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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. Huge Corn, Soy Harvests Will Test Grain Supply Chain
2. Lower Protein Expected in 2014/15 Hard Red Spring Crop
3. Innovation to Meet Future Challenges
4. USDA Slices the U.S. Bakery Food Dollar
5. Wheat Industry News


Online Edition: Wheat Letter – September 18, 2014 (http://bit.ly/1qOANYX)

PDF Edition: (See attached file: Wheat Letter - September 18, 2014.pdf)

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



1. Huge Corn, Soy Harvests Will Test Grain Supply Chain
By Casey Chumrau, USW Market Analyst

As the trading day came to a close on Sept. 16, all three nearby U.S. wheat futures contracts hit four year lows. Seasonal harvest pressure is partly to blame but record world supplies have pushed futures lower since May. In addition to ample world wheat supplies, USDA projects global corn and soybean production will each set records for the second consecutive year. These three commodities are interrelated and together will heavily influence wheat cash, futures and FOB prices in the next few months.

While most wheat moves into the human food value chain, the bulk of the world’s corn and soy supply moves into animal feed production. With quality concerns in some of the major wheat-producing countries this year, supplies of feed grade wheat will likely be up. While UDSA expects feed wheat use to be 6 percent greater than the five-year average at 138 million metric tons (MMT), the feed market will not be able to absorb all the extra wheat due to the bumper corn and soybeans crops. Without an immediate home, the global feed wheat supplies will continue to weigh on wheat futures markets.

In addition to influencing futures values, corn and soybeans are also influencing U.S. wheat basis levels in a number of ways. Although the 2014 U.S. wheat harvest is nearly complete, grain markets are just now preparing for the expected record U.S. corn and soybean crops. Wheat basis for October, November and December delivery is higher than September as the market anticipates the increased competition for capacity.

The record corn and soybean harvests will put additional pressure on a rail transportation system that has not yet caught up from last winter when weather issues and competition for rail capacity resulted in delays. In addition, grain elevators at the ports will be working at full capacity, pushing rates higher. Wheat merchandisers have had to compensate for higher rail and elevation costs by increasing basis.

Capacity is always an issue at the beginning of the corn and soybean harvest but these crops will exaggerate concerns this year. The U.S. grain supply system remains the most efficient in the world. Yet, it is important for world wheat buyers to keep a close watch on the inter-commodity dynamics in order to make informed purchasing decisions — with competent help from their local USW representatives.


2. Lower Protein Expected in 2014/15 Hard Red Spring Crop

With about 75 percent of the 2014/15 U.S. hard red spring (HRS) wheat crop now harvested, the world’s wheat buyers should expect lower-than-average aggregate protein and vitreous kernel counts in this crop. Given the diverse growing region and variable weather conditions, there is higher protein available but it is selling at a premium. However, there should be plentiful supplies of high-performing U.S. wheat for buyers who can use lower protein sources.

“There is no doubt the market is trying to accumulate protein right now,” said Jim Peterson, marketing director of the North Dakota Wheat Commission (NDWC). “The cash bid spread between 13 percent and 15 percent protein spring wheat this week is at a $3 per bushel premium.” U.S. wheat protein is measured with 12 percent moisture as a base. A $3 per bushel cash price premium is equivalent to $110 per metric ton.

Collin Watters, executive vice president of the Montana Wheat & Barley Committee said there was good quality in early-harvested Montana HRS. He noted some optimism after hearing from the Montana State Grain Laboratory that recent HRS samples analyzed there were running slightly above 14 percent protein on average. However, eastern Montana experienced the same lengthy period of rain that affected spring wheat in western Canada and North Dakota and Watters says the $2 per bushel spread between 13 percent and 14.5 percent protein wheat shows the market there is also bidding up higher protein supplies.

Peterson said he also feels a bit better about quality potential with good harvest progress last week and dry weather this week. NDWC reported on Sept. 16 that most areas seem to be holding key quality factors better than expected. Data representing roughly the first 40 percent of the harvest show average protein at 13.6 percent, similar to the 2013 crop and down slightly from previous weeks. Average grade is a No. 1 with a 60.7 lb/bu test weight average. Vitreous kernel counts have slipped below the 75 percent threshold for a dark northern spring (DNS) sub-classification, impacted by the lower average protein levels in parts of the crops and the frequent rains received during harvest across the region. The current average falling number of 385 seconds indicates mostly sound conditions to date. Damaged kernel levels are at 0.7 percent, up slightly from 0.2 percent in the 2013 crop, but well below early harvest expectations due to concerns about disease pressure on parts of the crop.

The HRS situation this year is similar to conditions in the 2009/10 crop. By Sept. 13, 2009, farmers had harvested only about two-thirds of that crop. Yields were very good but protein and vitreous counts were below average. In fact, with about 45 percent of samples tested that year, the protein average stood at 13.7 percent. Final aggregate data showed that about one-third of that crop was 14 percent protein or higher and vitreous kernel content averaged 71 percent, putting much of the 2009/10 crop in a Northern Spring subclass.

Like in 2009/10, traditional customers who demand a 13.5 to 14 percent protein HRS wheat or higher will likely face market premiums through most of the 2014/15 market year as supplies of high-protein wheat on the world market grow smaller. Peterson suggested that buyers might need to adjust purchase specifications depending on the final data on HRS milling and baking characteristics come in.

Conversely, customers will find the supply of 12 to 13 percent protein HRS and HRW to be more plentiful. With market discounts, there may also be excellent value. Buyers are encouraged to take advantage of this market opportunity to secure their high-protein needs or explore the value offered by lower-protein HRS and higher protein HRW. Please visit http://www.uswheat.org/harvest to review weekly updates on quality data and contact your local USW representative who is ready to help you evaluate your best options.


3. Innovation to Meet Future Challenges
By Shannon Schlecht, USW Vice President of Policy

If you have ever planted a garden, you know how much effort it takes to help your plants thrive — and how often the results do not match up with your expectations.

Now think about farmers facing similar challenges from insect, weed and disease pests as well as too much or too little heat and rain. The stakes are much higher when it comes to producing food for 7.3 billion people and more every day. A destructive virus decimated papaya production in Hawaii a few years ago. In Florida, citrus greening disease that blocks the flow of nutrients to the fruit now infects an estimated 80 percent of its orange trees. Entire industries are at risk.

Wheat farmers, too, battle such challenges. Intensive wheat production in Europe and parts of the United States could not produce yields reaching up to 10 metric tons or more per hectare without preventing disease with frequent fungicide applications each season. Although the UG99 rust strain generated global concerns, thankfully its worldwide impact to date has been much less than feared. Yet new threats will come as they always do. It is one reason why wheat farmers support innovative technology, including biotechnology, to help produce a more sustainable and affordable supply of food for the growing world.

Scientists and breeders have been able to overcome many of these threats through conventional breeding. Crossing plants with known resistance to incorporate the desired traits into new varieties. Where genetic markers have been identified, marker assisted selection (MAS) greatly improves the success rate of achieving those desired traits. Doubled haploid technology, which reduces the number of generations needed to stabilize a new variety, can help bring these traits to market quicker for tools against these challenges.

While these conventional techniques bring the desired traits into new varieties to address specific problems, they may also result in transferring genes that do not benefit the new variety. For example, a breeder may get rust resistance but lose another desired trait such as test weight or protein quality. Through many years and crosses, it is possible to minimize these outcomes, but time may not be a luxury in many cases to address a specific challenge.

Modern biotechnology, however, is helping restore papaya production in Hawaii and research to resist citrus greening disease is underway (read more here). Concerned growers sparked the increase in research that led to these alternatives. Wheat farmers in the United States, Canada, Australia and other countries have also stood up to say the world needs advances that improve yield, quality, production efficiency and sustainability. Private and public researchers responded and now they are using the full range of technology to find ways to achieve those long-term goals.

As with the citrus greening research, this increased investment in wheat is not limited to so-called GMO technology. Just this week, scientists at Washington State University announced they have identified a gene in wheat that regulates how the plant shares genetic information. The researchers said the discovery “clears the way for breeders to develop wheat varieties with the disease- and pest-resistance traits of other grasses, using a legion of genetic tools that can reduce crop losses and pesticide use.” This discovery likely will not require single gene transfer, but other research does center on the remarkable advancements in biotechnology. All these tools will help wheat breeders address specific challenges without altering other desirable characteristics of wheat and the flour it produces.
The wheat farmers who support innovation firmly believe that the new varieties created through any technology must ultimately meet regulatory requirements of the country that produces them and the countries that import them. They greatly respect customer choice as well, but they also believe they will need every available tool to face future challenges and meet growing global needs.


4. USDA Slices the U.S. Bakery Food Dollar

USW thinks its overseas milling and baking customers will be interested in new data from USDA’s Economic Research Service that breaks out the costs included in $1 paid for breads, crackers, cookies and other baked goods in the United States in 2007.

ERS says farm production and agribusiness, which represent the value that farm income and input costs add to the bakery food dollar, equaled 3.6 percent of the bakery dollar ($1 = 100 cents) that year. Farm production was 2.3 percent and agribusiness represented 1.5 percent of the dollar. Those amounts were lower than transportation, packaging and advertising costs. Not surprisingly, processing (including milling and baking) added the largest cost component at 37.7 percent followed by retail and wholesale costs.

Although the data is for costs from seven years ago, in the costs ERS also provided for 1997 and 2002 reflect a trend. In 1997, farm production cost was 2.6 percent and agribusiness was 1.2 percent. In 2002, farm production fell to 1.9 percent while agribusiness was 1.3 percent.

Industry costs that make up the bakery dollar will vary from country to country, but millers need their grist and bakers need their flour. Though their labor represents a small portion of the total, this information is a very good reminder of the complexity of this industry’s value chain — and how important wheat farmers are at the base of it all.



Source: USDA Economic Research Service. http://www.ers.usda.gov/data-products/food-dollar-series/food-dollar-application.aspx#.VBdH1PldV8E


5. Wheat Industry News
  • Australia Cuts Wheat Export Forecast to a 5-year Low. ABARES, Australia's official commodities bureau, reduced by 555,000 MT to 18.10 MMT its wheat export forecast in 2014-15. The revised forecast represents a decline of 234,000 MT year on year.
  • Kansas State University's IGP Institute is hosting an online course in quality control and quality assurance aspects of flour milling Nov. 10 to Dec. 12, 2014. Developed for operative millers and quality assurance personnel, course topics include the impact of milling principles on flour quality, sampling procedures and process control. Visit the IGP Institute website for more information.
  • WMC Frozen Dough Workshop. The Wheat Marketing Center in Portland, OR, will hold its Frozen Dough Workshop Dec. 8 to 17, 2014. For more information or to register, visit http://www.wmcinc.org.
  • AACC International (AACCI) will hold its annual meeting in Providence, RI, Oct. 5 to 8, 2014. AACCI is a global association of nearly 2,500 scientists and food industry professionals working to advance the understanding and knowledge of cereal grain science. In addition to traditional components of the meeting, other topics include “Overcoming Barriers to Whole Grain Consumption” and “Use of GMOs to Improve Cereal Grains.” For more information, visit http://www.aaccnet.org/meetings/annual/Pages/default.aspx.
  • Best wishes to USW Regional Vice President Mark Samson who is leaving USW to accept an appointment as Director of the USDA/Farm Service Agency in his native Idaho. Mark served USW first for 12 years as Director and Regional Vice President based in Singapore before returning to the United States as a consultant in 2009. He returned to USW as Regional Vice President in early 2012 serving in Cairo, Egypt, and most recently in Rotterdam, The Netherlands. Thank you, Mark, for contributing so much to U.S. wheat farmers and USW. We wish you every success in your new position.
  • Congratulations to USW Chairman Roy Motter and his wife Jaki on the recent birth of their fifth grandchild, Briana Natasha Aguirre. Briana is the second child of their daughter Allyn Motter Aguirre and her husband Pancho Aguirre. Roy and Jaki farm near Brawley, CA.
  • The Wheat Foods Council (WFC) recently introduced new, science-based messaging tools and information about wheat. “Wheat Foods: the Golden Grain for Your Golden Years,” helps seniors understand the importance of nutrition and the critical role wheat foods play in helping seniors maintain good health. “Around the World and Down the Aisle” features ways to promote wheat foods in grocery stores and the “Holiday Idea Toolkit” focuses on the upcoming holiday opportunities to promote wheat foods. To review and download the information, visit www.wheatfoods.org and click on Resources.
  • More Wheat Food Nutrition Information. The Wheat Foods Council is an excellent source of nutritional and science-based information about wheat foods. Additional resources to help you answer consumer questions about wheat foods and health include the National Pasta Association’s “Pasta Fits” website at www.pastafits.org and the Grain Foods Foundation site at http://www.grainsforyourbrain.org/.
  • New General Sales Manager for USDA. Phil Karsting, Administrator of USDA/Foreign Agricultural Service recently announced the appointment of Ambassador Asif Chaudhry as the agency’s General Sales Manager. Asif boasts a distinguished Foreign Service career including as Minister-Counselor for Agricultural Affairs at the U.S. Embassy in Cairo from 2002 to 2006. Earlier he served as the Counselor for Agricultural Affairs in Russia and as Attaché in Poland.
  • Let Us Try to Understand Each Other. “Rather than cloistering with the like-minded … I’d prefer to collaborate with all stakeholders and find opportunities to move forward, to seek understanding, to find solutions to the challenges facing us.” This quote is from an article by Canadian organic farmer Rob Wallbridge for the Genetic Literacy Project, in which he expresses his concern about the widening gap of understanding between sides in the politics of food. Click here to read the entire article: http://www.geneticliteracyproject.org/2014/09/14/organic-farmer-viewpoint-has-the-food-movement-become-a-religious-cult/.


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