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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 wheat’s profitability for U.S. wheat producers and its value for their customers.” USW activities are funded by producer checkoff dollars managed by 17 state wheat commissions and USDA Foreign Agricultural Service cost-share programs. For more information, visit www.uswheat.org or contact your state wheat commission.

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In This Issue:
1. USDA Reports Smallest U.S. Harvested Area in 127 Years
2. Good Functional Characteristics, Lower Average Protein Mark New HRW Crop
3. Emerging Philippine Milling Industry Leaders Visit the United States
4. Reintroducing U.S. Wheat to Angola’s Expanding Flour Milling Industry
5. The International Treaties Upholding Science-Based Wheat Trade
6. Wheat Industry News

PDF Edition: (See attached file: Wheat Letter - October 5, 2017.pdf)

USW Harvest Report: http://www.uswheat.org/harvest


1. USDA Reports Smallest U.S. Harvested Area in 127 Years
By Stephanie Bryant-Erdmann, USW Market Analyst

USDA’s Sept. 30 Small Grains Summary reported that U.S. farmers harvested 37.6 million acres (15.2 million hectares) of wheat for the 2017/18 crop, a 14 percent reduction from 2016/17 and the smallest harvested area since 1890. USDA estimated U.S. 2017/18 wheat production at 47.4 million metric tons (MMT) (1.74 billion bushels), down 25 percent year over year and 15 percent below the 5-year average. The smallest planted area since USDA record began in 1919, adverse weather conditions and wheat streak mosaic virus all contributed to reduced harvested area.

The largest beginning stocks since 1988/89 will partially offset lower production. USDA expects 2017/18 U.S. beginning stocks to total 32.2 MMT (1.18 billion bushels), up 21 percent year over year and 57 percent greater than the 5-year average. Total 2017/18 U.S. wheat supply is forecast at 79.6 MMT (2.92 billion bushels), down 11 percent from 2016/17 but in line with the 5-year average. Despite the sharp year over year reduction in yields, USDA expects the final average yield to reach 46.3 bu/acre (3.11 MT/ha), similar to the 5-year average of 46.6 bu/acre (3.13 MT/ha).

Last fall, low farm gate prices and large carry-in stocks prompted U.S. farmers to plant 32.7 million acres (13.2 million hectares) of winter wheat, down 9 percent from 2016/17. The winter wheat crop went into winter dormancy in good or above average condition. A mild winter and early spring was beneficial for both winter wheat and, unfortunately, the mites that carry wheat streak mosaic virus. The disease was widespread in Kansas, Oklahoma and parts of Nebraska, cutting yields and causing higher rates of abandonment in affected hard red winter (HRW) areas. A late spring blizzard in western Kansas cut yields and increased abandonment. Soft red winter (SRW) generally came out of dormancy in better than normal conditions, but growing conditions also varied widely across the Southeast. In some areas, excessive moisture helped boost yields, in others it delayed or prevented emergence.

As with winter wheat, low spring wheat and durum farm gate prices and large carry-in stocks reduced planted areas. After planting (which is generally early), drought conditions spread across Montana, North Dakota and South Dakota with devastating effects on yield. As a result, the rate of abandonment in South Dakota, which was particularly hard hit, is estimated at 37 percent — nearly triple the state’s 5-year average.

Here is a by-class breakdown of the Sept. 30 report.

Hard Red Winter (HRW). USDA estimates total 2017/18 HRW production fell to 20.4 MMT (750 million bushels), down 31 percent from 2016/17 and 15 percent below the 5-year average. USDA forecast 2017/18 HRW beginning stocks at 16.1 MMT (593 million bushels), up 33 percent year over year and 81 percent above the 5-year average. Even with large beginning stocks, total HRW supply will fall 12 percent year over year to 36.5 MMT (1.34 billion bushels). Total HRW planted area fell to 23.8 million acres (9.63 million hectares), down 10 percent from 2016/17. Yields also fell an average 13 percent from 2016/17 in the top HRW-producing states of Texas, Oklahoma and Kansas.

Hard Red Spring (HRS). USDA estimates total 2017/18 HRS production fell to 10.5 MMT (385 million bushels), down 22 percent from 2016/17 and 26 percent below the 5-year average. USDA forecast 2017/18 HRS beginning stocks at 6.40 MMT (235 million bushels), down 14 percent year over year but still 21 percent above the 5-year average. Total HRS supply will fall 12 percent year over year to 16.9 MMT (620 million bushels). USDA estimates farmers planted 10.3 million acres (4.17 million hectares) to HRS, 10 percent below 2016/17 levels. The drought cut yields an average of 11 bu/acre (0.74 MT/ha) in Montana, North Dakota and South Dakota. Abandonment in Montana and North Dakota was double the respective 5-year averages at 9 and 6 percent, and South Dakota farmers abandoned 37 percent of wheat fields due to the drought. The single bright spot for HRS production was Minnesota, with a record high average yield of 67.0 bu/acre (4.50 MT/ha) offsetting lower harvested area.

Soft Red Winter (SRW). USDA estimates total 2017/18 SRW production fell to 7.95 MMT (292 million bushels), down 15 percent from 2016/17 and 32 percent below the 5-year average. USDA reported 24 percent of SRW acres were abandoned compared to 17 percent last year. Record high yields in six SRW producing states partially offset the lower harvested area. USDA forecast 2017/18 SRW beginning stocks at 5.85 MMT (215 million bushels), up 37 percent year over year and 47 percent greater than the 5-year average. So, total SRW supply will rise slightly year over year to 13.8 MMT (507 million bushels). USDA estimates total 2017/18 SRW planted area at 5.61 million acres (2.27 million hectares), 15 percent lower than 2016/17 and 30 percent below the 5-year average.

Soft White (SW). USDA estimates total 2017/18 SW production declined to 6.14 MMT (226 million bushels), down 11 percent from 2016/17 due to small declines in harvested area and average yields in Washington and Idaho that were down 7 and 10 percent, respectively. USDA reports white wheat planted area decreased 3 percent year over year. White wheat planted area fell to 4.02 million acres (1.63 million hectares), 2 percent below the 5-year average. USDA projected white wheat beginning stocks will increase 42 percent year over year to 3.02 MMT (105 million bushels). If realized, that would be 65 percent above the 5-year average.

Durum. U.S. durum production fell 51 percent in 2017/18 to 1.49 MMT (54.9 million bushels) from lower planted area and yields in Montana, North Dakota and South Dakota. USDA estimates 1.91 million acres (773,000 hectares) were planted to durum, down 11 percent from 2016/17 but still 6 percent above the 5-year average of 1.80 million acres (729,000 hectares). Abandonment also increased this year from 2 percent in 2016/17 to 8 percent in 2017/18, due to the drought. USDA projected 2017/18 durum beginning stocks to climb to 980,000 metric tons (MT) (36 million bushels), nearly double the 5-year average and 29 percent above 2016/17 levels. USDA forecast total U.S. durum supply at 2.48 MMT (91 million bushels), down 31 percent year over year.




2. Good Functional Characteristics, Lower Average Protein Mark New HRW Crop

USW and its partner organizations have completed the crop quality analysis of the 2017/18 U.S. hard red winter (HRW) crop. The final data is summarized below. The complete analysis will appear in both a class-specific report and USW’s 2017 Crop Quality Booklet, and shared with hundreds of customers around the world as part of USW’s annual Crop Quality Seminars.

This HRW crop is a strong testament to the primal role of economics and weather in farming.

At planting, the profit potential of HRW did not look very good to many farmers and those who could do so planted more land to other crops. Planted area fell to its lowest level in more than 100 years. Then, although variable conditions challenged the crop, moisture remained adequate, or even excessive in some areas, resulting generally in better than expected yields. Still, USDA has estimated the HRW supply (excluding a small volume of imports) at 36.5 MMT, down 13 percent from 2016/17. Whole crop composite average protein levels are generally lower than average but the crop offers good milling and processing characteristics.

Wheat and Grade Data. Overall kernel characteristics are outstanding in the 2017 crop, although protein levels were again relatively low. Despite the challenging growing conditions, overall 92 percent of Composite, 86 percent of Gulf-Tributary and 100 percent of Pacific Northwest-Tributary samples graded U.S. No. 2 or better. Test weight averages 60.5 lb/bu (79.6 kg/hl), above the 5-year average of 60.3 lb/bu (79.3 kg/hl) and equal to last year. The total defects average of 1.2 percent is below the 2016 and 5-year averages. Foreign material is 0.1 percent, below last year’s 0.2 percent, while shrunken and broken at 0.9 percent is equal to last year and below the 5-year average. Average thousand kernel weight of 31.0 g significantly exceeds the 5-year average of 29.1 g. The average wheat falling number is 378 sec, below 2016 and the 5-year average, but still indicative of sound wheat.

The average protein of 11.4 percent (12 percent mb) is similar to last year, but significantly lower than the 5-year average. Protein content distribution varies by growing region. Approximately 56 percent of the samples tested were less than 11.5 percent protein, 28 percent between 11.5 percent to 12.5 percent and 16 percent greater than 12.5 percent.

Flour and Baking Data. The Buhler laboratory mill flour yield average is 78.1 percent, above the 2016 average of 76.6 percent and the 5-year average of 75.2 percent. However, flour ash of 0.64 percent (14 percent mb) is also higher than 2016's 0.56 percent and the 5-year average. Gluten index values average 93 percent, equal to both last year and the 5-year average. The W value of 199 (10-4 J) is slightly lower than last year’s average and well below the 5-year average. Average bake absorption is 62.8 percent, similar to 2016 and the 5-year average. Farinograph development and stability times are 4.5 min and 6.1 min, respectively, compared to last year’s respective times of 4.0 min and 6.7 min and significantly lower than the 5-year averages. Loaf volume averages 806 cm3, below 2016 and the 5-year average, but still indicative of good baking quality.

Summary. The quality of the 2017 HRW crop is very similar to the 2016 crop. Generally, the 2017 crop was planted and developed in a favorable environment until late in the growing season, with abundant moisture and no heat stress in the Central and Southern Plains. High yields resulted in lower quantities of wheat and flour protein, but the crop exhibits very good milling characteristics. The loaf volumes achieved indicate there is adequate protein quality to make good quality bread even though mix times are shorter than the 5-year averages. This crop meets or exceeds typical HRW contract specifications and should provide high value to customers.


3. Emerging Philippine Milling Industry Leaders Visit the United States
By Amanda J. Spoo, Assistant Director of Communications

With new mills and an increasingly competitive price environment, the Philippines continues to be one of U.S. wheat’s top, consistent customers. As new industry leaders emerge there, USW recognizes the importance of providing training to increase millers’ knowledge of procurement strategies and the U.S. wheat marketing system through trade servicing in the South Asian nation and sometimes here at home.

In September, USW combined a formal training course with a first-hand view of the U.S. wheat supply chain for a delegation of six executives from the Philippine milling industry to the United States, Sep. 20 to 22, 2017. USW collaborated with the Northern Crops Institute (NCI), the Washington Grain Commission (WGC) and the Oregon Wheat Commission (OWC) to organize and host this group. Funding also came from the USDA Foreign Agricultural Service (FAS).

“The Philippines was the third largest buyer of U.S. wheat in the 2016/17 marketing year with total imports reaching almost 103 million bushels (2.8 million metric tons) and the largest buyer of both soft white (SW) and hard red spring (HRS) wheat,” said USW Assistant Regional Vice President Joe Sowers, who led the team. “This delegation represented mills that imported more than 1.5 MMT of U.S. wheat in the past marketing year with an estimated FOB value of $325 million.”

The executives first participated in the Grain Procurement Management for Importers short course at the NCI in Fargo, N.D., from Sept. 11 to 20. The course focused on basic hedging principles, fundamental and technical analysis of commodity markets, basis and spreads, the U.S. grain transportation infrastructure, U.S. wheat grading standards and purchase quality specifications for wheat importers.

USW Vice President and West Coast Office Director Steve Wirsching joined the delegation at NCI to deliver a presentation entitled “Getting the Wheat Quality and Value You Want.” The group learned about the importance of wheat quality specifications in purchase contracts and the role of the Federal Grain Inspection Service (FGIS) in performing all mandatory grain inspections for quality assurance.

Sowers shared that a trading game exercise in the commodity trading room at the North Dakota State University Department of Agribusiness and Applied Economics was particularly helpful to both senior and junior members of the delegation in better understanding the intricacies of wheat purchasing.

After attending the course, the delegation traveled to Washington where they visited the WGC to discuss supply and demand and toured HighLine Grain, LLC.

“The Philippines is Washington farmers’ leading customer for soft white wheat, so this was an important opportunity to share our appreciation for their business,” said WGC Vice President Mary Palmer Sullivan. “Having just completed the grain procurement course, they were able to connect what they learned in the course with the real experience and people here in our state.”

Next, the delegation drove from Spokane, Wash., to Portland, Ore., making stops along the way to visit USW Chairman Mike Miller near Ritzville, Wash., and in Pasco, Wash., to visit Tri-Cities Grain, LLC, and meet with WGC commissioners Damon Filan and Dana Herron.

Palmer Sullivan, who traveled with the delegation from Washington to Oregon, shared that the team was particularly interested in learning more about the transportation system.

“Last year, the scheduled river closures and the weather heavily impacted transportation issues for our overseas customers,” said Palmer Sullivan. “I think seeing and learning about the system helped them better understand how to plan ahead and that U.S. wheat farmers are dedicated to providing them with a reliable wheat supply.”

In Portland, the delegation visited the USW West Coast Office and Wheat Marketing Center (WMC) and met with a FGIS quality assurance specialist. On a tour of the TEMCO (Cargill/CHS) export elevator, the group witnessed first-hand FGIS’s supervisory role in vessel hold inspection and loading to contract specifications to ensure uniform quality. During a meeting with the Pacific Grain Export Association, whose members compete for their business, the delegation received timely market information specific to each wheat class. The group also met with OWC CEO Blake Rowe and Commissioner Darren Padget.

“The Philippines was also our largest soft white wheat market this past year, so we wanted to explain the emphasis we put on quality throughout our production process,” said Rowe. “Everyone, from our wheat breeders to our growers to our handlers to our exporters, has a role in providing quality wheat to our customers.”

“This trip gave us the opportunity to keep sharing the many ways the U.S. grain production and marketing system benefits the Filipino industry, which has a strong preference for U.S. wheat that we want to reinforce,” said Sowers.


4. Reintroducing U.S. Wheat to Angola’s Expanding Flour Milling Industry

The West African nation of Angola is making good progress in its desire to improve food security for a rapidly growing population, currently estimated at 24.5 million people. The Angolan government believes that building its own food processing capacity will help reduce the cost of importing food, while creating jobs for the Angolan people and preserving foreign exchange. Angola annually imports an estimated 800,000 MT of processed wheat flour from various origins.


The country was not always dependent on flour imports. With support from state wheat commissions and USDA’s Foreign Agricultural Service (FAS) export market development programs, USW introduced HRW wheat to Angolan milling companies in the 1990s through the USDA PL 480 Title 1 monetization program. The Angolan milling industry processed a significant volume of HRW, and Angolan bakers very much liked the quality of the HRW flour to make popular baguettes and Portuguese-style bread. When the Title 1 program ended in 2001, donated supplies of U.S. HRW were no longer available, so the Angolan government turned to subsidizing imported flour.

Economic conditions and the government’s new focus created an opportunity to begin increasing flour milling capacity. To build on its prior experience in Angola, USW invested funds from the FAS Market Access Program (MAP) for a part-time consultant to provide timely and accurate information about U.S. HRW to Angolan flour millers, bakers, grain traders and government officials.

Early in 2016, under the FAS Quality Samples Program (QSP), USW coordinated the shipping of a HRW wheat sample to an Angolan mill, and a HRW flour sample to a bakery. Analysis of the samples all showed the HRW wheat and flour met industry standards and produced good quality products. The milling managers said they would strongly consider HRW for import, given competitive prices and expanded storage.

In a separate QSP activity, USW’s local representatives and staff from its West Coast Office in Portland, Ore., worked through the North American Millers’ Association (NAMA) to purchase and mill HRW wheat and ship the flour to an Angola food processing company to demonstrate its use in pasta production. U.S. Ambassador Helena M. La Lime and representatives from USW and NAMA celebrated the arrival of this shipment in a ceremony at the processing company in late February 2017. Amb. La Lime highlighted the great potential U.S. wheat has in supporting Angola’s milling and food industries and said the United States “supports Angola's efforts to diversify the economy through industrialization and increased local production of consumer goods."

In September 2017, USDA reported that an Angolan buyer had purchased 27,500 MT (almost 992,000 bushels) of HRW, the first U.S. wheat exported to the West African nation in many years.

“I believe U.S. wheat farmers would be proud to know that their wheat has the potential to help improve economic conditions in Angola,” said USW Regional Vice President Ed Wiese. “Through trade service, technical support and training funded by wheat farmers and USDA, our organization tries to build lasting relationships with our valued customers around the world. And, assuming prices remain competitive in the changing world wheat trade, we hope that our support will lead to increased demand for HRW to produce great bread, pasta and other wheat food products for the Angolan people.”



5. The International Treaties Upholding Science-Based Wheat Trade
By Elizabeth Westendorf, Assistant Director of Policy

It’s no secret that the U.S. wheat industry and its customers rely heavily on international trade rules to keep markets open and wheat moving. The World Trade Organization (WTO) is the prime example of this, particularly in its limits on tariffs and subsidies that have done so much to push towards a level playing field in global trade. But along with the WTO are other institutions that play a critical role in trade.

As traditional barriers to trade have decreased due to the WTO and other trade agreements, many countries have adapted and found new ways to protect industries, limit imports, or retaliate on trade issues (and clearly there are still many issues with traditional barriers!). Technical barriers – in particular sanitary and phytosanitary (SPS) barriers that purportedly address health, safety, and environmental problems – are a big challenge in trade today and likely to be a growing concern in the future.

The WTO SPS Agreement identifies two additional international treaties that are relevant to wheat trade: the Codex Alimentarius and the International Plant Protection Convention (IPPC). The Codex Alimentarius is a collection of standards, guidelines and practices that aim to protect consumer health while also ensuring fair practices in international trade, and the IPPC is the international standard setting body for plant health.

The most visible standards in wheat are probably the maximum levels for pesticide residues (MRLs), mycotoxins, and heavy metals set by Codex, but there are other influential standards for things like phytosanitary certificates and pest risk assessments adopted by the IPPC.

The SPS Agreement requires that any measures that a country adopts that are more trade-limiting than the standards developed by Codex and IPPC be scientifically justified, taking into account relevant factors like exposure and risk. Countries have every right to limit imports of unsafe products, whether they’re unsafe to their consumers or the environment, as long as they have gone through the process of providing sound justification. The WTO provides a clearing house of announcement for regulatory changes proposed by member countries, giving all others an opportunity to comment and object if needed. USW staff routinely monitor these announcements for any potential new restrictions on wheat trade.

Divergence from an international SPS measure is not necessarily a violation of trade commitments, but it can be a sign that something is wrong and needs to be fixed. The U.S. government has personnel dedicated to fixing these sorts of technical barriers and ensuring that standard setting bodies rely on the best science available and avoid acting as unnecessary impediments to trade.

The highly technical nature of SPS measures means that these measures are often difficult to implement properly and address if something is wrong. Following these standards or an alternative science- and risk-based process is extremely important for trade in wheat and wheat products to avoid market disruptions. The evolving nature of trade also means that these institutions need to pursue robust agendas while maintaining their scientific integrity so that they do not become pawns of agendas, but remain independent arbiters of good trade practices in SPS measures.


6. Wheat Industry News
  • Quote of the Week: "Because of the commitment the U.S. wheat industry has to [U.S. Wheat Associates], it has been good to be a part of seeing things work effectively. To me that is what true partnership should be.” — Mark Smith, Market Specialist, USDA/Foreign Agricultural Service
  • Congratulations to USW Staff on Recent Work Anniversaries. We are so fortunate to have such devoted, loyal colleagues at USW. Thank you to the following colleagues for their service to our organization, to U.S. wheat farmers and to our customers around the world.

  • - Mitch Skalicky, Regional Vice President, USW Mexico City Office, 40 years
    - Gek Hua Neo, Senior Secretary, USW Singapore Office, 30 years
    - Steve Wirsching, USW Vice President and West Coast Office Director, 25 years
    - Pamela Leckie-Wiese, Executive Secretary, USW Cape Town Office, 25 years
  • 2017 Regional Crop Quality Reports. The regional reports for Desert Durum®, San Joaquin Durum, California hard red winter and hard white, all prepared by the California Wheat Commission Wheat Quality Laboratory are available for download at http://www.uswheat.org/cropQuality.
  • The World Trade Organization (WTO) Dispute Settlement Body has established a panel to rule on a complaint filed in December 2016 by the United States regarding China’s administration of its tariff rate quotas (TRQs) for wheat and other agricultural products. This is the second panel established at the WTO under the Trump Administration to defend the interests of wheat farmers. The first will examine whether China’s market price support programs for wheat, corn, and rice violate its trade commitments. USW and the National Association of Wheat Growers (NAWG) are very pleased with the Trump Administration’s aggressive use of the WTO dispute settlement mechanism on behalf of wheat farmers. Read more here.
  • Celiac Friendly Wheat? “New Scientist” magazine in September reported that researchers in Spain have developed wheat varieties that no longer produce the gliadin protein form of gluten but retain good dough strength. The intent of the research is to help the estimated 1 in 100 people with an immune response to gliadin known as celiac disease. The report says plant scientists used innovative plant breeding methods to “turn off” genes associated with gliadin production. Apparently baked goods using flour from these varieties are being tested. It should be noted that there are no GM wheat varieties in commercial production. Read more here.
  • Senate Confirms USDA Leaders. USW joins NAWG in welcoming the U.S. Senate confirmations of Steve Censky, former CEO of the American Soybean Association, for Deputy Secretary of USDA, and Ted McKinney, former Indiana Agriculture Director, for USDA Under Secretary for Trade and Foreign Agricultural Affairs.
  • Subscribe to USW Reports. USW has added a “Subscribe” menu at www.uswheat.org where visitors may subscribe to this newsletter, the weekly Price Report and the weekly Harvest Report (available May to October.) Click here to subscribe or unsubscribe.
  • Follow USW Online. Visit our page at www.facebook.com/uswheat for the latest updates, photos and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter at www.twitter.com/uswheatassoc and video stories at www.youtube.com/uswheatassociates.


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