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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 or contact your state wheat commission.

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In This Issue:
1. Wheat Futures Tumble, While Protein Premiums Soar
2. World Wheat Conditions Roundup
3. Let’s Level the Playing Field for Wheat
4. Commodity Organizations Support Science-Based Trade Regulations at WTO Ministerial
5. Lighthizer Defends U.S. Agriculture at WTO Ministerial
6. Season’s Greetings from U.S. Wheat Associates
7. USW Holiday Schedules
8. Wheat Industry News

PDF Edition: December 14, 2017

1. Wheat Futures Tumble, While Protein Premiums Soar
By Stephanie Bryant-Erdmann, USW Market Analyst

As the Dec. 12 World Agricultural Supply and Demand Estimate (WASDE) confirms, global wheat supplies are at a record high this year. USDA increased its estimate for 2017/18 global wheat production to 755 million metric tons (MMT), up slightly from 2016/17 and a new record high. If realized, it would be the fifth consecutive year of increased global wheat production.

The record large global wheat production has pressured U.S. wheat futures to six and twelve-month lows. Since the beginning of the 2017/18 marketing year, the Chicago Board of Trade (CBOT) soft red winter (SRW) wheat futures and the Kansas City Board of Trade (KCBT) hard red winter (HRW) wheat futures have fallen 37 cents and 32 cents, respectively to levels not seen since last December. The Minneapolis Grain Exchange (MGEX) hard red spring (HRS) wheat futures climbed in July, supported by concerns over severe drought in the U.S. Northern Plains, but has since fallen to within 14 cents of the June 2 price. This decline in wheat futures prices represents a significant opportunity for customers to lock in low futures values to hedge the risk of growing protein premiums due to the tight global supply of high protein wheat.

The USDA report also noted that lower year over year wheat production for 2017/18 was reported in Canada, Kazakhstan, Ukraine and the United States, and is also expected in Australia. This is important for customers needing high protein wheat, because nearly all the world’s high protein wheat exports (13 percent protein on a 12 percent moisture basis (mb) or higher) originate from those five countries plus Russia.

While Russian wheat yields exceeded expectations and boosted total production, high protein wheat supplies are very limited according to the Federal Centre of Grain Quality and Safety Assurance for Grain and Grain Products (Centre) preliminary data for winter wheat. According to Centre data, 25 percent of samples graded as Russian 3rd class wheat (10.5 to 11.9 percent protein on a 12 percent mb); 44 percent of the samples graded as Russian 4th class wheat (8.8 to 10.5 percent protein on a 12 percent mb); and 31 percent as 5th class wheat (feed wheat). Less than 1 percent of samples graded as Russian 2nd class wheat (11.9 to 12.8 percent protein on a 12 percent mb).

With global high protein wheat supplies shrinking for the second consecutive year and demand continuing to be strong, the premium between MGEX and KCBT wheat futures has continued to widen. In 2016/17, the inter-market spread between MGEX and KCBT averaged $1.05 compared to just 40 cents the prior marketing year. Year to date in 2017/18, the MGEX to KCBT spread averages $2.09.

The demand for higher protein wheat also supports HRW protein export basis spreads, which have widened significantly this year at both Gulf and Pacific Northwest (PNW) ports. Over the past 15 years, the average premium for 12 percent protein (12 percent mb) at the Gulf has been 14 cents per bushel. This year that premium is $1.96 per bushel. The 15-year average premium for 12 percent protein HRW at the PNW is $1.09 per bushel. Since the beginning of the 2016/17 marketing year on June 1, that average premium is $1.94 per bushel.

Despite the increased premiums for high protein HRW and HRS, a review of USDA Federal Grain Inspection Service (FGIS) data reveals an increased percentage of high protein exports. Seventy-seven percent of 2017/18 HRS exports have at least 14 percent protein (12 percent mb), compared to the 5-year average of 70 percent. The percentage of HRW exports of 13 percent protein and above (12 percent mb) is double the 5-year average.

With six months left in the marketing year, many customers are securing their high protein wheat demands for the year. While premiums for high protein continue to grow, U.S. wheat futures markets have fallen for four straight weeks, which offers a good opportunity for customers to lock in the lowest HRS futures prices seen since June and the lowest SRW and HRW futures prices since last December.

Please call your local USW representative if you have any questions about the U.S. wheat marketing system or U.S. wheat supply.

2. World Wheat Conditions Roundup
By Stephanie Bryant-Erdmann, USW Market Analyst

With the Northern Hemisphere 2017/18 wheat crop now safely in the bin, all eyes are now watching Southern Hemisphere harvest progress and the condition of the Northern Hemisphere’s winter wheat. Here are brief summaries of current harvest progress and winter wheat crop conditions around the world.

Southern Hemisphere Harvest.

Argentina. On Dec. 7, Bolsa de Cereales, the Buenos Aires Grain Exchange, reported Argentine wheat harvest is 45 percent complete, up from 31 percent complete last week and significantly ahead of last year’s pace. To date, Argentinian farmers have harvested 6.10 MMT with an average yield of 2.56 metric tons (MT) per hectare (38.1 bu/acre). Bolsa forecasts total Argentine wheat production at 17.0 MMT. If realized, that would be 8 percent below 2016/17, but 34 percent above the 5-year average.

Australia. According to Grain Central, an Australian farm publication, harvest has resumed after heavy rains fell last week on mature wheat, damaging yield potential and quality. The Australia Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecast 2017/18 Australian wheat production to fall 20.3 MMT. If realized, that would be 20 percent below the 5-year average.

Northern Hemisphere Winter Wheat Planted Area and Conditions.

European Union. Strategie Grains forecast 2018/19 European Union (EU) planted winter wheat area at 23.3 million hectares (57.5 million acres), down slightly from 2017/18 due to reduced planted area in the Baltic States. Dry conditions in Spain, which hindered wheat emergence this fall were also noted. On Dec. 13, FranceAgriMer rated 95 percent of French winter wheat in good to excellent condition in its last crop condition report for 2017.

Russia. Russian farmers planted winter grains on 17.1 million hectares (42.2 million acres) for 2018/19, down 1 percent from the prior year according to the Russian Ministry of Agriculture. In recent years, winter wheat accounted for an estimated 87 percent of winter grain planted area. Reuters reports that additional snow is needed to protect the crops and replenish soil moisture after a dry autumn.

Ukraine. UkrAgroConsult reported winter wheat planted area for 2018/19 at 5.9 million hectares (14.6 million acres), down 3 percent from 2017/18 due to unfavorable planting conditions. Forty-seven percent of winter grains were rated in good condition, up from 38 percent in 2016. The share of winter grains rated as satisfactory is 36 percent, compared to 45 percent last year.

3. Let’s Level the Playing Field for Wheat
By Gordon Stoner, President of the National Association of Wheat Growers (NAWG) and a wheat farmer from Outlook, Mont. This op-ed first appeared in “The Hill.”

The United States is known for producing the highest quality wheat in the world, yet when U.S. farmers market their wheat at a Canadian elevator, it is automatically labeled as “foreign wheat” and given the lowest possible grade (a way to measure grain quality). Cross-border wheat faces major hurdles in Canadian marketing channels, primarily due to the country’s grain grading system. Conversely, Canadian wheat has full access to the U.S. bulk grain handling system. U.S. wheat farmers should be treated the same when delivering to Canadian grain elevators as their neighbors to the north are when delivering to U.S. elevators. The modernization of the North American Free Trade Agreement (NAFTA) is a ripe opportunity to level the playing field.

I grow hard amber durum wheat primarily used in pasta production. This high-quality wheat class is valued for its premium protein and gluten strength, within 10 miles of the Canadian border. When prices are higher in Canada, it would not be difficult for me to take advantage of those price premiums and drive across the border to deliver my wheat. But until this grading issue is resolved, that is not an option. My neighbors just on the other side of the border do not have this problem; if prices are higher at a U.S. elevator, they can easily drive south to deliver their wheat. This kind of disparity is frustrating for farmers in Northern Tier states, especially given declining wheat prices and thin profit margins in recent years.

Canada’s grain policies require all wheat not grown domestically to be segregated and classified as “foreign grain” and therefore automatically demoted to “general purpose” or feed wheat. Canada’s grading system even discriminates against wheat grown in the United States that is identical to varieties of wheat approved for planting in Canada (Canada regulates the varieties of wheat plants that can be graded, unlike the United States, where we only grade based on the intrinsic properties of the grain). Such classification results in a substantial price discount regardless of the quality of the wheat, and segregation costs provide little incentive for elevators to handle U.S. wheat of equal or better quality.

An updated NAFTA should remove Canada’s discriminatory grading treatment. All U.S. wheat moving into Canada should be evaluated on quality parameters without regard to country of origin. Canada’s policies are clearly national treatment issues, which Canada has a current obligation to resolve under its World Trade Organization commitments. However, NAFTA can also be the vehicle to fix the grading issue. Canada’s grain policies deprive U.S. wheat farmers near the border of significant marketing opportunities, while millions of bushels of Canadian wheat stream uninterrupted across the border.

Trade agreements have the potential to create a level playing field where individuals, families and companies can make their own decisions about what to buy and sell. The role of trade agreements is to provide that opportunity, and that benefits both U.S. wheat buyers and wheat producers. Industry groups on both side of the border agree that this is an issue that needs to be resolved.

4. Commodity Organizations Support Science-Based Trade Regulations at WTO Ministerial

USW and members of the U.S. Grains Council (USGC), U.S. Soybean Export Council (USSEC), USA Rice, the National Corn Growers Association (NCGA), the National Sorghum Producers (NSP) and the National Barley Growers Association (NBGA) welcomed a joint statement issued this week from 17 countries participating in the 11th Ministerial Conference of the World Trade Organization (WTO) in Buenos Aires, Argentina, emphasizing the importance of supporting farmer access to the full range of tools and technologies available and opposing regulatory barriers lacking sufficient scientific justification.

“Having in mind the importance of transparency and predictability to international trade, we call on all Members to strengthen the implementation of the WTO SPS [Sanitary and Phytosanitary] Agreement by reinforcing the work of relevant international standards organizations and ensuring the scientific basis of SPS measures is sound,” the statement reads.

“The development and application of sound SPS measures is needed to support farmers' choice in tools that can expand agricultural production and facilitate access to food and agricultural products, and also to safeguard human, animal and plant health.”

Government officials from Kenya, Uganda, Costa Rica, the Dominican Republic, Chile, Canada, Colombia, Argentina and the United States delivered remarks in favor of the joint statement of understanding on Dec. 12, 2017, during a side event to the main WTO meetings. Representatives from the Inter-American Institute for Cooperation in Agriculture (IICA), the United Nations’ Food and Agriculture Organization (FAO), the Brazilian Confederation of Agriculture and Livestock (CNA), the International Soy Growers Alliance and MAIZALL, an international maize alliance, also provided supporting comments.

The statement demonstrates global support for all farmers and the tools and innovations they need to protect their crops from devastating diseases and destructive pests while delivering safe food sustainably to the world's consumers. The signatories take a step forward in calling out countries that undermine farmer choice through regulatory barriers that are not scientifically justified.

Recognizing the "central importance of risk analysis to assess, manage and communicate risks of concern associated with pesticide use in order to protect public health while enabling the safe use of pesticides and facilitate trade in food and ag products," these countries remained committed to expanding knowledge and capacity for developing countries in pesticide maximum residue levels (MRLs). Ultimately, common understanding will help facilitate bilateral and multilateral efforts to assess and manage risk concerns in a more scientific, transparent and harmonized manner.

Read the full statement here.

5. Lighthizer Defends U.S. Agriculture at WTO Ministerial

USW thanks U.S. Trade Representative Robert Lighthizer for his efforts to defend U.S. agriculture against attempts to weaken the WTO rules on domestic support in agriculture. The Buenos Aires Ministerial would be a failure if the trade liberalizing mission of the WTO were to take a massive step backwards through a permanent exemption for market price supports for certain major agriculture producers.

India and other countries have attempted to create a permanent loophole for certain types of price support programs associated with state-run stockpiling programs. These types of price supports can be highly trade distorting, violating both WTO rules and the spirit of trade liberalization that the organization is meant to embody.

Worse, by holding the entire trade negotiating system hostage to demands to weaken commitments on agriculture, these countries are undermining the WTO and exacerbating the institutional challenges it faces.

Domestic support negotiations are a non-starter for U.S. agriculture without market access liberalization. For example, India’s bound tariff rate on wheat is 100 percent, giving it more than enough policy space to restrict all wheat imports. U.S. tariffs are much lower in virtually all products.
To be clear, USW does not object to holding public stocks for food security, which is critical for all countries. Public stockholding has always been included in the Agreement on Agriculture’s “Green Box” of non-trade distorting support, but with the recognition that administered prices (i.e. price supports) should be properly notified considering their potential to distort trade. There is no such restriction on purchases for public stocks using market prices.

U.S. farmers are firmly committed to open markets and continuing productive negotiations at the WTO and other forums to improve the global trading system. Giving in to misguided attempts to weaken the system while holding hostage all other negotiations is a recipe for failure far greater than the lack of a ministerial declaration in Buenos Aires. U.S. agriculture needs a strong, vibrant WTO, but WTO rules needs to be strengthened, not weakened. If the only outcome in agriculture at the Buenos Aires ministerial were to be the creation of a massive, permanent loophole for the most trade distorting programs, the ministerial would be a failure.

Last week, USW and 13 other agriculture organizations sent a letter to USTR in advance of the ministerial. The press release on that letter can be found here.

6. Season’s Greetings from U.S. Wheat Associates

7. USW Holiday Schedules

USW Headquarters and West Coast offices will be closed Friday, Dec. 22, 2017, and Monday, Dec. 25, 2017, for the Christmas holiday, and Friday, Dec. 29, 2017, and Monday, Jan. 1, 2018, for the New Year’s holiday. Please contact your local USW office for holiday schedules.

“Wheat Letter” will resume its bi-weekly schedule on Thursday, Jan. 11, 2018.

The USW “Commercial Sales” report will not be published Dec. 28, 2017. “Price Report” will not be published Dec. 22 and Dec. 29, 2017.

8. Wheat Industry News

Quote of the Week: “If the U.S. were to withdraw from…NAFTA…such a destructive step would severely damage our export-dependent farming industry and the rural communities that are based on American agriculture.” – Alan Tracy, USW Past President

Sincere Condolences to Justin Gilpin, CEO, Kansas Wheat, and his family following the unexpected death of his father. William E. Gilpin, 69, of Russell, Kan., known to friends and family as Bill, passed away Tuesday, Dec. 5, 2017.

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