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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. Unique Circumstances Influencing U.S. Wheat Prices and Global Demand
2. New Study Shows Benefits of U.S. Wheat Export Promotion
3. National Wheat Organizations Support TPP Approval and Expansion
4. New Fact Sheets Bring Wheat Trade Issues into Focus
5. U.S. Wheat Reps: Rising Demand Overseas
6. Wheat Industry News

PDF Edition: (See Attached) (See attached file: Wheat Letter -November 19, 2015.pdf)

USW Crop Quality Reports: http://www.uswheat.org/cropquality


1. Unique Circumstances Influencing U.S. Wheat Prices and Global Demand
By Stephanie Bryant-Erdmann, USW Market Analyst

In its November World Agricultural Supply and Demand Estimates (WASDE) report, USDA lowered its forecast for final 2015/16 U.S. wheat exports by 1.36 million metric tons (MMT) compared to its October forecast. Citing a “very slow sales pace” and poor price competitiveness, USDA now predicts 2015/16 (June to May) U.S. wheat exports will be about 21.8 MMT, which would be the lowest export volume since 1971/72.

This generality does not paint a complete picture of prices and demand for three important U.S. wheat classes: hard red winter (HRW), hard red spring (HRS) and soft red winter (SRW). There are unique fundamentals affecting each class that provide important perspective on the situation.

USDA expects HRW exports to be 20 percent less in 2015/16 than last year. Increased competition from abundant supplies of lower cost wheat in competitor countries is reflected in HRW sales-to-date of 3.82 MMT, running 25 percent behind 2014/15 sales. However, the USW commercial sales report shows that HRW sales-to-date to Brazil are more than 1 MMT less than last year at this time because Argentina returned as Brazil’s primary hard wheat supplier. Subtract Brazil from the comparison and HRW exports are just 5 percent behind last year’s pace.

While price sensitive customers such as Egypt have been able to rely on lower cost Black Sea wheat thus far this year, other customers who value quality are taking advantage of a buying opportunity with HRW at bargain prices. Prices for HRW 11.5 percent protein from the Gulf fell to $208 FOB (free on board) in the Nov. 13 USW Price Report, $71/metric tons (MT) lower than one year prior. In addition, ocean freight rates are down an average of 17 percent from this time last year. Partly as a result, year-to-date HRW sales to South Asia are five times larger at 157,000 MT, and HRW sales to the European Union (EU) are triple those of last year at this time at 83,000 MT. Colombia and Taiwan HRW purchases are respectively 31 and 41 percent ahead of HRW sales on this date a year ago.

Unlike the situation with HRW, tighter supplies of SRW milling quality wheat are influencing prices. USDA estimates SRW production declined 21 percent to 9.77 MMT in 2015/16 after an 18 percent decline in planted acres. As a result, total SRW supply fell to 14.5 MMT compared to the 5-year average of 15.8 MMT, its lowest since 2010/11. However, the supply of milling quality SRW is even smaller because disease and unfavorable weather damaged quality in a significant portion of the 2015/16 crop. This constrained supply of quality soft wheat has pushed prices higher for SRW and soft white (SW), the only high quality substitute, and SRW sales to date of 2.37 MMT are 19 percent behind last year’s pace.

USDA did not make any changes to the SW export estimate, but premiums for lower protein specifications have grown steadily since June. Severe drought throughout the SW growing region reduced production to an estimated 3.81 MMT, 18 percent below the 5-year average, and limited the supply of low protein SW. Year-to-date exports of SW are 2.57 MMT, 6 percent behind last year’s sales-to-date. Increased sales in three of the top five markets from 2014/15 have helped offset lower sales in Japan, the number one white wheat customer and Korea, the number three customer.

The smaller supplies of soft wheat, both SRW and SW, continue to support Chicago Board of Trade (CBOT) wheat futures. The larger U.S. production of HRW and increased competition from abundant world supplies has pressured Kansas City Board of Trade (KCBT) wheat futures, so the CBOT-KCBT premium that we first reported in the Aug. 13 edition of “Wheat Letter has widened to 15 cents. KCBT wheat futures have historically traded at an average 35-cent premium to CBOT wheat futures, but that premium dropped and finally disappeared last June.

The Minneapolis Grain Exchange (MGEX) HRS wheat futures premium over CBOT has also narrowed this marketing year. For the past fifteen years, MGEX wheat futures have averaged a 96-cent premium over CBOT futures. However, in marketing year 2015/16, that spread is just 21 cents due to bullish SRW fundamentals and bearish underlying fundamentals in the HRS market. USDA estimates U.S. farmers produced 15.3 MMT of HRS in 2015/16, the largest crop since 2010/11 and one of exceptional quality. Increased production in turn pushed the forecasted HRS supply to 22.3 MMT, 12 percent greater than the 5-year average.

With HRS wheat futures $33/MT lower than one year ago, farmer selling has slowed to a trickle as they wait for improved prices, which has caused basis levels to firm. HRS year-to-date sales total 4.46 MMT, down 11 percent from this time last year, in spite of relatively lower HRS prices. USDA, despite decreasing the HRS export estimate by 544,000 MT from the October estimate, still expects HRS exports to reach 7.48 MMT, which would be the highest level in 5 years.

Perhaps the most significant factor for all U.S. wheat exports is the value of the U.S. dollar. Year-over-year, the U.S. Dollar Index, a measure of the value of the U.S. dollar relative to a basket of U.S. trade partners' currencies, has increased 12-percentage points, indicative of the U.S. dollar remaining strong relative to other currencies. For comparison, over the past 20 years, the U.S. Dollar Index has averaged only a 7-percentage point change per year and the last time it was over 99.00 was in 2003. Consequently, it costs importers more to buy U.S. wheat today and effectively reduces the price of competing wheat supplies.

While these factors continue to be a challenge for U.S. wheat buyers and sellers alike, the U.S. wheat store is always open and USW will continue its long-term effort to serve its customers and demonstrate the value of all six U.S. wheat classes.


2. New Study Shows Benefits of U.S. Wheat Export Promotion

The desire to help overseas millers and wheat food processing customers succeed is rooted in the mission of USW. Yes, the organization is dedicated to promoting all six classes of U.S. wheat, but that is only achieved when the wheat contributes to higher quality, higher value flour and end-use products. Ultimately customer success depends on the unique trade service and technical support USW provides and that is possible because U.S. wheat farmers share in that success.

Those farmers invested an average of $4.9 million in state checkoff funds per year in USW activities to promote their milling wheat overseas between 2010 and 2014. A recent econometric analysis of that activity confirms that farmers receive a significant return on that investment that, in turn, allows USW to continue servicing its overseas customers.

USW commissioned the study with funding from the USDA/Foreign Agricultural Service (FAS) Market Access Program. Dr. Harry M. Kaiser, the Gellert Family Professor of Applied Economics and Management at Cornell and director of the Cornell Commodity Promotion Research Program (CCPRP), designed and conducted the research using established methods from his 30 years of research experience.

By quantifying the impact of USW’s promotion through models that account for several factors affecting commodity export demand, the study determined that cutting promotion by 50 percent between 2010 and 2014 would have significantly reduced wheat exports by about 15 percent. That represents a total potential export loss equal to nearly 161.5 million bushels per year. The value of that loss was determined, then compared to total wheat export promotion costs to calculate a series of benefit-to-cost ratios (BCR).

In other words, overseas customers purchase more U.S. wheat because they see excellent value from that wheat and the added customer support from USW funded by U.S. farmers and FAS.

“Our organization is accountable to wheat farmers and other taxpayers who fund the market development work we do,” USW President Alan Tracy said. “Dr. Kaiser’s research methods are well-respected, and the conclusions echo previous studies in 2004 and 2009, so we can very confidently say that the money farmers provide for export promotion is well worth the investment. In fact, the study predicts that increasing the promotion investment has the potential for even greater returns to wheat farmers, the wheat supply chain, the U.S. economy and our overseas customers.”

The study is posted on the USW website at www.uswheat.org.


3. National Wheat Organizations Support TPP Approval and Expansion

The National Association of Wheat Growers (NAWG) and USW boards of directors expressed support last week for the Trans-Pacific Partnership (TPP) because it will be beneficial to U.S. wheat producers and improve their competitiveness in the Asia-Pacific region.

“Wheat growers should support TPP,” said Brian O’Toole, a wheat farmer from Crystal, ND, and chairman of USW. “Half of the wheat we produce each year is available for export and the prices farmers like me receive are sensitive to the demand for that wheat. TPP will not only help us compete on a more level playing field, but will also help boost the economies of the Asia Pacific region. That will boost demand for U.S. wheat and other U.S. agricultural exports.”

“TPP makes great strides in expanding trade opportunities for wheat in the Pacific Rim. This agreement lays the foundation for future trade agreements. NAWG is hopeful for quick congressional consideration and that other countries will quickly join the TPP,” said NAWG President Brett Blankenship, a wheat grower from Washtucna, WA.


4. New Fact Sheets Bring Wheat Trade Issues into Focus

USW and NAWG have launched a series of fact sheets highlighting trade policy topics of priority for the U.S. wheat industry. The fact sheets provide a comprehensive overview of selected topics including perspectives from U.S. wheat growers. The fact sheets offer a resource for state wheat commissions, farmers and media to utilize in their own policy and educational efforts.

“There are many policies that impact U.S. wheat growers and exports,” said USW Director of Policy Dalton Henry. “These resources help break down those topics, providing clear, concise messaging. They will be a great tool moving forward in our policy programming and for our colleagues at NAWG to use on Capitol Hill.”

To date, three fact sheets are available for download on the USW website, www.uswheat.org/factsheets:

Call for Grain Trade Equality at the Canadian Border

Canada allows tariff-free access to U.S. wheat and certain other foreign sources. However, imported U.S. 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.

More Change Needed to Rebuild Cuban Wheat Sales

Cuba’s proximity, as well as historical and cultural ties, should make it a natural trading partner for the United States. Averaging over 30 million bushels imported per year, Cuba is the largest market in the Caribbean for wheat, but the embargo locks U.S. wheat out of this market.

U.S. Wheat: A Vital Food Aid Tool

Wheat is the source of 20 percent of the world’s caloric intake and a dietary staple around the world. The U.S. wheat industry is committed to global food assistance and encourages a program that includes the full range of options to help countries attain lasting and sustainable food security.

Additional fact sheets are in development and scheduled for future release.



5. U.S. Wheat Reps: Rising Demand Overseas
By Matthew Weaver, © Capital Press, Nov. 15, 2015, Reprinted with Permission

U.S. Wheat Associates representatives foresee growing demand overseas for soft white winter wheat produced in the Pacific Northwest.

Future demand for soft white winter wheat could rise so high it exceeds supply, U.S. Wheat Associates representatives told Western grain farmers.

“As these things grow and you’re carving out relatively high-priced niches that are willing to pay for the quality you deliver, your 6 million­ton crop is going to get depleted pretty quickly,” said Vince Peterson, vice president of overseas operations. “I think you could build the case that we’re going to be deficient of soft white production.”

Prices could reach the point where more production would have to be encouraged, Peterson said.

Peterson and Joe Sowers, assistant regional vice president in South Asia, spoke at the Tri­State Grain Growers Convention in Spokane.

The populations of the Americas — from Canada to Chile — will grow by another 300 million people in the next 35 years, increasing the demand for wheat consumption, Peterson said.

“That’s a pretty big number when wheat production is flat in Canada, the United States, Argentina and Brazil,” he said.

Peterson said U.S. wheat export market losses in price sensitive countries such as Egypt and Europe were offset by gains in emerging markets, particularly in Latin America, South America, the Philippines and south Asia.

“These countries are willing to pay for the quality and end performance product soft white wheat delivers to them, whereas the Egyptians didn’t care much about it,” Peterson said.

Sowers spoke of increasing demand for wheat in Southeast Asia — Thailand, Vietnam, Indonesia, Malaysia and the Philippines. The population is expanding, with 800 million more people expected by 2050.

Sowers said the world would 3 billion people to the middle class in the next 15 years, particularly in the Asian region.

“That means people buying food not based on their wallet, but based on what they want,” he said. “Rising population, rising incomes lead to rising per capita consumption. This is what you call extraordinary growth.”

Import demand in the region grew from 450 million wheat bushels per year to 750 million bushels per year over 10 years. Australia has nearly 45 percent of the current market share, while the United States has roughly 20 percent, Sowers said.

U.S. Wheat is focusing on food uses for producing breads, cookies and crackers, where the United States has a strong advantage with the wheat classes it produces, he said.

Wheat prices have spent the last four years trending downward, but Peterson compared current trends to past patterns, which appeared to be similar.

It’s too early to know what 2016 will bring, he said, wondering if weather will affect competing wheat crops in Australia and Russia.

“I’m hopeful we’re getting closer to the bottom, that we’re probably seeing a circumstance about as bad as it’s going to get,” Peterson said.


6. Wheat Industry News
  • Condolences. Our thoughts are with Kansas Wheat Commission chairman and wheat farmer Jay Armstrong and family, after the recent passing of his father John Jay Armstrong, a longtime leader for Kansas agriculture. Read an article honoring John Jay here.
  • With Great Sympathy. Our thoughts are with our colleague, Paola Valdivia, finance and administration manager in the USW Santiago Office, after receiving news that her father, Isidro Valdivia, passed away this week of a prolonged illness.
  • Asian Noodle Technology and Ingredient Application Course. This hands-on course at the Wheat Marketing Center focuses on improving noodle quality by optimizing flour and functional ingredients. The dates for the next course in 2016 are still to be determined, but those interested can learn more at www.wmcinc.org.
  • IGP-KSU Introduction to Flour Milling. Scheduled for Jan. 11 to 15, 2016, this course will focus on the principles of the milling process, the relationship between wheat quality and the effect of the milling process, understanding what wheat types and products each can produce, and flour functionality. Registration will close on Dec. 18, 2015. Click here to register and for more information.
  • 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.


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