world market. Data from the U.S. Department of Agriculture’s (USDA) monthly World Agricultural Supply and Demand Estimate (WASDE) reflects this trend. In the March 9 report, USDA projected 2011/12 worldwide wheat consumption will increase to a new record high for the fourth consecutive year. USDA also indicated the United States would play a larger role in meeting world demand than estimated for the past six months.
In the report, USDA increased 2011/12 estimated global consumption for the fifth month in a row to a record 684 million metric tons (MMT). If realized, it would be a four percent increase over last year’s record and seven percent greater than the five-year average of 634 MMT. In order to meet the growing demand and get wheat to the markets that need it, estimated global exports increased 2.68 MMT to 143 MMT, just 600,000 MT shy of the 2008/09 record. Projected exports for Australia, Kazakhstan and Brazil each increased 500,000 but USDA’s U.S. export estimate increased the most this month as buyers take advantage of the relative value of U.S. wheat in the world market.
USDA increased estimated U.S. exports by 680,000 MT, including increases of 272,000 MT each for hard red spring (HRS) and white wheat and a 130,000 MT increase for durum wheat. The adjustments reflect several months of strong U.S. commercial sales and total projected U.S. exports are now 27.2 MMT. As of March 9, total known sales were 24.7 MMT and on pace to meet the new annual projection.
Several factors have spurred the uptick in U.S. wheat sales but most of the credit goes to lower prices. U.S. wheat prices have declined the last six months at the same time key competitor prices have increased or leveled off. U.S. soft white (SW) and soft red winter (SRW) are currently the least expensive wheat in the world on a FOB basis. After two strong harvests, USDA projects SW 2011/12 ending stocks will reach 2.6 MMT, their highest level in 24 years. These large and growing stocks are putting downward pressure on prices and wheat buyers have seized the opportunity to get quality wheat at a great bargain.
The value of U.S. wheat is not a measure of price alone but also the quality and utility to the customer. As the FOB price of U.S. wheat declines, the relative value increases considerably because the United States proves itself every year as a reliable supplier of a wide variety of high quality wheat. Freight rates have also declined while supplies from several other exporters have tightened over the course of the marketing year, making U.S. wheat more competitive around the world.
2. U.S. Wheat Quality and Reliability Bridges the Distance Gap
By Shawn Campbell, USW Assistant Director, West Coast Office
The world’s wheat buyers have heard the claim that U.S. wheat farmers produce “the world’s most reliable choice.” Few participants in the U.S. supply chain would dispute that claim. But to an international grain buyer, the theme’s implied promise is empty without proof, revealed in some interesting ways, including where U.S. wheat is imported.
In the last issue of Wheat Letter, U.S. Wheat Associates (USW) reported that declining ocean freight rates are helping make U.S. wheat more competitive around the world. Yet many of our customers still pay higher freight rates to buy U.S. wheat. The wide expanses of the Pacific and Atlantic Oceans lie between our export terminals and 83 percent of the world wheat import market. Competitors like the European Union, Australia and Russia are simply closer to some of the world’s largest wheat markets.
Those competitors depend heavily on that freight advantage. On average, 54 percent of Australia’s wheat exports move to markets where Australia has a freight advantage. Other major exporters take similar advantage of their freight advantages: 49.0 percent for the European Union, 70.0 percent for Argentina, and 81.0 percent for Black Sea region exporters.
The United States has a freight advantage over its competitors to only a limited area, mainly Mexico, Central America, the Caribbean and northern parts of South America. Unlike its competitors, 75 percent of U.S. exports go to countries where it is at a freight disadvantage to at least one competitor. Even more impressive is the fact that 13.0 percent of U.S. wheat exports go to countries where all of our competitors have a freight advantage.
USW believes that so many customers so far away turn to the United States for wheat because buying it carries less risk. U.S. wheat quality is predictable and certified independently through the Federal Grain Inspection Service. U.S. wheat farmers produce ample supplies of a wide range of classes every year, supported by excellent service and technical support through USW. Many buyers demand several classes of U.S. wheat to best meet their specific end-use need. These advantages go a long way toward building a proven reputation for trust and quality that makes U.S. wheat “the world’s most reliable choice.”
3. Seco Promoted to Assistant Regional Director, South America
USW is pleased to announce the promotion of Osvaldo Seco to Assistant Regional Director for South America. Seco joined USW in 2008 as a Marketing Specialist in Santiago, Chile.
“We are very pleased to recognize Osvaldo’s excellent work promoting U.S. wheat here in South America,” USW Regional Vice President Alvaro de la Fuente said. “He has used his experience and enthusiasm to build important relationships with our customers that are paying off for U.S. wheat producers.”
In his new position, Seco will remain focused on market development in South America with additional management responsibilities.
South America is already a large market for U.S. wheat with population lift and economic development spurring growth. In marketing year 2010/11, South American countries imported 2.64 million metric tons of wheat from the United States. The South American region imports primarily hard red winter wheat, but also purchases hard red spring, soft red winter and soft white wheat. USW helps build a preference for U.S. wheat through trade and technical service that helps customers get the most value possible from its variety and quality.
Seco has a degree in business administration and a specialty degree in marketing from the University Gabriela Mistral in Santiago. Before joining USW, Seco worked as a marketing specialist for Garden House Laboratories, a Chilean pharmaceutical firm focused on naturally derived consumer products. He also gained marketing and management experience working for AGUNSA, a large shipping and logistics firm; Empresas Fourcade, the largest construction firm in southern Chile and Forestal y Muebles Magasa, the largest furniture manufacturer in Chile.
4. U.S. Wheat Industry Welcomes U.S-Korea FTA Implementation
The U.S. wheat industry is very pleased to see the U.S.-Korea Free Trade Agreement (FTA) implemented today. U.S. wheat farmers face effective competition for Korea’s milling wheat import market and the agreement immediately eliminates the bound tariff on U.S. wheat.
“While that tariff has not been a huge impediment, removing it will help U.S. producers compete with other wheat exporters and help Korean flour millers spend less to buy our wheat,” said Randy Suess, a wheat farmer from Colfax, Wash., and chairman of U.S. Wheat Associates (USW). South Korea is consistently a top ten market for U.S. wheat and imported more than 1.6 million tons of U.S. wheat valued at approximately $468 million in marketing year 2010/11.
“Our industry is uniquely trade-dependent, with about half of our production moving to overseas markets each year," said Erik Younggren, a wheat farmer from Hallock, Minn., and president of the National Association of Wheat Growers. “Hopefully, the results from the U.S.-Korea FTA will encourage implementation of bilateral agreements with Colombia and Panama that were ratified last year.”
U.S. wheat producers look forward to implementation of the FTAs with Colombia and Panama as soon as possible so that customers there may also benefit from zero tariffs.
The United States is the world’s largest wheat exporter, offering customers around the globe a reliable, high-quality supply of all six wheat classes. In the 2010/2011 marketing year, ended May 31, 2011, the U.S. exported nearly 1.3 billion bushels of wheat valued at $10.3 billion, supporting thousands of jobs and economic benefits across the country.
5. U.S. Trade Policy Focus Will Help Farmers and Wheat Buyers
by Tyler Jameson, USW Assistant Director of Policy
The Obama Administration recently released its 2012 trade policy agenda, and U.S. Trade Representative Ron Kirk testified to Congress on the importance the Administration places upon trade to grow the economy and jobs.
One of the Administration’s top trade priorities is the implementation of the recently ratified free trade agreements (FTAs) with Colombia and Panama (the FTA with Korea was implemented today; see above). Under these agreements, U.S. producers will be more competitive and our valued customers will not face financial disadvantages for choosing U.S. wheat over other sources. Implementation is critical to U.S. wheat competitiveness in Colombia where the United States is now the only major wheat supplier currently facing import duties.
Ambassador Kirk also pointed to ongoing Trans-Pacific Partnership (TPP) FTA negotiations as an important new trade opportunity. The Asia-Pacific Economic Cooperation countries (APEC) represent more than 50 percent of world GDP and 40 percent of world trade and a growing regional market. TPP negotiations include new “21st Century” issues that USW believes will create a comprehensive trade framework and a more predictable trading environment.
Ambassador Kirk and USW both believe that trading partners must also live up to their commitments once agreements are in place. To that end, the Obama Administration is establishing the Interagency Trade Enforcement Center within the Office of the U.S. Trade Representative to focus on ensuring countries play by the rules to which they have agreed. That office seeks input on trade issues from a wide range of stakeholders including USW, which focuses on issues that affect U.S. wheat farmers and their customers.
Ambassador Kirk and the Administration support Russia’s accession to the World Trade Organization, not only because of the market access gains accession provides, but also so that they are held to the same rules as other major world economies. However, in order for the U.S. to benefit from Russia’s accession, including preferential tariffs and the ability to bring dispute settlement cases against them, the U.S. must extend permanent normal trading relations status to Russia. U.S. wheat farmers welcome Russia to the rules-based world trading system as the best way to ensure this major wheat competitor plays by the same global rules as other wheat exporting countries.
The trade agenda ahead is full and the U.S. wheat industry looks forward to working on these important issues in partnership with our customers.
6. Wheat Industry News
- "Year of Agriculture" at SAIS. The Paul H. Nitze School of Advanced International Studies (SAIS) is examining the critical role of agriculture in international relations during 2011-12. SAIS recently published the 2011-12 issue of its annual magazine, SAISPHERE that explores the theme, "Growth Ahead for Global Agriculture." Click here for the online version or request a printed copy.
- Congratulations to the 2012 Bakery World Cup Winners. Bakers from around the world competed last week in the Coupe du Monde de la Boulangerie 2012 (the 2012 Bakery World Cup), an international, invitational artisan baking competition held in Paris, France, every three to four years. At this year’s competition, Japan took the first prize, the United States placed second and Taiwan placed third. For more information and to watch videos from the event, visit http://bit.ly/ywQuXv or http://bit.ly/y5gEsG.
- WMC Opens Flat Bread/Flour Tortilla and Asian Noodle Short Courses. The Wheat Marketing Center in Portland, OR, will hold its Flat Bread and Flour Tortilla Technology Short Course April 17 to 20. WMC will also conduct an Advanced Asian Noodle Technology Short Course June 11 to 15, 2012. For more information or to register, visit http://bit.ly/y3QqZB.
- NCI Announces Pasta Production and Grain Procurement Short Courses. The Northern Crops Institute (NCI) at North Dakota State University in Fargo, ND, will conduct a Pasta Production and Technology course April 10 to 12, 2012. NCI will also conduct an Advanced Grain Procurement Short Course May 14 to 18, 2012. For more information, visit http://bit.ly/wX21Iz.
- IGP Grain Purchasing Course Approaching. The International Grains Program at Kansas State University in Manhattan, KS, will conduct a Grain Purchasing Short Course April 16 to 27, 2012. The course focuses on purchasing raw materials and detailed discussions of cash and futures markets, financing and ocean transportation. The course includes a field trip to an export facility in New Orleans, LA. For more information, visit http://bit.ly/xQmlx7.
- WFC Helps Sponsor Whole Grains Summit 2012. The Wheat Foods Council the Grains for Health Foundation are co-sponsors of a “Whole Grains Summit 2012” May 19 - 22 in Minneapolis, MN. The event will convene scientists, industry experts and health professionals from around the world to discuss research on whole grains, dietary fiber and functional grain components. For more information, visit http://bit.ly/yv1lOr.
- NAWG and BASF Start New Scholarship. The National Association of Wheat Growers (NAWG) Foundation and BASF have established a scholarship fund for students pursuing careers in the agriculture industry to honor longtime wheat industry friend and BASF employee Jerry Minore. Applications for the Jerry Minore Memorial Scholarship will be accepted through the end of 2012, with the first recipients announced at the 2013 Commodity Classic. More information will be available later this spring.
- DuPont and ACPFG Expand Collaboration. DuPont and the Australian Centre for Plant Functional Genomics (ACPFG) recently announced an expanded research program focusing on advanced cereal breeding through molecular markers, discovery research for agronomic traits and hybrid seed production in wheat. For more information, visit http://bit.ly/zwuW2K.
- Nisshin Flour Milling to Acquire Miller Milling. Nisshin Seifun Group, Inc., and its subsidiary, Nisshin Flour Milling, Inc., have entered into an agreement to acquire Miller Milling Company, located in Bloomington, MN. The acquisition of Miller Milling Company will enable Nisshin to take advantage of the experience and technical capabilities of Miller Milling related to durum semolina, bakery flour and tortilla flour products. For more information, visit http://bit.ly/wuDdcy.
- CME and MGEX Announce MGEX-CBOT Wheat Spread Options. CME Group and the Minneapolis Grain Exchange (MGEX) announced the launch of MGEX-CBOT Wheat Spread Options to begin trading on March 26. MGEX-CBOT Wheat Spread Options are hedging tools based on the price differentials between HRS wheat futures listed on MGEX and SRW wheat futures on the Chicago Board of Trade (CBOT). For more information, visit http://bit.ly/yTdm3D.
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