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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. Record Rail Freight Costs Behind Increasing Basis Levels
2. U.S. Wheat Industry Urges USDA to Maintain Grain Inspection Services at Port of Vancouver
3. Teams from Italy and the Philippines Conclude Summer Trade Team Season
4. India’s Rejection of WTO Agreement Deals a Blow to Global Economic Growth
5. Wheat Organizations Support Congressional Call for Comprehensive Market Access in TPP
6. Wheat Industry News


Online Edition: Wheat Letter – August 7, 2014 (http://bit.ly/WL080714)

PDF Edition: (See attached file: Wheat Letter - August 7, 2014.pdf)

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


1. Record Rail Freight Costs Behind Increasing Basis Levels
By Casey Chumrau, USW Market Analyst

Regular readers of the U.S. Wheat Associates (USW) Price Report have clearly seen “basis” levels increase sharply for wheat originating in the northern plains over the past year. For reference, basis is the difference between the relevant futures price and the price quoted at a specific time and location, which usually reflects the transportation and elevation costs to move grain to that location. For shipments from the northern plains to export terminals, the basis has been increasing primarily due to record high rail freight costs. A significant increase in crude oil shipments from the region, severe winter weather and expectations for large grain crops, have all stressed rail capacity and pushed freight prices higher.

Capacity issues have affected hard red spring (HRS) and northern durum prices the most. Basis levels has swung widely because of the volatile rail market. As of Aug. 1, the basis for September HRS averaged $3.50/bu ($129/MT) for shipment from the Pacific Northwest (PNW) and $3.00/bu ($110/MT) for shipment from the Gulf of Mexico. That is more than double the basis levels for the same week last year at both ports. While not fully offsetting the higher basis, lower futures prices have helped keep HRS export prices in a competitive range with wheat from other origins. The Minneapolis Grain Exchange (MGEX) HRS September futures contract closed at $6.16/bu ($226/MT) on Aug. 1, $1.26/bu ($46/MT) lower than a year earlier.

Durum prices are reported on a cash basis as there is no corresponding futures market. The average bid for durum from the Gulf of Mexico on Aug. 1 was $12.33/bu ($453/MT), compared to $10.83/bu ($398/MT) last year. Bids from the Great Lakes are up 54 cents per bushel ($20/MT) from last year to $10.61/bu ($390/MT). Farmers’ ability to control durum supply with on-farm storage has also contributed to higher durum export prices.

The skyrocketing cost of shuttles trains, which move grain from inland elevators to export terminals, is primarily responsible for higher grain export prices. There is a published, standard shuttle train tariff established by railroad companies, but the majority of shuttle trains are traded in a secondary market. According to Mike Krueger, president of the advisory firm The Money Farm, shuttle trains historically have traded between $500 per car under the tariff and $1,000 per car over the tariff. For reference, Krueger estimated that a rate of $1,000 per car over tariff typically adds about 29 cents per bushel to the cost. However, Krueger reported the cost per car in the last year has averaged between $4,000 and $5,000 over tariff, adding significant cost.

The unprecedented demand for engines and track use to transport crude oil from the Bakken oil fields of western North Dakota is the main cause of these unusually higher secondary market prices. According to the North Dakota Industrial Commission, Oil and Gas Division, crude oil production began rising in 2012 and daily output has more than tripled since then. Almost all of the oil is shipped to refineries outside the region. It has been challenging for railroads to adjust to the unprecedented demand, which has pushed railcar prices ever higher and tested the limits of the track capacity. Shippers of other commodities, including wheat, that also rely on rail to move their stocks to port are fighting for capacity and paying a heavy price.

The strain on capacity was complicated by one of the coldest and snowiest winters on record in the region. Weather-related delays caused a significant backlog of trains in early 2014 and railroad companies are still working to catch up. Harvest is just beginning for what could be a large spring wheat crop, followed closely by large predicted corn and soybean crops, putting even more stress on the rail capacity. The backlog is even worse in Canada, where the government just announced an extension of its regulation requiring Canadian rail companies to ship a minimum of 1.07 million metric tons (MMT) of grain each week or face financial penalties.

Farmers and country elevators in the region are pushing hard for a fair shot at available rail capacity. While it is unlikely the congestion problem will be completely resolved in the next year, rail companies say they are working to create more capacity. BNSF, the dominant freight railroad in the northern plains region, says it has invested $180 million in 2014 to date to expand track lines and hired 2,000 additional employees.

As always, we encourage wheat buyers to contact their local USW representatives at any time for more information and trade service support.


2. U.S. Wheat Industry Urges USDA to Maintain Grain Inspection Services at Port of Vancouver

USW is very concerned about the current disruption in wheat exports from the Port of Vancouver, WA, and has coordinated with other organizations calling on USDA to resolve the situation immediately.

At issue is the suspension of official grain inspection and weighing services at United Grain Corporation’s export elevator in Vancouver, WA, as of July 7, 2014. Because of an ongoing labor dispute between International Longshore and Warehouse Union (ILWU) workers and United Grain, Washington Governor Jay Inslee had ordered state police to escort grain inspectors across union picket lines to work. Then, with little notice, the governor withdrew the police escort. The Washington State Department of Agriculture (WSDA), which is delegated the authority by USDA’s Grain Inspection, Packers and Stockyards Administration (GIPSA) to inspect and weigh grain in the state, suspended those services reportedly because it was concerned about the safety of its employees.

USW and the National Association of Wheat Growers (NAWG) believe that under the U.S. Grain Standards Act, Congress vested in the Secretary of Agriculture the obligation to provide official inspection services at export locations to facilitate efficient and cost-effective marketing of U.S. grains and oilseeds — even if an authorized state agency fails to do so.

“If Washington state inspectors are unable to perform their duties,” said NAWG President Paul Penner, a wheat farmer from Hillsboro, KS, “then the time has come for federal grain inspectors to step in and do their mandated jobs to get grain flowing out of the Port of Vancouver.”

"With the wheat harvest well underway and the importance of exports to our producers and customers, this situation is unacceptable,” said USW President Alan Tracy.

This issue also has the potential to create up-country backlogs in an export system already dealing with rail capacity issues that have pushed up basis levels (see story above). Reducing capacity by removing an export shipping point makes it more challenging to facilitate efficient marketing of the U.S. wheat crop as well as the large predicted corn and soybean crops.

Citing the “extremely troubling precedent” being set, USW and NAWG coordinated with 20 other organizations to send a letter on July 14 urging USDA to immediately restore inspection and weighing services at United Grain. The organizations expressed concern about how this situation may disrupt official services at other U.S. grain export locations. Just this week, USW and NAWG expressed their concerns again at a face-to-face meeting with USDA.

“Independent inspection and certification by the Federal Grain Inspection Service or authorized state agencies is fundamental to the integrity and reliability of the nation’s grain export system,” Tracy said. “With half of all U.S. wheat exported, exports are the key to producer prices. Shutting down a major export elevator for any period seriously disrupts our system, short-changes our customers who rely on us for their supplies and costs farmers money. The Secretary needs to put federal inspectors on the job — and he needs to do it now."


3. Teams from Italy and the Philippines Conclude Summer Trade Team Season

With two teams in the United States this week, USW is winding down the annual summer trade team season. These intensive visits provide international customers with a field-to-vessel look at the U.S. wheat supply system and facilitate discussions with wheat breeders, inspectors, traders and export officials. The long-time favorite stop, however, is in the wheat field — maybe even taking a spin on the combine. Talking directly with farmers helps prove the reliability, versatility and high quality of the U.S. wheat crop that our customers depend on year after year.

Later this week, six Italians will complete visits to Montana, Minnesota and North Dakota to investigate this year’s HRS crop. Italy is Europe’s largest importer of HRS wheat, used for pizza crust and high loaf volume bread as well as pandoro and panettone, two types of bread made and consumed during the Christmas season. Read more about the Italian team here.

Also this week, five milling industry customers from the Philippines are just starting a 10-day tour of HRS, soft white (SW) and hard red winter (HRW) production regions in Oregon, Washington, North Dakota and Kansas. The Philippines is the fifth largest market for U.S. wheat and purchased nearly 2.2 MMT (80.8 million bushels) in marketing year 2013/14, including the largest amounts for both SW and HRS. That is the most U.S. wheat sales since 1999/00 and the second highest on record. Read more about the Philippine team here.

USW is sponsoring a total 11 trade teams for calendar year 2014. The last trade team of calendar year 2014, from Japan, will visit Montana, Idaho and Oregon in September. Thank you to our state wheat commission members and educational partners that collaborate and help organize this valuable effort.


4. India’s Rejection of WTO Agreement Deals a Blow to Global Economic Growth
By Shannon Schlecht, USW Vice President of Policy

Last December, World Trade Organization (WTO) trade ministers agreed to an outcome on trade facilitation, public stockholding and several other development issues through long, painstaking negotiation in Bali, Indonesia. Prior to these meetings, India had already backed away from an earlier pledge to support the text. Then India, which already provides subsidies above its WTO commitments, forced a compromise allowing developing countries to exceed their Uruguay Round domestic support commitments without challenge until a permanent “solution” could be achieved.

Still, the ministers had reached a multilateral trade facilitation agreement (TFA) that has eluded the organization for nearly 20 years and renewed hope for a successful conclusion of the WTO Doha Round of negotiations. WTO members were to adopt the TFA protocol by July 31, 2014.

But, wait. Once again, India’s government decided not to honor its commitments to its trading partners. Claiming lack of progress on food security for developing nations, India refused to adopt the agreement. This latest blow has serious implications for the WTO and billions of people around the world. Sadly, the now lost TFA had the potential to reduce trade costs by 15 percent and increase global economic output by $1 trillion. India’s temerity pushes multilateral trade negotiations back to a place from which it will be very difficult to recover.

The fact that India notoriously flouts its refusal to report on its domestic support to WTO adds insult to injury. As USW noted last April, publicly available information provides a compelling case for why India does not want to share that information. A recent Cairns Group study indicated that India doubled its trade distorting support between 2001 and 2008 from $8.2 billion to $16.4 billion. Specifically for wheat, India has significantly increased minimum support prices for their farmers since the Doha Round was launched.

Food security is a complex topic and USW respects India’s concerns for millions of its people who struggle in poverty. USW agrees with U.S. Secretary of State John Kerry, who said, "We do not dismiss the concerns India has about large numbers of poor people who require some sort of food assurance and subsistence level, but we believe there's a way to provide forward that that keeps faith with the WTO Bali agreement."

Yet, India has chosen to lead the WTO backwards and block the benefits that would have accrued to billions of people across 160 WTO member countries, including their own citizens.

Despite this major setback, USW remains committed to the WTO and is encouraged by the call from most other countries to improve transparency and provide a clear picture of actual world agricultural policies. Only then will WTO members be able to make meaningful progress toward reducing trade barriers and increasing trade for all member countries.


5. Wheat Organizations Support Congressional Call for Comprehensive Market Access in TPP

USW and NAWG are very pleased that 140 members of the U.S. Congress recently urged President Barack Obama to pursue a high standard, 21st century Trans-Pacific Partnership (TPP) agreement.

In a letter to the President, a bipartisan group of members expressed deep concern that Japan is seeking to exempt numerous tariff lines from complete tariff elimination under the agreement, including on wheat and wheat product imports. Allowing Japan or other TPP member countries to claim numerous exceptions for sensitive products opens the door for other countries to do the same, a situation that could unravel the talks and threaten the completion of a comprehensive agreement.

TPP was proposed as an ambitious model for all future U.S. free trade agreements. A weak TPP agreement would negatively affect our ability to reach acceptable agreements with the European Union in the Transatlantic Trade and Investment Partnership (TTIP) negotiations.

USW and NAWG agree with the members of Congress who urged President Obama to hold Japan to the same high standards envisioned by other TPP partners. If Japan, Canada
or other negotiating parties fail to provide meaningful agricultural market access in the agreement, we believe TPP negotiations should also be suspended with those countries until they are ready to conclude a truly comprehensive agreement.


6. Wheat Industry News
  • Dow Launches Updated Website. Dow AgroSciences redesigned their U.S. website to improve functionality and mobile optimization. The site adds links to technology pipelines among other resources. Check the new site out at http://www.dowagro.com/en-us/usag.
  • CropLife International Takes Over Biotech Database. CropLife International has taken responsibility for http://www.biotradestatus.com/, the only website that provides information on the commercial status for approved CropLife member products, including BASF Plant Science, Bayer CropScience, Dow AgroSciences, Monsanto Company, Pioneer and Syngenta Seeds.
  • WMC Frozen Dough Workshop. The Wheat Marketing Center in Portland, OR, will hold its Frozen Dough Workshop Dec. 8 to 17, 2014. For more information or to register, visit http://www.wmcinc.org.
  • IGP Milling Courses. The International Grains Program in Manhattan, KS, will have its Buhler-KSU Executive Milling Course in Spanish Aug. 11 to 15, 2014. For more information or to register, visit http://www.grains.ksu.edu/igp/.
  • NCI Grain Procurement Management for Importers Course. The Northern Crops Institute in Fargo, ND will hold its Grain Procurement Management for Importers short course Sept. 15 to 24, 2014. For more information or to register, visit http://www.northern-crops.com/.
  • GEAPS and K-State Add Grain Processing Management Program. GEAPS and Kansas State University will now offer online courses and a credential in grain processing management. Additional processing courses, specialist credentials and will add a master's credential later. For more information, visit http://bit.ly/1AUYSjD.
  • Whole Grains Council Organizes First Conference. The Whole Grains Council is organizing its first ever international conference, titled “Whole Grains: Breaking Barriers,” scheduled for Nov. 9 to 11, 2014 in Boston, MA. For more information or to register, visit http://bit.ly/1qWZxPv.
  • Congratulations to Mark Fowler, who has joined NCI as a milling consultant. Fowler will also continue his duties as IGP associate director. For more information, visit http://bit.ly/1swGcCQ.
  • Condolences to Ron Suppes, former USW chairman, and his family on the death of his father, Primus Joseph “Prim” Suppes. For more information, visit http://bit.ly/1qWFH27.


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