contracting for wheat value Archives

With funding from several state wheat checkoff programs and USDA Foreign Agricultural Service export market development programs, U.S. Wheat Associates (USW) is helping new flour millers learn how to get the wheat they need from U.S. farmers, a strategy that has built a dominant market share in this growing Southeast Asian market.

USW has for more than 50 years helped Philippine flour millers use sophisticated purchase specifications that increase value and enable the millers to import five classes of U.S. wheat. However, the industry is undergoing a generational transfer of leadership to younger family members or staff. Some knowledge gets passed down but this transition still requires significant training to assure new market participants can navigate the evolving international trading environment.

USW is addressing this transition through trade team visits to observe the U.S. wheat production and marketing systems, workshops on how to write the best U.S. wheat tenders and information on the quality and functionalities for every crop. These activities, funded by the Market Access Program (MAP) and the Foreign Market Development (FMD) program, help assure the next generation of decision-makers are familiar with the U.S. marketing system and the advantages of U.S. wheat classes in milling and end-product performance. The activities also prepare the industry for key quality concerns and opportunities in the current crop, helping them revise their specifications appropriately to maximize the value of the wheat they receive.

For example, in August 2015, USW sponsored a U.S. visit for new managers at Monde Nissin and Atlantic Milling. They learned that hard red spring (HRS) basis was at historic lows and low protein soft white (SW) stocks were very tight. As a result, these mills accelerated their purchasing pace and bought 110,000 metric tons (MT) of U.S. wheat sending substantial revenue back to the U.S. supply chain and farmers in the Pacific Northwest, Montana, North Dakota and South Dakota. This early purchase of U.S. wheat pre-empted the risk that both mills would consider purchasing lower priced spring wheat from Canada.

In October 2015, during a USW contracting workshop, market leading flour miller San Miguel used the information to revise confusing specifications in their contract language that helped reduce their import cost. This led them to make their first hard red winter (HRW) purchase in recent history. It is the fourth year in a row that San Miguel bought U.S. milling wheat exclusively, maintaining U.S. wheat as the quality standard in the Philippine market. In turn, this further reduces the chance that other mills may consider importing from other origins.

In marketing year 2015/16 (June to May), Philippine millers imported more U.S. HRS and SW wheat than any other country in the world. Its total imports of 2.164 million metric tons of U.S. wheat in 2015/16 ranks the Philippines at third among all countries. This represents more than 90 percent of total Philippine milling wheat imports and a substantial estimated return to the U.S. wheat supply chain.

December 31, 2016/by Amanda Spoo

China’s complex wheat importing rules can be a significant barrier to private purchases, but wheat imports help cover gaps in the need for high-quality wheat for a growing commercial wheat food market. USDA Foreign Agricultural Service cooperator U.S. Wheat Associates (USW) is using Market Access Program (MAP) and Foreign Market Development (FMD) program funds to educate traders and millers in ways that help overcome issues and increase private purchases of U.S. hard red spring (HRS) wheat grown in the northern plains.

Individual Chinese flour mills may privately import wheat under the government’s tariff rate quota (TRQ). Yet buying in bulk is not economically viable for individual mills because their capacity is too small. To overcome this non-trade barrier, several mills can pool TRQ purchases through private trading companies. One of those traders is Nantong Yufeng Grains & Oils Co., Ltd., which had been a steady but relatively small customer for U.S. wheat since 2013. Initially the company was only able to purchase U.S. wheat in small volume containers.

Because this trading company was ready to expand its ability to purchase wheat in bulk for its Chinese flour mill customers, USW recognized that its people needed training in how to get the most value from its tenders for bulk loads of U.S. wheat. To do that, USW brought two of Nantong Yufeng’s traders and its mill customers to “Contracting for Wheat Value” workshops in the United States in August 2014 and June 2015. This activity, developed using MAP funds several years ago, helps wheat buyers better understand and use the inspection data created by Federal Grain Inspection Service as ships are loaded with U.S. wheat. In addition to the technical training, these workshops fostered deeper contacts with Pacific Northwest (PNW) exporters. In turn, this encouraged on-going communications between this buyer and U.S. sellers, a key basis of trust, understanding and a cooperative relationship.

When Nantong Yufeng expanded its ability to handle more efficient, lower cost bulk shipments of U.S. wheat in marketing year 2015/16, the training and new relationships came to fruition. With first-hand knowledge of quality, price and contracted value, the company chose U.S. HRS over Canadian supplies. It imported HRS in two Panamax vessel loads of 57,750 metric tons (MT) each for its Chinese milling customers.

When the first shipment arrived at port, though, Chinese customs officials unfamiliar with wheat inspection and contracting questioned the importer on “dockage” level and the term “deductible from contract value.” With the knowledge Nantong Yufeng gained from the USW seminars and additional assistance from USW Marketing Specialist Shirley Lu, the trader resolved the issue smoothly. In a subsequent purchase, USW suggested that Nantong Yufeng should specify a lower maximum dockage and there were no customs issues associated with this purchase.

The workshops and local trade servicing under MAP and FMD in 2014/15 and 2015/16 helped Nantong Yufeng import 172,000 MT of HRS. Total U.S. HRS exports to China in 2015/16 were 744,000 MT — two times total sales in 2014/15 — returning substantial revenue to the U.S. wheat trade and farmers in Idaho, Montana, North Dakota, South Dakota and Minnesota.

December 31, 2016/by Amanda Spoo

With Vietnamese wheat imports projected to increase 40 percent in the next 10 years, USDA Foreign Agricultural Service (FAS) cooperator U.S. Wheat Associates (USW) is leveraging export market development funds to position U.S. wheat as the high quality, high value choice for milling and baking operations.

USW utilizes Market Access Program (MAP) and Foreign Market Development (FMD) funding, supplemented with checkoff dollars from state wheat commissions, to work directly with large volume millers and bakers in Vietnam to promote U.S. hard red spring (HRS) wheat and hard red winter (HRW) and develop better end-products with cake plants by using U.S. soft white (SW) wheat.

In June 2014, for example, USW conducted a Contracting for Value Workshop to help flour mill purchasing managers select the right classes and characteristics to extract the most benefit from U.S. wheat imports. Four mills in Vietnam now report using strategies presented in the workshop to help adjust contract specifications based on annual quality variations. One mill said USW’s trade servicing helped persuade them to include U.S. HRS in their long-term business plan and increased purchases of U.S. wheat from 9,600 MT in 2012 to 78,000 MT in 2014, a substantial increase in revenue. An additional procurement workshop in April 2014 convinced another mill to purchase 44,500 MT of U.S. wheat (25,000 MT U.S. HRS and 20,000 U.S. SW) even though the mill had typically purchased Canadian wheat at a lower price.

Also in 2014, USW continued encouraging cake plants to switch from Australian standard white (ASW) to U.S. SW to increase cake volume and extend product shelf life. After an educational seminar and in-plant consultations, seven cake plants in Vietnam now use 100 percent U.S. SW in their production of extended shelf life cakes.

As a result, Vietnam imported 243,000 MT of U.S. wheat in 2014/15. That is well above the 140,000 MT imported in 2013/14. Overall, for the past five marketing years, U.S. wheat sales have exceeded 100,000 MT per year, up from the previous decade average of 32,000 MT per year. That return comes from a much smaller investment in MAP and FMD funds over the past few years and a similar level of support from state wheat commissions.

USW’s long-term market development strategy in Vietnam is establishing a clear preference for U.S. HRS and SW wheat —all at a time when USDA predicts Vietnam’s wheat import demand to continue growing. The benefits will continue to return significant value to farmers and related industries in Washington, Oregon, Idaho, Montana, North Dakota and Minnesota.

December 31, 2015/by Amanda Spoo

Legacy of Training Sustains Market Leading U.S. Wheat Exports to the Philippines

Contracting for Value Workshops Educates Private Chinese Buyers, Spur Spring Wheat Sales

Market Development Funding Helps Position U.S. Wheat as a Better Choice in Vietnam

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