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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. Nearby SRW Futures Position Reflects Potential High-Quality Supply Shortage
2. Doha’s Dead End
3. An Expanding Filipino Milling Industry Sends Trade Team to the United States
4. Visiting Caribbean Flour Millers Represent New Market Potential for U.S. Wheat
5. CIMMYT: Anti-Wheat Fad Diets Undermine Global Food Security Efforts
6. Wheat Industry News


Online Edition: Wheat Letter – August 13, 2015 (http://bit.ly/1J6P8bb)

PDF Edition: (See Attached) (See attached file: Wheat Letter - August 13, 2015.pdf)

USW Harvest Report: Published every Friday at http://www.uswheat.org/harvest


1. Nearby SRW Futures Position Reflects Potential High-Quality Supply Shortage
By Stephanie Bryant-Erdmann, USW Market Analyst

Over the past fifteen years, KCBT hard red winter (HRW) wheat futures prices averaged $0.35 per bushel over CBOT soft red winter (SRW) futures. Recently, however, the gap between CBOT and KCBT narrowed and then flipped in the nearby September contracts due to bullish fundamental supply and demand factors affecting the SRW marketplace.

Traditional thinking may consider SRW as a “commodity” wheat category, instead of a functional ingredient. SRW works well as a lower cost, blending wheat, so countries with government wheat purchase programs and subsidized foodstuff production — notably Egypt, which bought 3 million metric tons (MMT) of SRW in marketing year 2007/08 — used to dominate U.S. SRW imports.

Today, the growing global middle class is demanding more dietary variety. Euromonitor reports that pastry and cake consumption is growing at a rate of about 3 percent per year. Biscuit (cookie) and cracker production is also increasing as processors respond to changing demographics and the resulting retail and export sales opportunities for these product lines. To meet demand, they are turning to SRW, as well as soft white (SW), wheat from the United States.

Similar to SW, SRW has low protein content, a soft endosperm and weak gluten that is well suited to the production of these products. Mexico, home to Bimbo, the world’s largest baked goods company, and an increasing number of wheat food snack companies, has imported an average of 1.14 MMT of SRW over the past five years. Similarly, Colombia, with two of the largest cookie and cracker companies in Latin America, increased total SRW imports by 37 percent from marketing year 2013/14 to 2014/15.

This increased demand for the unique characteristics of SRW, along with potential supply issues foreseen by the global market in 2015/16, indicates why SRW futures prices recently topped HRW futures. For example, USDA pegged SRW planted area for 2015/16 down 7 percent from the five-year average and production to be 15 percent less than the 2014/15 crop. Additionally, excessive moisture, disease pressure and harvest delays adversely affected quality in much of the SRW growing areas, contributing to some supply scarcity in the top SRW milling grades. As of last Friday, the cumulative test weight average of 57.2 lb/bu (75.4 kg/hl) was almost 1 lb/bu lower than the 58.1 lb/bu (76.5 kg/hl) recorded in 2014, while protein at 9.9 percent (12 percent moisture) and 1000 kernel weight at 32 grams were the same as in 2014/15.

While the SRW wheat market certainly has a more bullish cash market scenario than HRW, the U.S. wheat store is always open and customers are encouraged to set up a meeting with their local USW representative who can help them review their quality specifications to ensure that their purchases meet their expectations and needs.


2. Doha’s Dead End
By Ben Conner, USW Deputy Director of Policy

Since 2001, trade negotiators around the world have been trying to reach an agreement to lower tariffs through World Trade Organization (WTO) negotiations known as the Doha Round. USW supports the goals of the Doha Round, because it would make U.S. wheat more affordable to many of our export customers. However, to date there has been no indication that those goals will be realized. Instead, many countries have approached the talks with limited ambitions or expected much in return for little input. The July 31, 2015, deadline for a new negotiating plan passed with no results.

Part of the challenge is the difference between what are known as bound and applied tariffs in WTO terminology. Bound tariffs are what countries agreed to as a maximum tariff rate on a particular product. Applied tariffs are the tariff levels actually applied to products in a given year, though the applied level cannot exceed the bound level. The discussions in the Doha Round have only considered cutting bound tariff levels, but these are often much higher than the applied tariff. For example, Kuwait has a wheat bound tariff of 100 percent, but for the past three years has not applied any duty on imported wheat. If a Doha Agreement were to cut bound tariff levels by 90 percent, that tariff level in Kuwait would still be much higher than the current duty-free rate. Overall, there would be very few countries in the latest Doha negotiating document that would be obliged to grant significant additional market access for wheat.

In addition to the lack of meaningful market access, the latest Doha negotiating document — dating back to 2008 and often referred to as “Rev 4” — would require the United States to substantially reduce its ceiling on domestic support for U.S. farmers. If there is to be a balanced Doha Agreement, any reduction in U.S. farm support would have to be accompanied by reductions in tariff walls that other countries use to support their farmers. Again, very few countries have been willing to do that.

A major shift has occurred since 2008, in that many countries using tariff barriers to protect their farmers are now also providing substantially higher farm subsidies. Several countries, including the world’s two largest wheat producers (India and China), are blatantly violating their current WTO commitments on farm subsidies. These major wheat-producing countries have essentially taken the position that they should be able to continue violating the WTO Agriculture Agreement and offer wheat exporters like the United States little or no additional market access. At the same time, they would demand significant reductions in U.S. farm support programs. That is a one-sided deal, U.S. agriculture cannot accept.

This is a simplified view of the dilemma that trade negotiators face, but it reflects one of the most entrenched arguments of the Doha Round. It is why negotiators missed the July 31 deadline for a new work program, and why it is virtually impossible for the discussions this fall in Geneva to produce any significant breakthroughs that resemble the original goals of the Doha Round. The best approach would be for WTO members to agree at the Nairobi Ministerial in December to recalibrate expectations to match current realities, or put Doha behind them and consider new ideas, including USW’s Wheat Food Sectoral Global Food Security Initiative (“USW Presents Global Wheat Food Security Initiative to International Millers”).


3. An Expanding Filipino Milling Industry Sends Trade Team to the United States

The southeast Asian wheat market is a story of success for the U.S. wheat industry and its customers. In the 2014/15 marketing year (June to May), the region accounted for 20 percent of global U.S. wheat sales. With a strong milling industry to support it, the Philippine wheat market continues to be one of the region’s most consistent and important export markets year after year. In 2014/15, the Philippines was the third largest buyer of U.S. wheat and the second largest buyer of both SW and hard red spring (HRS) wheat, setting a new sales record for the second year in a row.

Looking ahead, the Philippine milling industry is growing and a new generation of managers is emerging. Building on more than 50 years of service in the Philippines, USW continues to play a role in these transitions and strengthen its relationships in part by hosting four milling industry customers on a recent visit to the United States.

“This is a trade team of emerging leaders that represent growing market trends in the Philippines,” said USW South Asia Assistant Regional Vice President Joe Sowers, who traveled with the team. “We invited participants that we think will best apply what they learn on the trip to the challenges and opportunities presented by the evolving market environment.”

USW worked with the North Dakota Wheat Commission (NDWC), Montana Wheat and Barley Committee, Washington Grain Commission, Idaho Wheat Commission and Oregon Wheat Commission to organize this team. USW Policy Specialist Elizabeth Westendorf joined Sowers and the team for part of the tour. Together, Sowers and Westendorf provided a recap:

“Our purpose was to demonstrate how the quality, value and reliability of U.S. wheat and its supply chain can help these millers grow their own businesses,” said Sowers.

The team saw a HRS crop in North Dakota with excellent yield potential and surprisingly strong quality. Typically, a large harvest results in lower protein levels, but the team heard good reports indicating protein and DHV levels should be far above average and the challenging 2014/15 crop. NDWC chairman David Clough said that good spring weather allowed for early planting and continued through the summer to push yields to near record levels. While still in North Dakota, the team saw exciting research underway by Dr. Senay Simsek with North Dakota State University (NDSU) on using Solvent Retention Capacity (SRC) analysis on hard wheat applications. They also discussed seasonal basis pricing with NDSU agricultural economist Dr. Bill Wilson, noting that current basis levels are at historic lows, presenting excellent buying opportunities.

The early planting and harvest story was echoed in HRW and SW growing regions. In Montana, the team got a firsthand look at the conclusion of HRW harvest where results were extremely variable. There were reports of excellent yield and quality from some farmers while others reported the opposite. Team participant Ramon Estrella said the visit to the Mattson farm in Chester, MT, where the team rode in combines as the family finished their 2015 crop, was a highlight. The team had interesting discussions with CEO Vince Mattson on farming practices and the challenge of current crop prices running below production costs. Past USW chairwoman Janice Mattson told the team most of their fields had received less than 3.5 inches of rain this calendar year. Luckily, the crop had an ideal start with plentiful moisture before drought took its toll.

Moving to Washington and Idaho, most farmers were finished with harvest on slightly increased planted area but under less-than-ideal growing conditions. The crop went into dry ground following the 2014 drought and continued to suffer throughout the year. Timely rains saved bushels, but protein levels will be higher than average again this year. Traders in Portland, OR, suggested that protein spreads would be wider in SW than HRS this year. Enzo Ladrido, with Atlantic Grains, pointed out the SW protein situation this year will create opportunities for buyers who can use higher protein levels. Participant Welly Toha, with Monde Nissin, said the millers were impressed by the “use of technology to conquer the landscape,” referring to self-leveling combines used in the unique terrain. While in Portland the team also visited a local supermarket to discuss product placement and marketing and, on the last day of the tour, the team discussed barge movement with Shaver Transport.

Pictures from the team’s tour are posted on Facebook at https://www.facebook.com/uswheat.


4. Visiting Caribbean Flour Millers Represent New Market Potential for U.S. Wheat

It makes sense that Caribbean countries import most of their wheat from its nearby neighbor, the United States, but changes in the milling industry present new opportunities to reach even more markets in the region. The week of Aug. 16, four current and potential wheat buyers from Guyana, Haiti, St. Vincent and Trinidad who want to learn more about U.S. wheat quality and its supply system will visit North Dakota, Nebraska, Kansas and Louisiana. USW is sponsoring this team visit in cooperation with its state wheat commission members and USDA’s Foreign Agricultural Service (FAS).

“These are senior managers in their milling operations, but they are either new to the industry or have a history of purchasing wheat from competing origins,” said Chad Weigand, USW assistant regional manager, Mexico City, Mexico, who will travel with the team. “The farmers, wheat merchandizers and federal grain inspectors the millers will meet on this trip will share many reasons why U.S. wheat should be their primary supply.”

Weigand said this visit supports an opportunity for growth, as well as to overcome challenges, in the region from new flour mills. That is why this team includes a representative from a new mill in Haiti that started operating only in the past year. The manager from St. Vincent on this team will also participate because his mill will soon have to compete with a new mill on the island of St. Lucia that will likely use French wheat. His participation will allow him to discuss opportunities with suppliers to ship to multiple destinations in the Caribbean.

“Building knowledge and confidence in the U.S. supply system has been a successful strategy,” Weigand said. “We invited the general manager of a Trinidad flour mill who has been in the industry for just one year to participate in the team. And, based on several years of trade and technical service by USW, the Guyana executive on the team is transitioning to U.S. HRS wheat after purchasing Canadian spring wheat for many years.”

Weigand also noted that this will be the first USW-sponsored wheat buyer team to visit the new export grain terminal in the Port of Lake Charles, LA, now operated by the international commodities company Tradiverse. The Lake Charles facility, which includes a grain cleaning system, is the first new export terminal built in the U.S. Gulf tributary in 30 years.


5. CIMMYT: Anti-Wheat Fad Diets Undermine Global Food Security Efforts

The International Maize and Wheat Improvement Center (CIMMYT) recently shared a “wheat discussion paper” by Britain’s University of Warwick (Lillywhite and Sarrouy 2014) that addresses the disturbing implication that wheat products cause of health problems, resulting in an increasing consumer preference for grain- and wheat- free diets. For many health professionals this is a worrying trend, the authors said, because wheat supplies 20 percent of the world’s food calories and much of its protein, but also has important benefits beyond nutrition.

The Warwick paper scientifically assesses the benefits of whole grain consumption, information that the authors said seems to have been lost in media headlines and the reporting of “pseudo-science.”

Commissioned by British cereal-maker Weetabix, the paper concludes that whole grain products are good for human health, apart from the 1 percent of the population who suffer from celiac disease and another 1 percent who suffer from sensitivity to wheat (Lillywhite and Sarrouy 2014). Eating whole grain wheat products is positive, improves health and can help maintain a healthy body weight, the authors report.

This wheat discussion paper serves as a foundation for further discussion. It aims to highlight unsubstantiated nutritional claims about wheat and shine a spotlight on the important role of wheat and fiber in human diets. It also seeks to encourage conversation about how non-scientific claims about wheat could affect poor consumers and global food security.

CIMMYT posted the paper online at http://bit.ly/1MomnZX.


6. Wheat Industry News
  • Monitor U.S. Wheat Quality as Harvest Moves Forward. With the northern HRW, durum and HRS harvests just underway, many data points are left to collect for USW’s annual crop quality survey. Buyers and end users can monitor the latest information in USW’s Harvest Reports, posted at www.uswheat.org/harvest every Friday afternoon (Eastern Time). Final quality reports, with separate, detailed reports by class for the entire 2015/16 U.S. wheat crop will also be available in USW’s Crop Quality Report, posted at www.uswheat.org/quality.
  • Wheat and Corn Executive Honored. U.S. Grains Council (USGC) recently recognized Tadd Nicholson, executive director of the Ohio Corn & Wheat Growers Association and, two other state grower organization executives for service to USGC. Nicholson, who is also executive director of the Ohio Small Grains Marketing Program, a USW member organization, has served with USGC for 10 years. Read the full announcement here.
  • Kansas State University’s Leadership in Wheat Research Recognized with $1.6 Million Grant. The National Science Foundation's Plant Genome Program awarded the three-year grant to fund projects and collaborations to help train new generations to answer challenging plant genomics questions. To read the fulll story visit www.hpj.com.
  • Wheat Initiative launches Strategic Research Agenda. To meet what is expected to be a 60 percent rise in wheat demand by 2050, coordination of research and significant investments are needed to increase wheat sustainable production globally. The Wheat Initiative, established in 2011 as part of the Action Plan of the G20 Ministries of Agriculture, recently presented its Strategic Research Agenda (SRA) that identifies key research priorities for the short, medium and long term and lists “outstanding game-changers that will revolutionize wheat breeding in the future.” Read more at http://bit.ly/1f8lyFT.
  • Iteris Signs ClearAg Agreement to Support Grain Quality and Consumer Food Safety. The agreement, signed with the Minnesota Wheat Research and Promotion Council, a USW member organization, will combine local wheat disease risk forecasts with other farm production data that, in turn, will help farmers improve disease control and wheat quality. Read the full announcement here.


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