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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 or contact your state wheat commission.

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In This Issue:
1. U.S. High-Protein Wheat Supplies Tightening
2. USW to Close Cairo Office but Continue Regional Market Coverage
3. Vietnam Lifts Restrictions on U.S. Wheat Imports
4. NAFTA Holds Mexico’s Door Open to U.S. Wheat; Could Open Cross-Border Trade with Canada
5. Sound Science: Two More Reasons to Eat Wholesome Whole Grains

6. Wheat Industry News

PDF Edition:                November 2, 2017

1. U.S. High-Protein Wheat Supplies Tightening
By Stephanie Bryant-Erdmann, USW Market Analyst

The common refrain right now is “the world is awash with wheat.” While that is true in the aggregate, in terms of milling wheat and, more specifically, high-protein milling wheat, supply is very tight. The impact of the small supply of high-protein milling wheat can be seen in the protein premiums for both U.S. hard red spring (HRS) and hard red winter (HRW) wheat. The following is a breakdown of pricing and availability of the U.S. high-protein wheat supply by class and port of export. Please note that U.S. wheat protein is expressed on a 12 percent moisture basis, not on a dry matter basis, thus U.S. 11.5 percent protein is equal to 13.1 percent protein on a dry matter basis.

Hard Red Winter
According to USDA, HRW production fell 32 percent from 2016/17 to 20.4 million metric tons (MMT), putting total HRW supply at 36.5 MMT. According to USW Crop Quality data, the average protein of this year’s HRW crop is 11.4 percent. That is similar to last year, but below the 5-year average. Overall, 55 percent of HRW samples were less than 11.5 percent protein; 26 percent had 11.5 to 12.5 percent protein and 19 percent had protein levels above 12.5 percent. Extrapolating that to HRW production, there is roughly:
•        3.9 MMT of HRW with protein greater than 12.5 percent;
•        5.3 MMT with protein between 11.5 and 12.5 percent; and
•        11.2 MMT with less than 11.5 percent protein available.
The smaller crop and lower protein support both the Kansas City Board of Trade HRW futures market and protein premiums; however, that support varies by export tributary.

Gulf. The 2017/18 marketing year (beginning June 1) average protein premium for Gulf HRW 12.0 percent protein on a 12 percent moisture basis (mb) is 51 percent above the 2016/17 marketing average at $69 per metric ton (MT) and $20 dollars per MT above the 5-year average. The HRW Gulf export tributary region experienced its second consecutive year of higher yields and very limited heat stress during the growing season, resulting in lower than normal protein. According to USW Crop Quality data, the average protein for Gulf export tributary HRW is 11.2 percent, compared to the 5-year average of 12.8 percent protein. This means that while protein premiums for high-protein HRW are climbing, ordinary HRW from the Gulf represents a significant bargain for customers with export basis levels 31 percent below the 5-year average at $28/MT.

Pacific Northwest (PNW). Unlike the Gulf export tributary states, HRW in the PNW tributary states was stressed by high temperatures and little rainfall in 2017/18, boosting protein content but cutting yields. According to USW Crop Quality data, the average protein for PNW export tributary HRW is 12.0 percent, similar to the five-year average but higher than the average of 11.7 percent protein in 2016/17. USDA estimates the PNW HRW tributary states sampled by USW produced 3.5 MMT, or just 17 percent of the total U.S. HRW supply. With the PNW supply limited, albeit a supply with higher protein than the Gulf, the average price for 12.0 percent protein HRW is 9 percent higher than the 2016/17 value at $238/MT, but still well below the 5-year average of $277/MT. This represents an excellent opportunity for customers to lock in prices before supplies dwindle in the second half of the marketing year.

Hard Red Spring
According to USDA, HRS production fell 22 percent to 10.5 MMT in 2017/18. Total HRS supply declined 18 percent from 2016/17 to 20.8 MMT on smaller production and beginning stocks. According to USW Crop Quality data, the average protein of this year’s HRS crop is 14.6 percent. That is above both last year and the 5-year average of 14.0 percent. Overall, 22 percent of HRS samples tested had less than 13.5 percent protein; 23 percent of samples had 13.5 to 14.5 percent protein and 55 percent of samples had greater than 14.5 percent protein. If that is extrapolated out to HRS production, then roughly:
•        5.8 MMT of HRS was produced with protein greater than 14.5 percent;
•        2.4 MMT having protein between 13.5 and 14.5 percent; and
•        2.3 MMT with less than 11.5 percent protein available.

This distribution caused protein premiums for HRS to fall below the 5-year average, but supported HRS MGEX futures, which spiked in July and remain an average $49/MT above last year’s futures prices due to the smaller supply. Like HRW, price impacts of the smaller supply vary by export tributary region but were more evenly distributed due to a nearly even production split between regions.

Eastern Region. The average cash price for Gulf HRS 14.0 percent protein is 16 percent above the 2016/17 marketing average at $298/MT. The higher price is supported by the  extreme drought across the U.S. Northern Plains which cut production but boosted protein content. USW Crop Quality data showed the average protein for Gulf export tributary HRS was 14.4 percent, compared to the 5-year average of 14.0 percent protein.

Western Region. The drought had devastating effects on yields in the Western Region, specifically in Montana and western North Dakota and South Dakota, but did boost protein levels. According to USW Crop Quality data, the average protein for the PNW export tributary is 14.9 percent, compared to the 5-year average of 14.2 percent protein. With the increased availability of high-protein HRS, the average protein premium for 14.0 protein HRS fell 10 percent year over year to $53/MT, well below the 5-year average of $67/MT.

With Canadian wheat production falling an estimated 5.5 MMT year over year and the sharp drop in U.S. high-protein wheat production, the global supply of high-protein wheat has tightened. Depending on what protein specifications customers need, this may be the best time to lock in lower HRS protein premiums. Low-protein HRW also represents an excellent buying opportunity for specific customers.

2. USW to Close Cairo Office but Continue Regional Market Coverage

Continuing a strategic effort to increase resources in wheat import market segments with the best potential for growth and returns for the farmers it represents, USW has announced it will close its office in Cairo, Egypt, on Dec. 1, 2017. USW will continue to provide trade service to government wheat buyers in Egypt, Iraq, Saudi Arabia and other countries in the region from its offices in Casablanca, Morocco, and Rotterdam, The Netherlands.

“Closing our Cairo office was a difficult decision because it affects four colleagues who have been very dedicated to our mission for many years,” said USW President Vince Peterson. “The closure is most certainly not a reflection of our very good staff, as they have remained committed and hardworking even though the market dynamics of the region have changed. Everyone in our organization thanks them for their service and wishes them all the best in the future. USW is now working through the process to help with these transitions.”

Peterson said USW saw a need to begin adjusting its activities in the Middle East and North Africa several years ago as the supply of significantly lower priced wheat from the Black Sea region increased. The organization eliminated a Cairo-based marketing position in 2014. This allowed USW to add an experienced technical specialist in its Casablanca office. In 2016, USW shifted regional management for the Middle East operations to its office in Rotterdam.

“Our colleagues in the region will also promote U.S. high performance hard wheat classes and soft wheat classes in specific markets,” Peterson said. “This includes private buyers, millers and food companies that serve a growing demand for higher value bread products, cakes and confectionary products in the Middle East that match U.S. wheat quality factors,” Peterson said. “In addition, these changes will help us increase future marketing capabilities in other markets seeking the characteristics U.S. wheat offer.”

The Cairo office was originally opened in June 1976 by Great Plains Wheat, Inc., one of USW’s predecessor organizations, after the office was moved from Beirut, Lebanon.

3. Vietnam Lifts Restrictions on U.S. Wheat Imports

Recently, Vietnam’s government advised the USDA that it would lift restrictions on imported U.S. food grains and feed grains. This change helped open an opportunity for Vietnamese flour millers who recently bought a large volume of U.S. soft white (SW) wheat, the first substantial sale of U.S. wheat to the Vietnam market in several months.

On Dec. 1, 2016, Vietnam implemented a requirement that all shipments of U.S. wheat, corn and distillers dried grain solids (DDGS) be fumigated with a product that U.S. export elevators are generally unable to use in bulk shipments. Vietnam now allows treatment with a generally accepted fumigation product throughout the global grain trade, to enter the country. An official phytosanitary certification from the USDA Animal and Plant Health Inspection Service will also be required.

USW continued to provide trade service to Vietnamese flour millers after this restriction was implemented. For example, Vietnamese flour milling executives recently joined a team of millers visiting the United States to learn more about U.S. wheat quality and the supply chain.

“Several of our staff worked with the grain trade, U.S. government agencies and our customers to develop workable solutions to this restriction,” said USW Vice President of Overseas Mark Fowler. “We appreciate their work and the cooperation of the U.S. and Vietnamese governments. We look forward to more normal trade with these customers.”

4. NAFTA Holds Mexico’s Door Open to U.S. Wheat; Could Open Cross-Border Trade with Canada
Original article published on Oct. 12, 2017 by the American Farm Bureau Federation in collaboration with U.S. Wheat Associates.

Before the North American Free Trade Agreement (NAFTA) entered into force on Jan. 1, 1994, state intervention and import tariffs held back U.S. wheat exports from the Mexican market. NAFTA ended both, and the newly opened market helped the Mexican flour milling and wheat foods industries to flourish, along with U.S. wheat imports (see chart).

USW represents the interests of U.S. wheat farmers in international markets. As it does with all U.S. wheat importing customers, USW focuses on helping Mexico’s sophisticated buyers, millers and food processors solve problems or increase their business opportunities utilizing specific U.S. wheat classes as ingredients in specific types of wheat foods. This effort, supported by wheat farmers and the partnership with the Market Access Program (MAP) and Foreign Market Development (FMD) program, has fostered a productive relationship that has endured for decades through many challenges.

Source: USDA Foreign Agricultural Service, Official USDA Estimates.

Mexico Leads All U.S. Wheat Importers

Today, Mexico is one of the largest U.S. wheat buyers in the world, importing just under 3.0 MMT on average going back many years. Mexico’s U.S. wheat imports typically only fall just short of the volume Japan imports. Not in marketing year 2016/17 (June to May), however, when Mexico’s flour millers imported more than 3.3 MMT of U.S. wheat, which is more than any other country. That volume is up 39 percent over marketing year 2015/16.

Breaking down their purchases by class, flour millers in Mexico generate strong demand for U.S. HRW wheat. The association representing Mexican flour millers says a rising number of industrial bakeries, along with traditional artisanal bakeries, account for about 70 percent of the country’s wheat consumption. That puts HRW producers in a good position to meet that demand. In 2015/16, Mexico was the leading HRW importer and buyers took advantage of favorable prices and the high quality of the 2016/17 HRW crop to import 2.0 MMT. That is 79 percent more HRW imports compared to 2015/16 and again led buyers of that class. Being closer to HRW production and having a highly functioning ability to import a large share of HRW directly via rail from the Plains states — duty free under NAFTA — is an advantage for Mexico’s buyers.

In addition, Mexico is home to Bimbo, the world’s largest baked goods company, and an increasing number of other cookie and cracker companies. The functional properties of U.S. soft red winter wheat (SRW) is well suited to the production of cookies, crackers and pastries, and serves as an excellent blending wheat. Millers supplying this growing market imported an average of 1.2 MMT of SRW between 2011/12 and 2015/16. With imports from the Gulf of more than 1.0 MMT of SRW in 2016/17, Mexico was the year’s top buyer of SRW again. USW and state wheat commissions from the PNW are also helping demonstrate how millers and bakers can reduce input costs by using U.S. SW as a blending wheat for specialty flour products.

The successful story of how U.S. wheat farmers and their customers in Mexico have worked together in a mutually beneficial way under NAFTA and, for now, U.S. wheat continues to flow to our customers in Mexico. Total exports sales to Mexico returned more than $633 million to wheat farmers across the Plains and east of the Mississippi River in 2016/17.

The data for this map is based on Mexico’s market ranking for primary class of wheat grown in that state in the 2015/16 marketing year. Most wheat states’ farmers rely on Mexico as their number one market.

Source: Small Grains Summary and Export Sales, USDA

Increasing Competition

With U.S. wheat farmers facing financial hurdles, open access to the Mexican market is needed now more than ever. A prosperous Mexico is crucial for U.S. wheat farmers. But these savvy Mexican milling and baking sector customers have shown they can also adapt to other wheat supplies.

After a price shock in 2007/08, Mexico lifted its non-NAFTA wheat import tariff and wheat from other origins began to trickle in. From the first single boat carrying French wheat in 2010/11, non-NAFTA imports became a quarter of all Mexico’s wheat imports by 2015/16. The cost of U.S. wheat has a freight advantage over competitors, but if Mexico encourages purchasing from other origins or a new NAFTA agreement results in impediments to U.S. wheat imports, it has plenty of supply alternatives that are ultimately harmful to U.S. wheat growers.  

Source: Global Trade Atlas

New Negotiations Can Build on NAFTA’s Success

Wheat trade with Mexico under NAFTA is already open and fair, but improvements to the agreement are possible. The three NAFTA parties agreed to some improvements as part of the Trans-Pacific Partnership (TPP) agreement that could be incorporated into a NAFTA update. TPP would have updated rules on sanitary and phytosanitary (SPS) measures, which have created major trade problems in some markets. U.S.-initiated trade restrictions often backfire on U.S. agricultural exports, so the wheat industry supports maintaining open markets for all parties.

Renegotiations could also enable full reciprocity for cross-border wheat trade with Canada. Canada allows tariff-free access to wheat from the United States and certain other foreign sources. However, a Canadian law requires that imported wheat, even wheat of the highest quality, must be segregated from most Canadian wheat. It is automatically given the lowest grade established by regulation and therefore receives the lowest possible price.

By contrast, Canadian producers are free to market their wheat in the United States through normal marketing channels. When graded at a U.S. elevator, Canadian wheat is treated the same as U.S.-origin wheat and is assigned a grade based on objective quality criteria, meaning that unlike U.S. wheat going north, it retains its value when it crosses the border.

"U.S. farmers should be able to deliver their wheat to a Canadian elevator and not automatically receive the lowest grade because it was grown on our side of the border,” said Ben Conner, USW Director of Policy. “This concept is needed for U.S. wheat farmers who live near the Canadian border, is supported by the Western Canadian Wheat Growers Association, and is already Canada’s legal obligation under existing trade agreements."

The map above illustrates U.S. land that would be most affected by an open border with Canada for wheat via truck. The blue rings represent land south of the border that is within 25, 50 and 100 miles away from a Canadian elevator.

Do No Harm, Please

The U.S. wheat industry welcomes the opportunity for improving the framework for cross border wheat trade between the United States, Canada and Mexico, but would strongly oppose changes that might limit the current NAFTA’s benefits for wheat farmers and their customers, particularly in the Mexican food processing industries.

“I cannot emphasize enough how important our Mexican customers are to U.S. wheat farmers,” said Jason Scott, a wheat farmer from Easton, Md., and USW Past Chairman. “There is nothing wrong with modernizing a 23-year-old agreement, but that must be done in a way that benefits the food and agriculture sectors in both countries.”

5. Sound Science: Two More Reasons to Eat Wholesome Whole Grains
By Megan Meyer, PhD, International Food Information Council (IFIC) Foundation
Original article first appeared in March 2017

[IFIC is] rounding out National Nutrition Month [March], with a new Sound Science analysis. In fact, this Sound Science piece includes a double feature. Recently published in the American Journal of Clinical Nutrition, a pair of studies focused on a variety of health benefits associated with whole grain consumption, specific to the body weight and microbiome. Whether you are a carb enthusiast, carb skeptic, or somewhere in the middle, it’s important to take note new scientific findings and see how they align, enhance, or refute the current body of evidence. This will help you get the whole (grain) story.

A Closer Look at The Science
First up, the study by Karl et al., examined the effects of whole and refined grains on energy and metabolism endpoints. The study enrolled 81 participants in an eight-week study. The participants were divided into two groups: a whole grain group and refined grain group. The diets differed only in the types of carbohydrates consumed. Interestingly, the study found that the whole grain group had a calorie deficit (burned off more than they took in) more each day due to a few different factors, including an increased resting metabolic rate. Moreover, the authors postulated that this calorie loss could “translate into a ~2.5-kg (5.5 lbs.) body weight loss over one year."

The other complementary study by Vanegas, et al., analyzed different endpoints and samples from the Karl et al., study to investigate the impact of whole grains on the microbiome. The microbiome is a complex community of microorganisms such as bacteria, fungi, and viruses found on and in our bodies. While we are only at the early stages of understanding the impact of the microbiome, current research indicates that these communities provide us with important health functions.

One of the largest microbial communities resides in our gastrointestinal (GI) tracts. Data from Vanegas et al., demonstrate that short-term whole grain consumption altered the GI microbiome composition and modified specific immune system and inflammatory markers. However, the researchers acknowledged that these effects were “modest” and that additional follow-up studies are “needed to observe more dramatic effects on immune and inflammatory responses.”

How does this impact what we already know?

So how do these findings stack up with the body of evidence? These findings feed in nicely to the current recommendations regarding carbohydrates and whole grains, which is to make half of your grain intake whole grains. In fact, comprehensive evidence from the Nutrition Evidence Library indicates that there is moderate evidence linking whole grain intake and lower body weight. If you are looking to boost your whole grain intake and meet the daily recommended 48 grams, try to incorporate more whole wheat flour, oats, cornmeal, popcorn, brown rice, bulgur, barley, rye, and quinoa into your diet.

However, this does not mean that there isn’t a place for other grains, such as enriched refined grains. Enriched refined grains contribute a variety of essential micronutrients such as B vitamins, thiamin, riboflavin, niacin, and folic acid, as well as iron. These micronutrients are key for supporting your overall metabolism and some specific micronutrients, such as folic acid, decrease the risk of neural tube development during pregnancy.

While these two studies on whole grains reveal a compelling reason to make half your grains whole, don’t forget about their other half. Both whole and enriched refined grains contribute important nutrients and are key components of a healthy eating pattern.

6. Wheat Industry News
  • Quote of the Week: “We are sadly confident that issuance of a notice of withdrawal from NAFTA would trigger a substantial, immediate response in commodity markets … Contracts would be cancelled, sales would be lost, able competitors would rush to seize our export markets, and litigation would abound even before withdrawal would take effect.” – From a Food & Agriculture Letter on Importance of North American Market sent to U.S. Commerce Secretary Wilbur Ross, Oct. 25, 2017.
  • AIB International Offers New Online Baking Collection. As the baking industry’s skilled workforce approaches retirement age, a new era of tech-savvy employees will be needed to fill the gaps. AIB International is proud to announce new solutions in its online programming options. In conjunction with the Certified Bread Specialist career path launched in 2016, AIB’s new Baking Specialist Online Collection offers a variety of online courses geared toward enhancing knowledge of ingredient functions and baking steps. Click here to read more.
  • An IGP Flour Milling for State Wheat Commissioners and Staff Short Course will be held at the IGP Institute in Manhattan, Kan., Dec. 5 to 7, 2017. Participants will learn basic principles of flour milling and receive a greater understanding of the relationship between wheat quality and flour performance. Registration deadline is Nov. 17. Click here for more information and to register.
  • National Association of Wheat Growers (NAWG) President Resigns to pursue new professional opportunities in his home state. David Schemm is a wheat farmer from Sharon Springs, Kan. USW extends its gratitude to David for his steadfast collaboration with our organization and dedication to the U.S. wheat industry. We wish him all the best in his future endeavors. Click here to read more.

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