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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 Letterwith source attribution. Click here to subscribe or unsubscribe to Wheat Letter.

In This Issue:
1. Supply Factors Affecting the MGEX-KCBT Spread
2. Overseas Customers Discuss Need for Stability and Consistency in HRW Wheat Quality
3. Philippine Business Reporters to Get First Hand Look at U.S. Wheat Supply Chain
4. African Flour Millers to Assess U.S. Wheat Quality and Trade Opportunities
5. Congress Acts on Key Funding Priorities for Wheat Production Systems
6. Wheat Industry News

Online Edition: Wheat Letter - June 2, 2016 (http://bit.ly/1TROQfp)

PDF Edition: (Attached) (See attached file: Wheat Letter - June 2, 2016.pdf)

USW Price Reports: http://www.uswheat.org/prices


1. Supply Factors Affecting the MGEX-KCBT Spread
By Stephanie Bryant-Erdmann, USW Market Analyst

Over the past fifteen years, Minneapolis Grain Exchange (MGEX) hard red spring (HRS) wheat futures averaged $0.27 per bushel over Kansas City Board of Trade (KCBT) hard red winter (HRW) futures. On May 5, however, the spread widened to $0.90 per bushel. Year to date, the average difference is $0.50 per bushel, nearly double the 15-year average. The reason, as usual, involves fundamental supply factors.

Farmers in the United States and Canada seeded much less high-protein spring wheat (13.0 percent or greater on a dry matter basis), which propped up MGEX futures. On March 31, USDA released its Prospective Plantings report pegging 2016/17 U.S. spring wheat area at 4.33 million hectares (10.7 million acres). That would be down 14 percent year-over-year, if realized. A farmer survey by StatsCan suggests that Canadian spring wheat planted area will be 6 percent lower year-over-year at 6.50 million hectares (16.0 million acres).

Planting is well underway in both countries. As of May 22, USDA reported U.S. spring wheat planting at 95 percent complete, outpacing the 5-year average of 77 percent. Seventy-eight percent of U.S. spring wheat has emerged, in contrast to just 51 percent at this time in 2015. USDA rated 76 percent of U.S. spring wheat in good or excellent condition, compared to 69 percent one year ago.

With warm, dry conditions, Alberta spring wheat planting was 84 percent complete as of May 17, up from 56 percent the week before. Much-needed rains slowed Saskatchewan spring wheat planting, reported as 51 percent complete by May 16. That delay put Canadian seeding slightly behind last year’s pace of 63 percent complete on the same date.

USDA pegged 2016/17 U.S. HRS carry-in stocks at a 29-year high of 8.11 MMT, which, if realized, would be 41 percent higher than the year prior. Across the northern border, USDA expects Canadian all class wheat 2016/17 carry-in stocks to fall to a record low of 3.86 MMT, 46 percent lower than the 5-year average.

On the other side of the MGEX-KCBT wheat futures spread, favorable weather throughout the spring has boosted yield potential and pressured KCBT HRW wheat futures lower. The improved yield potential is reflected in the National Agricultural Statistics Service (NASS) May 10 estimate for HRW production of 23.5 million metric tons (MMT) or 862 million bushels. If realized, 2016/17 HRW production would be 8 percent higher than the 5-year average, and 17 percent greater than 2015/16 HRW production despite 10 percent less planted area year-over-year. If that yield potential makes it to the bin, U.S. HRW supplies could reach 31.5 MMT (1.16 billion bushels), 4 percent higher than the 5-year average.

Favorable weather that increases yield potential may also create the right environment for wheat diseases to establish. However, many U.S. HRW farmers took action to protect their crop and did not cut back on fertilizer.

“Farmers invested in their HRW crop this year despite very low wheat prices because they saw the positive impact fertilizer and disease protection had last year on yields and quality,” said Kansas Wheat CEO Justin Gilpin.

On May 22, USDA rated 62 percent of winter wheat in good or excellent condition, compared to 45 percent in 2015, and 75 percent of winter wheat has headed, ahead of 66 percent in 2015. However, there is increasing concern that an unusual period of rain has significantly delayed harvest in Texas and Oklahoma and may hurt quality and yield in the region.

While the current supply factors for the HRS market are certainly more bullish than for HRW, export prices for both classes remain very attractive. Nothing has changed the fact that the U.S. wheat store is always open with the variety of classes, protein and other quality specifications to meet even the most exacting end-product needs.

To track cash markets for all classes of U.S. wheat, subscribe to the weekly USW Price Report here.


2. Overseas Customers Discuss Need for Stability and Consistency in HRW Wheat Quality
By Amanda J. Spoo, USW Communications Specialist

The quality of a product or service is both a measurement of merit and subjective to each individual’s needs, preferences and even environment. When it comes to wheat grown and exported from the United States, milling and functional quality becomes central to meeting the needs of overseas customers.

The process of developing a new wheat variety and its specific end use functionalities takes about 10 years, so it is very important for U.S. wheat breeders to have clear goals identified in part by understanding customer needs. To foster that process, USW invited seven wheat quality specialists to the first Overseas Variety Analysis (OVA) HRW Wheat Quality Summit May 24 to 26 in Kansas. They represented milling and baking companies from Nigeria, Japan, Taiwan, Korea and Israel — each a top HRW importing country.

The specialists were able to share information about their local wheat food demand and key quality parameters with breeders and farmers at the Kansas State Research and Extension Service (KSRE) - Agriculture Research Center in Hays, KS. The team also participated in a Kansas State University wheat field day and heard public and private wheat breeders discuss newly developed varieties and their potential for the industry.

“Our overseas customers have come to respect the U.S. wheat industry as a reliable source,” said Steve Wirsching, USW vice president and director of the West Coast Office in Portland, OR. “They value color, mixing stability, water absorption and gluten strength, among other characteristics, and were happy to hear that there are new varieties and processes used to make improvements.”

Wirsching, who led the sessions, and Amanda Spoo, USW communications specialist, represented USW domestic staff at the event. USW overseas colleagues joining their customers were James Ogunyemi, technical consultant from the Lagos, Nigeria, office; Shin Hak (David) Oh, food and bakery technologist from the Seoul, South Korea, office; and Sophia Yang, USW Asian products and nutrition technologist from the Taipei, Taiwan, office. USW collaborated with the Kansas Wheat Commission to plan and host the Summit, which included a tour of the Kansas Wheat Innovation Center in Manhattan, KS.

“This Summit gives Kansas wheat farmers the opportunity to show overseas customers how we are investing in the product,” said Aaron Harries, Kansas Wheat vice president of research and operations. “As products change and tastes evolve in each market, demand constantly shifts, so their feedback is vital to help U.S. breeders and farmers make the adjustments needed to keep up the changes.”

Wheat breeders like Guorong “Jack” Zhang of KSRE understand that overseas customers can help direct breeding programs toward traits that will help U.S. wheat farmers compete more effectively in the world market.

“Breeders from public universities in Kansas, Oklahoma, Colorado and Nebraska, as well as private companies, utilize field days to demonstrate research outcomes to farmers,” said Zhang. “We work together because we ultimately have many of the same goals aimed at helping farmers increase yields and improve wheat quality for their customers.”

However, as many participants discussed at the Summit, being able to connect the customer directly to breeders allows for honest and transparent communication.

“It is important for us to communicate clearly with U.S. farmers, breeders and groups like the state commissions and USW,” said Koji Ishizuka, a quality control manager for Nisshin Flour Milling, Inc., in Japan. “Through our presentations and discussion, we hope the breeders and farmers understand how important specific hard red winter wheat qualities are to the Japanese market. I was very impressed with our discussions and with the breeders and farmers.”

Ishizuka and Jun Sakamoto, who is a quality and production control manager for Nippon Flour Mills Co., represented the Flour Millers Association of Japan, will report to their colleagues about what they learned from their experience.

“After hearing from these customers, we are going to talk more about how our grain handling system can adapt to challenges like segregating white wheat and ensuring a reliable supply to customers who want it throughout the year — not just in one or two shipments,” said Harries.

“We also heard an eagerness from our grain elevators to learn more about how we can handle niche crops and better segregate wheat by protein levels during harvest,” he added. “I think we have to try to meet those customer needs.”

Other customers said learning more about the variety development process from the perspective of farmers and breeders was eye opening.

“I see breeders have a lot of factors to balance, such as quality, disease resistance and yield potential,” said Ruey-Lin Liang, a director and quality division head for Top Food Industry Corporation in Taiwan. “I have a better understanding of what goes into the breeding process, and how much it takes for wheat to go from being developed in a greenhouse and then to the field, grain elevator and mills, before finally making it into a final product.”

“The importance of consistency and stability was a theme that kept circling back from the breeders, farmers and customers,” said Wirsching. “New varieties must exhibit consistent quality no matter where they are grown.”

A reputation for reliability, consistent quality has helped build a preference for U.S. wheat in many countries because it translates to a valuable return on investment. USW will continue working with overseas technical specialists and breeders to maintain that reputation and to help our farmers and their overseas customers successfully reach or exceed their goals.


3. Philippine Business Reporters to Get First Hand Look at U.S. Wheat Supply Chain

For more than 54 years, USW has provided trusted information about supply, quality and functionality of U.S. wheat and useful technical service to millers and the broader wheat foods industry in the Republic of the Philippines. This work, supported by farmers and export market development program funding administered by USDA’s Foreign Agricultural Service (FAS), has created a strong preference for U.S. wheat in this Southeast Asian nation.

To help sustain that preference, USW has invited four influential Philippine journalists to the United States June 8 to 18, 2016, to learn more about U.S. wheat quality improvement, production and marketing. Ric Pinca, executive director of the Philippine Milling Association and Joe Sowers, USW assistant vice president and regional director for South Asia in the Manila office, will lead the team on visits to the Pacific Northwest (PNW) and Washington, DC.

“The Philippines is still a developing country so food can be a very sensitive issue,” Sowers said. “Cost and outside influences often get attention, sometimes in ways that do not reflect the real situation, and Filipinos have questions about why so much U.S. wheat is imported. We want to show these influential reporters that our production and marketing systems are transparent and benefit the wheat food industry and consumers in the Philippines.”

In the PNW June 8 to 14, the reporters will follow the path U.S. wheat takes from the breeders’ field trials to a bulk vessel bound for an overseas port. USW’s West Coast Office in Portland, OR, in cooperation with the Oregon Wheat Commission, the Washington Grain Commission and the Idaho Wheat Commission will demonstrate U.S. wheat quality maintenance from breeding and production through transportation. The reporters will also watch Federal Grain Inspection Service (FGIS) officials independently certify that U.S. wheat meets buyer specifications before it is loaded for export.

In Washington, DC, June 15 to 17, USW headquarters staff will review the world and U.S. wheat supply and demand situation and how U.S. prices are determined. The reporters will meet with representatives from the domestic and export grain trade as well as USDA officials to discuss how the activities of several agencies benefit buyers. Policy developments, including the Trans-Pacific Partnership, are also on the agenda. Finally, the team will learn more about the U.S. milling and wheat foods industries and discuss such common issues as wheat food safety and nutrition before departing for the Philippines on June 18.


4. African Flour Millers to Assess U.S. Wheat Quality and Trade Opportunities

Reliable ingredient sourcing and supply are key to any market functioning successfully. For 15 years, Nigerian millers have traveled to the United States to take stock of their primary supply of HRW wheat. This year, three milling executives from South Africa, the Ivory Coast and Ghana are joining five Nigerians on a team that will travel to Texas, Kansas, North Dakota and Minnesota June 12 to 24, 2016, to assess trade opportunities and U.S. wheat quality.

“The milling industries in these countries rely on an uninterrupted supply of quality wheat,” said Gerald Theus, USW regional assistant director for Sub-Saharan Africa in the regional Cape Town, South Africa office. “In competitive markets where we face new challenges, there is nothing more valuable than connecting these participants directly with the farmers and other members of the supply chain.”

USW collaborated with the Texas Wheat Board, Kansas Wheat Commission, North Dakota Wheat Commission and Minnesota Research and Promotion Council to organize and host this trade team. Theus and James Ogunyemi, USW technical consultant for the Lagos, Nigeria, office, will lead the team.

In marketing year 2015/16 (June to May), Nigeria was once again one of the largest buyers of all U.S. wheat classes and is the dominant buyer in USW’s Sub-Saharan Africa region having imported more than 1 million metric tons (MMT) of hard red winter (HRW). The market development activities USW followed there provides a foundation for other nearby countries including Ghana and the Ivory Coast. South Africa is a steady if not large wheat importer but with good potential.

“This team represents major milling groups in each of their respective countries,” said Theus. “Mills throughout Africa appreciate the high milling quality characteristics of U.S. wheat and its superior baking aspects.”

Bringing these buyers to see U.S. wheat quality and to discuss ways to keep their importing costs down is a very important activity during a time of very aggressive competition. Throughout the tour, the team will meet with various grain merchandisers and state wheat commissions, and visit farmers in each state to see the progress of the 2016/17 wheat crop. In Texas, the team will visit the Port of Corpus Christi and in Kansas, their stops include the Kansas Wheat Innovation Center, USDA’s Center for Grain and Animal Health Research and IGP Institute. During their travel to North Dakota and Minnesota, the team will meet with wheat breeders and tour the Alton Grain Terminal, Duluth Seaway Port Authority and CHS Export Terminal.


5. Congress Acts on Key Funding Priorities for Wheat Production System
By Josh Tonsager, Legislative Director, National Association of Wheat Growers

Congressional action this year on policy priorities important to wheat farmers has taken some unexpected turns and the outlook for the legislative process is unclear. By now, this should not come as a surprise to anyone who has been following Congress the past several years. What should come as a surprise, though, is just how well critical programs for the wheat industry have fared thus far through the process Congress uses to appropriate federal funds.

Both the House and Senate Appropriations Committees have reported their respective versions of the FY 2017 Agriculture Appropriations bill, which funds the operations of USDA and the Food and Drug Administration (FDA). The National Association of Wheat Growers (NAWG), in conjunction with the National Wheat Improvement Committee, advocated for a funding increase for the U.S. Wheat and Barley Scab Initiative, which helps fund research intended to combat fusarium head blight. While the current Farm Bill authorizes up to $10 million per year for the program, actual funding has only been $6.7 million annually. Our organizations advocated for full funding, and we are pleased that both the House and Senate bills included an increase of $2 million. This is a significant step forward in the fight against a very costly wheat disease. This funding requires full House and Senate membership debate and approval, which could occur in June.

In addition to the Agriculture spending bill, NAWG is actively supporting transportation infrastructure investments through a broad coalition called the Ag Transportation Working Group. NAWG is working collaboratively to ensure continued support for inland waterways infrastructure, including the maintenance of our locks, dams and harbors through the FY 2017 Energy and Water Appropriations bill (see USW Ready to Help Customers Adjust to Columbia Snake River System Upgrade for more information). The Senate approved its version of the bill on a 90-8 vote on May 12. It included the coalition’s request of the full use of funds through the diesel fuel tax (this has sometimes been limited) for the Inland Waterways Trust Fund as well as $3.17 billion for dredging, repairs, and operations to improve our waterways and help hold down basis cost for buyers and sellers.

The House version of the bill also includes full use of revenues available for the Inland Waterways Trust Fund and about $3.137 billion for dredging, repairs and operations. The status of the House bill, however, is unclear at this time. On May 26, a vote on passage of the bill failed on the House floor, reportedly because that version included a controversial provision that was unrelated to our priorities.

A healthy wheat production system, combined with an efficient waterway, rail and highway systems and continued funding for USDA/Foreign Agricultural Service export market development programs, are critical for the United States to remain the world’s most reliable supplier. NAWG, with input from USW, will stay engaged in the appropriations process in an effort to secure sufficient federal funding for the programs that ultimately benefit U.S. wheat farmers and their downstream customers at home and abroad.


6. Wheat Industry News
  • NAWG Selects New CEO. NAWG has introduced Texas native Chandler Goule as its next chief executive officer and executive director of the National Wheat Foundation beginning July 5, 2016. He will replace Jim Palmer, who is stepping down after three years. Goule comes to NAWG after serving several years with the National Farmers Union, most recently as senior vice president of programs, and in staff positions in the U.S. House of Representatives. USW wishes to thank Jim Palmer for his successful tenure with NAWG and looks forward to working with Chandler Goule on common challenges and opportunities. Read more information at www.wheatworld.org.
  • Congratulations to Linda de Hoog on 45 Years of Service. Linda is the Regional Program and Administrative Manager in the USW Rotterdam Office. We are so fortunate that it is not rare to have such devoted, loyal colleagues at USW. Thank you for your years of service to our organization, to U.S. wheat farmers and to our customers around the world!

  • Thank You, Fran Leiphon. On June 8, the North Dakota Wheat Commission (NDWC) will honor the long and faithful service of wheat farmer and board member Fran Leiphon. “I want to extend my thanks to Fran on behalf of all of the USW staff,” said USW President Alan Tracy. “His service as a USW director was a valuable contribution to our mission on behalf of U.S. wheat farmers. Fran served most recently as chair of our Long Range Planning Committee, which guides our strategic planning and helps us identify and plan for the changes our industry will face. In that role, he was willing to ask questions, solicit other opinions, confront hard realities and articulate complex issues. We will miss his calm and steady leadership and his easy fellowship. We send our deepest appreciation and thanks and our best wishes for the future.”
  • U.S. Flour Recall is Not a Cause for Concern. General Mills, Inc., the largest retail flour seller in the United States, recently announced it has voluntarily recalled more than 283,000 kg of branded flour “out of an abundance of caution” because of a possible link to an outbreak of E. coli. General Mills is collaborating with U.S. health officials to investigate the cases and said to date, the strain of E. coli in the current outbreak has not been found in any of its flour products nor in the company’s flour manufacturing facility. The company said based on shared information, some of the ill consumers (38 cases reported since December 2015) may have also consumed raw dough or batter. “As a leading provider of flour for 150 years, we felt it was important to not only recall the product and replace it for consumers if there was any doubt, but also to take this opportunity to remind our consumers how to safely handle flour,” said Liz Nordlie, president of General Mills Baking division.” Visit the company’s website for more information.
  • AIB Announces New Baking Process Kill Step Calculator for Soft Cookies. AIB International’s has added a soft cookie product profile to their lineup of Baking Process Kill Step Calculators. This breakthrough industry tool empowers bakeries to validate their food safety preventive controls and accurately evaluate Salmonella destruction in bakery products, meeting FDA’s Food Safety and Modernization Act (FSMA) requirement to validate and verify thermal processes to ensure product safety. All calculators and published are available for free download on AIB’s website.
  • A Home for Hard White. Kansas Wheat is helping farmers with hard white (HW) wheat find local elevators that are capable of taking this class. Companies in Kansas accepting hard white wheat include, but are not limited to, ADM in eight locations, Bartlett Grain in seven locations, Skyland Grain at all locations, Alliance Ag in two locations, Midland Marketing in three locations, the Scoular Company in two locations and Scott Co-op in five locations. Read more online here.
  • IGP Institute Risk Management Short Course. This course, scheduled for Aug. 1 to 5, 2016, at the IGP Institute Conference Center in Manhattan, KS, focuses on principles of risk management and commodity price control. The course includes basic and advanced sections on why, when and how to trade commodity futures and options. For more information and registration, visit www.grains.k-state.edu/igp/.
  • 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.
  • Follow USW Online. Visit our page at www.facebook.com/uswheat for the latest updates, photos and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter at www.twitter.com/uswheatassoc, additional photos at www.flickr.com/photos/uswheat, plus video stories at www.youtube.com/uswheatassociates.


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