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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 19 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. HRW, HRS and SW Demand Up in First Quarter of 2016/17
2. Russian Wheat Finds Niche in Shifting Global Trade
3. Time to Apply the WTO’s Enforcement Power
4. USW Trade Teams Create an Experience for Customers that Impacts Markets
5. Wheat Industry Welcomes End to Japan’s Temporary Suspension of White Wheat Imports
6. Wheat Industry News

Online Edition: Wheat Letter – September 8, 2016 (http://bit.ly/wheatletter09082016)

PDF Edition: (See attached file: Wheat Letter - September 8, 2016.pdf)

USW Harvest Report: www.uswheat.org/harvest


1. HRW, HRS and SW Demand Up in First Quarter of 2016/17
By Stephanie Bryant-Erdmann, USW Market Analyst

Three months into the 2016/17 marketing year (June to May), total U.S. export sales-to-date of 11.8 million metric tons (MMT) are 18 percent ahead of last year’s pace, but still 3 percent behind the 5-year average pace. Soft red winter (SRW) and durum sales are dragging total sales, but as of Aug. 25, seven of the top 10 U.S. export markets from 2015/16 are higher than last year. In addition, three U.S. wheat classes are ahead of last year’s pace. USDA projects 2016/17 exports will rise to 25.9 MMT, which, if realized, would be 23 percent higher than 2015/16.

USDA reported hard red winter (HRW) year-to-date exports at 4.84 MMT, up 69 percent from the prior year and 13 percent ahead of the 5-year average due to more competitive prices and good quality. Brazil is currently the number one HRW purchaser. As of Aug. 25, HRW sales to Brazil totaled 655,000 metric tons (MT), nearly double total purchases last year. Sales to Mexico are also up 58 percent year over year at 565,000 MT. HRW purchases by Japan total 375,000 MT, up 17 percent from 2015/16. To date, HRW sales to Colombia, Chile and Peru are already greater than total 2015/16 HRW sales.

Sales of soft red winter (SRW) for 2016/17 are down 41 percent year over year at 1.10 MMT despite the improved quality of the 2016/17 harvest. According to the USW SRW Crop Quality report, the overall average grade of the samples collected is U.S. No. 2, with an average test weight of 58.6 lb/bu, which is on par with the 5-year average. Sales to Honduras are 48 percent ahead of 2015/16 at 65,000 MT. Costa Rican SRW purchases total 31,000 MT, up 69 percent from last year. Sales to other Central American countries, including Guatemala and El Salvador, are also ahead of 2015/16 pace. Sales are off last year’s pace in several South American countries.

Hard red spring (HRS) sales of 3.73 MMT are up 19 percent year over year. As of Aug. 25, buyers in the Philippines purchased 588,000 MT, up 57 percent from 2015/16. The Philippines is the top HRS buyer, and sales to seven of the top ten HRS customers are also ahead of last year’s pace. Sales to China of 295,000 MT are up 60 percent from last year’s sales on the same date. Year-to-date sales to South Korea of 239,000 MT are up 37 percent from 2015/16.

As of Aug. 25, exports of soft white (SW) wheat are up 16 percent year over year at 2.00 MMT. Sales to the Philippines and South Korea — two of the top three SW customers — are ahead of the 2015/16 pace. Philippine millers purchased 486,000 MT, up 13 percent compared to last year’s sales on the same date. South Korean sales are up 20 percent at 289,000 MT. U.S. SW sales to Thailand and Indonesia are also up. Year-to-date, Indonesia has purchased 193,000 MT, compared to total 2015/16 purchases of 166,000 MT. Thailand sales are up 81 percent year over year at 85,000 MT.

On average, 24 percent of U.S. total durum sales occur in first quarter of the marketing year, compared to 29 percent from September through November. Year to date durum exports total 176,000 MT, down 64 percent from the same time last year. Many durum buyers may be waiting for final quality reports for the Canadian crop before making purchasing decisions. To date, Nigeria, the European Union (EU), South Africa and Guatemala are the top durum buyers. A significant portion of the first quarter 2016/17 sales is designated as “sales to unknown designations.”


2. Russian Wheat Finds Niche in Shifting Global Trade
Vince Peterson, USW Vice President of Overseas Operations

The prediction that Russia will become the world’s wheat export volume leader in the new crop marketing year has dominated recent wheat trade news. Many people have asked what the rise of Russian wheat means for wheat prices and trade. It is a situation that is best viewed apart from a “race between exporters” and instead from global and regional perspectives.

Before we look ahead, we need to look back to the end of the Soviet era.

Between 1990 and 2000, annual international wheat trade stayed more or less flat at about 100 MMT. By the year 2000, the 6.1 billion people in the world were consuming about 585 MMT of wheat per year. Over the next 15 years world population jumped to 7.2 billion and consumption increased by 160 MMT to 745 MMT per year. By 2015, more than 170 MMT of total annual production was being traded internationally to meet that demand.

With world wheat production only increasing by about 1 percent per year, Russia’s emergence as a wheat exporter was needed to meet that demand. However, as significant as it has been for Russian wheat exports to reach 25 MMT by 2015/16, other exporting countries have had to fill the remaining 45 MMT wheat trade demand.

Of the roughly 71 MMT increase in export /import trade in wheat since 2000, about 40 MMT of that consumption increase is in what I characterize as in the “sphere of logistical proximity” to Russia as well as the other Black Sea and European exporters. I broadly define their logistical proximity to include other former Soviet Union (FSU) importing countries, the entire Middle East and the continent of Africa. This is a generous allocation, as some of those countries, such as Nigeria, still import a significant volume of U.S. wheat.

The remaining 30+ MMT portion of the increase in export/import trade is in the Americas and Pacific Rim Asia; the U.S. sphere of logistical proximity where we compete primarily with Argentina, Canada and Australia. These countries and their contiguous neighbors make up the current and potential members of the Trans Pacific Partnership (TPP) trade agreement.



There are distinct differences between these two market spheres.

In terms of cropping patterns, grain storage capacity and logistics, Russian wheat is treated primarily as a cash crop. Most of the crop produced near Black Sea ports is sold for export as soon as it can be physically handled and moved. A recent Reuters article quoted a prominent Russian industry source saying that of Russia's 120 MMT grain storage capacity, only 40 percent is capable of preserving suitable grain quality. This year, that means there is less than 50 MMT of quality storage capacity for a new crop of more than 115 MMT, plus carry-in stocks. In this scenario, the "need to sell” becomes urgent, and almost at any price. Compare that to the ability of U.S. farmers to store much of their crop each year in the nearly 650 MMT of quality on- and off-farm silo space in anticipation of upward price movements (though our large grain crops are straining that capacity this year). U.S. farmers also have many more pricing options and risk management tools to combine with this storage capability.

Russian exports are much more front-loaded in the marketing year. Over the past five years, Russia exported more than 30 percent of its annual export volume in August and September. That pace dwindles on average to less than 4 percent of annual volume in June before Russia’s next harvest. U.S. wheat sales move much more evenly throughout the marketing year. In fact, U.S. exports in the final quarter of the marketing year are on average almost the same as in the first quarter.

Russian wheat quality, while improving in terms of an exporter's ability to originate and supply more consistent consignments than in the past, is still largely best suited for markets that do not require consistently higher milling, baking and processing qualities. Most of those markets, typically with government buyers controlling large volumes and looking for the lowest priced wheat that meets minimum specifications, are located quite near the Black Sea ports.

As a result, Russian export prices are quite low and tend to act as a depressant on world wheat prices in general. In its Aug. 26, 2016 market report, International Grains Council reported a “Black Sea” milling wheat export price at $174 per MT, which was $14 per MT below French wheat, $8 per MT below U.S.SRW and $16 per MT below U.S. HRW. With some of the world's 2016 crop experiencing quality degradation, those discounts to U.S. HRW with 12 percent protein (12 percent moisture basis) have widened even more to $25 per MT. Those are very large price spreads and translate directly back into the gross values received for these crops.

U.S. wheat export prices remain significantly higher than Russian wheat prices in part because the importers in growing Latin American and Asian markets, where wheat food is produced almost exclusively by the private sector, demand high, consistent and specific end use quality. They are willing to pay more for quality and service because they add value and enhance their revenue. The bottom line may be that Russia does export a greater volume of wheat than any other single country this year, but that still leaves them far behind the other major exporters in terms of a returned value for that crop. That relatively poor returned value directly reflects the price depressing factors in that marketplace.

Looking ahead, more and more people around the world are going to consume more and more food, including wheat, over the next 35 years. USW has projected that a peak global population of 9.5 billion people is going to consume around 950 MMT of wheat. Globally, we are producing less than 750 MMT today. Some 250 MMT of this total consumption will need to move in world trade. We will need much more than the current surplus of wheat in the world today to feed everyone — and everyone will need increasing production from every exporting nation.

In my opinion, the future potential for all major wheat export origins looks quite bright. The export volume prize may, like the World Cup trophy, be won by different exporters from year to year based on local production and regional trade conditions. Nevertheless, as in any business, capturing marketplace value to generate the highest marginal return possible on investment for wheat producers and industry will always be the key to achieving the greatest measure of success. That is, coincidentally, also the long term key to sustainably meeting the world’s ever growing need for more and better wheat .


3. Time to Apply the WTO’s Enforcement Power
By Ben Conner, USW Assistant Director of Policy

The power of the World Trade Organization (WTO) may seem somewhat dim these days. The Doha Round negotiations have been stalled for years and there are many flagrant violations of WTO rules that have been documented by groups like USW. Free trade agreements (FTAs) proliferate, while many see the multilateral system represented by the WTO as ineffective at best.

However, we should not overlook the strong foundations that the WTO creates for global trade —foundations that many take for granted today. In particular, the WTO Agriculture, Subsidies and SPS Agreements lay the groundwork for clear, consistent and appropriate state involvement in agricultural trade and production. FTAs go beyond the WTO for particular trade relationships, but the WTO rules undergird FTA rules. USW is encouraging use of this rules-based enforcement system to ensure countries meet their commitments. It is an under-used tool for advancing free trade through negotiations at the WTO and other settings, and pushing for enforcement when other avenues have failed.

The WTO agreements — along with advances in technology, peace and security in international waters, and flourishing economies across the world — helped spark a golden age of food and agricultural trade. While the world’s population has grown by 30 percent since the 1995 creation of the WTO, trade in agriculture is over 300 percent of its 1995 level. Today, there is a dizzying array of food products available around the world — an abundance unheard of mere generations ago.

Specialization and trade allow Japanese bakers to use flour milled from U.S. SW wheat to bake exquisite cakes, while Italian millers use our durum and hard red spring to create the crucial ingredients for some of the best pasta products in the world. In return, U.S. farmers can raise a glass of sake or chianti to celebrate the exchange. While it is a stretch to say that this would not be possible without the WTO, it is almost certainly the case that the scale and opportunity available to producers, businesses and consumers around the world would be vastly diminished.

Of course, not everyone can enjoy unhampered access to the world’s bounty. As most who engage in international trade understand, countries do not always act in a manner that is “clear, consistent and appropriate,” and often violate WTO rules in ways that have been both bizarre and blatant.

This all underscores the need for active enforcement of WTO commitments. If there is no fear of retaliation sanctioned by the WTO, countries will ignore the strong rules of the WTO agreements. If countries respect their agreements, it will result in a more conducive trade and regulatory environment for food and agriculture.

With very few exceptions, countries reform trade-distorting policies that are successfully challenged at the WTO. So for those who want a better global trading system, don’t scrap the WTO — we say use it more aggressively.


4. USW Trade Teams Create an Experience for Customers that Impacts Markets
By Amanda J. Spoo, USW Communications Specialist

Bringing trade teams to the United States is an integral part of USW’s mission to develop international markets for the U.S. wheat industry. Each year, USW organizes tours that help overseas customers learn about U.S. wheat production and marketing systems while connecting them directly to U.S. wheat farmers. In 2016, USW coordinated 13 trade teams with more than 75 participants that visited 12 states and Washington D.C. Participants ranged from executives, grain purchasers and traders to millers, bakers and members of the media, representing 14 countries and 66 percent of total 2015/16 U.S. commercial wheat sales as reported by USDA. These countries included Japan, the Philippines, Taiwan, Korea, China, Nigeria, South Africa, Côte d’Ivoire, Ghana, Indonesia, Brazil, Colombia, Venezuela and Mexico.

“This year’s trade teams represented the complexity, needs and interests of a diverse world wheat market,” said USW Vice President and West Coast Office Director Steve Wirsching, who hosted many of the teams in Portland, OR. “The one thing they have in common is the desire to see and experience the reliability of the U.S. wheat industry firsthand. They want to meet the farmers, ask questions and build relationships throughout the supply chain.”

Some trade teams allow customers to maintain long-term relationships and send employees who participate as part of their professional development, while USW organizes other teams to address a specific need or concern in a market. In addition to funding from USDA Foreign Agricultural Service (FAS) market development programs, state wheat commissions support these trips through their checkoff dollars, arrange itineraries and accompany the teams traveling in their state.

Trade team activities build relationships and put a face to the producers of U.S. wheat for many users and buyers. A vital part of U.S. wheat export market promotion, trade team visits consistently impact overseas markets in favor of U.S. wheat.

“The state wheat commissions, growers and our partners understand the importance of the investment they are making and play an essential role in the success of these teams,” said USW Vice President of Programs and Planning Jennifer Sydney.

“Trade team activities are a pivotal part of U.S. wheat export market promotion. Every year, these experiences help impact overseas markets in favor of U.S. wheat,” said USW Vice President of Programs and Planning Jennifer Sydney. “The state wheat commissions, growers and our partners understand the importance of the investment they are making and play an essential role in the success of these teams.”

This year’s trade team schedule also included two self-sponsored teams, and many self-sponsored individuals — a testament to the how much U.S. wheat customers value this experience.

“Washington wheat growers see tremendous value in the opportunity to build relationships with overseas buyers,” said Glen Squires, CEO of the Washington Grain Commission that hosted teams from Korea, Indonesia, the Philippines and Taiwan. “The buyers want to know where their ingredients are coming from and these activities help build trust in what we consistently produce for them.”



5. Wheat Industry Welcomes End to Japan’s Temporary Suspension of White Wheat Imports

USW and the National Association of Wheat Growers (NAWG) are pleased that Japan’s Ministry of Agriculture, Forestry and Fisheries (MAFF) resumed tenders the week of August 29 for new purchases of U.S. Western White (WW) wheat, a blend of SW and club wheat. On Sept. 1, 2016, MAFF announced it had purchased 58,000 MT, or more than 2.13 million bushels, of WW for delivery in October.

MAFF had temporarily suspended new WW purchases following the announcement on July 29, 2016, by USDA’s Animal Plant and Health Inspection Service (APHIS) that a small number of wheat plants containing an unapproved, genetically engineered (GE) event to resist the herbicide glyphosate were found in a fallow field in eastern Washington State.

USW and NAWG believe that this unexpected situation caused only a minor disruption in trade because every stakeholder approached it in a reasonable way. APHIS promptly identified the regulated wheat event, validated a detection method developed by Monsanto and made that test available to officials in Korea and Japan. Effective communications between government officials, including FAS, the grain trade companies and customers kept the process moving in a positive way.

As a result, APHIS, MAFF and the Korean government have now tested thousands of samples of U.S. wheat and found no evidence of any GE material in commercial supplies, which reaffirms the conclusion that this was a limited, isolated situation.

The productive relationships wheat farmers and their representatives at USW, NAWG and state wheat organizations have built with customers at home and around the world also played an important part in resolving this incident.

On behalf of those wheat farmers, USW and NAWG express our appreciation to APHIS for its help. To all our customers, we thank them for their response to this situation and their continued confidence in the quality, safety and value of U.S. wheat.


6. Wheat Industry News
  • Congratulations to the Scott Family on their newest addition. Jason, Casey and big sister Sloane welcomed Brady Philip on Thursday, Aug. 25. Jason is the current USW Chairman and a seventh-generation farmer from Maryland’s Eastern Shore where he manages Walnut Hill Farms.
  • Congratulations to the Watters Family. Collin Watters and his wife Brigitte welcomed a baby boy, Calvin Henry, on Thursday, Sept. 1. Collin is the executive vice president of the Montana Wheat and Barley Committee.
  • A Cereal Science Events Calendar is available via email from Prof. Dr. M. Hikmet Boyacioglu, International Editor of “Milling and Grain” magazine. Request the calendar by contacting Dr. Boyacioglu at hikmetb@perendale.co.uk. You can follow “Milling and Grain” online at https://twitter.com/MillingGrain_TR or http://www.millingandgrain-tr.com/.
  • USDA Expects U.S. Agricultural Exports to Reach $133 billion in FY ’17, up $6 billion over last fiscal year. This reverses the trend of the past two years of declining U.S. agricultural exports. It will be the sixth largest level of exports on record according to USDA’s latest forecast on the “Outlook for U.S. Agricultural Trade.” USDA projects China will surpass Canada as the largest market for U.S. agricultural products.
  • Monthly Conference Calls Updating Closure of the Columbia River System from Dec. 15, 2016, to March 1, 2017, start today sponsored by the U.S. Army Corps of Engineers. For call-in information, visit: http://www.nww.usace.army.mil/Portals/28/docs/navigation/FY17Outage/FY17LockOutage_TeleconferenceSchedule.jpg. For more information about the scheduled maintenance of locks and dams, visit http://bit.ly/wheatletter5192016.
  • Annual Crop Quality Survey. Together with its partner organizations across the United States, USW is testing more than 2,000 samples of wheat this year for its annual Crop Quality survey. The preliminary results are reported every Friday in the USW Harvest Report, and the final results for all classes are published in a Crop Quality report near the end of October. Please contact your local USW representative for more information about the USW Crop Quality survey, report or seminars.
  • 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.
  • Follow USW Online. Visit 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 and video stories at www.youtube.com/uswheatassociates.

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