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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. U.S. Farmers Respond to Market Signals
2. New Market Signals May Forecast U.S. Wheat Buying Opportunity
3. Wheat Industry Trade Priorities Included in USTR National Trade Estimate
4. Celebrating Long, Loyal Partnerships
5. Minnesota Wheat Farmer Visits Asia
6. Wheat Industry News

Online Edition: Wheat Letter – April 7, 2016 (See attached file: Wheat Letter - April 7, 2016.pdf)

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


1. U.S. Farmers Respond to Market Signals
By Stephanie Bryant-Erdmann, USW Market Analyst

After three consecutive record crops, the International Grains Council (IGC) expects world wheat production for the 2016/17 marketing year to decline to 713 million metric tons (MMT), down 3 percent from 2015/16. Unusually warm, dry weather constrained winter wheat planting in India, Ukraine and Russia, and an extended drought has hindered winter wheat productivity in Morocco, where IGC estimates a 40 percent decline in production year over year. According to USDA‘s March 31, 2016, Prospective Plantings report, U.S. wheat farmers also planted fewer winter wheat acres and intend to plant the smallest spring wheat area since 1972.

USDA estimated total U.S. planted area for the 2016 harvest at 49.5 million acres, down 9 percent from 2015 and 13 percent below the 5-year average of 57.3 million acres. The report reduced winter wheat planted area by an additional 390,000 acres from USDA’s January estimate to 36.2 million acres, down 8 percent from 2015.

USDA also updated its hard red winter (HRW) planted area estimate to 26.2 million acres, down one percent from the previous estimate. A delayed soybean harvest prevented some wheat seeding, and farmers decided not to plant as much wheat because cash prices were so low. If realized, HRW planted area will be down 10 percent from 29.0 million acres planted for 2015. Soft red winter (SRW) planted area also decreased from the previous estimate to 6.60 million acres with the biggest declines occurring in southern states. Farmers there have taken a hit three years in a row from untimely rains at harvest that hurt quality and resulting income.

USDA expects white wheat acres — planted in both winter and spring — to reach 4.02 million for 2016, down 3 percent from 2015 and lower than the 5-year average of 4.21 million. After three consecutive years of drought, much needed rain fell in the Pacific Northwest in December and January. However, the U.S. Drought Monitor shows dry conditions are developing again in Oregon, southeastern Washington and parts of Idaho where soft white (SW) production is centered.

The Drought Monitor also shows that Kansas and Oklahoma, which grew nearly half of the total U.S. HRW crop in 2015, are very dry. As of April 7, 2016, 93 percent of Kansas and 73 percent of Oklahoma were abnormally dry or experiencing moderate drought. In addition to the dryness, U.S. winter wheat growing areas are experiencing large temperature fluctuations. After falling below freezing on March 27 and April 1 to 2, temperatures reached 80°F in Texas, Oklahoma and Kansas this week.

However, the U.S. winter wheat crop is still in better condition than last year at this time. As of April 5, USDA rated the winter wheat crop at 59 percent good to excellent, compared with 44 percent at this time in 2015. USDA rated just 7 percent of the crop as poor or very poor, down from 16 percent last year.

“The wheat crop is developing two to three weeks ahead of schedule, which makes it extremely vulnerable to a late spring freeze, something that is not uncommon in Kansas,” noted Kansas Wheat Commission Vice President of Research and Operations Aaron Harries. “The wheat is in relatively good shape across the state, but we are really going to need rain here in the next few weeks. We’ve had a lot of wind and warm weather, which sucks the moisture out of the topsoil very quickly.”

The northern U.S. plains are also experiencing warm, dry conditions, which could allow farmers to begin planting early this year.

“We’ve seen some spring wheat planted already, and in the next week or two most farmers will be in their fields if the weather holds. It looks like it will be an early planting season again this year, which is good for wheat and could produce additional acreage,” said North Dakota Wheat Commission Marketing Specialist Erica Olson.

According to USDA, U.S. spring wheat planted area will decline to an estimated 11.3 million acres, 14 percent less than in 2015 and the lowest planted spring wheat area since 1972, if realized. The estimate includes 10.7 million acres of hard red spring (HRS), which faces strong competition from pulses and durum that have garnered higher returns this marketing year.

As Olson explains, “Other crops, especially peas, lentils and durum show higher returns than spring wheat, which makes them more favorable crops this year. Corn acres are expected to increase as well. These price trends are cyclical and next year a different set of crops will come out on top.”

USDA expects U.S. durum planted area to rise to 2.00 million acres, up 3 percent from 2015 despite a 28 percent decline in Desert Durum® area. USDA expects North Dakota farmers to plant 10 percent more acres to durum for 2016, which more than offsets the planted area loss in Arizona and California.

Driving the decline in U.S. wheat acreage is a net return for an acre of wheat that dropped 25 percent between 2014/15 and 2015/16, while per acre input costs declined only 8 percent in the same time period. USDA expects this trend of decreasing returns on wheat to continue in 2016/17, with returns falling 17 percent from 2015/16 levels. Yet input costs are expected to rebound slightly. Due to the decreases in planted area, IGC pegged 2016/17 U.S. wheat production at 53.9 MMT, down 3 percent from 2015/16. As always, weather will be the wildcard.


2. New Market Signals May Forecast U.S. Wheat Buying Opportunity

Attentive buyers may have noticed that recent stories about the world wheat market are starting to sound a bit different. IGC predicts a 3 percent decline in world production for the 2016/17 marketing year. Australian farmers are concerned about dry conditions. Bad weather during winter and spring sowing is likely to reduce the harvest in Russia, Ukraine and Romania. Wheat production is expected to decline by as much as 40 percent in Morocco.

U.S. wheat farmers are also clearly acting on the market signals to grow less wheat. Farm gate prices are well below the cost of production at the same time U.S. export prices remain higher than competing sources. As USW Market Analyst Stephanie Bryant-Erdmann reported above, total U.S. wheat planted area for 2016 could be down 9 percent from last marketing year according to USDA’s “Prospective Plantings” report. Moreover, as she also noted, USDA expects the trend of decreasing returns on wheat to continue in marketing year 2016/17.

While potentially bullish signals are buffered in part by the abundant global supplies and a favorable first U.S. crop conditions report, they may indicate the beginning of the end for the now three-year decline in U.S. wheat prices.

“For a buyer, it is much more reassuring to cover supply needs at incrementally lower prices than it is to be chasing a market that is heading up,” said USW Vice President of Overseas Operations Vince Peterson. “These low prices are not sustainable, so this could be the best opportunity to make purchases of high-quality U.S. wheat at the lowest levels in what could be a long time.”

There are additional factors that may signal increased demand for U.S. wheat, including late season rain that significantly hurt wheat quality in Brazil and in its primary wheat supplier, Argentina. World Grain magazine reported Feb. 1, 2016, that Brazil likely will have to increase imports and, depending on the supply of milling quality wheat in Argentina, U.S. wheat is still a viable option for its millers. When it turns to the United States, Brazil buys HRW, usually in July and August.

Customers can track U.S. wheat cash, futures and export prices and read the USW Price Report posted every Friday at www.uswheat.org/reports/prices or, for more information, contact their local USW representative. To monitor crop and weather conditions in the United States and around the world, visit http://bit.ly/zpVuxr.


3. Wheat Industry Trade Priorities Included in USTR National Trade Estimate
By Dalton Henry, USW Director of Policy

Last week marked the annual release of the National Trade Estimate (NTE) to Congress by the Offices of the U.S. Trade Representative’s (USTR). The NTE report is a 474-page- list of trade barriers facing U.S. companies and producers. It documents a range of trade barriers, including Sanitary and Phytosanitary (SPS), technical and market access restrictions. USW submitted a host of concerns to USTR on October 28, 2015. Read the full submission by clicking HERE.

The report highlights a few major accomplishments from 2015, including completion of Trans-Pacific Partnership negotiations and the U.S. ratification of the Trade Facilitation Agreement — the first multilateral trade agreement in the WTO’s 20-year history. Beyond the successes of the past year, the report also lays out a roadmap of future work for USTR. Numerous wheat industry priorities made the listing, two of which are highlighted here.

A new addition to the 2016 report was China’s administration of their tariff-rate quota (TRQ) system, which Chinese millers and USW have repeatedly identified as a major hurdle in expanding the use of U.S. wheat in China. The report stated, “Market access promised through the tariff-rate quota system set up pursuant to China’s WTO accession agreement has yet to be fully realized.” Each year China completely uses the portion of the TRQ allocated directly to flour millers. However, the portion held by the state is not fully utilized and almost never reallocated as required by the WTO agreement.

China is not the only country where a TRQ keeps out potential wheat exports. Nearly two decades ago, Brazil committed to a 750,000 ton duty-free TRQ. The NTE report notes that Brazil never opened the TRQ, and therefore has imported no wheat under it. Without either ad hoc access, which Brazil opened in 2013 and 2014, or a functioning TRQ, Brazilian millers must pay a 10 percent tariff to purchase supplies anywhere outside of the Mercosur trade bloc. That leaves the United States, Canada and others at a significant price disadvantage.

These two barriers are just a preview of the issues listed by USTR. Read the full NTE report by clicking Here. USW will continue to work with our partners to pursue resolutions to these barriers that hinder our customer’s ability to purchase U.S. wheat.


4. Celebrating Long, Loyal Partnerships
By Steve Mercer, USW Vice President of Communications

It is important at times to step back from the day-to-day challenges of our work to reflect on what is truly important. The week of April 12, USW, its state wheat commission members and wheat farmers have two very special opportunities to do that with its customers when they celebrate the 60th anniversary of the USW office in Japan and the 50th anniversary of the USW office in Taiwan.

“I believe we can all be quite proud of the partnerships U.S. wheat farmers and our organization have formed with our Japanese and Taiwanese customers,” said USW President Alan Tracy. “Over all these years, our relationship has been built on highly ethical practices, full transparency and a commitment to the best interests of our end-use customers. We are very pleased to toast these milestones with them, thank them again for their loyalty and then turn as we must, confidently, to the future.”

Perhaps the greatest testimony to the enduring strength of these relationships is the fact that such sophisticated wheat milling and food industries have relied on U.S. wheat for so long. Japan has purchased significantly more U.S. wheat than any country in the world, certainly when counting total imports over these 60 years, as well as in most individual years. It is also humbling to say that Taiwan has relied on U.S. farmers as its primary wheat supplier with constant loyalty.

Hundreds of flour milling and food industry representatives will join more than 20 U.S. wheat farmers, state wheat commission executives, state and USDA Foreign Agricultural Service officials and USW colleagues at celebrations in Tokyo and Taipei. It is important to recognize the Idaho Wheat Commission, the Montana Wheat and Barley Committee, the North Dakota Wheat Commission, the Oregon Wheat Commission and the Washington Grain Commission for their sponsorship.

Wheat Letterwill share highlights from these special celebrations in the April 21, 2016, issue.


5. Minnesota Wheat Farmer Visits Asia
By Jonathan Knutson; Reprinted with Permission by AgWeek

Like other wheat growers, Greg LeBlanc wants to raise a high-quality, high-yielding crop. And like other growers, the Crookston, MN, farmer understands the importance of selling what he raises to foreign customers.

That is why LeBlanc participated in a recent trade mission to Japan and South Korea, two key markets for U.S. wheat.

“You get to talk to buyers one-on-one. You get to know what they like, what they are concerned about. You get to know how the systems works,” he says of the trip, which took place March 3 to 12.

The trip was sponsored by U.S. Wheat Associates (USW), which develops export markets for U.S. wheat. It is a big mission: about half of the nation’s wheat crop is exported.

LeBlanc, a director of the Minnesota Wheat Research and Promotion Council, was joined on the trip by wheat farmers from Idaho, Oregon and Washington.

They went first to Portland, OR, where USW has its West Coast office, and where ships destined for Southeast Asia are loaded with wheat. Though Japan and South Korea often are associated with rice consumption, consumers in the two countries eat more wheat than rice.

After Portland, the trade team spent three days in Japan, visiting government officials, millers, bakers and others involved in the grain trade. Japan, like South Korea, gets most of its wheat from the U.S., Canada and Australia. In Japan, however, a government agency buys wheat, which is then dispersed to mills. In South Korea, millers buy the grain themselves.

The Japanese like U.S. spring wheat, but are concerned that U.S. farmers are planting varieties favoring high yields at the expense of quality, LeBlanc says.

“I told them that we have a couple of varieties in Minnesota that have helped to bring the quality back up,” LeBlanc says. “They were happy to hear that.”

GMOs a concern. He also found that the Japanese, as well as the South Koreans, worry about GM food, or food from plants that have been modified genetically. While there is no GM wheat now, the U.S. wheat industry says it is needed.

“Consumers in these two countries are really concerned about GMOs,” LeBlanc says. “We have to consider what they want, not just what we want.”

LeBlanc says the Japanese, as well as the South Koreans, emphasize cleanliness and sanitation at their mills and processing plants.

After leaving Japan, the trade team spent another three days in South Korea, visiting the country’s largest fried noodle manufacturing facility, touring mills and meeting with the Korea Flour Mills Industrial Association.

LeBlanc was struck by how modern South Korea is, particularly Busan, population 3.6 million, and the country’s second largest city beyond Seoul.

“It’s almost like walking in a U.S. city,’ he says of Busan.

The Guinness World Records web site lists Busan as home to the world’s largest department store.
The city, once known as Pusan, was included in the Battle of the Pusan Perimeter, a crucial battle in August and September 1950 between North Korea and United Nations forces. The battle marked the end of North Korean advances and led to an eventual stalemate.

His suggestions. LeBlanc also grows corn and soybeans. In the past, he represented Minnesota soybean growers on trade trips to Cuba and China.

It is often said that foreign customers of U.S. ag products emphasize personal contact with the people with whom they’re doing business. LeBlanc says his trip to Japan and South Korea is proof of that.

“One-on-one relations are so important. They (foreign buyers) want to see the source. They do not want to talk with the people who are selling the product. They want to talk to the people who are raising it,” he says.

His suggestion to other U.S. agriculturalists who journey overseas to promote their crops:
“Have pictures of your farming operation. Have pictures of your family. Those are the two things they really want to know. That is what it is important to them,” he says.


6. Wheat Industry News
  • Condolences. USW was saddened to learn of the sudden death of Jerry Kress, Idaho wheat farmer and a long-term friend of the U.S. wheat industry on March 23. Jerry served as USW Chairman in 1998/99 and was inducted into the Eastern Idaho Agricultural Hall of Fame last month. “His steadfast leadership during a difficult transition for USW and the wheat industry is noted and he will be missed,” says USW President, Alan Tracy. Our thoughts are with his family.
  • NAWG Announces CEO Stepping Down. The National Association of Wheat Growers (NAWG) announced Jim Palmer has decided to step down as its chief executive officer effective May 31, 2016. “Jim has been a tremendous and tireless advocate of the U.S. wheat grower specifically, and the U.S. wheat industry in general, during his tenure as our CEO,” stated NAWG President Gordon Stoner, a Montana wheat grower. USW thanks Jim for his service to the U.S. wheat industry and wishes him the best in the future. For more information, visit http://www.wheatworld.org/news-events/2016/04/nawg-is-now-accepting-applications-for-ceo/.
  • Global Wheat Breeding Provides Billions in Benefits, CIMMYT Study Shows. Almost half the world’s wheat land is sown to varieties that come directly or indirectly from research by a longstanding, global network of crop scientists, according to a new report by CIMMYT. Published to coincide with CIMMYT’s 50th anniversary, the new report tabulates and analyzes the pedigrees of 4,604 wheat varieties released worldwide from 1994 to 2014, based on survey responses from public and private breeding programs in 66 countries. Read the full report here.
  • Wheat Marketing Center Advanced Asian Technology Course. This hands-on course is scheduled for June 6 to 10, 2016. For more information, please visit http://wmcinc.org.
  • IGP Institute Announces Two Milling Courses. The first course, Managing Mill Balance and Control, scheduled for June 7 to 10, 2016, will focus on the front half of the milling process with optimizing breaks and purifiers. The second course, Milling Practices to Improve Flour Quality, scheduled for June 14 to 17, 2016, will focus on the milling process and flour quality management. Course instructor Shawn Thiele encourages participants to stay for both courses as each covers important components in the milling process. 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.
  • 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, additional photos at www.flickr.com/photos/uswheat, plus video stories at www.youtube.com/uswheatassociates.

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