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USW and USDA Partnership Reintroduce HRW to Angola’s Expanding Flour Milling Industry

The West African nation of Angola is making good progress in its desire to improve food security for a rapidly growing population, currently estimated at 24.5 million people. The Angolan government believes that building its own food processing capacity is a crucial part of that effort to help reduce the cost of importing processed wheat flour, maize meal and cooking oils, while creating jobs for the Angolan people, lowering consumer food expenses and preserving foreign exchange.

Angola currently imports an estimated 800,000 MT of processed wheat flour from various origins to produce popular baguettes and Portuguese style bread, but the country was not always dependent on flour imports.

“U.S. Wheat Associates (USW) introduced HRW wheat to Angolan milling companies in 1993 through the USDA PL 480 Title 1 monetization program,” said Ed Wiese, USW Regional Vice President for Sub-Saharan Africa. “The industry processed many thousands of MT of HRW every year until 2001 when the Title 1 program ended. And Angolan bakers told me they very much liked the quality of the HRW flour to make baguettes and Portuguese-style bread.”

When monetized U.S. HRW was no longer available, the Angolan government turned to subsidizing imported flour. Recently improved economic prospects and the government’s new focus created an opportunity to begin increasing flour milling capacity. To build on its legacy of success, USW hired a part-time consultant to provide timely and accurate information about U.S. HRW to Angolan flour millers, bakers, grain traders and government officials. Funding for this trade service comes from USW’s partnership with USDA’s Foreign Agricultural Service export market development programs.

In 2016, Wiese met with representatives of an Angolan flour mill that plans to expand its capacity beginning in 2017. Wiese proposed a way to demonstrate the value and utility of U.S. HRW to that mill’s staff and customers. Under the USDA/FAS Quality Samples Program (QSP), USW arranged for 100 MT of HRW from the state of Kansas to be shipped to the Perdue export terminal in Norfolk, VA, loaded into five shipping containers and ultimately delivered to the mill in late January 2017.

A separate QSP shipment of U.S. HRW flour recently arrived at an Angola food processing company, intended to demonstrate the usefulness of HRW in pasta production. The current U.S. Ambassador to Angola, Helena M. La Lime, and representatives from USW and the North American Millers’ Association celebrated the arrival of this shipment in a ceremony at the processing company on Feb. 28. Africa Today reported that Amb. La Lime highlighted the great potential U.S. wheat has in supporting Angola’s milling and food industries and said the United States “supports Angola’s efforts to diversify the economy through industrialization and increased local production of consumer goods.”

“I believe U.S. wheat farmers would be proud to know that their wheat has the potential to help improve economic conditions in Angola,” said Wiese. “Through trade service, technical support and training, our organization tries to build lasting relationships with our valued customers around the world. And, assuming prices remain competitive in the changing world wheat trade, we hope that our support will lead to increased demand for HRW to produce great bread, pasta and other wheat food products for the Angolan people.”

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HRW Rallies Supported by Supply and Demand Factors

By Stephanie Bryant-Erdmann, USW Market Analyst

Since Jan. 1, the nearby wheat futures contract for hard red winter (HRW) on the Kansas City Board of Trade (KCBT) rallied 13 percent or 54 cents per bushel ($20 per metric ton) returning to price levels like those seen in June 2016. The rally is drawing support from both demand and supply factors. On the demand side, year to date U.S. 2016/17 HRW export sales total 10.1 million metric tons (MMT), up 95 percent from 2015/16 and 30 percent ahead of the 5-year average. Savvy buyers are also securing supplies for the next marketing season. To date, HRW export sales for marketing year 2017/18 total 182,000 metric tons (MT), up 8 percent from last year.

Robust demand for HRW is supported in part by low prices, but also by a change in the dynamic of the U.S. dollar. A strong U.S. dollar generally makes U.S. exports more expensive relative to other origins. However, while the U.S. dollar continues to strengthen against most currencies, it weakened against key competitor currencies. Year-over-year, the U.S. dollar weakened 3 percent against the Australian dollar, 11 percent against the Kazakhstani tenge and 20 percent against the Russian ruble. This shift is driving demand back to U.S. wheat in areas where the United States has a logistical advantage because it decreases the ability of buyers to offset increased shipping costs with lower priced wheat from competing origins.

The same low prices supporting HRW demand caused U.S. farmers to decrease HRW planted area by 12 percent last fall to 23.3 million acres (9.43 million hectares), which will likely result in smaller 2017/18 HRW production. Last year, record high yields offset lower planted area, but U.S. HRW planted area for 2017/18 is 20 percent less than five years ago. As discussed in the Feb. 23 Wheat Letter, farmers across the U.S. plains expect yields to return to the trend line this year given the current soil moisture and crop conditions.

Reduced HRW supplies are expected to be part of a smaller total world wheat crop in 2017/18 following last year’s record-large production. Production is expected to return to more normal trend lines around the world resulting in smaller crops for most of the world’s wheat exporting countries. The notable exception is the European Union (EU), where wheat production is expected to rebound after excessive rain cut yields last year. The European Commission forecast 2017/18 EU common wheat production at 143 MMT, up 7 percent from 2016/17 with better yields offsetting a slight reduction in planted area. EU 2017/18 durum production is expected to fall 2 percent from last year to 8.8 MMT, due to a reduction in planted area.

On Mar. 6, the Australian Bureau of Agricultural Research and Sciences (ABARES) projected Australian wheat planted area will decrease 1 percent to 31.6 million acres (12.8 million hectares) citing increased competition for area from canola, pulses and sheep. With the assumption of average growing season conditions and a return to trend line yields, ABARES forecast Australian 2017/18 wheat production at 24.0 MMT, down 11 MMT from 2016/17 and 5 percent below the 5-year average, if realized.

In February, Agriculture and Agri-Food Canada (AAFC) estimated 2017/18 Canadian wheat planted area will fall by 3 percent to 22.6 million acres (9.15 million hectares). A projected 29 percent decrease in durum acres and 12 percent decrease in winter wheat acres more than offset the expected 5 percent increase in spring wheat acres. Excessive rains last fall hurt quality and delayed harvest and subsequent fall planting across Canada. With decreased planted area and an expected return to trend line yields, AAFC expects Canadian wheat production to decrease in 2017/18 to 28.6 MMT. If realized, that would be a 10 percent decline from the prior year and 3 percent below the 5-year average.

Last fall, Russian farmers planted winter wheat on 36.5 million acres (14.8 million hectares), up 4 percent from the prior year. The Russian Ministry of Agriculture expects spring wheat planted area will decline slightly to 33.6 million acres (13.6 million hectares) due to increased competition for area from corn. Strategie Grains (SG) expects Russian 2017/18 wheat production to total 67.2 MMT, down 14 percent from last year’s record production due to a return to trend line yields that more than offset the increase in planted area.

SG expects Kazakhstan 2017/18 wheat production to fall 18 percent year-over-year to 13.8 MMT due to reductions in planted area and yield. Ukrainian farmers are also expected to produce less wheat in 2017/18. SG projects Ukraine wheat production will total 23.9 MMT. If realized that would be down 8 percent from 2016/17, but 7 percent above the 5-year average of 22.5 MMT.

The world is poised to produce a smaller wheat crop for the first time in four years, and the recent wheat futures rally indicate farmers, traders and customers alike are all taking notice, especially in light of record consumption. Before spring fully arrives with its typically volatile weather, customers should consider joining those who are securing supplies of high-quality U.S. wheat at what remain very attractive prices.

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Harvest Report
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Central and Southern Plains HRW is Generally Dry and Vulnerable to Frost Damage

By Stephanie Bryant-Erdmann, USW Market Analyst

USDA reported state planted area statistics for hard red winter (HRW), soft red winter (SRW) and soft white (SW) winter wheat in its Jan. 12 Winter Wheat and Canola Seeding Report. At this week’s Wheat Quality Council and Plains Grains Inc. board meetings in Kansas City, MO, however, HRW producers shared state updates of crop conditions, soil moisture conditions and planted area. A summary of what we learned from the producers supplemented with current USDA data by state follows.

Colorado. Colorado farmers planted 891,000 hectares (2.20 million acres) of wheat in the fall of 2016, down 6 percent from 2015. Farmers reported that southeast Colorado planting conditions were very dry, but the rest of the state had ample moisture. According to USDA data, topsoil moisture is short or very short for 35 percent of the state, compared to just 22 percent short or very short at the same time last year. Subsoil moisture is 42 percent short or very short across the state compared to 23 percent last year. Farmers noted warm weather has pushed the crop 7 to 10 days ahead of normal across the state, which makes it more vulnerable to late frost damage. On Jan. 30, USDA rated 36 percent of Colorado winter wheat in good to excellent condition compared to 47 percent good to excellent when the wheat went into dormancy last fall.Kansas. Farmers reported western Kansas is very dry. Subsoil moisture is rated at 41 percent short or very short, compared to 22 percent last year. USDA rated 37 percent of topsoil moisture as short or very short, compared to 19 percent in 2016. Early planted wheat established good stands last fall, but later planted wheat condition is more uncertain. On Jan. 30, USDA rated 45 percent of winter wheat as good to excellent compared to 52 percent good to excellent reported on Nov. 28. Last fall, Kansas planted 3.00 million hectares (7.40 million acres), down 13 percent year over year and the lowest planted area in 60 years.

Montana. Last fall, wet field conditions prevented some wheat planting in Montana. With a poor outlook for winter wheat prices, strong competition from peas and lentils shifted more acres in Montana. They planted 770,000 hectares (1.90 million acres) of wheat in 2016, down 16 percent from 2015. Farmers noted normal crop development and sufficient soil moisture, though some areas had below normal snow cover that increased the risk of winterkill. USDA rated topsoil moisture supplies at 13 percent short or very short, 77 percent adequate and 10 percent surplus, compared to 17 percent short or very short, 79 percent adequate and 4 percent surplus last year on the same date. On Jan. 30, USDA rated 70 percent of Montana winter wheat in good to excellent condition compared to 77 percent good to excellent when the wheat went into dormancy last fall.

Nebraska. Farmers reported good stands last fall, but western Nebraska is dry. The last measurable precipitation for that region occurred on Christmas day. USDA rated subsoil moisture supplies at 31 percent short or very short, compared to 19 percent on the same date last year. Topsoil moisture supplies are 23 percent short or very short, compared to 14 percent last year. With wheat now 5 to 7 days ahead of normal, the Nebraska crop is also more vulnerable to late frost damage. USDA rated 47 percent of Nebraska winter wheat in good to excellent condition on Jan. 30, compared to 53 percent good to excellent last November prior to dormancy. Nebraska farmers planted 441,000 hectares (1.09 million acres) of wheat in 2016, down 20 percent from 2015 and the lowest planted area on record for Nebraska.

Oklahoma. Most of Oklahoma received precipitation over the last few weeks that prevented further depletion of soil moisture, but it was insufficient to alleviate drought conditions. USDA rated topsoil moisture supplies at 38 percent short or very short compared to 60 percent short or very short last year. Subsoil moisture supplies are 56 percent short or very short, compared to 70 percent one year prior. Farmers noted wheat development is 12 days ahead of normal making it more vulnerable to late frost damage. Oklahoma farmers planted 1.82 million hectares (4.50 million acres) of wheat in 2016, down 10 percent from the prior year because late-season rain prevented some wheat planting. USDA rated 33 percent of Oklahoma winter wheat in good to excellent condition on Jan. 30, compared to 53 percent good to excellent when the wheat went into dormancy last fall.

South Dakota. Beneficial moisture last fall allowed for good stand establishment in South Dakota. Abundant snow cover is protecting the wheat and limiting winterkill risk. Topsoil moisture supplies rated 84 percent adequate, compared to 79 percent adequate last year. Subsoil moisture supplies rated 23 percent short to very short, 76 percent adequate and 1 percent surplus compared to 26 percent short or very short, 72 percent adequate and 2 percent surplus in 2016. USDA rated 62 percent of South Dakota winter wheat in good to excellent condition compared to 51 percent good to excellent when the wheat went into dormancy last fall. South Dakota farmers planted 364,000 hectares (900,000 acres) of winter wheat, down 24 percent year over year.

Texas. Last fall, Texas farmers planted 1.82 million hectares (4.50 million acres) of wheat, down 10 percent from the prior year in very dry field conditions. In the past two years, Texas planted wheat area has dropped by 20 percent. Early planted wheat emerged last fall, but the later planted wheat did not emerge until after beneficial precipitation fell in December. Farmers estimate the earlier planted wheat is 7 days ahead of normal development, while the later planted wheat is still emerging. USDA reported 93 percent of winter wheat had emerged by Jan. 30. On Jan. 30, USDA rated 29 percent of Texas winter wheat in good to excellent condition compared to 41 percent good to excellent when the wheat went into dormancy last fall.

USDA will release its next crop progress update Feb. 28 and will resume weekly crop condition reporting April 3.

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Outlook for 2017/18 U.S. Winter Wheat Plantings

By Stephanie Bryant-Erdmann, USW Market Analyst

U.S. farmers made critical decisions last fall while they had bins full of wheat from record-breaking yields with prices near ten-year lows. Therefore, it is no surprise that many farmers chose to decrease their winter wheat planted area. USDA’s 2017/18 winter wheat seeding report released Jan. 12 reported U.S. farmers planted the second lowest number of winter whea­­t acres on record and 10 percent fewer acres than 2016/17. USDA estimated U.S. farmers planted 32.4 million acres (13.1 million hectares) of winter wheat with reductions for all three classes of winter wheat — HRW, soft red winter (SRW) and white winter wheat.

USDA assessed HRW planted area at 23.3 million acres (9.43 million hectares), down 12 percent from 2016. Planted area in Kansas, the number one U.S. HRW-producing state at 7.40 million acres (3.00 million hectares), is down 13 percent from 2016 and 20 percent below the 5-year average. Nebraska farmers planted a new record low area to winter ­­wheat of just 1.09 million acres (441,000 hectares), 25 percent below the 5-year average.

Total SRW planted area of 5.68 million acres (2.30 million hectares) fell 6 percent from 2016. Increases in Delaware, Georgia, Kentucky, Maryland, North Carolina and South Carolina were not enough to offset decreases in most of the other SRW-producing states, including a 16 percent decline in Ohio, the number one producer of U.S. SRW in 2016/17. USDA believes Ohio farmers planted 490,000 acres (198,000 hectares) of SRW, 15 percent below the 5-year average.

White winter wheat planted area decreased to 3.37 million acres (1.36 million hectares), down 4 percent from 2016/17. Exportable soft white wheat supplies are concentrated in Idaho, Oregon and Washington. Planted area in Idaho and Oregon fell 4 percent and 3 percent, respectively. Idaho farmers planted 730,000 acres (295,000 hectares) compared to 760,000 acres (308,000 hectares) in 2015/16 and 2016/17. Planted area in Oregon dropped 20,000 acres (8,000 hectares) from 2016/17 to 700,000 acres (283,000 hectares), while planted area in Washington remained stable year over year at 1.70 million acres (688,000 hectares).

Durum planting in the Southwestern United States is estimated at 140,000 acres (56,700 hectares), down 8 percent from 2016/17 and 38 percent below 2015/16. According to USDA, planting is well underway in Arizona at 22 percent complete, up 8 percentage points from the same date last year. Delays from wet conditions are slowing progress in California. Arizona and California plant durum from December through January for harvest in May through July.

With the decrease in planted area in the United States, customers should pay close attention to weather maps and consider purchasing farther out to protect themselves from supply shocks.

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Harvest Report
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Wheat Exports Rebounding: Even More Impressive on Value

By Stephanie Bryant-Erdmann, USW Market Analyst

2016 ended on a high note for U.S. wheat exports, which posted the largest volume of sales in the fourth quarter since 2010. From October through December, the United States exported 6.5 million metric tons (MMT) of wheat, 48 percent above last year’s sales and 28 percent greater than the 5-year average. The strong export sales pace pushed total U.S. wheat exports to 20.9 MMT through Dec. 29, 7 percent ahead of the 5-year average and greater than total 2015/16 sales of 20.7 MMT.

Hard red winter (HRW) and hard red spring (HRS) are leading the charge. Year-to-date, HRW sales of 8.43 MMT are 24 percent ahead of the 5-year average and already greater than both 2015/16 and 2014/15 total sales. U.S. HRS sales are also 31 percent ahead of the 5-year average at 6.78 MMT and just shy of last year’s total 2015/16 sales of 6.91 MMT. These sales allowed the United States to regain the title of the largest single-country exporter in volume and value in a calendar year from Canada. According to USDA export sales data, U.S. wheat exports totaled 25.9 MMT, up 27 percent from CY 2015.

In CY 2015, Canada exported roughly 2.3 MMT more wheat than the United States and Russia, which nearly tied with a difference of less than 30,000 MT between them, based on Global Trade Atlas (GTA) data. The extra tonnage boosted the value of Canadian wheat exports to $6.23 billion compared to the U.S. wheat export value of $5.62 billion and the Russian value of $3.95 billion. In other words, despite the United States and Russia being virtually tied for the number two spot by tonnage in CY 2015, U.S. wheat exports earned 42 percent more dollars.

This year, the value comparison is even more interesting. GTA data shows U.S. wheat exports back on top from January to November with a value of $4.88 billion. For the same time period, GTA estimates Canadian wheat export value at $4.13 billion and Russian wheat export value at $3.32 billion.

While industry reports tend to focus on tonnage for grains, reports concerning other crops often refer to value of exports. While volume of exports reflects the drawdown of available stocks and infrastructure utilization, the value of exports reflects the relative financial return to the various exporting country economies as well as to producers and grain handlers.  International Grains Council (IGC) data shows the export price of Canadian 13.5 percent protein (on a 13.5 percent moisture basis) spring wheat at Vancouver averaged $218/MT ($5.93/bu) in 2016, and Russian milling wheat averaged $179/MT ($4.87/bu). By comparison, U.S. hard red spring (HRS) 13.0 percent protein (on a 12.0 percent moisture basis) at the Pacific Northwest averaged $232/MT ($6.31/bu) in 2016.

With many of the world’s largest exporters producing record-large crops with lower than normal protein content this year, buyers around the world are looking for high-quality, higher protein wheat. As the fourth quarter sales show, the U.S. wheat store continues to supply customers with the wheat they need. Customers around the world see the value of U.S. wheat versus its competitors and rely on it to provide consistent high quality flour to their own customer demand.

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Premiums Rise as Supplies of High Protein Wheat Fall

By Stephanie Bryant-Erdmann, USW Market Analyst

As the Dec. 9 World Agricultural Supply and Demand Estimate (WASDE) confirms, global wheat supplies are at a record high this year. USDA increased its estimate for 2016/17 global wheat production to 751 million metric tons (MMT), up 2 percent from 2015/16 and 6 percent above the 5-year average. USDA now forecasts Australian wheat production to reach a record 33.0 million metric tons (MMT), up 35 percent year over year, if realized.

Higher yields tend to be associated with lower protein. As discussed in the Nov. 3 Wheat Letter, quality test results from Stratégie Grains, UkrAgroConsult, Canadian Grain Commission and other international agricultural groups show lower-than-average protein in the supplies from wheat-exporting countries.

Lower average protein content is problematic for many end-users. According to work done by Shawn Campbell, USW Deputy Director, West Coast Office, nearly all of the world’s high protein wheat exports (13 percent protein on a 12 percent moisture basis or higher) originate from just six countries: Australia; Canada; Kazakhstan; Russia; Ukraine; and the United States. High protein wheat production in these countries accounts for an average one-fifth of their total production in a normal year.

High protein wheat supply and demand factors are driving the growing premium between the Minneapolis Grain Exchange (MGEX), which trades hard red spring (HRS), and the Chicago Board of Trade (CBOT) and Kansas City Board of Trade (KCBT), which trade soft red winter (SRW) and hard red winter (HRW), respectively. Last December the intermarket spread between MGEX and KCBT averaged 36 cents. Fast forward to this December, and the MGEX to KCBT spread averages $1.47.

If the same high-yield, lower-than-average protein correlation also plays out in Australia, there will be little help from that corner for buyers searching for high protein wheat, further supporting the MGEX to KCBT and MGEX to CBOT spreads.

The demand for higher protein wheat also supports HRW protein 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 moisture) at the Gulf has been 12 cents per bushel. This year that premium is 46 cents per bushel. The 15-year average premium for 12 percent protein HRW at the PNW is $1.05 per bushel. Since the beginning of the 2016/17 marketing year on June 1, that average premium is $1.64 per bushel.

Despite the increasing premiums for higher protein HRW and HRS, U.S. HRW exports are 25 percent ahead of the 5-year average and U.S. HRS exports are 29 percent ahead of the 5-year average. While the average protein content of HRW exports this year is down from last year due to increased demand for all HRW, 12 percent protein shipments account for 31 percent of all HRW shipments to date, up from 27 percent last year. The brisk pace of HRW and HRS exports and anecdotal reports from traders indicate buyers are breaking from the hand-to-mouth buying pattern that has been prevalent this past year to secure supplies of higher protein wheat. Forward contracting for high protein needs now makes sense.

When evaluating competing prices of high protein wheat, buyers should be sure to convert protein values quoted to a common moisture basis. Because water can be readily removed (by drying) or added (by tempering), exporters quote protein using a fixed moisture basis, but they do not all use the same basis. The United States specifies protein on a 12 percent moisture basis. The European Union and the Black Sea region typically use a dry-matter (0 percent) moisture basis. Australia uses an 11 percent moisture basis and Canada uses a 13.5 percent moisture basis. Below is an example of how moisture basis impacts actual protein received, and the conversion equation.

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

Country Moisture basis used Example: 13% Protein Protein Converted to

Dry-Matter Basis
Australia 11.0 13.0 14.6
Black Sea 0.0 13.0 13.0
Canada 13.5 13.0 15.0
European Union 0.0 13.0 13.0
United States 12.0 13.0 14.8

Equation to calculate protein content based on different moisture basis:

Example: You have a sample of wheat with 10 percent protein on a 13 percent moisture basis (mb) and want to convert to 12 percent mb.

Equation:    Protein1/(100-mb1) = Protein2/(100-mb2)

10/(100-13) = Protein2/(100-12)

10/87=Protein2/88

Protein2= (88*10)/87 = 10.1%

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