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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 U.S. Wheat Associates (USW) representative if you have any questions about the U.S. wheat marketing system or U.S. wheat supply.

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Annual Crop Quality Seminars Help Customers Make Purchasing and Milling Decisions

By Amanda J. Spoo, USW Assistant Director of Communications

Each year, after thousands of wheat crop samples are analyzed and the results are published in the USW Crop Quality Report, USW invites its overseas customers, including buyers, millers and processors, to seminars led by USW staff, U.S. wheat farmers, state wheat commission staff and educational partner organizations. The seminars dive into grade factors, protein levels, flour extraction rates, dough stability, baking loaf volume, noodle color and texture and more for all six U.S. wheat classes, and are tailored to focus on the needs and trends in each regional market.

In 2017, USW hosted 33 seminars in 25 countries, and many reported seeing record participation. Customers share that they use the report throughout the year as a reference manual and to guide them through purchases and future planning. The seminars provide a first look at the overall crop and a deep dive into the data and how to use it.

“The crop quality booklet is very useful for us as millers for reference and information on wheat quality available for production,” said one participant from Indonesia.

“If we encounter quality issues in our products, we use the wheat quality data to help us make necessary adjustments,” said participants from the Philippines.

Customers will often use the seminars and report as educational training for new employees.

The reports and seminars have been a traditional part of USW’s strategy since 1959, growing to become its single largest marketing activity.

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USDA Reports Offer Early Snapshots of 2018/19 U.S. Winter Wheat Crop

From USDA and Media Reports

Hours of work will come to fruition this week for market analysts at USDA and the farmers and buyers they serve. The results of some new reports provide an early look at the next U.S. winter wheat crop, which includes hard red winter (HRW), soft red winter (SRW) and fall-planted soft white (SW) classes.

Starting with a brief look back, we do know that U.S. farmers harvested the smallest area of wheat in 2017 since detailed records started in 1919. That was not a surprise because USDA had estimated planted area for all wheat classes, including spring wheat, for 2017/18 at a similar record low. Winter wheat planted area was down 9 percent from 2016/17.

New estimates suggest the base will be even lower for 2018/19. Reuters reported Nov. 28 that USDA estimates U.S. farmers are likely to expand corn and soybean plantings while reducing wheat seedings to 45.0 million acres for 2018/19, down from the record low of 46.0 million for 2017/18. Reuters noted that the forecasts are developed by consensus within the USDA on a long-term scenario for the agricultural sector for the next decade. USDA will release its complete report on projections for the next 10 years in February.

Arlan Suderman, chief commodities economist for INTL FCStone, expects U.S. wheat farmers will continue plant less wheat because of the price pressure from the record global wheat stocks. He estimates seeded area will be down another 4 percent to 6 percent in 2018. Suderman said the strong U.S. dollar pressures demand for U.S. wheat while encouraging wheat expansion overseas, such as in the Black Sea region. He believes markets that value high quality wheat and strong protein offer stronger opportunity for U.S. wheat.

As a counterpoint, a poll by a national agricultural publication fielded last July suggests farmers may slightly increase wheat seedings. The Farm Futures magazine survey found growers wanting to boost wheat seedings by 2.5 million acres to 48.1 million, a 5.4 percent increase over 2017. The survey suggested that winter wheat would make up nearly 90 percent of that increase.

The first official estimate of winter wheat planted area from USDA will be released in its Prospective Plantings report in March 2018.

USDA’s latest conditions report released on Nov. 26 suggests the new HRW wheat crop seeded in the Central and Southern Plains is stressed by dry weather. Oklahoma farm broadcaster Ron Hays reported that “winter wheat crop ratings continue to slide as Oklahoma, Kansas and Texas wheat conditions all fell in the latest reporting week. Oklahoma has seen its good to excellent score on the 2018 wheat crop drop from 41 percent two weeks ago to 30 percent this week; Kansas dropped five points from two weeks ago to 51 percent good to excellent and Texas dropped ten percentage points to 36 percent good with no score for excellent in this week’s final weekly score of the season.”

On Nov. 30, USDA will issue a quarterly update to its forecast of U.S. farm exports for fiscal year 2018 (Oct. 2017 to Sept. 2018). In a previous report, USDA said the total of $140.5 billion for FY2017 ended a two-year decline and was the third-highest on record. USDA currently forecasts U.S. wheat exports for marketing year 2017/18 at 27.2 million metric tons (MMT), down slightly from 28.7 MMT in 2016/17.

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New Study Examines Shifts in Global Agricultural Trade

Participants at the U.S. Agricultural Export Development Council annual meeting, Nov. 14 and 15, 2017, in Baltimore, Md., got an early look at a new study indicating that developing countries have been competing quite effectively in global agricultural trade. In addition, the study showed that agricultural products are often classified as “sensitive products” in trade agreements, leading to a significant level of protection, especially by developing and advanced developing countries.

The report is “The Global Landscape of Agricultural Trade, 1995-2014,” just released by USDA’s Economic Research Service. The authors’ summary says the Uruguay Round Agreement on Agriculture (URAA) of 1994 imposed new disciplines on market access barriers, domestic support and export subsidies, and set up rules for non-tariff measures. In the two decades since the URAA, government interventions in agricultural trade have evolved, agricultural trade has expanded and BRIIC countries (Brazil, Russia, India, Indonesia, and China) and other emerging economies have become significant agricultural traders. The summary adds that although clear progress has been made in such areas as tariff reductions and elimination of export subsidies, there is room for further disciplines on tariffs, nontariff measures and domestic policy.

Specifically, the study showed that the value of global agricultural exports adjusted for inflation has doubled since 1994, indicating a significant increase in the total market size. Overall, as the BRIIC country share of total imports is increasing, North American and Western European countries are importing a smaller percentage of the total. Conversely, the total share of world agricultural exports from the United States is down from 20 percent to 14 percent, while BRIIC country share is up from 14 percent to 23 percent. Global wheat trade has displayed a similar pattern: as U.S. exports have remain fairly stable, the U.S. share of a growing total world wheat market has declined.

The report summary adds that major emerging economies have increased the support they provide to farmers, sometimes using methods like price supports or input subsidies that are more likely to distort trade. In some of these countries, the study showed, recent emphasis on agriculture support is a sharp departure from earlier policies that implicitly taxed agriculture. Read the entire report online here.

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Latest USDA Forecast Accounts for Increased U.S. Wheat Export Demand

By Steve Mercer, USW Vice President of Communications

USDA market analysts cited Iraq’s major purchase of hard red winter (HRW) wheat as the specific basis for a significant drop in U.S. ending stocks in the November World Agricultural Supply and Demand Estimates (WASDE) report. The report correspondingly put its total U.S. export forecast for 2017/18 up 0.7 million metric tons (MMT) to reach 27.2 MMT. This would be down 5 percent from 2016/17 but 2 percent above the 5-year average, if realized.

The ending stocks forecast continues to be the primary plot of the 2017/18 global wheat market story. The WASDE report noted that even with slightly lower supplies and higher use, ending stocks are still expected to hit a record level.

USW Market Analyst Stephanie Bryant-Erdmann, who is currently on an international assignment, shows in USW’s latest Supply and Demand Report that global ending stocks are projected to reach a record level: 268 MMT, or 5 percent higher than 2016/17, if realized. Estimated Chinese ending stocks of 127 MMT account for 48 percent of global ending stocks, which is 58 percent greater than the 5-year average.

Bryant-Erdmann provides a more nuanced analysis of global stocks by charting the current global stocks-to-use ratio with and without China’s stocks, which are not likely to move to export. She shows that the 2017/18 ratio drops about 64 percent from 36 percent to 22 percent without Chinese stocks. More significant, though, is the historical look, showing that exportable stocks are on a three-year downward trend. In fact, Bryant-Erdmann shows that exporter ending stocks are expected to fall 5 percent year over year to 74.3 MMT, and ending stocks in importing countries are forecast to fall to 66.0 MMT, 5 percent below the 5-year average of 70.5 MMT.

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U.S. High-Protein Wheat Supplies Tightening

By Stephanie Bryant-Erdmann, USW Market Analyst

The common refrain right now is “the world is awash with wheat.” While that is true in the aggregate, in terms of milling wheat and, more specifically, high-protein milling wheat, supply is very tight. The impact of the small supply of high-protein milling wheat can be seen in the protein premiums for both U.S. hard red spring (HRS) and hard red winter (HRW) wheat. The following is a breakdown of pricing and availability of the U.S. high-protein wheat supply by class and port of export. Please note that U.S. wheat protein is expressed on a 12 percent moisture basis, not on a dry matter basis, thus U.S. 11.5 percent protein is equal to 13.1 percent protein on a dry matter basis.

Hard Red Winter

According to USDA, HRW production fell 32 percent from 2016/17 to 20.4 million metric tons (MMT), putting total HRW supply at 36.5 MMT. According to USW Crop Quality data, the average protein of this year’s HRW crop is 11.4 percent. That is similar to last year, but below the 5-year average. Overall, 55 percent of HRW samples were less than 11.5 percent protein; 26 percent had 11.5 to 12.5 percent protein and 19 percent had protein levels above 12.5 percent. Extrapolating that to HRW production, there is roughly:

  • 9 MMT of HRW with protein greater than 12.5 percent;
  • 3 MMT with protein between 11.5 and 12.5 percent; and
  • 2 MMT with less than 11.5 percent protein available.

The smaller crop and lower protein support both the Kansas City Board of Trade HRW futures market and protein premiums; however, that support varies by export tributary.

Gulf. The 2017/18 marketing year (beginning June 1) average protein premium for Gulf HRW 12.0 percent protein on a 12 percent moisture basis (mb) is 51 percent above the 2016/17 marketing average at $69 per metric ton (MT) and $20 dollars per MT above the 5-year average. The HRW Gulf export tributary region experienced its second consecutive year of higher yields and very limited heat stress during the growing season, resulting in lower than normal protein. According to USW Crop Quality data, the average protein for Gulf export tributary HRW is 11.2 percent, compared to the 5-year average of 12.8 percent protein. This means that while protein premiums for high-protein HRW are climbing, ordinary HRW from the Gulf represents a significant bargain for customers with export basis levels 31 percent below the 5-year average at $28/MT.

Pacific Northwest (PNW). Unlike the Gulf export tributary states, HRW in the PNW tributary states was stressed by high temperatures and little rainfall in 2017/18, boosting protein content but cutting yields. According to USW Crop Quality data, the average protein for PNW export tributary HRW is 12.0 percent, similar to the five-year average but higher than the average of 11.7 percent protein in 2016/17. USDA estimates the PNW HRW tributary states sampled by USW produced 3.5 MMT, or just 17 percent of the total U.S. HRW supply. With the PNW supply limited, albeit a supply with higher protein than the Gulf, the average price for 12.0 percent protein HRW is 9 percent higher than the 2016/17 value at $238/MT, but still well below the 5-year average of $277/MT. This represents an excellent opportunity for customers to lock in prices before supplies dwindle in the second half of the marketing year.

Hard Red Spring

According to USDA, HRS production fell 22 percent to 10.5 MMT in 2017/18. Total HRS supply declined 18 percent from 2016/17 to 20.8 MMT on smaller production and beginning stocks. According to USW Crop Quality data, the average protein of this year’s HRS crop is 14.6 percent. That is above both last year and the 5-year average of 14.0 percent. Overall, 22 percent of HRS samples tested had less than 13.5 percent protein; 23 percent of samples had 13.5 to 14.5 percent protein and 55 percent of samples had greater than 14.5 percent protein. If that is extrapolated out to HRS production, then roughly:

  • 8 MMT of HRS was produced with protein greater than 14.5 percent;
  • 4 MMT having protein between 13.5 and 14.5 percent; and
  • 3 MMT with less than 11.5 percent protein available.

This distribution caused protein premiums for HRS to fall below the 5-year average, but supported HRS MGEX futures, which spiked in July and remain an average $49/MT above last year’s futures prices due to the smaller supply. Like HRW, price impacts of the smaller supply vary by export tributary region but were more evenly distributed due to a nearly even production split between regions.

Eastern Region. The average cash price for Gulf HRS 14.0 percent protein is 16 percent above the 2016/17 marketing average at $298/MT. The higher price is supported by the extreme drought across the U.S. Northern Plains which cut production but boosted protein content. USW Crop Quality data showed the average protein for Gulf export tributary HRS was 14.4 percent, compared to the 5-year average of 14.0 percent protein.

Western Region. The drought had devastating effects on yields in the Western Region, specifically in Montana and western North Dakota and South Dakota, but did boost protein levels. According to USW Crop Quality data, the average protein for the PNW export tributary is 14.9 percent, compared to the 5-year average of 14.2 percent protein. With the increased availability of high-protein HRS, the average protein premium for 14.0 protein HRS fell 10 percent year over year to $53/MT, well below the 5-year average of $67/MT.

With Canadian wheat production falling an estimated 5.5 MMT year over year and the sharp drop in U.S. high-protein wheat production, the global supply of high-protein wheat has tightened. Depending on what protein specifications customers need, this may be the best time to lock in lower HRS protein premiums. Low-protein HRW also represents an excellent buying opportunity for specific customers.

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USDA Projects Shifting Supplies of Wheat, Location Will Likely Impact Quality and Availability

By Stephanie Bryant-Erdmann, USW Market Analyst

USDA expects a lower world wheat production in 2017/18 of 751 million metric tons (MMT) (27.6 billion bushels), down slightly from the record high 754 MMT (27.7 billion bushels) in 2016/17 but 5 percent above the 5-year average. If realized, it would be the first production decline since 2012/13. While world wheat production is projected to decline year over year, USDA expects slightly higher total consumption in 2017/18 at 740 MMT (27.2 billion bushels), compared to the 5-year average of 705 MMT (25.9 billion bushels). With production expected to decline and consumption forecast to rise, availability of global wheat supplies is largely dependent on location and whether or not that country is an importer, exporter or China.

Record-large world carry-in stocks offset the production decline with total world supply reaching a projected 1007 MMT (37.0 billion bushels), up 12.4 MMT from 2016/17. However, removing China’s 2017/18 projected beginning stocks and production from global wheat supply reveals roughly a 3 MMT decline in global supplies. While small, the decline in global wheat supplies is compounded by a shift in location, which has implied impacts on availability, quality and, of course, price.

Exporting countries. USDA forecasts supplies in the top wheat exporting countries of Argentina, Australia, Canada, the European Union (EU), Kazakhstan, Russia, Ukraine and the United States to decrease by 2 percent or roughly 10 MMT year over year to 460 MMT. A 9 MMT year over year increase in exporter beginning stocks partially offsets the anticipated 5 percent decrease in production. However, a 19 percent increase in Russian wheat supplies due to sharply higher 2017/18 production is partially masking forecasted declines in five of the major eight exporters — Argentina, Australia, Canada, Ukraine and the United States. Wheat supplies in the EU are expected to remain stable year over year at 161 MMT, and Kazakhstan wheat supply is expected to increase 2 percent from 2016/17 due to higher beginning stocks.

Russian wheat supplies total 20 percent of exporting country supplies, making the quality of the crop very important. SGS Russia, an independent crop inspection service, reported preliminary data for winter wheat in south, central and the Volga-Urals regions of Russia showed lower protein levels due to favorable growing conditions which boosted yields. According to the SGS data, 22 percent of samples graded as Russian 3rd class wheat (10.5 to 11.9 percent protein on a 12 percent moisture basis (mb)); 46 percent of the samples graded as Russian 4th class wheat (8.8 to 10.5 percent protein on a 12 percent mb); and 32 percent as 5th class wheat (feed wheat). SGS reports that some areas have Fusarium damage, high levels of sprout damage and very low falling numbers; but test weight values are generally higher across all regions.

Importing countries. Importing country beginning stocks are forecast to be 10 percent lower year over at 72.4 MMT, due to customers utilizing “just in time” purchasing strategy to take advantage of low global wheat prices. Production in the importing countries is expected to increase 7 percent year over year, lifted by a 11.4 MMT increase in India after two poor crops there. Total importing country supplies are expected to increase 2 percent to 307 MMT due to the lower beginning stocks falling and increased production. However, it should be noted that 108 MMT, roughly 35 percent, of that supply will remain in India.

China. USDA expects Chinese beginning stocks to climb to 111 MMT, up 14 percent over 2016/17. If realized, China will hold 43 percent of 2017/18 total global wheat beginning stocks. Chinese wheat production is also expected to rise in 2017/18 to 130 MMT, up 1.15 MMT from 2016/17. This puts total 2017/18 Chinese wheat supplies at 241 MMT, 7 percent greater than 2016/17. Yet Chinese wheat consumption is expected to decline 2 percent to 116 MMT due to an anticipated decrease in wheat feed usage. With supply up and consumption down, 2017/18 Chinese ending stocks are expected to grow to 127 MMT, up 14 percent from last year and a new record. If realized, Chinese ending stocks would account for 47 percent of all global wheat ending stocks for 2017/18.

While supplies in most importing countries are shrinking (India being the notable exception), global human consumption of wheat continues to grow. USDA expects global human wheat consumption to increase 2 percent in 2017/18, led by increases in regions that depend on imports for the entirety of their supply, including Southeast Asia, Central America and the Caribbean. With 81 percent of global wheat consumption going to humans, understanding the quality and availability of the 2017/18 crop is important.

The 2017/18 USW Crop Quality report will be available online on Monday, Oct. 23. Contact your local USW representative for more information about the 2017/18 U.S. wheat quality, production and logistics.

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USW Reviews Crop Quality for the 2017/18 Hard Red Spring, Soft White and Durum Crops

USW and its partner organizations have completed the crop quality analysis of the 2017/18 U.S. hard red spring (HRS), soft white (SW) and durum crops. The final data is summarized below. The complete analyses will appear in class-specific reports and USW’s 2017 Crop Quality Booklet, and shared with hundreds of customers around the world as part of USW’s annual Crop Quality Seminars.

Full regional quality reports for the 2017 HRS, SW, northern durum and Desert Durum® crops are posted at www.uswheat.org/cropQuality.

Hard Red Spring. USDA estimates that the total 2017/18 HRS supply (excluding imports) is down 19 percent from 2016/17 due to smaller production and beginning stocks.

Overall, 97 percent of Eastern Region and 83 percent of Western Region samples graded U.S. No. 1. The overall average test weight is 61.6 lb/bu (81 kg/hl), similar to the 5-year average, though the Western Region average is lower due to drought. The average protein is 14.6 percent (12 percent mb), higher than both 2016 and the 5-year average. More than one-half of all samples have greater than 14.5 percent protein in 2017 compared to just 36 percent in 2016.

The smaller 2017 HRS crop has many positive attributes, including high grades, plentiful protein, little to no DON and very good functional performance. Protein levels, shrunken and broken kernels and thousand kernel weights are more variable than recent years due to the vast differences in growing conditions across the region. Diligent contract specifications are still encouraged on this high-quality crop to ensure buyers get the quality expected.

Soft White. USDA estimates total 2017 SW production at 6.14 MMT, down slightly from 2016. Of that, the Washington Grain Commission estimates white club (WC) accounts for 359,000 MT.

The 2017 SW and WC overall average grade is U.S. No. 1. The average SW test weight of 60.9 lb/bu (80.1 kg/hl) is close to last year’s 60.8 lb/bu (80.0 kg/hl), while WC test weight of 60.2 lb/bu (79.2 kg/hl) is slightly less than 2016’s 60.8 lb/bu (80.0 kg/hl). The overall SW and WC wheat protein contents (12 percent mb) of 9.6 percent and 9.4 percent, respectively, are each 0.5 percentage point below the respective 2016 values and well below the wheat protein 5-year averages.

The 2017 PNW soft white wheat crop is generally characterized by having similar kernel characteristics to last year with good test weight, lower moisture content, lower protein content, higher falling number values and acceptable finished product characteristics. This year’s WC quality characteristics follow the same trend as SW. The high protein segment of the SW crop provides opportunities in blends for Asian noodles, steamed breads, flat breads and pan breads.

Durum. Production in the U.S. Northern Plains is down by more than 50 percent from 2016 due to a small decline in acreage and sharply lower yields caused by severe drought. Scattered rain delays toward the end of harvest affected the color of a portion of the crop.

The 2017 Northern durum crop average grade is U.S. No. 1 Hard Amber Durum (HAD). However, a larger portion of the samples than in 2016 graded U.S. No. 1 or 2 Amber Durum due to color loss in some areas. Average test weight of 60.9 lb/bu (79.4 kg/hl) is slightly below last year. Hot, dry conditions pushed protein levels higher, with the 2017 average at 14.5 percent (12 percent moisture basis).

Buyers will be pleased with this year’s excellent grading Northern durum crop boasting strong protein levels, overall high vitreous kernel levels, higher semolina extraction and improved mixing and pasta quality characteristics. With reduced supply and isolated areas with lower vitreous kernel levels, lighter thousand kernel weights and some DON detections, buyers should always remain diligent in their contract specifications.

2017 Desert Durum® production acreage was less than in 2016, largely due to lower prices available at planting time. Yields were average, and quality was uniformly good. The crop exhibits consistently large kernels and low moisture, traits that contribute to efficient transportation costs and high extraction rates. The 2017 crop will deliver the valuable milling, semolina and pasta quality traits that customers have learned to expect and appreciate.

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Shifting Destinations of U.S. Wheat Exports

By Stephanie Bryant-Erdmann, USW Market Analyst

Over the past twenty years, roughly 10 MMT of U.S. wheat exports have shifted from price sensitive markets to quality-driven markets. Consumption in quality-driven markets in Southeast Asia and Latin America increased an average 2 percent annually over the past ten years, according to USDA.

In 1995/96, the top ten destinations for U.S. wheat included Egypt, Pakistan and Sri Lanka, whose respective governments purchased large quantities of wheat for subsidized food programs and strategic reserves. Thus, these markets were very price sensitive. While some liberalization has occurred in these markets, subsidized food programs and strategic reserves are still the primary uses for imported wheat by these markets.

Rounding out the top destinations in 1995/96 were markets that value quality: Japan, Mexico, the Philippines, South Korea, Taiwan, Nigeria and the European Union. These markets continue to be top ten destinations for U.S. wheat. Over the past five years, U.S. wheat exports to these seven countries averaged 13.6 MMT compared to 9.78 MMT in 1995/96, an increase of 39 percent, while total consumption increased an average 7 percent over the same time period, indicating increased usage and preference for U.S. wheat despite prices often higher than from other sources.

Since 1995/96, wheat consumption in other quality-driven markets has also grown. Southeast Asian markets, including Indonesia, Thailand, Vietnam and Malaysia1, have grown an average 6 percent annually. U.S. exports to the region increased 93 percent to 2.23 MMT in 2016/17, according to Global Trade Atlas data. Year-to-date, U.S. wheat export sales to the region total 1.23 MMT, on pace with last year’s pace. U.S. wheat exports also increased 59 percent to Latin and South America with 5-year average sales of 6.48 MMT compared to 4.07 MMT in 1995/96.

In 2016/17, the top destinations for U.S. wheat are a veritable who’s who of the markets that value quality, dominated by Asian, Latin and South American markets. In total, the top ten destinations represented 64 percent of U.S. wheat sales during that marketing year. Countries in Central America and South America, including Chile, Guatemala, Honduras, Peru, Venezuela and the Dominican Republic, were in the top 20 destinations for U.S. wheat and accounted for another 9 percent. See the latest USW Commercial Sales report for the resulting increases in wheat exports to the increasingly quality-driven markets in Southeast Asia, Latin and South America.

The goal for any company selling a high-quality product is to make demand for that product inelastic — an increase in price does not have an equal decrease in quantity demanded. Put another way, consumers have such a strong preference for the good that increases in price result in very small decreases in quantity demanded. Creating inelastic demand takes a combination of the right consumers, the right product, hard work, and, in many cases, time.

It is a market development strategy that also provides value to U.S. farmers in the form of higher prices for their wheat compared to farmers in most competing countries. U.S. farmers also continue to work on product quality, investing an average $12 million annually on wheat research through their state checkoff programs, according to a study done by the National Wheat Improvement Committee in 2012. USW has also put more focus and resources into its marketing efforts in markets that are traditionally quality conscious and experiencing growth, such as Japan, Mexico and the Philippines.

1The Philippines is normally included in the Southeast Asia region, but due to the prior reference, its exports sales were excluded from this region’s analysis.

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Good Functional Characteristics, Lower Average Protein Mark New HRW Crop

USW and its partner organizations have completed the crop quality analysis of the 2017/18 U.S. hard red winter (HRW) crop. The final data is summarized below. The complete analysis will appear in both a class-specific report and USW’s 2017 Crop Quality Booklet, and shared with hundreds of customers around the world as part of USW’s annual Crop Quality Seminars.

This HRW crop is a strong testament to the primal role of economics and weather in farming.

At planting, the profit potential of HRW did not look very good to many farmers and those who could do so planted more land to other crops. Planted area fell to its lowest level in more than 100 years. Then, although variable conditions challenged the crop, moisture remained adequate, or even excessive in some areas, resulting generally in better than expected yields. Still, USDA has estimated the HRW supply (excluding a small volume of imports) at 36.5 MMT, down 13 percent from 2016/17. Whole crop composite average protein levels are generally lower than average but the crop offers good milling and processing characteristics.

Wheat and Grade Data. Overall kernel characteristics are outstanding in the 2017 crop, although protein levels were again relatively low. Despite the challenging growing conditions, overall 92 percent of Composite, 86 percent of Gulf-Tributary and 100 percent of Pacific Northwest-Tributary samples graded U.S. No. 2 or better. Test weight averages 60.5 lb/bu (79.6 kg/hl), above the 5-year average of 60.3 lb/bu (79.3 kg/hl) and equal to last year. The total defects average of 1.2 percent is below the 2016 and 5-year averages. Foreign material is 0.1 percent, below last year’s 0.2 percent, while shrunken and broken at 0.9 percent is equal to last year and below the 5-year average. Average thousand kernel weight of 31.0 g significantly exceeds the 5-year average of 29.1 g. The average wheat falling number is 378 sec, below 2016 and the 5-year average, but still indicative of sound wheat.

The average protein of 11.4 percent (12 percent mb) is similar to last year, but significantly lower than the 5-year average. Protein content distribution varies by growing region. Approximately 56 percent of the samples tested were less than 11.5 percent protein, 28 percent between 11.5 percent to 12.5 percent and 16 percent greater than 12.5 percent.

Flour and Baking Data. The Buhler laboratory mill flour yield average is 78.1 percent, above the 2016 average of 76.6 percent and the 5-year average of 75.2 percent. However, flour ash of 0.64 percent (14 percent mb) is also higher than 2016’s 0.56 percent and the 5-year average. Gluten index values average 93 percent, equal to both last year and the 5-year average. The W value of 199 (10-4 J) is slightly lower than last year’s average and well below the 5-year average. Average bake absorption is 62.8 percent, similar to 2016 and the 5-year average. Farinograph development and stability times are 4.5 min and 6.1 min, respectively, compared to last year’s respective times of 4.0 min and 6.7 min and significantly lower than the 5-year averages. Loaf volume averages 806 cm3, below 2016 and the 5-year average, but still indicative of good baking quality.

Summary. The quality of the 2017 HRW crop is very similar to the 2016 crop. Generally, the 2017 crop was planted and developed in a favorable environment until late in the growing season, with abundant moisture and no heat stress in the Central and Southern Plains. High yields resulted in lower quantities of wheat and flour protein, but the crop exhibits very good milling characteristics. The loaf volumes achieved indicate there is adequate protein quality to make good quality bread even though mix times are shorter than the 5-year averages. This crop meets or exceeds typical HRW contract specifications and should provide high value to customers.

 

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