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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. Corn-Wheat Price Relationship Complicates the Wheat Market
2. Overseas Buyers Attend Pacific Northwest Wheat Quality Council Meeting
3. Taking a Vote on TPP is Critical to Its Ultimate Success
4. USW Realigns Regional Management as Long-Time EU Director Retires
5. USW Hires Bakery Consultant for Philippines Market
6. Wheat Industry News

Online Edition: Wheat Letter - January 28, 2016 (See attached file: Wheat Letter - January 28, 2016.pdf)

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


1. Corn-Wheat Price Relationship Complicates the Wheat Market
By Stephanie Bryant-Erdmann, USW Market Analyst

The unusual market fundamentals for wheat, especially for U.S. wheat, in marketing 2015/16 remain bearish with the U.S. dollar hanging near its 12 year highs and freight rates spiraling to new lows each day. To complicate matters, changes to the global corn supply and demand fundamentals now demand the attention of the world’s wheat buyers — and sellers — with the potential for increased wheat feeding in the short-term.

While the relationship between wheat and corn is complex, wheat markets tend to follow corn. The two commodities are somewhat substitutable in the feed grain markets (primarily for pork and poultry production) depending on their price relationship.

In a normal year, the world feed grain market consumes an average 19 percent of all wheat production and 68 percent of corn production. The wheat sold for feed establishes the price floor for wheat by consuming residual wheat stocks — standard grade wheat that is generally unsuitable for end-product food functionality. However, animal feeders will also increase wheat in their rations if the local price difference between wheat and its nearest substitute, in most instances corn, is narrow enough. This relationship is more apparent when winter wheat is dormant and other market fundamentals are relatively stable.

The Chicago Board of Trade (CBOT) soft red winter (SRW) Wheat-Corn Intercommodity Spread monitors this price difference. The closer to parity corn and wheat prices are the more attractive it is to feed wheat to animals. Wheat normally has a higher protein content than corn and thus is worth a bit more in a feed ration. In 2011/12, when the spread narrowed and then flipped, wheat feeding increased 3 percentage points from the five-year average.

While the CBOT wheat-corn spread monitors U.S. prices, buyers are independently tracking the wheat-corn spreads of different origins, which a rare feed wheat sale from Argentina to hog feeders in North Carolina highlighted recently. The same strong U.S. dollar that is making U.S. wheat more expensive overseas is making wheat from other origins, such as Argentina, less expensive for some U.S. livestock operators. As of Jan. 23, trade sources reported low-protein Argentine wheat prices at $4.3.5/bu free on board (FOB) and U.S. corn at $4.37/bu FOB, making the Argentine wheat-U.S. corn spread -$0.02. For comparison, U.S. SRW at $5.61/bu FOB and U.S. hard red winter (HRW) at $5.81/bu FOB had wheat-corn spreads of $1.24/bu and $1.44/bu, respectively. At interior positions these spread can vary considerably: a feedlot in a wheat producing area may find wheat to be a bargain comparted to corn at its location.

Argentine wheat being cheaper than U.S. corn originating from the Gulf allows countries that would traditionally import corn for animal feed — Indonesia and the Philippines — to purchase wheat as a lower cost option. This is possible not only due to record low freight rates, but also because global wheat production is at a record high, while corn production fell 4 percent year-over-year to 968 million metric tons (MMT) as a result of decreased production in exporting countries that account for 95 percent of global corn production. This decline put global corn production below global corn consumption, which grew to a record 974 MMT, up 13 MMT from 2014/15.

The full effects of corn consumption out-pacing production this year are still unfolding. However, USDA believes global corn exports will fall 18 percent year over year, which may provide an alternative home for some of the world’s abundant wheat.


2. Overseas Buyers Attend Pacific Northwest Wheat Quality Council Meeting
By Steve Wirsching, USW Vice President and Director, West Coast Office

The U.S. wheat industry can show overseas buyers the future — or at least open a small window to the future of wheat quality, as it did at the recent Pacific Northwest Wheat Quality Council meeting.

The Wheat Quality Council holds this annual event to allow the domestic supply chain to discuss new cultivars and current wheat quality targets with public and private wheat breeders. With support from wheat commissions from Washington, Oregon and Idaho, USW invited buyers from the Philippines and Indonesia to join the breeders, cereal chemists, producers, grain handlers and inspectors Jan. 21 to 22 in Phoenix, AZ. Overseas buyers represent roughly half the market potential for all the wheat produced in the United States each year, so their opinions are very important to breeders who develop new U.S. wheat varieties.

The overseas market is very competitive with many suppliers who are willing to undercut U.S. prices. However, a growing number of customers value the excellent U.S. wheat quality and dependability and are willing to pay premiums. Buyers continue to place value on the low water absorption, weak gluten characteristics and bright white color of soft white (SW) wheat used for sponge cakes, pound cakes, cookies and crackers in South Asia. In addition, hard red spring (HRS) buyers value this wheat's high water absorption and gluten strength.

The Philippines currently is the third largest U.S. wheat buyer and the second largest buyer of SW and HRS wheat. Ms. Antonina Sio, Research and Development Manager for San Miguel Flour Mills in the Philippines, attended the meeting where she noted that a growing population and economy is increasing demand for high quality wheat foods (for more information, see “USW Hires Bakery Consultant for Philippines Market” below).

Mr. Reinal Asri, Head Quality Control Manager at PT Punda Kencana, represented Indonesia, which is the world’s fourth most populated country with a vibrant, growing economy and rapidly expanding wheat consumption. Australia is logistically very close and has a freight advantage to Indonesia, but this developing South Asian market requires additional quantities of high quality wheat for “Western-style” products. U.S. wheat has gained market share with high protein HRS and low protein soft wheat, qualities that Australian cannot regularly supply. PT Kunda Kencana is one of Indonesia’s leading mills and Mr. Asri encouraged farmers to continue growing the high quality wheat his customers and Indonesian consumers demand.

These overseas participants learned about soon-to-be-released wheat varieties that have superior quality, good disease resistance and higher yield potential. Specifically, a new HRS variety named “Eagan” from Montana State University promised protein strength and good yield desired by customers and growers alike. This variety is a cultivar of “McNeal,” an older variety that was famous for high protein, long farinograph stability times and strong dough.

The chance to participate left a positive impression on these South Asian customers. They commented that if these new varieties are released, the future of U.S. wheat quality looks very bright indeed.


3. Taking a Vote on TPP is Critical to Its Ultimate Success
By Dalton Henry, USW Director of Policy

Representatives from the 12 Trans-Pacific Partnership (TPP) negotiating countries are set to sign the agreement in New Zealand next week. Though signing the pact is primarily ceremonial, it marks another step forward in the long process of putting the world’s largest free trade agreement into action.

In the months since the final agreement announcement, the TPP collected many new endorsements, particularly among business groups. The U.S. Chamber of Commerce announced its endorsement Jan. 6, while encouraging the Obama Administration to work with Congress and industry members on unresolved concerns.

After the Feb. 4 signing attention will largely shift to the U.S. Congress, where leaders have so far hesitated to commit to any timing for a potential vote in part because much work is needed before a vote can even be considered. The International Trade Commission (ITC), which held a hearing on the agricultural portions of the agreement earlier this month, is accepting formal testimony on the merits of the agreement until Feb. 15. Their final report due May 18 will incorporate those comments, required by this past summer’s Trade Promotion Authority (TPA) bill.

With that ITC report as an official “scorecard” of the TPP, the administration will work with Congressional leaders to find time for a vote. That is a critical point because according to the regulations set down by the TPA, after introducing the implementing legislation the appropriate committees must complete their reviews and hold a final up-or-down vote within 90 days.

Many congressional watchers speculate that this final vote will not take place until after the U.S. elections in November. Some legislators fear trade agreements are too political to address prior to the election, while others may hope a new administration will place different priorities on the agreement’s portions that are more contentious. Unfortunately, any delays will mean U.S. wheat producers and their customers overseas must continue managing through inconsistencies in sanitary and phytosanitary standards and paying higher tariffs until the agreement is implemented.

Conceived as much more than just another free trade agreement, TPP was to be the platform for expanded trade in an entire region. In fact, within a few weeks after negotiators struck an agreement, as many as 12 additional countries contacted U.S. Trade Representative officials to test the membership water. However, no other country may apply for membership until after the U.S. Congress and the governments of the 11 other countries ratify the agreement. For this positive momentum to continue and ultimately help reach that goal of lifting economic opportunity in the region, moving as quickly as possible toward the Congressional vote on TPP is critical.


4. USW Realigns Regional Management as Long-Time EU Director Retires

USW announces the retirement of Goris van Lit, Regional Director for Europe, the Former Soviet Union and Israel, and promotes Ian Flagg, Regional Director, who will add van Lit’s responsibilities and continue to direct activities in the Middle East and North Africa region effective Feb. 1, 2016. Based in Rotterdam, The Netherlands, van Lit has worked for USW for 30 years. Flagg, who joined USW in 2005, is also based in Rotterdam and will now have responsibility for that office as well as offices in Moscow, Cairo and Casablanca. USW is the export market development organization for the U.S. wheat industry.

“As a part of our efforts to better align our resources, activities and staff with the realities of current market opportunities in the Middle East and North Africa, USW recently shifted responsibilities for some East African countries to our Sub-Saharan African regional office in Cape Town, South Africa, and transferred Ian to Rotterdam,” said USW Vice President of Overseas Operations Vince Peterson. “With Goris’ retirement, USW is taking the next step in this strategic realignment to more closely coordinate and concentrate our activities on high-quality market segments across the broader region."

“We cannot thank Goris enough for his many years of dedicated service representing U.S. wheat farmers,” Peterson said. “I served with Goris in the region and saw firsthand the value of his market knowledge, stable management skills and unwavering advocacy for U.S. wheat. We will all miss working with him very much but we wish Goris and his wife Lilian a long and enjoyable retirement.

“Looking forward, Ian has proven his ability to analyze changing market conditions and identify the best opportunities for U.S. wheat exports first in Cairo, then Casablanca,” Peterson noted. “I am very confident that he will be equally effective with his expanded responsibilities.”

Goris van Lit was born and raised near Rotterdam and became fascinated early in life by the international commerce at its growing port and the seagoing vessels being built virtually next door. Studying analytical chemistry, his career started in laboratory analysis and product development for home goods before he joined Meneba Flour Mills. He also worked in cereal food research with the Netherlands Organization for Applied Scientific Research before joining USW as a marketing specialist in 1986. Outside of work, van Lit has nurtured a life-long passion for automobiles and rally racing.

Minnesota native Ian Flagg served USW as Assistant Director, West Coast Office, Portland, OR, and as Market Analyst in the Headquarters office in Arlington, VA, before accepting a position in 2009 as Assistant Director for the Middle East, East and North Africa region in Cairo. He was promoted to Regional Director in 2014 and moved to Casablanca. Flagg has a bachelor’s degree in economics from Minnesota State University, Moorhead, and a master’s degree in Agribusiness and Applied Economics from North Dakota State University.


5. USW Hires Bakery Consultant for Philippines Market

USW welcomes Gerardo “Gerry” Mendoza as Bakery Consultant to provide technical assistance and training to commercial bakeries and wheat food processors in the Republic of the Philippines. Mendoza works from USW’s Manila office and will train with long-time Bakery Consultant Boy Ng, who plans to retire later in 2016.

“People in the Philippines are eating more bread and other wheat foods today,” said USW Assistant Regional Vice President Joe Sowers. "Gerry has exactly the kind of experience we need to continue our legacy of service to the wide range of commercial bakeries and end product manufacturers in this country. We are very pleased he is with us to keep demonstrating the value and performance of flour milled with U.S. wheat in the Philippines.”

Mendoza joins USW with 25 years of experience in the bakery ingredients industry, serving most recently as National Business Development Manager with AB Mauri. In his career, the Philippines native has managed production, served in sales positions and provided technical training and assistance to several key bakeries in the Philippines and around Southeast Asia. Mendoza earned a bachelor’s of science degree in industrial engineering from Adamson University, Manila.

Southeast Asia in general and the Philippines in particular have become one of the most important export markets in the world for U.S. wheat. Robust population and income growth are driving increased demand for wheat-based foods. The burgeoning middle class has an increased ability to pay for high quality products, while end product manufacturer and consumer preferences give U.S. wheat classes a strong advantage.


6. Wheat Industry News
  • Lemnatec Appoints New Chief Executive. The plant phenotyping specialist announced it hired Stefan Frey — who has more than 35 years’ experience in the biotechnology industry — to manage the ongoing development of the company’s global businesses. “LemnaTec is an exciting opportunity”, says Frey, “this is a company that already leads the market in terms of technology and sales, but it still has significant untapped potential”. Read the full announcement here.
  • Wheat Foods Council Revs Up Promotion Efforts with Adoption of New Strategic Plan. Identifying new target audiences and establishing messaging priorities marked the successful conclusion of the Wheat Foods Council’s (WFC) strategic planning session held in conjunction with their Annual Meeting, Jan. 13 to 14, 2016, in Scottsdale, AZ. WFC President Tim O’Connor, who joined the organization in June 2015, spearheaded the Council’s strategic plan development process. “I’m excited about our new plans,” stated O’Connor. “We have identified a number of initiatives we will be able to implement immediately giving us a jump-start on our new strategies for next fiscal year’s programming which begins in July 2016.” Read the full release here.
  • Honoring Jim McKenna. The Kansas Wheat Commission remembers the late Jim McKenna, who passed away April 4, 2015, with a memorial rock at the Kansas Wheat Innovation Center in Manhattan, KS. We have planted an oak tree that we hope someday will be a prominent tree that provides beautiful color in the fall and comfortable shade on hot summer days. We wanted to do something to help remember Jim and all of the great memories of his work and his friendships here in Kansas.” McKenna retired in 2014 after 21 years of service as a milling a baking consultant.


  • Congratulations to Kody Bessent. Our past wheat colleague recently accepted a new position as Vice President of Operations and Legislative Affairs with Plains Cotton Growers, Inc. Previously, Kody worked for Texas Wheat, and most recently was with the High Plains Water District. We wish the best to Kody.
  • Oprah Loves Bread. The television personality and mogul tweeted this week about her recent weight loss while on Weight Watchers. In this video, which was attached to the tweet, Oprah said, “I love bread. I now just manage it…I have lost 26 pounds and I have eaten bread every single day.” As a powerful influencer, Oprah’s message that bread does not cause weight gain is important to the wheat industry.
  • 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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