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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 www.uswheat.org or contact your state wheat commission.

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In This Issue:
1. Taking Stock of the 2017/18 World Wheat Crop
2. USW, State Wheat Commissions Welcome 2017 Taiwan Goodwill Mission
3. Cuba’s Recovery from Another Hurricane Should be Eased by an End to the U.S. Embargo
4. The European Union’s Uneasy Relationship with Science
5. Congressional Support for U.S. Agricultural Export Market Development Programs
6. Wheat Industry News

PDF Edition: (See attached file: Wheat Letter - September 21, 2017.pdf)

USW Harvest Report: http://www.uswheat.org/harvest


1. Taking Stock of the 2017/18 World Wheat Crop
By Stephanie Bryant-Erdmann, USW Market Analyst

USDA’s latest forecast of total world wheat production stands at 745 million metric tons (MMT), down 1 percent from 2016/17. Though USDA expects global wheat production to decrease by 8.46 MMT, it expects global wheat consumption to remain high at 737 MMT, down 1.13 MMT from the 2016/17 record. With lower production and stable consumption, staying abreast of the location and quality of the 2017/18 wheat crop is key. The following is a look at production and quality expectations for major exporting regions and countries outside the United States.

Black Sea. On Sept. 15, Russia’s Ministry of Agriculture reported wheat harvest was 84 percent complete. To date, the reported average yield is 3.51 metric tons per hectare (MT/ha) (52.2 bu/acre) compared to 2.95 MT/ha (43.9 bu/acre) on the same date in 2016. Russian consultancy SovEcon forecast 2017/18 Russian wheat production at 81.1 MMT, up 13 percent from 2016/17. Strategie Grains reported that Ukrainian farmers harvested 26.0 MMT of wheat this year, on par with 2016/17. Kazakhstan wheat harvest is underway, and Strategie Grains pegged 2017/18 Kazakh wheat production at 14.2 MMT, which would be down 5 percent from 2016/17. USDA expects Black Sea exports to total 56.5 MMT, up 7 percent from 2016/17, if realized.

SGS Russia, an independent crop inspection service, reported preliminary quality data for winter wheat in Russia’s South, Central and Volga-Urals regions, which showed lower protein levels due to favorable growing conditions and high yields. According to the SGS data, 52 percent of the samples graded as Russian 4th class wheat, up from 46 percent of samples in 2016/17. Russian 4th class wheat has between 8.8 and 10.5 percent protein on a 12 percent moisture basis. Though the percentage of samples that graded 3rd class wheat (10.5 to 11.9 percent protein on a 12 percent moisture basis) and 5th class (feed wheat) decreased in 2017/18, impacts on supplies of those two classes are expected to be minor due to record large production. SGS reports that some areas have Fusarium damage, high levels of sprout damage and very low falling numbers; but test weight values are generally higher across all regions. SGS reports the average protein of Ukraine's 2017/18 wheat crop is 10.1 percent (12 percent mb) compared to 10.5 percent in 2016. The crop has higher average moisture and higher bug damage compared to 2016 per SGS.

Canada. In its Sept. 15 report, Agriculture and Agri-Food Canada (AAFC) projected 2017/18 wheat production (excluding durum) to be 21.6 MMT, down 10 percent from 2016/17. A 1 percent increase in planted area was more than offset by sharply lower yields. AAFC expects total Canada Western (Hard) Red Spring (CWRS) to account for 74 percent of total Canadian wheat production at 16.1 MMT. Canadian durum production is estimated at 3.90 MMT, down 50 percent year over year due to a 16 percent decrease in planted area and lower than average yields.

According to Alberta crop reports, favorable conditions are allowing harvest to proceed rapidly. As of Sept. 12, 50 percent of the crop was harvested compared to 31 percent at this time last year. Hot, dry conditions are aiding Saskatchewan wheat harvest as well. As of Sept. 14, Saskatchewan spring wheat and durum harvests were 63 and 81 percent complete, respectively, compared to 38 and 62 percent complete the week prior and significantly better than last year when frequent rainfall delayed harvest. Preliminary durum grade data from the Saskatchewan weekly crop report shows 97 percent of the crop graded as #1 or #2 Canadian Western Amber Durum (CWAD). On average, Saskatchewan produces 85 percent of the Canadian durum crop.

European Union. Stratégie Grains (SG) forecast total European Union (EU) wheat production at 151 MMT, up 4 percent year over year due to a return to normal production levels in France. Durum production is expected to decrease to 8.9 MMT, down from 9.9 MMT in 2016/17, but common (non-durum) wheat production will climb 5 percent to 142 MMT. After a disastrous 2016/17 French harvest when late rain damaged yields and quality, 2017/18 French wheat production rebounded to 37.4 MMT, up 31 percent year over year. SG noted French wheat quality is very good, but rain at harvest hurt German and Polish wheat quality. SG estimated EU milling quality wheat output at 66 percent of total 2017/18 production, putting total EU common wheat milling quality production at 93.9 MMT. That is in line with the 5-year average and 12 percent greater than 2016/17. SG expects EU total wheat exports to fall to 23.1 MMT, down 4 percent year over year, if realized, due to quality issues in Germany and increased competition from the large Black Sea supply.

Argentina. Bolsa de Cereales Buenos Aires (Buenos Aires Grain Exchange) recently estimated farmers in Argentina planted 5.35 million hectares (13.2 million acres) of wheat in 2017/18, up 5 percent from 2016/17. As of Sept. 7, Bolsa rated 71 percent of Argentine wheat in very good to excellent condition compared to 63 percent the prior year. However, excessive moisture is preventing fieldwork in some areas and threatening emerging wheat plants. The International Grains Council (IGC) pegged Argentine wheat production at 16.5 MMT, down 6 percent from 2016/17 if realized. With carry-in stocks expected to remain stable year over year at 600,000 MT, Argentine supply will also decrease 6 percent from 2016/17 to 17.1 MMT. IGC expects Argentina to export 10.5 MMT, down from 11.5 MMT in 2016/17 due to the smaller supply.

Australia. The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecasts 2017/18 wheat production at 21.6 MMT, down 38 percent from 2016/17 due to a 3 percent reduction in planted area and sharply lower yields. Australian farmers decreased planted wheat area for 2017/18 to 12.4 million hectares. A drier than normal winter has depleted soil moisture reserves in the many wheat-producing areas, which need timely rains to maintain current yield potential. USDA expects Australian exports to increase to 18.5 MMT, down 20 percent from 2016/17 and 1 percent below the 5-year average.

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 by-class reports and in our annual 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.


2. USW, State Wheat Commissions Welcome 2017 Taiwan Goodwill Mission



Taiwan Flour Millers Association (TFMA) Chairman Tony I. T. Chen (center right in photo, holding letter) and USW President Vince Peterson (center left) signed a letter of intent by TFMA to purchase a total of 1.8 million MT of U.S. wheat in 2018 and 2019 on Sept. 13, 2017, in the Mansfield Room of the U.S. Capitol in Washington, D.C. The ceremony was a part of a biennial Agricultural Trade Goodwill Mission to the United States to purchase grains and other agricultural products for the people of Taiwan. Witnesses to the signing include Congressman Roger Marshall of Kansas (left of Vince Peterson), Representative Stanley Kao, Taipei Economic and Cultural Representative Office in the United States and a Republic of China agricultural minister.

“We all look forward to this event and appreciate the long history of mutually beneficial trade relations with the Taiwan milling and wheat foods industries,” said Peterson.

USW, the U.S. Grains Council, the U.S. Soybean Export Council and the North American Export Grain Association honored delegates from TFMA and Taiwan’s feed and oilseed industries at a reception Sept. 12, 2017, in Washington, D.C. The delegates also signed letters of intent to import U.S. corn and soybeans.

Taiwan is on average the sixth largest market for U.S. wheat. TFMA imports wheat on behalf of all 20 Taiwanese flour mills and has imported far more wheat from the United States compared to other origins, at an average of 1.03 MMT (37.9 million bushels) per year since marketing year 2011/12 (June to May).

Significant hard red spring (HRS) imports reflect a need for strong gluten flour for breads, rolls and frozen dough products as well as for blending with hard red winter (HRW) to make traditional Chinese flour foods and noodles. Year-to-date sales of HRS to Taiwan in marketing year 2017/18 are up 93 percent from 2016/17. Soft white (SW) wheat imports, including Western White wheat (a blend of SW and up to 20 percent club), help meet growing demand for cake, cookie and pastry flours.

After the official events in Washington, D.C, Chairman Chen and other TFMA delegates travelled to North Dakota, Montana and Idaho to make similar commitments and to meet with state wheat commission representatives and state government officials.

“Taiwan is committed to purchasing high quality wheat, and as producers, we are committed to growing wheat that meets their needs,” said David Clough, a wheat farmer from Fessenden, N.D., who currently serves as chairman of the North Dakota Wheat Commission and as a USW director. He joined North Dakota’s Lt. Governor Brent Sanford, Mr. Chen and Mr. Jerry Chang, director general of the Taipei Economic and Cultural Office (TECO) in Denver, Colo., Sept. 15 in the State Capitol in Bismarck to sign the TFMA’s intent to purchase U.S. wheat.

Mr. Vincent Yao, director general of TECO in Seattle, Wash., joined the TFMA delegates in Helena, Mont., Sept. 18 where Montana Governor Steve Bullock and USW Vice Chairman Chris Kolstad, a wheat farmer from Ledger, Mont., signed the letter as a director of the Montana Wheat and Barley Committee.

The team is now in Boise, Idaho, for discussion and a signing ceremony with Idaho Governor C. L. “Butch” Otter and Bill Flory, a wheat farmer from Culdesac, Idaho, and chairman of the Idaho Wheat Commission. The commission’s executive director Blaine Jacobson noted that half of the state’s annual wheat production is exported through the Pacific Northwest to Taiwan and other markets.

“We estimate Taiwan’s flour millers support the equivalent of 200 Idaho farm families,” Jacobson said. “So, they are obviously very important to our farmers and to the state’s entire economy. It is a pleasure to welcome these buyers and renew our long-time business relationship.”


3. Cuba’s Recovery from Another Hurricane Should be Eased by an End to the U.S. Embargo
By Steve Mercer, USW Vice President of Communications

The aftermath of Hurricane Irma is simply stunning. So many of our Caribbean neighbors are facing so much destruction, including in Cuba where the full fury of Irma raked the northern coastline as a Category 5 hurricane that killed at least 10 people and flooded central Havana.

As I read about the damage in Cuba, I could not help thinking about other hurricanes and their impact on our relationship with the island nation.

In 1998, Hurricane Lily hit Cuba hard, too, putting flour mills offline. The Kansas Wheat Commission responded with a generous offer to donate 20 MT of flour to help Cuban people in need. USW helped coordinate the donation, but it had to be made to Caritas, a CARE affiliate non-governmental organization relief organization, not directly to Cuba, because the U.S. government’s embargo prevented them from sending it directly to Cuba.

We believe that the donation did help open some hearts and minds, and the Trade Sanctions Reform Act (TSRA) of 2001 opened exports of wheat and other U.S. agricultural products to Cuba. Yet, the travel and financing restrictions that remained continued to compound the regulatory difficulties of trading with Cuba.

When another hurricane, Michelle, struck Cuba later in 2001, the U.S. government offered aid. The Cuban government refused that offer, but the gesture helped encourage Alimport, Cuba’s food buying agency, to import its first bulk load of U.S. HRW wheat. According to former USW President Alan Tracy, “Cuba’s flour millers and bakers loved that wheat.”

More and more HRW was imported until the annual volume reached almost 500,000 MT, a substantial portion of Cuba’s annual imports of about 800,000 MT.

In 2005, it was not a hurricane, but rather new regulations implemented by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) that interrupted this trade. The changes forced Cuba to obtain and present letters of credit from a third-party, foreign bank, and U.S. exporters had to receive payment only from a third-party bank, rather than through direct payment from Alimport. It was an excessive and unnecessary administrative burden that increased Cuba’s cost of buying U.S. wheat. OFAC also modified the definition of “cash in advance” that required payment before a shipment left a U.S. port rather than before the title changed hands at the shipment’s destination. This rule was unique to our exports to Cuba and removed the ability of Alimport officials to inspect U.S. origin cargo before payment.

Alimport slowed and ultimately stopped importing U.S. HRW wheat completely by marketing year 2011/12.

There was renewed hope when the Obama Administration announced its intention to renew and, eventually, re-open diplomatic relations with Cuba and ease some travel restrictions. Several organizations, including USW, formed the United States Agricultural Coalition for Cuba (USACC) to work together toward more open trade. However, the OFAC rules were never reversed and Cuba continued to import all its wheat from Canada and the EU — no doubt at higher freight rates and likely at higher relative FOB costs.

And, sadly, just hours before Irma struck Cuba, the United States officially renewed its embargo for another year, as required under TSRA.

Cuba’s proximity, as well as historical and cultural ties, should make it a natural trading partner for the United States. The U.S. wheat industry supports easing travel restrictions, permanently overturning the 2005 regulatory changes and increasing access to credit and USDA commercial loan programs. However, the larger political implications of the embargo and its negative effects will likely preclude effective competition by U.S. wheat exporters even if these other changes are implemented.

“Aside from hurting the Cuban people, the embargo has only strengthened the Castro brothers' grip on power and stymied any change for the better,” Tracy said.

Soon after the most recent hurricane, our organization and other USACC member organizations sent a letter of support and concern to the Cuban people through Cuba's ambassador. We wrote: “It is at these times when humanity stands together both in fear of the destructive forces of nature that impact us all, and in solidarity in the determination to help one another recover.”

In that spirit, we stand with U.S. wheat farmers to support ending the Cuban embargo entirely.


4. The European Union’s Uneasy Relationship with Science
By Elizabeth Westendorf, USW Assistant Director of Policy

Last week, the European Court of Justice ruled that EU member states cannot ban cultivation of genetically engineered crops without scientific evidence of risk to human health. The ruling was on a case that dates back to 2013, when an Italian farmer wanted to plant biotech corn. Italy has long banned the planting of genetically engineered crops. The farmer in question, Giorgio Fidenato, planted the corn on his land in defiance of Italy’s ban. Four years later, it is a win for science-based regulation that the European Court of Justice sided with Fidenato and ruled that Italy does not have the right to ban GM crops without a scientific reason.

It is not all good news for science in Europe though. The EU has previously had pesticide legislation that sets risk-based tolerances and maximum residue levels (MRLs). However, the EU is now in the process of introducing hazard-based restrictions on import tolerances. These restrictions are not only contrary to the EU’s MRL legislation but also contrary to the World Trade Organization (WTO) Sanitary and Phytosanitary (SPS) Agreement, which requires that decisions be based on risk assessments. A hazard-based approach risks significantly impacting trade and affecting product availability in the EU. This would also jeopardize trade litigation that could result in retaliation against billions of dollars of its exports.

For a highly traded commodity like wheat, it is imperative that regulatory systems worldwide be transparent and science-based. Otherwise, exporters jeopardize having shipments held up — or prevented altogether — and importers cannot rely on deliveries arriving in a timely manner. When technology does not have a negative impact on health or the environment, there is no reason for countries to needlessly restrict its use, or worse, vilify its existence. It is heartening that the EU has taken a step in the right direction on biotechnology, but they are moving backward on SPS issues that could inhibit trade and hurt domestic businesses. Unscientific regulations make it hard for a globalized market to function well.


5. Congressional Support for U.S. Agricultural Export Market Development Programs

Legislation that would amend the U.S. Agricultural Trade Act of 1978 to extend and expand the Market Access Program (MAP) and the Foreign Market Development (FMD) program, which are administered by USDA’s Foreign Agricultural Service (FAS), has now been introduced in the U.S. House of Representatives and the U.S. Senate.

The Cultivating Revitalization by Expanding American Agricultural Trade and Exports (CREAATE) Act was introduced in the House May 3, 2017, by its original sponsors U.S. Representatives Dan Newhouse (R-Wash.) and Chellie Pingree (D-Maine). Several other U.S. representatives have co-sponsored the bill since then. On Sept. 20, 2017, U.S. Senators Angus King (I-Maine), Joni Ernst (R-Iowa), Joe Donnelly (D-Ind.) and Susan Collins (R-Maine) introduced the CREAATE Act in the Senate.

USW is a participant in both MAP and FMD, with funding awarded by FAS, based on annual matching funds from U.S. wheat farmers, currently through 17 state wheat commissions, evaluation of a detailed annual export market development plan and other competitive factors. USW uses program funds primarily for overseas staff and office expenses, and for trade servicing, technical support and other activities designed to help overseas wheat buyers, millers and food processors understand how to get the most value from U.S. wheat as specific ingredients in high quality wheat foods.

Statutory funding of $200 million per year for MAP and $34.5 million per year for FMD has been static since 2006 and 2002, respectively. In fiscal year 2017, FAS awarded MAP funds to 68 organizations and FMD funds to 23 organizations. CREAATE calls for phasing in additional annual funding for MAP to $400 million in FY 2023, and additional annual funding for FMD to $69 million in FY 2023.

The House version of the CREAATE Act is posted online here. To read more about MAP and FMD and other topics related to agricultural export market development, visit www.AgExportsCount.org.


6. Wheat Industry News
  • Quote of the Week: "Even with all our technology and the inventions that make modern life so much easier than it once was, it takes just one big natural disaster to wipe all that away and remind us that, here on Earth, we're still at the mercy of nature.” — Astrophysicist Dr. Neil deGrasse Tyson
  • USW Sends Sincere Concerns to our friends, customers and colleagues affected so tragically by Hurricanes Harvey, Irma and Maria, by two deadly earthquakes in Mexico, and by recent wildfires in Montana and Oregon as well as in Canada. We are grateful that our colleagues and their families based in Mexico City are all safe.
  • Will There be Enough Water to Survive? “Thirsty Land” is an important new documentary film that tells the story of drought, its impact on agriculture, communities and the global food supply. “The story of drought needs to be told! Our global food supply and our very survival of humans depend on clean, abundant fresh water,” said the filmmaker Conrad Weaver, who’s Conjo Studios also produced the award-winning documentary “Great American Wheat Harvest. See more about “Thirsty Land” online at http://www.thirstylandmovie.com/.
  • We Send Deepest Condolences to USW Technical Consultant James “Yemi” Ogunyemi, based in Lagos, Nigeria, and his family on his father’s recent passing at the age of 98.


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