Wheat Letter - August 18, 2011
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.
In This Issue:
1. USDA Increases Global Wheat Production, Export Projections
2. A Sad Day for U.S. Wheat Producers and Their Customers
3. Best Ever Wheat…Best Ever Supply Chain
4. MGEX Removes U.S. Origin Condition from Hard Red Spring Wheat Contract
5. Wheat Industry News
Online Edition: Wheat Letter – August 18, 2011 (http://bit.ly/mTUytU)
PDF Edition:  Wheat Letter - August 18, 2011.pdf
1. USDA Increases Global Wheat Production, Export Projections
By Casey Chumrau, USW Market Analyst
In its August World Agricultural Supply and Demand Estimates (WASDE), the U.S. Department of Agriculture (USDA) increased its 2011/12 global wheat production outlook by 9.7 million metric tons (MMT) from last month’s projection. USDA now estimates this year’s global wheat production at 672 MMT, which would be 23.9 MMT more than last year’s output and the third largest global wheat crop on record if realized.
The bulk of the increased production forecast was due to greater estimates for the Russian and Ukrainian wheat crops. USDA increased its outlook for both countries by 3.0 MMT from last month to 56.0 and 21.0 MMT respectively. World export forecasts also increased, jumping 1.29 MMT since July to 131.3 MMT. The production numbers for Russia and Ukraine, coupled with Russia’s re-entry into the market after shutting out importers last year, were significant enough to offset reduced export projections for three major wheat producers. USDA lowered Argentinean, Canadian and U.S. export forecasts by more than 1.0 MMT each from July’s report.
Projected 2011/12 U.S. production dropped 0.8 MMT from July to 56.6 MMT. USDA reduced estimated planted area by 960,000 acres for spring wheat and 249,000 acres for durum. Those estimates exceeded trade expectations — bullish news that helped move prices higher last week. Wheat futures gained 2.3 percent on the report’s release date, August 11, with Chicago Board of Trade (CBOT) soft red winter (SRW) futures closing at $7.01 per bushel to overcome early week losses following the Standard & Poor downgrade of the U.S. bond rating.
Probably more influential on wheat prices is the spillover from bullish corn markets. USDA reduced the U.S. corn production outlook by 14.1 MMT from last month and projected U.S. 2011/12 ending corn stocks at their lowest level in the past 15 years. Higher corn prices have boosted demand for feed wheat and, in turn, pulled up wheat prices. USDA projected 6.5 MMT of wheat will be used for feed in the United States for 2011/12, an 86 percent increase from last year’s 3.5 MMT. Globally, projected use for feed wheat jumped from 123 MMT last month to a record 128 MMT this month.
2. A Sad Day for U.S. Wheat Producers and Their Customers
At last, sadly, the day has come and gone when the United States government has ignored the rational pleas of its citizens and businesses and handed an unnecessary advantage to countries that compete with us in world trade.
On Monday, the Colombia-Canada Free Trade Agreement (FTA) entered into force. It is an agreement first signed on Nov. 21, 2008, nearly two years to the day after a U.S.-Colombia FTA was signed. Now most Canadian industries enjoy duty-free access to the growing Colombian market. In contrast, because our government has allowed our FTA to languish, Colombian importers must still pay tariffs on most U.S. goods. For wheat, that tariff overcomes the natural advantage U.S. exporters otherwise have in providing quality wheat on a timely basis to our valued Colombian customers.
The stakes are particularly high for U.S. farmers as roughly 50 percent of U.S. wheat and 25 percent of all U.S. agricultural production is exported. In 2010/11, the United States exported more than 35 million metric tons (MT) of wheat — roughly 60 percent of last year's production — to about 70 countries. The United States is the largest supplier of wheat to the world and these exports provide worldwide customers with a competitive wheat source while returning an economic boost to the U.S. economy.
The U.S. wheat industry has worked hard to build a reputation as a reliable supplier. While American farms are largely family-run operations, they are businesses that understand the importance of trade to their customers. The U.S. wheat industry has a long history of promoting fair and open trade and looks forward to implementing pending and future trade agreements such as the nine-country TransPacific Partnership agreement to maintain its competitiveness in world markets. We can only hope that our customers in Colombia, as well as in South Korea and Panama*, understand this situation for what it is: a domestic political struggle that accomplishes only confusion, frustration and diminished trust.
U.S. wheat farmers will not give up on trade and once more call for the immediate ratification and implementation of the U.S.-Colombia FTA so U.S. producers and our Colombian customers can benefit from bilateral trade conducted on a level playing field.
*U.S. FTAs with South Korea and Panama are also pending.
3. Best Ever Wheat…Best Ever Supply Chain
By Steve Mercer, USW Director of Communications
The best days working on behalf of U.S. wheat growers are spent out among the people who make up the most reliable wheat supply chain in the world. I had such an opportunity recently, joining overseas customers on an activity in the Pacific Northwest (PNW).
Starting at the USW West Coast Office in Portland, OR, we visited growers, a country elevator, a barge loading facility, an export elevator, grain inspectors with the Federal Grain Inspection Service (FGIS) and the Wheat Marketing Center (WMC). We saw first-hand the reasons why so many customers purchase U.S. wheat.
John Oades, who will officially retire Sept. 1 after more than 28 years with USW, explained how USW and its 19 state wheat commission members work together with many other organizations to improve wheat yield and quality. Oades said the benefits don’t accrue just to wheat growers. For example, the USW Overseas Varietal Analysis program actually brings customers into the wheat variety selection process by helping identify which popular varieties meet both farmer and end-user expectations.
Most of the available soft white (SW) varieties are performing quite well this season in north-central Oregon’s Sherman County. This is dryland SW wheat country in the eastern shadow of the Cascade Mountains, with a few fields of club wheat mixed in. An empty steel grain bin on Tom McCoy’s farm stood sentinel as the past member of USW’s Board of Directors told us he would begin harvesting an excellent crop within a few days.
“We never guarantee actual yields until the harvest is in,” McCoy said, “but this should be an unusually big crop.”
We found the proof McCoy anticipated less than 50 km away at Padget’s Ranches near Grass Valley, OR. Darren Padget, his daughter Kylie, son Logan and father Dale were harvesting what he described as “some of the best dryland soft white wheat we’ve ever produced.” He said the family had rented the “ranch” they were harvesting three years ago. The rich, volcanic soil there “is thin” and not among the best of his fields. However, with careful management, a commitment to conservation and quite a bit more rain than normal the past two years, these fields were yielding up to 70 bushels of SW per acre (4.7 metric tons per hectare) that day.
The quality of this SW crop is also quite good, according to Phil Symons, a grain trader with Mid-Columbia Producers, Inc. (MCP), in Moro, OR, which operates country and terminal elevators. Through Aug. 14, with less than 50 samples analyzed, USW’s annual crop quality survey shows SW weighted averages with good test weight at 60.8 lb/bu (80.0 kg/hl), low moisture content at 9.6 percent, low protein at 9.1 percent and a sound falling number value at 314 seconds.
More than 90 percent of the wheat MCP buys, stores and markets moves downriver for export and the grain truck queues were quite long last week. Trucks were also queued at Columbia Grain’s export terminal on the Willamette River in Portland. Although most of the wheat exported from the PNW arrives by barge and rail, wheat is often delivered during harvest from farm fields directly to this export elevator and loaded on bulk vessels within a few days.
Before that happens, however, FGIS inspects and certifies all exported wheat as an objective third party. FGIS inspectors record test results down to sublot levels to create an inspection log that is available to the buyer. FGIS supervisors double-check the work of every inspector, and random working samples and testing equipment are periodically sent to the FGIS Technical Center in Kansas City, MO, to be checked again.
Our visit to the WMC in Portland demonstrated how partnerships with respected educational organizations enrich the working experience buyers, millers and wheat food processors have with the U.S. wheat industry. Nearly 100 international millers, grain buyers, bakers and wheat food processors attended marketing or technical courses in the United States through USW sponsorships at WMC, Kansas State University’s International Grains Program in Manhattan, KS, and North Dakota State University’s Northern Crops Institute in Fargo, ND.
Since 1989, the WMC has offered courses-on-demand to allow overseas customers to test different U.S. wheat blends in their specific products. USW has sponsored more than 40 participants in WMC courses each of the past several years.
Through USW and the farm families that support us, customers gain knowledge they can use to grow their enterprises. Our product offering and its value extends far beyond six classes of wheat. It includes transparency, service, education and a trusted connection between U.S. wheat farmers, the industry supply chain and customers — and that is something I am proud to help represent.
To view photos from Mercer's trip, visit http://www.facebook.com/uswheat.
4. MGEX Removes U.S. Origin Condition from Hard Red Spring Wheat Contract
The Minneapolis Grain Exchange (MGEX) recently announced it has removed the U.S. origin condition for wheat delivered against its hard red spring wheat (HRSW) futures contract. By removing the condition, MGEX allows for HRSW from outside of the United States to be delivered on the contract provided it meets MGEX contract specifications. The change will be effective no later than the May 2013 contract month.
Based upon the review of extensive research, the MGEX Contracts Committee unanimously recommended the Board remove the U.S. origin condition from the Exchange rulebook.
“Removal of this delivery condition is the first step of a multi-phase approach by our Contracts Committee in ensuring the MGEX Hard Red Spring Wheat contract is adaptable to the global marketplace,” Richard A. Dusek, chairman of the Contracts Committee and second vice chairperson of the MGEX Board of Directors said. “While the condition has not been used in several years, its removal now provides the legal certainty sought by global market participants wishing to participate in the MGEX spring wheat delivery process.”
5. Wheat Industry News
· EGT Plans Third Montana Shuttle Loader. EGT announced it is building a high-speed shuttle-loader grain elevator east of Carter, MT. The facility in southeastern Montana is scheduled to be complete next summer. For more information, please visit http://bit.ly/raXfTK.
· Viterra Opens Office in Vietnam. Viterra has opened a new marketing office in Ho Chi Minh City, Vietnam, focusing on milling and feed wheat, malt barley, soybean meal and canola meal. For more information, please visit http://bit.ly/nWVM2U.
· Congratulations to Kansas Association of Wheat Growers Director of Government Affairs Dalton Henry on his marriage to Megan Pinegar on August 12.
· Correction. In the August 4 edition of Wheat Letter we incorrectly congratulated USW President Alan Tracy on his 15th anniversary working for USW. Tracy has worked for USW for 14 years.
· Follow USW Online. Check out our page at www.facebook.com/uswheat for the latest updates and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter at www.twitter.com/uswheatassoc, photos of our activities at www.flickr.com/photos/uswheat and on Facebook, plus video stories at http://www.youtube.com/uswheatassociates.
Nondiscrimination and Alternate Means of Communications
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