Wheat Letter - January 24, 2013
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 and their customers.” 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. Milling Course Makes Critical Connection between Production and Products
2. No Significant Moisture in Sight for U.S. Hard Red Winter Wheat
3. USW Board Team Observes Dynamic Asian Wheat Markets
4. Wheat Industry News
Online Edition: Wheat Letter – January 24, 2013 (http://bit.ly/V0z6oS)
Crop Quality Information: USW Crop Quality Report (http://bit.ly/ACVDIp)
1. Milling Course Makes Critical Connection between Production and Products
by Casey Chumrau, USW Market Analyst
Last week I had the opportunity to attend the Introduction to Flour Milling course, a collaboration between the International Grains Program (IGP) at Kansas State University and the International Association of Operative Millers. The five-day course covered the principles of flour milling, the art of flour blending and the effect wheat quality has on milling and baking. The course is designed for people like me who need to understand the basic process but are not mill operators. I was one of 20 students who were managers, flour sales representatives, grain traders, breeders, food safety experts and newly hired milling company managers.
The recurring theme of the course was the importance of consistent quality. We learned that millers want a consistent wheat quality for grinding and bakers want consistent flour quality. The United States is fortunate to produce very diverse wheat crops. An ideal class of wheat for every type of product grows here. Thanks to productive farmers and a sophisticated, efficient supply chain, including the Federal Grain Inspection Service, the world’s wheat buyers and millers have the tools they need to adjust specifications every year to effectively manage the usually slight seasonal variations in U.S. wheat quality.
It quickly became clear to me that flour milling is a complex process. At U.S. Wheat Associates (USW), we always stress that wheat is not just wheat. This course showed me that flour is not just flour, either. The range of flour products the world’s bakers demand is growing larger almost every day.
I saw that professional millers must be experts in making technical adjustments and in blending products to provide a quality product based on understanding their raw material, the wheat, and how their customers extract value from it. A baking lab experiment during the course showed me how important the type of flour is to its performance in different bakery products. We saw that using bread flour caused cookies to be flat and pastry flour resulted in small bread loaves. Milling courses like these provide an opportunity for the entire value chain to gain greater insight into their customer needs.
Fortunately for me and for customers around the world, USW is committed to educating its employees to better understand the needs of our customers and the challenges they face. I was familiar with wheat production (and an expert in consuming wheat foods), but now I better understand the milling process that helps connect the two. I am more confident now that our customers can trust and rely on USW and its associates to help them get the most value possible from U.S. wheat.
2. Challenges Ahead for U.S. Hard Red Winter Wheat Crop
After seeing confirmation in the U.S. Department of Agriculture (USDA) World Agricultural Supply and Demand Estimates (WASDE) for January that wheat stocks are declining, market watchers turned their attention to the next crop. The news from the world’s largest wheat exporting country is not very good. With some local exceptions, the stubborn grip of a drought that established itself in Texas four years ago is expanding in the U.S. hard red winter (HRW) wheat production region and now threatens some hard red spring (HRS) wheat areas as well.
In its “Wheat Beat” blog this week, Kansas Wheat wrote that the state’s 2013/14 wheat crop is likely to be smaller because of dry conditions and planted area that is down 200,000 acres from last year. Rain and snow here and there may perk up the dormant crop come spring, but southwestern Kansas wheat farmer Jason Ochs said it will take normal rainfall the rest of this season just to produce an average crop. That is because sub-soil moisture is as dry as it has been in 60 years. The prime wheat production area of northern and western Oklahoma is also in exceptional to extreme drought, though the severity has diminished recently in southeastern Oklahoma and parts of Texas.
Unfortunately, long-range forecasts do not anticipate much change and the lack of precipitation expected this winter threatens the Nebraska, Colorado, South Dakota and Wyoming wheat crops. USDA estimates that nearly 50 percent of the Nebraska and South Dakota wheat crops are in poor to very poor conditions. And a Nebraska climatologist recently said it will take a record-breaking snowfall for the winter wheat crop to have a chance at success — an event that is highly unlikely. The forecast does not look promising for spring wheat growers in North Dakota, Minnesota and Montana where dry conditions to the east and south settled in this winter. So far, the weather has been more kindly to spring and winter wheat growers in the Pacific Northwest and most of the eastern soft red winter production regions.
This drought, so reminiscent of the “The Worst Hard Time” of the 1930s, is testing the resolve of many wheat growers. Yet winter wheat can endure much hardship and many weeks remain before it is time to seed spring wheat. Buyers, like the farmers that grow the wheat, would be wise to plan for challenges and hope for the best.
Compared to one year ago, exceptional to moderate drought has dramatically expanded throughout the central U.S. plains and into many spring wheat areas of the northern plains. Source: http://droughtmonitor.unl.edu/archive.html
3. USW Board Team Observes Dynamic Asian Wheat Markets
Editor’s Note: A USW Board Team returns to the United States this week after visiting U.S. wheat customers in Taiwan, Singapore, Indonesia and, this week, Korea. The Team includes wheat growers Tim Anderson, Robert Newtson, David Radenberg and Greg Svenningsen, Washington Grain Commission Director of Communications Scott Yates and USW Assistant Director of Policy Tyler Jameson. Following are excerpts from Yates’ notes about the Team’s experience in Taiwan and Indonesia. You can read the entire set of notes at http://www.facebook.com/uswheat/notes and see photos from the Team here.
Preparations for the trip started more than six weeks ago when each of us received a notebook crammed full of market and country information prepared by USW staff. In Portland, OR, where the six of us arrived January 10, Steve Wirsching and Shawn Campbell of USW's West Coast office provided an enlightening overview of the markets, helpful tips and a sense of the adventure awaiting us. A full day in Portland included visits to the USW office, FGIS, the Wheat Marketing Center and Columbia Grain's export facility where we watched a ship bound for China being loaded with a cargo of Western White Wheat (10 percent club, 90 percent soft white).
Getting to know the rest of the team has been a highlight. Among other things, we each know our ages, where we live, who we love and how we came to be involved in this wonderful industry. While waiting to board the 12:05 a.m. flight heading west across the Pacific to rendezvous with the first of our important wheat customers, my new friends sat nearby laughing as they told each other stories about farming.
We touched down in Taiwan and were greeted by Ron Lu, USW’s country director. A cereal chemist by training, Mr. Lu has been with the organization for 28 years. In downtown Taipei, we also met Sophia Yang, a nutrition technologist with USW.
The wheat business here is constantly changing. Taiwan is a country of 23 million, with upwards of 8,000 small bakeries. We visited one of them, Viva Bakery and met with Mr. Kuo Rong Chang, the owner who also serves as chairman of the Taipei Bakery Association.
Mr. Chang started working in the baking business when he was 17 and opened Viva Bakery and its companion, Viva Restaurant, in 1982. He is rightly proud of the business he has built through hard work and constant education, including workshops at the Wheat Marketing Center in Portland, the San Francisco Baking School and a baking school in Sweden. In his bakery and restaurant he uses 220 kilograms of flour every day, 365 days a year, including flour made from all classes of U.S. wheat except soft red winter (SRW).
Another stop was a Uni-President baking plant, the largest industrial baker in Taiwan, established in 1967 with 54 diverse divisions throughout Asia. The plant we visited makes about 30 bread products, 10 cake products and another 20 frozen dough products.
We took a tour of the line where pan bread or loaf bread is made. The loaves are almost perfectly rectangular and are sliced and divided in two halves. Each bag contains 11 slices and only one heel. Bakery officials explained that many Taiwanese strip the slice piece by piece and eat it with tea. Bread made with stronger gluten provided by U.S. hard wheat is ideal for this cultural preference.
Fresh from a briefing at the USW country office in Taipei, the team met with representatives of the Taiwan Flour Mills Association (TFMA), which acts as a buying group for all mills in the country. The leadership of the TFMA is very supportive of its relationship with the U.S. wheat industry.
The final stop in Taiwan was a mill owned by Lien Hwa Industrial Corporation. Although the business is now a giant conglomerate, it all started with flour milling in 1951. Using flour mixing technology, the mill produces about 200 different flour blends for individual customers. From the mill, we went directly to the airport for our flight to Singapore where we toured the USW Regional Office and learned more about the milling and wheat foods markets in South Asia, and more specifically about the Indonesian market, from Regional Vice President Mike Spier and Assistant Regional Director Joe Sowers, who is based in Manila, Philippines.
U.S. wheat market share is growing here, we learned, because of quality, consistency and reliability – and because since 1991, Indonesian wheat consumption for food use has risen by 95 percent. Today, consumption is increasing at a rate of 7 percent a year as more people climb out of poverty into the middle class, a segment defined as earning more than $3,000 a year. In the last five years, five new mills have been built in Indonesia, each with capacity of 1,000 metric tons per day or more.
U.S. wheat quality, servicing the trade and providing technical training have gone far in terms of building trusting relationships with our Indonesian customers. In addition, the Federal Grain Inspection Service with its impartial grading of our wheat is an important part of the mix. Customers know they can depend on the U.S. grain grading system to provide them a product they know will be the same from cargo to cargo.
Among the milling industry officials we met with in Indonesia, including at one of the newcomers, Cerestar, in the city of Cilegon on the island of Java, there is a sense they are opening up a new frontier. As you would expect with trail blazing, the level of enthusiasm is high and it is contagious. All of us on the USW Asia Board Team could not help but be impressed by the uncorked entrepreneurial spirit.
The Cerestar mill is immaculate. The mill can blend both different streams of wheat and different streams of flour. More than 200 people are employed by the mill, but others are employed on a contract basis to either transport the wheat from the port or to stack, transfer and haul finished bags of flour. Of the Indonesian mills we visited, very little flour is sold in bulk because of the small nature of most businesses that use the product. But just as all U.S. flour was sold in bags a hundred years ago, it is certain the transition to bulk will come — and in Indonesia, it is not likely to take a hundred years.
Mill management at Cerestar is very aware that not all wheat is created equal.
“We don’t buy rubbish wheat,” the manager said, explaining that his company’s penetration of the market is dependent upon offering superior flour at an affordable price. “With U.S. wheat, we can do wonders,” he said.
For example, the manager said Cerestar’s customers are very happy with the consistency and quality of their flour products made with U.S. soft white and hard red spring.
We look forward to completing our journey by visiting customers and the USW associates during our final stop in Seoul, South Korea.
4. Wheat Industry News
- U.S. Wheat Demand Up. The U.S. Agriculture Department reported weekly export inspections of wheat for the week ending January 17 at 21.9 million bushels (596,000 MT), more than double last week’s inspections and significantly higher than the 17.8 million bushels (484,500 MT) reported this time a year ago. Grain traders are reporting strong demand for SRW and SW, currently the lowest priced high-quality milling wheat classes in the world. In the Gulf, grain traders reported strong demand for SRW over the past week from Turkey, Spain, Italy and China.
- Winter Wheat Conference. Wheat growers and wheat organization staff will head to Washington, DC, later this week for the annual Wheat Industry Winter Conference. The conference will include a full complement of committee and Board sessions for both the National Association of Wheat Growers (NAWG) and USW, along with a joint meeting of the two Boards and a meeting of the NAWG Foundation.
- EU Group Seeks Science-Based Consensus on Biotechnology. In an effort to engage with the public and clearly communicate the scientific consensus for plant biotechnology and its benefits in a changing world, EuropaBio, the European Association for Bioindustries, has produced a new brochure entitled ‘Science not fiction: Time to think again about GM’ that provides an overview of the debate in Europe to date. It provides insights into the acceptance challenges of the past, the process of re-establishing ‘fact over fear’, and the role of scientists, policymakers, the food chain, media and other stakeholders over the last 20 years. Click here to read more. Coincidentally, Reuters reported this week that the European Union's health chief hopes to revive talks on draft legislation that would allow member governments to decide individually whether to grow or ban GM plants. Read more here.
- A Remarkable Lecture. USW has been sharing news about a brave and remarkable lecture that noted environmental and author Mark Lynas recently made to The Oxford Farming Conference. In the lecture, Mr. Lynas repudiates his activist stance and actions against plant biotechnology. We believe listening to or reading this lecture provides reasoned and trustworthy insight for the entire wheat supply chain.
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