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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.” 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. Season’s Greetings!
2. Increase in Canadian Production Unusual in December WASDE Report
3. Overseas Varietal Analysis (OVA) Program Tests What Customers Want
4. Farmers Share Thoughts with USW Leaders at Winter Meetings
5. Progress at the WTO, But at a Cost
6. Protectionism Undercuts Potential TPP Benefits
7. Wheat Industry News


Online Edition: Wheat Letter – December 19, 2013 (http://bit.ly/1dpbzWm)

PDF Edition:

Crop Quality Information: USW 2013 Crop Quality Report (http://www.uswheat.org/cropQuality)


1. Season’s Greetings!




2. Increase in Canadian Production Unusual in December WASDE Report
By Casey Chumrau, USW Market Analyst

USDA regularly adjusts wheat supply and demand estimates for Southern Hemisphere exporters this time of year as their harvests progress. So, it was unusual when the largest adjustment in December’s World Agricultural Supply and Demand Estimates (WASDE) report was for Canada, where the wheat harvest ended almost two months ago.

USDA added 4.3 million metric tons (MMT) to last month’s Canadian production estimate to meet Statistics Canada’s official assessment of 37.5 MMT. If accurate, that would beat the previous record of 32.1 MMT, set in 1990/91, by a considerable margin. The significant late-season adjustments to the production projections are partly the result of the first harvest without the Canadian Wheat Board monopoly, which previously controlled all wheat stocks. Another effect of the monopoly’s dissolution is that Canadian farmers near the U.S. boarder now have the option to sell to U.S. elevators. This is particularly important this year as the Canadian spring wheat crop protein average is well below normal and can compete with a relatively high-priced U.S. hard red winter (HRW) wheat. As a result, USDA expects the United States to import a record 4.4 MMT of wheat in 2013/14, mostly from Canada, compared to the five-year average of 3.1 MMT. A little known fact is that the United States has always been Canada’s top wheat export market and this year could account for nearly 17 percent of Canada’s expected 23.0 MMT in exports.

In another small surprise from the December WASDE report, USDA left its Argentine production forecast unchanged at 11.0 MMT, despite an Argentinean agricultural ministry projection of 8.5 MMT. The decision might hint at USDA’s level of confidence in the official projection. In November, the ministry said erroneous data collection led to an inaccurately low production forecast of 8.7 MMT. It did not release a correction and then lowered the estimate in December. Production of 11.0 MMT would be a 16 percent increase from last year’s 9.5 MMT but down from the five-year average of 13.0 MMT.

The size of the Argentine crop is an important factor in anticipating the level of exports its government might allow. The Argentinean government carefully controls the domestic wheat supply and only issues export permits when there is no risk of pushing domestic prices too high. Currently, USDA estimates Argentine exports at 4.5 MMT and domestic consumption at 6.0 MMT. If the actual production output is closer to the export estimate of 8.5 MMT, permits may be limited. Last year’s crop of 9.5 MMT was the lowest in nearly 20 years, followed by the lowest exports in 35 years. U.S. wheat farmers are watching the situation closely because U.S. exports have increased significantly to some of Argentina’s largest customers, especially Brazil, and the trend could continue with another disappointing year in Argentina.

For Australia, the other major South Hemisphere wheat exporter, USDA increased production estimates 1.0 MMT to 26.5 MMT. After severely dry conditions limited the crop size last year, timely and adequate rainfall is helping this year’s crop to exceed early expectations. If realized, production would be 18 percent larger than last year’s crop and the third largest of all time. There have been no reports of the quality issues that plagued the record crop in 2011/12. The optimistic outlook for Australia’s output has helped pressure world wheat prices recently.

USDA left projections mostly unchanged for the rest of the major wheat exporters, but still pushed the global production forecast to a record 711 MMT. USDA also increased record-setting world consumption by just 1.0 MMT to 704 MMT. The result is larger carryover stocks into 2014/15 of 183 MMT, up 4.3 MMT from last month’s projection and 4 percent greater than last year, but still 7 percent below the five-year average of 189 MMT.

Overall, USDA’s December WASDE report was quite bearish for wheat. The already ample supply of world wheat keeps growing, sending prices lower and creating excellent buying opportunities for customers. The United States is in great position to maintain the fast pace of exports seen so far this year. U.S. wheat farmers harvested another high quality crop, unlike some major competitors, proving once again that the United States is the world’s most reliable supplier year after year.


3. Overseas Varietal Analysis (OVA) Program Tests What Customers Want

Recognizing that farmers and their downstream customers share a desire to see the best possible qualities in wheat, Dr. John Oades developed and implemented a new way for overseas customers to have direct input in U.S. wheat quality. He called the program Overseas Varietal Analysis or OVA.

“Competition in the global market was increasing and U.S. wheat production costs are typically more than they are for competitors,” said Oades, who retired as a USW vice president in 2011. "We had to keep improving our quality in ways that our milling and baking customers wanted.”

Farmers in the United States grow six different classes of wheat. Within each class are many different “varieties” developed by public or private wheat breeders.

The OVA program is a highly cooperative effort to select newly released U.S. wheat varieties, mill that wheat and have overseas customers analyze the flour and compare its performance to their standards. USW works with public universities, state wheat commissions and USDA officials help collect, mill, inspect and test samples of these varieties. USW then sends those samples to international millers and bakers for analysis and comparison with local standards. USW compiles the results in annual reports shared with cooperators overseas and with wheat breeders in the United States.

“The program has grown every year,” said Steve Wirsching, USW vice president and director of the USW West Coast Office, who has been responsible for the OVA program since 2009. “This year, there are 32 overseas technical laboratories, located in 18 different countries, testing 314 different flour samples. In January 2014, we will ship more than 2,000 kilograms of flour overseas for testing. That is a lot of flour!”

Industry groups and wheat breeders use OVA-generated data to develop wheat quality targets and then make periodic adjustments for each wheat class. State wheat commissions use the data to develop preferred varieties lists to let growers know which varieties are in demand.

“Overseas millers and bakers like the program because they get to look at new wheat varieties to gain insight to what varieties will be in the market one to three years in the future,” said Wirsching.

USW complements OVA with other programs, including technical exchange conferences and wheat quality improvement teams. Wirsching said these activities further strengthen the communication between overseas customers, wheat farmers and wheat breeders.

Technical exchange conferences allow overseas cooperators to provide direct feedback to wheat breeders about testing results. Since 2006, conferences have been held in North Dakota for varieties in the hard red spring (HRS) class, in Washington state with a focus on varieties of soft white (SW) and in Ohio to discuss varieties of soft red winter (SRW).

Quality improvement teams take U.S. wheat breeders to overseas markets where they meet face-to-face with end-users and technical managers involved in testing the OVA samples. This program helps breeders understand the impact of new wheat varieties on wheat quality and competitiveness of U.S. wheat classes overseas.

“Wheat varieties that are good for the farmer should also be good for the miller and the baker,” Wirsching said. “That is why USW will keep working to promote varieties that have disease resistance and good yield potential for farmers, but also the high milling and baking quality preferred by our customers.”


4. Farmers Share Thoughts with USW Leaders at Winter Meetings

As the cold of winter settles in across the United States, associations that represent the interests of wheat farmers met in many states to review the last year’s activities and set plans for the next year. USW officers and staff look forward to these meetings as a chance to detail the results of USW’s efforts and talk to farmers. “Wheat Letter” asked them to share what they heard at some of the recent meetings.

“In both Bismarck and Grand Forks in North Dakota, farmers talked about the impacts of the Bakken oil field on labor and freight costs, the size of the Canadian crop (while agreeing that their own crop was pretty good as well), the recent wheat price decline and the current high cost of rail service that is hurting them on basis (cost to move wheat from country elevators to domestic markets or export elevators). They are interested in the export picture and clearly understand the importance of meeting our customers' needs with high quality wheat. And, as always, they greeted their guests with a warmth that more than made up for temperatures approaching minus 20 F (minus 31 C). Well, as long as we were inside!” – Alan Tracy, USW President.

“Most of the folks in Nebraska that I talked to are frustrated about not getting a farm bill done before the end of the year. Most farmers are not happy with the lack of statesmanship and leadership in the U.S. Congress. As small business operators, they are concerned that the new health care law will raise what are already high insurance rates. They are also seeing the cost of inputs like fertilizer, crop protection products and seed increase at the same time commodity prices appear to be heading down.”
– Dan Hughes, USW Chairman

“The Tri-State conference of wheat farmers from Washington, Oregon and Idaho provided a chance to have many good discussions with producers and industry representatives. Biotechnology stood out to me as the major topic of interest and the program reflected that. Much of the discussion on biotech revolved around the need for educational efforts about this technology with consumers and customers. Another discussion point in one meeting was the need to get more young farmers involved in the grower organizations. It is important ensure that young producers’ points of view are represented during discussions as decisions made today will impact them for a long time.”
– Shannon Schlecht, USW Vice President of Policy

“I attended the Colorado Wheat Growers Association and was supposed to speak at the Wyoming Wheat Growers Association meeting, but it was cancelled because of high winds and blowing snow. In Colorado, I talked about the increase in both world supply and demand for wheat and described how USW was able to help buyers in China and Brazil turn quickly to U.S. wheat this year. Some of the farmers are concerned that federal export market development funding is at risk and that the farm bill debate might cut USW programs in our overseas markets. I explained that while trade service and technical support is pretty much on track, USW is carefully watching its budgets at the same time our competitors are preparing to invest even more in market development. In addition, there were a few questions about the impact of the wheat with an unapproved GM trait found in one field earlier this year. I was able to reassure them that the situation is isolated, that markets in Japan and Korea are open again and that USW and the National Association of Wheat Growers (NAWG) handled the situation very professionally along with Monsanto and many other organizations in the wheat supply system.”
– Darrell Davis, USW Past Chairman


5. Progress at the WTO, But at a Cost
By Shannon Schlecht, USW Vice President of Policy

Trade ministers representing the 159 World Trade Organization (WTO) member nations met in Bali, Indonesia, Dec. 3 to 7 to reach a multilateral agreement that has eluded the organization for nearly 20 years. Negotiations leading up to and during the Bali ministerial meeting demonstrated that the WTO could still be an effective negotiating forum. Unfortunately, a step forward for WTO required a step backwards for agriculture, as the negotiators agreed to exemptions on trade distorting domestic agricultural support spending for India and other developing countries.

Here is a look at some of the major elements of the pact negotiated in Bali.

Trade Facilitation. USW customers should be pleased that member countries agreed to measures that will reduce red tape at borders to improve trade flows and reduce shipment clearance time upon arrival. While the specific benefits to agriculture are difficult to quantify, the estimated global benefit from enacting these measures is nearly $1 trillion. Many member countries see that as a win-win outcome as benefits accrue to both developing countries and developed countries.

Tariff Rate Quota (TRQ) Administration. Improved TRQ administration would benefit importers in countries where fill rates tend to be low due to cumbersome governmental procedures and would show that members are committed to actually realizing their existing market access commitments. However, some developing countries refused to allow unencumbered access to their TRQs when a 65 percent utilization level is not achieved over multiple years. So, the TRQ administration requirements for unfettered access will only apply to developed countries for a period of six years and then countries may opt out.

Public Stockholding for Food Security. Negotiations in Bali included focus on a “peace clause” allowing developing countries to exceed their Uruguay Round domestic support commitments without challenge. Sadly, India, which already provides subsidies above its WTO commitments, held the negotiations hostage on a demand that any clause be in place until a permanent “solution” could be achieved. This was unexpected because India had earlier joined members in an agreement on a four-year timeframe for the peace clause. India also pushed for, but failed to achieve, an exemption from the agreement on subsidies and countervailing measures that would have allowed surplus subsidized production to be exported without challenge. The United States and Pakistan pushed for a limited duration and assurance that safeguard measures be included to limit trade distortion. USW appreciates the U.S. government effort opposing the indefinite peace clause and to include safeguard measures. It was unfortunate to witness the bad precedent set by one member country when there was overwhelming willingness of other members to achieve an agreement while at the same time meet their WTO commitments.

USW continues to support the WTO and its mission to liberalize trade, enforce trade rules and provide needed transparency. Looking ahead, we hope WTO members will complete new liberalizing multilateral agreements that benefit agriculture and do not acquiesce to the lowest common denominator of member country policies.


6. Protectionism Undercuts Potential TPP Benefits

While it is clear that the Trans-Pacific Partnership (TPP) negotiations will not conclude in 2013, they are making good progress. But much recent news has focused on Japan, which is refusing to budge on its list of sensitive agricultural items: rice, sugar, dairy, pork, beef, wheat and barley.

When Japan joined the negotiations in July they agreed to the November 2011 TPP outline that says the tariff schedule will cover all goods and the goal "to eliminate tariffs and other barriers to goods and services trade and investment, so as to create new opportunities for our workers and businesses and immediate benefits for our consumers." But, pressure from their agricultural community and its supporters in the Diet appears to have undermined Japan's commitment to the comprehensive trade liberalization that is to be the hallmark and strength of the TPP.

Japan stands to benefit greatly from a successful TPP outcome that would further integrate and strengthen the market economies of the 12 participant countries that represent 40 percent of global GDP and set a strong precedent for future agreements. The United States and several other participants remain committed to tariff elimination for virtually all products. However, the exceptions Japan seeks include nearly 600 tariff lines, a number that would seriously undermine TPP and diminish its benefits both to the other participants and to Japan itself.

We hope that Japan will recognize the full value to its future of reforming its economy by negotiating and joining a fully comprehensive agreement. If Japan is not prepared to take that step, then the other TPP participants would be better served by proceeding without Japan and hope that it will be able to join later.


7. Wheat Industry News

Wheat Letter Schedule. Look for the next issue of “Wheat Letter” on Jan. 9, 2014.

USW Office Holiday Schedule. The USW Headquarters Office in Arlington, VA, and the USW West Coast Office in Portland, OR, will be closed Tuesday, Dec. 24 and Wednesday, Dec. 25, for Christmas and Tuesday, Dec. 31 and Wednesday, Jan. 1 for the New Year. Please contact your local USW office for local holiday schedules.

Vetter Nominated as USTR Chief Agricultural Negotiator. President Barack Obama announced his intent to nominate Darci Vetter as Chief Agricultural Negotiator in the Office of the United States Trade Representative. Vetter currently serves as Deputy Under Secretary for Farm and Foreign Agricultural Services at USDA since 2010. USW thanks Ambassador Islam Siddiqui for his service as he steps down from the position. For more information, visit http://bit.ly/18AXxDx.

Obama to Nominate Baucus as Next Ambassador to China. Confirmed reports indicate the White House plans to nominate Sen. Max Baucus, the veteran Montana Democrat who has served in the Senate since 1978, to serve as the next U.S. ambassador to the People’s Republic of China. Sen. Baucus is a loyal friend to U.S. wheat farmers and their customers and the National Association of Wheat Growers has named Baucus its Wheat Leader of the Year three times. For more information, visit http://politi.co/1klZqa5.

Secretariat of New U.S. Biotech Crops Alliance Named. The U.S. Biotech Crops Alliance has named its first secretariat. Michael J. Phillips will take the lead in developing collaborative efforts to improve the environment for technology innovation and the market for U.S. crops produced through modern biotechnology. For more information, visit http://bit.ly/1dkUIUE.

Cotton Case Retaliation. The Brazilian government this week postponed until Feb. 28 a decision on whether to impose trade retaliation against U.S. exports due to a dispute over U.S. cotton subsidies and export credit guarantee program. The United States this fall stopped monthly payments to Brazil that are part of an interim deal to stave off retaliation until a resolution to the cotton case is achieved. If there is no acceptable resolution in a new farm bill on these two issues, Brazil may pursue retaliation against a list of targeted goods that would likely include U.S. wheat. In addition to negatively affecting U.S. wheat exports, the decision has potential to raise costs for Brazilian millers and consumers. USW encourages the U.S. and Brazilian governments to find a mutually agreeable resolution to end the retaliation threat.

WMC Asian Noodle Technology and Ingredient Application Short Course. The Wheat Marketing Center (WMC) in Portland, OR, will hold its Asian Noodle Technology and Ingredient Application Short Course March 10 to 14, 2014. For more information or to register, visit http://www.wmcinc.org.

IGP Flour Milling Short Courses. The International Grains Program (IGP) in Manhattan, KS, will hold its distance version of the Overview of Milling Principles Jan. 13 to Feb. 21, 2014. The Manhattan-based KSU Introduction to Flour Milling short course will be Jan. 13 to 17, 2014. For more information or to register, visit http://www.grains.ksu.edu/igp/.

NCI Durum Wheat Milling Course. The Northern Crops Institute (NCI) in Fargo, ND, will hold its Durum Wheat Milling short course April 7 to 9, 2014. For more information or to register, visit http://www.northern-crops.com/.

Condolences to Serena Wu, office manager/accountant in the USW Taipei Office, on the death of her father.

Follow USW Online. Check out 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, additional photos at www.flickr.com/photos/uswheat, plus video stories at http://www.youtube.com/uswheatassociates.

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