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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. U.S. Wheat Sales on Pace to Match 5-Year Average
2. Rail and Port Operation Recovery in Texas Gulf is Encouraging
3. First Japanese Baking Industry Trade Team Visits United States
4. U.S. Wheat Organizations Urge Administration Not to Withdraw from KORUS
5. Taiwan Goodwill Mission Will Sign Letters of Intent for U.S. Wheat Purchases
6. Wheat Industry News

PDF Edition: (See attached file: Wheat Letter - September 7, 2017.pdf)

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


1. U.S. Wheat Sales on Pace to Match 5-Year Average
By Stephanie Bryant-Erdmann, USW Market Analyst

Three months into the 2017/18 marketing year (June to May), total U.S. export sales-to-date of 12.1 million metric tons (MMT) are 2 percent ahead of last year’s pace and in line with the 5-year average pace. Though hard red winter (HRW) and hard red spring (HRS) sales are currently below last year’s levels, both are ahead of the respective 5-year averages. As of Aug. 24, total sales to eight of the top 10 2016/17 U.S. export markets are higher than last year. In addition, the other three U.S. wheat classes are all ahead of last year’s pace. USDA projects 2017/18 exports will fall to 26.5 MMT, which, if realized, would be 8 percent below 2016/17, but 1 percent above the 5-year average pace.

USDA reported HRW year-to-date exports at 4.49 MMT, down 7 percent from the prior year but 10 percent ahead of the 5-year average due to competitive prices and good quality. Mexico is currently the number one HRW purchaser. As of Aug. 24, before Hurricane Harvey’s catastrophic flooding closed Texas Gulf ports, HRW sales to Mexico totaled 973,000 metric tons (MT), up 72 percent from last year’s pace. Sales to Nigeria are also up 19 percent year over year at 488,000 MT. HRW purchases by Indonesia total 335,000 MT, three times greater than last year’s sales on this date. To date, HRW sales to Algeria totaling 273,000 MT are five times greater than the 2016/17 pace. It is too early to tell if Texas Gulf closures will affect total exports for 2017/18, but current reports suggest that rail and port facilities are making good progress toward resuming operations (Read more in Rail and Port Operation Recovery in Texas Gulf is Encouraging, below).

Sales of soft red winter (SRW) for 2017/18 are up 8 percent year over year at 1.19 MMT due to the excellent quality of this year’s crop. As of Aug. 24, total sales to four of the top 10 U.S. SRW export markets from 2016/17 are higher than last year. Sales to Mexico are 12 percent ahead of 2016/17 at 472,000 MT. Colombian SRW purchases total 121,000 MT, up 50 percent from last year. Sales to other Central and South American countries, including Ecuador, Peru, Panama, Brazil, Guatemala and El Salvador, are also ahead of the 2016/17 pace.

HRS sales of 3.26 MMT are down 13 percent year over year, but remain 4 percent above the 5-year average. Higher prices due to smaller 2017/18 production have slowed HRS exports thus far in 2017/18, but global demand for HRS is strong. As of Aug. 24, buyers in the Philippines held the top purchaser post with 746,000 MT, up 27 percent from 2016/17. Sales to seven of the top ten HRS customers are also ahead of last year’s pace. Sales to Japan of 475,000 MT are up 25 percent from last year’s sales on the same date, while year-to-date sales to Taiwan of 321,000 MT are up 93 percent from 2016/17.

As of Aug. 24, exports of soft white (SW) wheat are up 47 percent year over year at 2.93 MMT. That is 56 percent greater than the 5-year average. Sales to nine of the top 10 SW customers are ahead of last year’s pace. Philippine millers purchased 578,000 MT, up 19 percent compared to last year’s sales on the same date. South Korean sales are up 65 percent at 477,000 MT. Sales to Japan are up 24 percent year over year at 301,000 MT. U.S. SW sales to China, Thailand and Indonesia are also up. Year-to-date, Indonesia has purchased 266,000 MT, compared to total 2016/17 purchases of 193,000 MT. Thailand sales are up 72 percent year over year at 147,000 MT. Chinese purchases of 271,000 MT are already greater than 2016/17 total SW sales.

On average, 24 percent of U.S. total durum sales occur in first quarter of the marketing year, compared to 29 percent from September through November. Year to date durum exports total 211,000 MT, up 20 percent from the same time last year, still 14 percent below the 5-year average. Many durum buyers may be waiting for final quality reports for the Canadian crop before making purchasing decisions. To date, Nigeria, the European Union (EU), Algeria and Nigeria are the top durum buyers. A significant portion of the first quarter 2017/18 sales is designated as “sales to unknown designations.”




2. Rail and Port Operation Recovery in Texas Gulf is Encouraging
By Steve Mercer, USW Vice President of Communications

Officials have classified it as a 1,000-year flood event, unleashed at the center of U.S. HRW wheat’s export industry. Following the catastrophic flooding from Hurricane Harvey, some ports are still closed, rail embargos remain in effect and virtually no wheat was inspected for export last week at Texas grain export elevators. Even with the human and industrial costs of the storm, the supply chain is making good progress toward bringing the system fully back on line as soon as possible.

Federal Grain Inspection Service (FGIS) reporting regions of Louisiana and North and South Texas account for account for 46 percent of total U.S. wheat exports based on the 5-year average. Texas elevators are near Galveston, Houston and Corpus Christi and account for about 56 percent of total Gulf wheat export volume. Texas wheat exports are almost all HRW, and most of the volume moves through elevators in the Galveston and Houston area, which took the brunt of the storm.

The Corpus Christi area did not experience the full force of the hurricane, so rail and elevator service will likely come back on line there first.

“Reports from the Port of Corpus Christi indicate that grain elevators are mostly operational,” said Darby Sullivan, communications director with the Texas Wheat Producers Board, Amarillo, Tex. “Last week's closure was to ensure that ships were able to enter the port safely. This week, they estimated that the railroads are running at about 80 percent speed and capacity.”

USW has not been able to obtain much detail about elevator operations in the North Texas region, but
Sullivan said flood recovery work is still needed at some of the elevators. One elevator manager from the Houston area told her they loaded and unloaded some rail cars, but did not expect to be fully operational until late this week. At this point, the status of rail bed repairs will have the most influence on when the interruption eases.

With the safety and well-being of its employees and their families as its top priority, the Union Pacific (UP) Railroad said on Sept. 2 it is making good progress repairing lines serving the North Texas elevators. Some lines have re-opened, and the UP said even crucial east-west lines blocked by flood damage may be repaired by Sept. 7. The railroad’s report on Sept. 6 confirmed its progress on repairs. Union Pacific posts line status at https://www.up.com/customers/embargo/list/index.htm.

The BNSF Railroad also serves the Texas Gulf supply system. Its latest report to customers on Sept. 5 said “with improving conditions and aggressive efforts by our BNSF crews, rail service on most BNSF subdivisions in the Houston area and throughout southeastern Texas has been restored.”

Although the railroad said it is experiencing ongoing challenges involving the primary rail line that provides access to locations southwest of Houston, including Corpus Christi and Brownsville, it is re-routing or diverting as much traffic as possible around this affected location as well as other areas that are currently blocked. BNSF access into the Houston complex from the north and west is largely clear, the railroad said, which is important for HRW wheat moving from western Texas, Oklahoma, Kansas, Colorado and southwestern Nebraska.

Considering that Hurricane Harvey set a new, single storm rainfall record of more than 50 inches (127 centimeters), the progress toward re-opening the Texas grain ports is quite remarkable. We are glad the interruption is being managed by the supply chain participants and our overseas customers to the best of their abilities. At the same time, we are keeping the people affected by this storm in our concerns — as well as the farmers, ranchers and industry affected by the devastating fires in Montana, Oregon, Washington and many other western states.


3. First Japanese Baking Industry Trade Team Visits United States
By Amanda J. Spoo, USW Assistant Director of Communications

As consumer demand for higher quality food strengthens around the world, so do the expectations of everyone from those who grow the food to those who prepare it. Japan is one of those markets, with end-use companies demanding very high standards for a wide range of flour products used for hundreds of different food products. To build an understanding of how U.S. wheat compares to other wheat suppliers, USW invited four executives from the four major Japanese baking companies to the United States, Aug. 29 to Sept. 2, 2017. The participants are all members of the Japan Baking Industry Association and were led by USW Country Director Wataru Utsunomiya, from the USW Tokyo Office.

USW collaborated with the North Dakota Wheat Commission (NDWC) to organize and host this group, the first USW-hosted Japanese baking industry trade delegation to visit the United States. Funding also came from the USDA Foreign Agricultural Service (FAS).

“Japan is a sophisticated market purchasing more U.S. wheat than any other country, including more than 3.0 million metric tons on average annually over the past five years,” said Shawn Campbell, USW Deputy Director of the West Coast Office. “USW’s ongoing efforts in Japan focus on providing up-to-date market information and collaborating with Japanese industry groups. This has built trust and helped foster a mutually beneficial, long-term trading relationship.”

The delegation began its trip in North Dakota with a visit to the NDWC office for a discussion on the 2017 HRS production prospect and price outlook. The group also visited the Northern Crops Institute (NCI) and learned about the education opportunities it provides.

According to NDWC Marketing Specialist Erica Olson, the discussions on wheat breeding with staff of the North Dakota State University (NDSU) Spring Wheat Breeding Program and Wheat Quality Lab were eye-opening for all.

“The majority of our visitors are millers and procurement staff, so this team was unique and knew less about the wheat breeding process and supply chain,” said Olson. “Quality is still the key factor in flour, so as they shared their consumer trends and demands, we were able to tie that back to how U.S. wheat quality affects trends, and ultimately starts with wheat breeding and research programs.”

The group also toured the North Dakota State Mill and enjoyed discussion with farmer commissioners and NDWC staff.

“Our farmers enjoyed their conversations with this team and the opportunity to learn about the different products made with U.S. wheat that are popular in the Japanese market,” said Olson.

Next, the participants traveled to Oregon, where they visited the USW West Coast Office, Wheat Marketing Center (WMC) and met with a FGIS quality assurance specialist. They also visited Columbia Export Terminal for a tour.

Participants said they weren’t aware of the scope of the U.S. wheat industry and the intricate details of the process to produce high quality wheat before this trip.

“U.S. wheat farmers are interested in learning more about what happens to their wheat after it leaves the port. These bakers have the same interest in learning about the wheat before it arrives to them as flour,” said Campbell. “Now they have a better understanding of how U.S. wheat quality is sustained over time, the process to improve it and how it affects their markets in Japan.”




4. U.S. Wheat Organizations Urge Administration Not to Withdraw from KORUS

On Sept. 4, USW and the National Association of Wheat Growers (NAWG) strongly urged the Trump Administration not to withdraw from the U.S.-Korea Free Trade Agreement (KORUS).

“We believe it would be irresponsible to unilaterally walk away from this or any other trade agreement,” said Mike Miller, USW Chairman and a wheat grower from Ritzville, Wash. “Withdrawing raises the specter of retaliation against agricultural exports and creates unnecessary uncertainty in the market. Any disruption in the relationship wheat growers have built in Korea over more than 60 years gives Australia, Canada and even Russia an opening to move in and take business away from us at a time when we are all struggling to stay profitable. KORUS, like the North American Free Trade Agreement, has been very good for American agriculture.”

"We think this trade agreement, negotiated in good faith and strongly supported in Congress, reinforces the Administration's stated goal to sell more agricultural products overseas,” said David Schemm, NAWG President and a wheat grower from Sharon Springs, Kan. “We support finding ways to improve any agreement, but let’s do that in a reasoned and respectful way, with input from all stakeholders so U.S. wheat farmers can gain greater access to world markets."

On Sept. 6, a senior administration official apparently told the Reuters news agency that the White House has put discussions of a potential pullback on hold without making a final decision.


5. Taiwan Goodwill Mission Will Sign Letters of Intent for U.S. Wheat Purchases

As part of a biennial Agricultural Trade Goodwill Mission to the United States to purchase grains and other agricultural products for the people of Taiwan, representatives from the Taiwan Flour Millers Association (TFMA) will be in Washington, D.C., Sept. 11 to 13, 2017, to sign a letter of intent to purchase U.S. wheat in 2018 and 2019. The TFMA delegates will also visit North Dakota, Montana and Idaho to make similar commitments and to meet with state wheat commission representatives and state government officials.

The Republic of China, known as 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.

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

“We all look forward to this event and appreciate the long history of mutually beneficial trade relations with the Taiwan milling and wheat foods industry,” said USW President Vince Peterson, who will co-sign the letter of intent at the Washington, D.C., event.


6. Wheat Industry News
  • Quote of the Week: ...as September gets under way, the long-term trend of the DTN National Soft Red Winter Wheat (price) Index would still be classified as up.” – Darin Newsome, DTN/Progressive Farmer Market Analyst.
  • Vietnam Eases Import Restrictions on U.S. Food and Feed Grains. The government of Vietnam has notified the U.S. that it will resume imports of U.S. distillers dried grains with solubles (DDGS). In December 2016, Vietnam suspended DDGS imports after reported detections of quarantine pests in U.S. shipments. USDA said the resolution of this issue also opens the way for U.S. wheat and corn shipments, which were restricted due to previous treatment requirements. “Vietnam is a rapidly growing market for high quality wheat so this is a very important development,” said USW Vice President of Overseas Operations Mark Fowler. “Our customers there will also be happy their government has taken steps open U.S. bulk wheat shipments.”
  • USW/Mexico to Hold "Transportation and Logistics Workshop for U.S. Wheat" Sept. 11 to 13. The workshop, to be held in Mexico, will address such topics as market outlook and forecasting, S&D, rail infrastructure, and challenges including inspection of rail cars, cleanliness of cars and phytosanitary concerns.
  • Global Durum Use Increasing. That is the topic of an article by Dr. M. Hikmet Boyacioglu in the September issue of "World Grain" magazine. The industry consultant and former head of the food engineering department at Okan University in Istanbul, Turkey, writes that pasta consumption is increasing and durum wheat genotypes such as high amylose content (to increase resistant starch), soft durum (possible applications in noodles and biscuits) and purple durum wheat (to increase anthocyanins) provide new opportunity to develop functional foods naturally rich in bioactive compounds, to meet and expand consumer demand. Read the article here.
  • IGP Institute Meet Our Partner Series. USW is featured in the IGP Institute Meet Our Partner Series for the month of September. “The IGP Institute is a critical partner in USW’s endeavor to promote U.S. wheat around the world,” says Erica Oakley, USW Director of Programs. Read the article here.


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