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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 the profitability of U.S. wheat producers and their customers.” USW activities are funded by producer checkoff dollars managed by 18 state wheat commissions and USDA Foreign Agricultural Service cost-share programs. For more information, visit www.uswheat.org or contact your state wheat commission. Stakeholders may reprint original articles from Wheat Letter with source attribution. Click here to subscribe or unsubscribe to Wheat Letter.

In This Issue:
1. Uncertainty Creates Market Volatility
2. Markets Still Rely on U.S. Wheat for Quality, Variety
3. USW Lays Down Policy Priorities for Year Ahead
4. Wheat Grower Organizations Welcome TPP Signing, Look for Rapid Congressional Review
5. USW Directors Elect 2016/17 Officers
6. Wheat Industry News

Online Edition: Wheat Letter – February 11, 2016 (See attached file: Wheat Letter - February 11, 2016.pdf)

USW Price Reports: http://www.uswheat.org/prices


1. Uncertainty Creates Market Volatility
By Stephanie Bryant-Erdmann, USW Market Analyst

With fundamental factors well established, wheat futures markets thus far in 2016 are reacting mainly to changing government policies, notably those of Argentina, Egypt and Russia. Markets dipped when Argentina’s government removed export barriers. Prices rose and fell with each new rumor about the Russian export tariff, and fell again when Egypt’s muddled import requirements led to two cancelled General Authority for Supply of Commodities (GASC) tenders, slowing the pace of wheat imports by the world’s largest buyer. Over the next several months, we will watch and see how the markets reflect the consequences, both intended and otherwise, of those policy changes.

Argentina. In December, Argentina removed its 23 percent export tax on wheat, eliminated its wheat export quota and devalued its currency, all of which pushed Argentine wheat to the global market in a big way. According to Reuters, Argentine ports loaded 1.77 million metric tons (MMT) of wheat between Dec. 14 and Feb. 5. USDA pegs total Argentine wheat supply at 14.2 MMT and expects exports to reach 6.50 MMT in 2015/16.

Removal of the restrictive export policies helped Argentine farmers by giving them more market access. From 2012/13 to 2014/15, USDA estimated that ending stocks there climbed from 288,000 metric tons (MT) to 3.17 MMT due to increased usage of on-farm silo bag storage. This has given farmers a unique hedge this year because higher protein wheat supplies in Argentina are short and holding better quality wheat will likely mean more revenue. In marketing year 2015/16, USDA expects ending stocks to fall 57 percent to 1.36 MMT. Though the extent is still being determined, the recent export policy changes for wheat will also affect the Argentine flour industry. The International Grains Council (IGC) expects Argentina to be the sixth largest exporter of flour in the world in 2015/16; Turkey and Kazakhstan are numbers one and two, respectively.

Russia. With the U.S. dollar strengthening to 12-year highs in mid-January, and the Russian ruble plunging to record lows, Russian wheat gained competitive price strength. Russia produced 61.0 MMT of wheat in 2015/16, up 3 percent year over year. On Jan. 27, Russian officials sparked speculation by announcing it was examining its current wheat export tariff, but the government did not say if it would raise or lower the rate. While Russia has since announced that it will leave the export tax unchanged, further depreciation of the ruble will increase the tax due to the way it is calculated. On Jan. 21, Russian wheat prices offered for an Egyptian tender averaged $187/MT ($5.09/bu) free-on-board (FOB). The Russian export tax of 50 percent of the customs price minus 6,500 rubles ($83) per ton but not less than 10 rubles per ton on $187/MT of wheat adds roughly $10/MT.

Since 2008, Russia has restricted wheat exports three times, including the 2015 export tax increase, in order to control domestic food prices and inflation. The uncertainty about export policies and limited on-farm storage capacity in Russia create an incentive for Russian exporters to front-load their sales each marketing year to ensure they sell as much wheat as possible, regardless of price. In the first half of 2015/16, Russia exported 17.2 MMT according to SovEcon, a Russian consultancy. USDA predicts total Russian exports in 2015/16 will reach 23.5 MMT.

Egypt. After four weeks of debate, Egypt’s Agriculture Quarantine Authority announced that it would accept the GASC 0.05 percent ergot specification for imported wheat. However, GASC cancelled its most recent tenders after continued uncertainty forced traders to reevaluate the risk involved. All traders boycotted GASC’s first tender, then only a few bids came in on the second tender, each with a $10 to $20 per MT risk premium.

USDA expects 2015/16 Egypt domestic consumption to increase to 19.6 MMT, a 3 percent increase year over year. To meet the growing demand, Egypt is expected to import 11.5 MMT of wheat in 2015/16, a 4 percent increase from the prior year. About half of Egypt’s wheat imports go directly to production of subsidized flat bread (Baladi bread) to maintain the food security of its 92 million citizens. Reuters reported Egypt’s strategic wheat reserves would last until May 11, time Egypt’s government buyers can use to work on regaining trader confidence.

Markets will continue to adjust as the long-term implications of these policy changes become clear, but in the short-term, buyers and sellers need to weather the inevitable price volatility that always result.


2. Markets Still Rely on U.S. Wheat for Quality, Variety

Circumstances in today’s global wheat market are generating some breathless headlines. Plentiful wheat supplies, a strong U.S. dollar and record low freight rates are making it possible for Black Sea region, Canadian and Argentine exporters to sell more of their wheat at low prices in more markets around the world. While it is accurate to say U.S. wheat export volume is down, predictions of U.S. wheat becoming a second tier source of wheat rely on old perspectives of what is now a changing and highly segmented world market.

Total world wheat use and global wheat trade is growing and has set records in two of the past three marketing years. Much of that sustained growth is happening in markets that demand diverse types of wheat to produce premium ingredients in high-quality products. Unlike other wheat exporting countries and regions, U.S. farmers do not produce "generic" wheat. They supply six distinct wheat classes with excellent functional qualities and value for specific uses in specific end-product wheat foods.

That is why even under the current conditions, U.S. wheat exports are steadily increasing in markets that demand high quality. This is especially true in Asia and Latin America. These regions imported about 10 MMT of U.S. wheat in 1985/86, about 15 MMT in 2000/01 and just under 20 MMT in 2014/15. USW is seeing long-term value in these emerging markets and is adjusting its resources to help meet customers’ needs. In addition, customers recognize the U.S. wheat supply chain as the most reliable in the world; U.S. wheat buyers know they will face no risk from export taxes or other arbitrary government interventions.

It is a market development strategy that also provides value to U.S. farmers in the form of higher prices for their wheat compared to farmers in most competing countries.

“Trade paper headlines seem to imply the world wheat market is some kind of public competition — a race to see which country can claim the largest exporter position. I do not see it that way,” said USW Vice President of Overseas Operations Vince Peterson. “Selling wheat with consistently higher quality and a greater diversity of end-use applications is more complicated than a low-price strategy, but I think it is worthwhile for our overseas customers and our farmers.”

“We believe markets tend to correct themselves,” said USW President Alan Tracy. “Given population growth in markets that cannot grow their own wheat, increasing disposable incomes and growing demand for premium flour products in the quality markets we serve best, we are optimistic about future U.S. wheat production and exports.”


3. USW Lays Down Policy Priorities for Year Ahead
By Ben Conner, USW Deputy Director of Policy

A professor once told me this about achieving goals: “If you don’t write it down, it will never happen.” On behalf of the farmers we represent, USW takes a similar approach to our policy priorities: we write them down for the board to review every year. That happened again last week at the USW Board of Directors meeting in Washington, DC.

USW divides policy goals into three general categories: the World Trade Organization (WTO), free trade agreements (FTAs) and U.S. government policies. USW priorities in all three categories reflect our mission, which is ultimately to enhance the profitability of U.S. wheat producers and their customers.

The WTO category includes both trade enforcement and negotiations. A major policy priority is to ensure that wheat-producing countries follow WTO rules. Right now, a number of major developing countries are blatantly ignoring those rules, costing U.S. farmers in the form of lower exports and prices, and hurting their overseas customers in the form of more expensive domestic supplies. Studies conducted for USW estimated U.S. wheat farmers are losing more than $1 billion in revenue from domestic support policies in just four countries: China, Turkey, Brazil and India. Some of those countries have blatantly ignored WTO import rules in order to protect domestic wheat sectors. That is unacceptable and underscores the need to enforce past trade commitments. Similarly, our board supports negotiations through the WTO that create a more level playing field, but opposes rules that weaken current disciplines in the WTO Agreement on Agriculture or in continued negotiations under the failed Doha framework.

Free Trade Agreements are another priority. If the WTO negotiations remain at an impasse, aggressive market access gains will only come through bilateral regional sectoral trade agreements. The Trans-Pacific Partnership (TPP) is now signed and, hopefully, will soon be ratified by legislatures including the U.S. Congress. Beyond that, the wheat industry is hoping for rapid TPP expansion to other countries in the Asia-Pacific region as well as to new FTA opportunities.

Finally, U.S. government policies also affect U.S. wheat export potential. One of our priorities is on-going funding for the beneficial federal market promotion programs that — along with investment from state wheat commissions — help organizations like USW provide valuable services and information to customers around the world. USW also supports an end to the U.S. embargo of Cuba.

Now that we have written our 2016 Policy Priorities, it is time to make it happen. We are passionate about the profitability of farmers and their overseas customers, so we will be working hard to remove the policy obstacles in the way.


4. Wheat Grower Organizations Welcome TPP Signing, Look for Rapid Congressional Review

The signing of the 12 nation TPP in New Zealand Feb. 4 marked another step toward putting the world’s largest free trade agreement into action. The National Association of Wheat Growers (NAWG) and USW welcomed this step and called for rapid consideration and eventual ratification of TPP by Congress.

"Wheat growers are ‘all-in’ regarding the promise of the Trans-Pacific Partnership," said NAWG President Brett Blankenship, a wheat farmer from Washtucna, WA. "Expanding sales and market share are important pillars to help revitalize the wheat industry. Now, the ball is in Congress’ court and NAWG urges Congress to act quickly.”

A number of national and state wheat grower association members visited congressional offices recently to stress their support for the agreement. That is because wheat is the most export-dependent grain grown by U.S. farmers. South Asia and Latin America represent growing, but highly competitive markets for our production. When implemented, TPP will have a significant positive impact on U.S. wheat producers and on our country’s export supply industry.

“We need swift consideration and approval because every day that implementation is delayed, we face tariff disadvantages that undercut our ability to compete in established and new markets,” said USW Chairman Brian O’Toole, a wheat farmer from Crystal, ND.

With duty-free access under its free trade agreement with Vietnam, for example, Australia currently enjoys a $12 to $15 per metric ton price advantage over U.S. wheat. U.S. wheat exports are at a tariff disadvantage in a number of other countries that want to join TPP but cannot apply for membership until after Congress and the governments of the 11 other countries ratify the agreement.

As soon as possible after the implementing legislation is introduced, Congress should complete its work and ratify TPP.


5. USW Directors Elect 2016/17 Officers

The USW Board of Directors unanimously elected new officers for the 2016/17 (July to June) fiscal year at their meeting Feb. 6, 2016, in Washington, DC. The board elected Chris Kolstad of Ledger, MT, as Secretary-Treasurer, current Vice Chairman Jason Scott of Stevensville, MD, as Chairman and current Secretary-Treasurer Mike Miller of Ritzville, WA, as Vice Chairman. They will take office at the USW Board meeting in July 2016 in Fargo, ND, when current Chairman Brian O’Toole will become Past Chairman. USW is the export market development organization for the U.S. wheat production industry.

“Wheat has paid the bills on my family’s farm for 100 years and I want to thank the board for giving me the opportunity to give something back to this country’s wheat industry,” Kolstad said. “I look forward to working with USW’s directors and staff, as well as with the National Association of Wheat Growers, to make sure U.S. wheat remains the world’s top choice for quality and value.”


Kolstad is the fourth generation of his family to farm in Montana’s “Golden Triangle” region. He and his wife Vicki have four children, including their son Cary who is a partner in their operation. They grow hard red winter (HRW) wheat, dark northern spring wheat and durum, plus barley and dry peas. A commissioner of the Montana Wheat & Barley Committee, Kolstad has represented his state on the USW board since 2012. He is also a member of the Montana Grain Growers Association and Montana Farm Bureau. His community leadership includes serving on his local school board, as treasurer of his family’s church and as a regular blood donor who has given almost 19 gallons of blood since 1972.

Jason Scott is a sixth generation wheat farmer from Maryland’s Eastern Shore, where he manages his family’s soft red winter (SRW) wheat, row crop and vegetable operation. He also owns and operates a Pioneer Hi-Bred® seed dealership with his father. Scott has been a member of the Maryland Grain Producers Utilization Board since 2003 and served as president from 2005 to 2007. Scott received the Maryland Farm Bureau Young Farmer Achievement Award in 2011. In his seven years on the USW Board, Scott has represented his state and USW on two board team delegations to Africa and Europe and served as Secretary-Treasurer. He and his wife Casey have a young daughter.

Mike Miller is a fourth generation farmer who operates a dryland wheat farm and grows multiple crops on a separate, irrigated farm in east central Washington. He has served on many local, state and national boards, and is in his third term on the Washington Grain Commission and his fifth year as a USW director representing Washington. Miller is also very active in supporting wheat research and development. He and his wife, Marci, have three children.

Brian O’Toole is the president of T.E. O'Toole Farm Seed Company. He and his wife Sara have four children and raise wheat, edible beans and sugarbeets on their northeast North Dakota farm. O'Toole is an experienced agricultural and community leader. He serves on the North Dakota Wheat Commission, on the board of the Wheat Marketing Center in Portland, OR, and is Chairman of SBARE Wheat Granting Committee. He is also past president of the North Dakota Crop Improvement and Seed Association and past president of Crystal Farmers Elevator Co-op. O’Toole has received the Young Outstanding Farmer Award, Master Farmer Award and Friends of 4-H Award. He has served as Secretary-Treasurer and Vice Chairman of USW.



6. Wheat Industry News
  • USW Welcomes New Communications Consultant. Nicole Lane is a native of Eastern Oregon and a recent graduate of Kansas State University in agriculture communications and journalism. In her role, Nicole will compile and distribute the daily “Articles of Interest,” and consult on additional USW communications projects.
  • Work in the Foreign Agricultural Service. FAS is recruiting new Foreign Service Officers and taking applications until Feb. 17, 2016. Read the full announcement here. To access the “Guide to the Foreign Service Officer Selection Process” for more information about the position and the assessment process, click here.
  • Maryland Farm & Harvest. USW Vice Chairman Jason Scott recently appeared on an episode of “Maryland Farm & Harvest,” a television program that regularly airs on Maryland Public Television. The show is in its third season and is hosted by Emmy award winner Joanne Clendining, who takes viewers around the state to see and experience what it is like to run a 21st century farm. View the episode here.
  • Wheat Marketing Center Asian Noodle Technology and Ingredient Application Course. This hands-on course, scheduled for April 5 to 8, 2016, will focus on better understanding noodle formulation, processing technology, evaluation techniques, and the functionality of food ingredients in Asian noodle applications. For more information and to register visit http://wmcinc.org.
  • Northern Crops Institute Pasta Production and Technology Course. This course, scheduled for April 12 to 14, 2016, introduces the fundamental and applied aspects of manufacturing extruded pasta products. Raw material quality criteria, specifications and processing variables, and their impact on final pasta quality will be present in detail. The registration deadline is March 28. For more information and to register visit www.northern-crops.com/training-courses.
  • IGP Institute Grain Purchasing Short Course. This course, scheduled for April 4 to 15, 2016, will benefit individuals who are responsible for buying U.S. food and feed grains. The course focuses on the mechanics of purchasing raw materials and features detailed discussions of cash and futures markets, financing and ocean transportation. The registration deadline is March 16. For more information and to register visit www.igpevents.grains.ksu.edu.
  • 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.


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