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Premiums for Protein on the Rise

By Stephanie Bryant-Erdmann, USW Market Analyst

Much needed rain across the U.S. Northern Plains this week gave emerging hard red spring (HRS) and durum crops a drink, but the rain was bookended by hot, windy conditions and likely did little to alleviate drought conditions.

Total rainfall for the region ran 60 to 75 percent below average for three months before this week’s storms, with Minot, ND — in the heart of the HRS growing area — recording just 1.23 inches (3 cm of rain) since March. The June 13 U.S. Drought Monitor showed 83 percent of North Dakota is in a moderate or severe drought and the remainder of the state is abnormally dry. Similarly, 79 percent of South Dakota and the eastern third of Montana are abnormally dry or in a moderate to severe drought.

The lack of rain and above normal temperatures is taking an early toll on crop conditions. On June 13, USDA reported 45 percent of spring wheat was in good to excellent condition, down 10 percentage points from the prior week and the lowest rating on record for that week. USDA noted 20 percent of the spring wheat crop was in poor or very poor condition, up from 11 percent the prior week and just 2 percent at the same time last year. Markets will be closely watching next week’s USDA crop condition report, and further deterioration of crop conditions will support Minneapolis Grain Exchange (MGEX) HRS wheat futures.

In the past two weeks, the nearby MGEX HRS wheat futures contract rallied 8 percent or 49 cents to $6.28 per bushel, the highest level since December 2014. Concern about the HRS crop and early harvest reports of low protein hard red winter (HRW) also support widening HRW protein premiums. Last June, the protein premium for 12.0 percent protein HRW (on a 12 percent moisture basis) averaged 12 cents per bushel ($4.59 per metric ton) over 11.0 percent protein HRW. This year, the same premium is 60 cents per bushel ($22 per metric ton).

With 60 percent of high protein wheat exports (13 percent protein on a 12 percent moisture basis or higher) originating from the United States and Canada, protein premiums are also widening due to Canadian crop and soil moisture conditions. In Saskatchewan, where Canadian farmers are wrapping up spring planting, topsoil moisture is rated 40 percent short or very short compared to 8 percent short or very short last year.

Farmers in northern Alberta and Saskatchewan are having the opposite problem — too much moisture. On June 6, the Alberta crop report rated topsoil moisture at 29 percent excessive in the Northeast and 40 percent excessive in the Northwest. Wet fields and harvesting 1.16 million acres (2.86 million hectares) of overwintered crops delayed spring planting progress in the province. Spring wheat planting was 95 percent complete on June 6, up from 84 percent the prior week but behind the 5-year average of 98 percent complete. Agriculture and Agri-Food Canada estimated total Canadian wheat production for 2017/18 will be 29.5 million metric tons (MMT), down 7 percent year over year due to a slight decline in planted area and a return to trendline yields.

“Conditions are variable right now with too much water in many northern areas, too little in the southern areas and probably very good conditions in between the two,” noted Robin Speer Executive Director of Western Canadian Wheat Growers Association. “We think the next two weeks become very important for this crop.”

Though HRS planted area is expected to be 7 percent smaller this year and yield potential for this year’s HRS crop is still unknown, U.S. farmers will continue to have the high quality, high protein wheat the world needs. In its June World Agricultural Supply and Demand Estimate, USDA pegged 2016/17 HRS ending stocks at 5.86 MMT, slightly more than the 5-year average of 5.28 MMT. The larger than normal ending stocks ensure the U.S. wheat store will always be open; the only unknown is how much customers will need to pay.

To read the latest USW Weekly Harvest report, click here.

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“All Aboard Wheat Harvest” Blog Follows 2017 Wheat Harvest

The 2017 wheat harvest is underway on the U.S. Plains and the High Plains Journal is spending another year following the custom harvesters. The “All Aboard Wheat Harvest” blog, sponsored by John Deere, enlists five correspondents to cover the harvest as the harvesters make their way from Texas to the Dakotas.

Keep up with the blog at https://allaboardharvest.com/ or sign up for daily emails from the crew on the site’s homepage. The correspondents will also be busy on social media:

Twitter: @AllAboardTour

Facebook: https://www.facebook.com/allaboardharvest

YouTube: https://www.youtube.com/user/AllAboardTour

Flickr: https://www.flickr.com/photos/allaboardtour

You can also follow the progress of the 2017/18 crop through the USW Harvest Report every Friday afternoon at https://www.uswheat.org/harvest.

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Variable Conditions Dominate as 2017/18 Harvest Begins

By Stephanie Bryant-Erdmann, USW Market Analyst

Combines are beginning to roll for winter wheat harvest in the United States with highly variable wheat and field conditions. The U.S. National Weather Service reported that in May much of the U.S. Plains region received 1.5 to 3 times more rain than normal. On Tuesday, May 30, USDA rated 50 percent of the winter wheat crop in good to excellent condition, down 2 percentage points from the prior week; 15 percent of the crop was rated in poor or very poor condition. The following is a summary of harvest progress, crop conditions, field conditions and planted area by state.

Colorado. Growing conditions across Colorado have been highly variable this year with some parts of the state experiencing very favorable conditions and others quite the opposite. The late April snowstorm dumped snow across eastern Colorado, albeit on less mature wheat. Parts of the state have also been hit by severe storms and hail in the last two weeks, with damage still being assessed. Farmers noted crop development is 7 to 10 days ahead of normal across the state. On May 30, USDA rated 50 percent of Colorado winter wheat in good to excellent condition compared to 43 percent the prior week; 16 percent of the crop is in poor or very poor condition. USDA reported 70 percent of Colorado wheat is headed, behind the 5-year average of 61 percent. Colorado farmers planted 891,000 hectares (2.20 million acres) of wheat last fall, down 6 percent from 2015. USDA expects winter wheat production to fall to 1.96 million metric tons (MMT), or 72.1 million bushels, down an estimated 31 percent from the prior year.

Kansas. Kansas Wheat CEO Justin Gilpin reports that the extent of damage from the May snowstorm that dropped as much as 22 inches (54 cm) of snow on western Kansas will depend largely on planting date, maturity and varieties. Since that storm, Kansas has continued to receive excessive rain leading to standing water in fields and increased disease pressure. On May 30, USDA rated 45 percent of winter wheat as good to excellent compared to 47 percent the prior week; 25 percent of Kansas wheat is rated poor or very poor. Kansas wheat is 97 percent headed, ahead of the 5-year average of 93 percent. 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. USDA expects Kansas to produce 7.89 MMT (290 million bushels) in 2017/18, down 38 percent from last year.

Montana. Montana farmers noted good stands of wheat, but soil moisture conditions are variable across the state. USDA rated topsoil moisture supplies at 34 percent short or very short, 62 percent adequate and 4 percent surplus, compared to 17 percent short or very short, 72 percent adequate and 11 percent surplus last year on the same date. On May 30, USDA rated 48 percent of Montana winter wheat in good to excellent condition compared to 52 percent the week prior. Montana wheat has not yet started to head, which is behind the 5-year average pace of 5 percent headed. Farmers planted 770,000 hectares (1.90 million acres) of wheat in 2016, down 16 percent from 2015 due to wet field conditions and strong price competition from peas and lentils. USDA expects Montana to produce 2.22 MMT (81.6 million bushels), down 23 percent from 2016/17.

Nebraska. Farmers report that a cool, wet spring is increasing disease pressure across the state. They also noted abandonment of some fields after a late spring freeze badly hurt yield potential. USDA rated 47 percent of Nebraska winter wheat in good to excellent condition on May 30, up slightly from the prior week. Winter wheat is 86 percent headed, compared to the 5-year average of 55 percent on the same date. 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. USDA expects Nebraska winter wheat production to total 1.4 MMT (51.5 million bushels), down an estimated 27 percent from the prior year.

Oklahoma. Harvest is underway in Oklahoma, though storms are causing some delays. Many of the recent storms included damaging hail and farmers are concerned about getting the wheat safely into the bin. USDA rated 45 percent of Oklahoma winter wheat in good to excellent condition on May 30, compared to 49 percent the week prior; 14 percent of the crop is in poor or very poor condition. USDA reported wheat harvest in Oklahoma is 3 percent complete, behind the 5-year average of 10 percent complete on the same date. Oklahoma farmers planted 1.82 million hectares (4.50 million acres) of wheat in 2016, down 10 percent from the year prior because late-season rain prevented some wheat planting. USDA expects Oklahoma winter wheat production to fall to 2.42 MMT (89.1 million bushels), down 35 percent year over year.

South Dakota. Temperatures fell below freezing last week in South Dakota, though the damage has not yet been assessed. Topsoil moisture is rated as 56 percent adequate, compared to 82 percent adequate last year, with subsoil moisture rated as 39 percent short to very short and 58 percent adequate. USDA rated 50 percent of South Dakota winter wheat in good to excellent condition compared to 54 percent last week; 20 percent of South Dakota winter wheat is in poor or very poor condition. Winter wheat is 32 percent headed in the state, on par with the 5-year average. South Dakota farmers planted 364,000 hectares (900,000 acres) of winter wheat, down 24 percent year over year. USDA expects South Dakota winter wheat production to decline to 1.19 MMT (43.7 million bushels), down 32 percent year over year.

Texas. Harvest started two to three weeks ahead of average in Texas and, as in Oklahoma, severe storms and hail threaten the crop. As of May 30, harvest is 22 percent complete, ahead of the 5-year average of 15 percent complete. Last fall, Texas farmers planted 1.82 million hectares (4.50 million acres) of wheat, down 10 percent from the year prior in very dry field conditions. In the past two years, Texas planted wheat area has dropped by 20 percent. USDA expects Texas wheat production to total 1.88 MMT (69.0 million bushels), down 23 percent from 2016/17. On May 30, USDA rated 31 percent of Texas winter wheat in good to excellent condition compared to 36 percent the week prior; 17 percent of the Texas crop is in poor or very poor condition.

Soft Red Winter (SRW) Conditions. Harvest is underway in the mid-South (13 percent of SRW wheat has been harvested in Arkansas). Crop conditions are generally good. However, recent rainy, cool conditions from the mid-South through the Midwest, Mid-Atlantic and Southeast have slowed maturity. In Ohio, Extension workers reported that the crop would benefit from drier and warmer weather. A poor price outlook compared to alternate crops has SRW planted area on a steady decline. USDA calculates SRW planted area at 2.24 million hectares (5.53 million acres) for 2017/18.

To track harvest progress, subscribe to the USW Weekly Harvest report.

To read the latest USW Weekly Harvest report, click here.

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Freeze, Snow Effects Likely Cut into World’s High Quality Wheat Supply

It is still too early to project specific effects on wheat yields for marketing year 2017/18 from the late-season cold and snow event in Kansas and parts of Colorado, Texas and Nebraska. However, those close to the situation suggest the freeze and snow only add fuel to an already established trend.

“The big story with hard red winter wheat in general before the blizzard headlines was about the reduction in planted area,” said Kansas Wheat CEO Justin Gilpin. “Lower planted area, now combined with higher abandonment in this crop, encouraged USDA to project a drop in hard red winter wheat production by 344 million bushels (9.36 MMT).”

Gilpin said he expects the situation in HRW will help reduce the total U.S. wheat stocks-to-use ratio by perhaps 10 percent — but carryover stocks still support a relatively high ratio of 40 percent.

“However, it needs to be pointed out that this does not reflect the balance sheet for the high quality milling wheat that buyers here in the United States and around the world should watch closely,” said Gilpin. “The available stocks-to-use number for quality supplies is projected to be to be much tighter on a global basis.”

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Digging Deeper: How Global Supplies Will Tighten in 2017/18

By Stephanie Bryant-Erdmann, USW Market Analyst

While markets focused on USDA’s latest global supply and demand values, a deeper look provides perspective for wheat buyers. Breaking the supply values down into three categories — importer, exporter and China — shows some interesting trends. USDA expects world wheat supply in 2017/18 to fall 2 million metric tons (MMT) year over year to 993 MMT due to a 2 percent decline in its estimated production of 738 MMT. If realized, it would be the first production decline since 2012/13. The anticipated decrease in exporter and importer supplies will be larger, but that decrease is masked by estimated increases for China. Removing China’s 2017/18 projected beginning stocks and production from global wheat supply reveals an 18.2 MMT or approximately 2 percent decline in global supplies.

Importing countries. Ending stocks in major wheat importing countries for 2016/17 — soon to be 2017/18 beginning stocks — are expected to fall to a 6-year low of 68.0 MMT. Production in the importing countries is expected to increase 5 percent year over year, lifted by a 10 MMT increase in India after two poor crops there. Total importing country supplies are expected to remain stable at 300 MMT, with beginning stocks falling and production increasing only marginally in importing countries. However, it should be noted that 107 MMT, roughly 35 percent, of that supply will remain in India.

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 4 percent or roughly 19 MMT year over year to 451 MMT. A 10.5 MMT year over year increase in exporter beginning stocks partially offsets the anticipated 7 percent decrease in production. Of the major eight exporters, only the EU and Argentina expect to see increases compared to last year.

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 131 MMT, up 2.15 MMT from 2016/17, yet Chinese wheat consumption is expected to decline 2 percent to 116 MMT due to an anticipated decrease in wheat feeding. With supply up and consumption down, 2017/18 Chinese ending stocks are expected to grow to 128 MMT, up 15 percent from last year and a new record. If realized, Chinese ending stocks would account for 49 percent of all global wheat ending stocks for 2017/18.

Global supply and demand estimates give broad perspective for purchasing decisions, but customers should take care to remove Chinese stocks from the equations because the entire volume will stay in China. Thus, China’s ending stocks skew the total global stocks-to-use ratio higher to 35 percent. Without China, the global ratio would be 21 percent.

Buyers should also note that USDA’s first estimates for 2017/18 wheat production use trendline yields and average harvested area. As last year demonstrated, weather can significantly affect yield potential, abandoned acres, quality and total production. For example, the actual effect of the late April freeze and snow, as well as increasing plant disease pressure, on hard red winter (HRW) production and quality will not be revealed until harvest. Buyers should continue to monitor conditions around the world, and recognize that global wheat supplies are much tighter than traditional global supply and demand estimates show.

To keep up to date on the 2017/18 U.S. wheat harvest and initial quality analysis, it is easy to subscribe to USW Weekly Harvest Reports. To read the first report, click here.

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Wheat Tour Finds Lower Yield Potential; Snow and Freeze Losses Still Uncertain

By Stephanie Bryant-Erdmann, USW Market Analyst

This week I joined the annual Wheat Quality Council (WQC) “Hard Red Wheat Tour” for an early survey of the new crop. Each year, participants gather in Manhattan, KS, and spend the next two and a half days in small team, randomly stopping at 14, 15 or more fields in a full day along the same routes followed for many years. The scout teams measure yield potential, determine an average for the route and estimate a cumulative average for the day when all the scouts come together in the evening.

Just a few hours before USW published this issue of “Wheat Letter,” the tour estimated a final average yield potential of 46.1 bushels per acre (bu/ac) or about 3.10 metric tons per hectare for the 2017/18 Kansas hard red winter (HRW) crop. This year the tour participants made 469 stops to scout fields. Combining seeded area with per-acre yield potential, the total production potential estimate was 282.0 million bushels (7.67 million MT). Last year’s total production estimate was 382.4 million bushels (10.4 MMT). Sampling this year was skewed toward central and eastern Kansas due to difficulties sampling in the west.

On the first day, the tour traveled from Manhattan along several routes covering most northern Kansas counties. The cumulative Day 1 average yield potential was 43.0 bu/ac, which is equivalent to about 2.89 MT per hectare, compared to 47.1 bu/ac (3.16 MT per hectare) in 2016. To reach that average, participants surveyed 222 fields recording a range from a low of 18 bu/ac to a high of 96 bu/ac. We saw moderate pressure from stripe rust, a fungal disease, as well as viral diseases wheat streak mosaic and barley yellow dwarf. Many farmers were having fungicide applied by air to protect against fungal diseases, but there is no input to check viral disease.

Participants also received a report on the Nebraska and Colorado wheat crops. Nebraska estimated an average 40.0 bu/ac (2.69 MT per hectare) for a total production estimate of 41.8 million bushels (1.14 MMT), down roughly 41 percent from last year’s tour estimate. Colorado estimated an average of 31.6 bu/ac (2.12 MT per hectare) with total production estimated at 69.5 million bushels.

On the second day, the tour traveled on routes that led from the city of Colby to Wichita, making 202 stops. The number of observations was down significantly this year due to the challenging field conditions found in the western third of the state where wet, heavy snow continued to blanket wheat fields. After digging the wheat out of the snow, scouts noted the combination of heavy snow and accompanying 50 to 60 mile per hour winds had laid substantial portions of the wheat down and in some instances had broken the wheat stems. Wheat that was knocked over by the heavy snow, then endured several days of cold temperatures.

Standing water in fields and flooded ditches made field evaluation difficult in the south central part of the state where lodging and some freeze damage was also noted. Wheat streak mosaic was prevalent on Day 2, and participants reported seeing barley yellow dwarf, leaf rust and stripe rust. This year the tour estimated Day 2 average yield at 46.9 bu/ac (3.15 MT per hectare), for a combined two-day average of 44.9 bu/ac (3.02 MT per hectare) across 427 stops. Last year, the Day 2 average was 49.3 bu/ac (3.31 MT per hectare) and the combined two-day average was 48.2 bu/ac (3.24 MT per hectare).

A word of caution to our overseas customers is prudent. The wind, snow and cold events this year are unprecedented. Participants in the tour did the best they could to evaluate the western Kansas crop, but Dr. Romulo Lollato, Assistant Professor, Wheat and Forages Production, Kansas State University told us the most accurate assessment of the storm and freeze will not be possible for 10 to 14 days after each event. “High Plains Journal” magazine is reporting from the Tour and provides more details on Day 2 activities here. Kansas Wheat published additional information here.

Participants also received a crop report from Oklahoma, where drought conditions severely impacted the southern half of the state which received one inch (2.5 cm) of rain between September and mid-February. The northern half of the state benefited from the recent rainfall. The estimated average yield in Oklahoma is 33.7 bu/ac (2.26 MT per hectare), for a total production estimate of 100 million bushels or about 2.72 MMT. If realized, that would be down 27 percent year over year. The crop development is well ahead of normal with farmers expecting to start harvest in the next three weeks.

The third and final day of the tour was shorter, with each car making 3 to 4 field stops on the way from Wichita back to Manhattan for the final report. The Day 3 estimated average yield was 58.3 bu/ac, (3.92 MT per hectare) across 49 stops.

View highlights and photos from the tour by searching #wheattour17 on Facebook and Twitter. The WQC also sponsors a spring wheat tour in the Northern Plains in July. For more information, visit the Council’s web site at https://www.wheatqualitycouncil.org.

 

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USW Reports and Resources Provide Valuable and Timely Information

USW is committed to helping customers get the wheat they want at the best value possible by providing critical information throughout the year. USW Marketing Specialist Stephanie Bryant-Erdmann leads this effort, working closely with a network of traders, extension specialists, market contacts, USDA staff and, of course, colleagues in USW’s overseas offices to analyze and update these resources regularly.

Between May and October, USW publishes a Harvest Report every Friday afternoon with updates and comments on harvest progress, crop conditions and current crop quality for HRW, SRW, HRS, SW and durum wheat. USW expects to publish a preliminary 2017/18 Harvest Report on May 5. Follow the progress of the 2017/18 crop at www.uswheat.org/harvest.

Every Friday, USW compiles information from market sources, including exporters of all U.S. wheat classes from various U.S. ports, to publish the Price Report. The prices represent the value of number two grade and the proteins indicated. The report includes FOB and futures prices by class, as well as ocean freight and currency exchange rates. View the Price Report at www.uswheat.org/prices.

Each Thursday, USW releases a Commercial Sales Report that documents sales-to-date for the current marketing year compared to the previous marketing year at the same date. The report sources data from the Weekly Export Sales report published by the USDA Foreign Agricultural Service. View this report at www.uswheat.org/commercialSales.

Once a month, USW updates a graphic summary of USDA’s World Agricultural Supply and Demand Estimates Report. The report summarizes factors affecting the global wheat market, historic information for all major wheat exporting countries and regions, and a by-class summary of U.S. wheat supply and demand. The data may be used without permission, but attribution to USW and USDA is appreciated. View this report at www.uswheat.org/supplyDemand.

In addition to USW’s market data reports, USW publishes this bimonthly newsletter, Wheat Letter. It features coverage on market analysis and crop updates, trade policy, export promotion activities and other general wheat industry news. Read the latest issue of Wheat Letter at www.uswheat.org/wheatLetter.

USW’s 15 overseas offices share these reports and resources with their market contacts and use them as key resources in their trade servicing activities. USW also publishes many of the reports in Spanish in “Trigonoticias,” distributed to Latin American wheat buyers and millers.

You may subscribe at www.uswheat.org/subscribe1 to have the Price Report, Harvest Report and Wheat Letter sent straight to your email.

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First Reports on HRW Damage from Late Season Snow and Freeze Events: “Just Terrible.”

By Steve Mercer, USW Vice President of Communications

Kansas Wheat CEO Justin Gilpin is not a fellow who is prone to hyperbole. So, when @jp_gilp “Tweets” to the world that “we lost the Western Kansas wheat crop,” people notice.

Blizzard conditions and up to 18 inches (45.8 cm) of heavy, wet snow came down hard on the rapidly maturing hard red winter (HRW) wheat crop in northwest Oklahoma, western Kansas, eastern Colorado and southwest Nebraska April 29 and 30. Much of that wheat looked very good before the storm. Its higher yield potential was a cautious hope for some farm profit this year, a hope now broken like the stems under the snow in so many fields.

This unusual event may have overshadowed separate freeze events April 22, 23 and 27 that affected a big portion of central Kansas as well as south central Nebraska and north central Oklahoma. Kansas Wheat said “the freezes may cause significant damage in many areas because the crop was in boot and early heading stages at the time.”

Local agronomists say it will take 10 to 14 days before the final effects of the unprecedented late-season freeze and snow events can be determined with any accuracy. The first estimate from the snow alone put loss potential at 50 million bushels or almost 1.4 million metric tons (MMT). That would be roughly equal to 5 percent of the 23.8 MMT 5-year average total U.S. HRW crop.

National Association of Wheat Growers (NAWG) President David Schemm, who farms near Sharon Springs in far western Kansas, captured what is probably on the minds of most Kansas farmers. In a Facebook Live video from one of his fields as he surveyed the damage, he said, “all we can say, thankfully, in these situations is that with crop insurance we can maybe keep our farm for another year.”

More tough blows to already strapped farmers are, as Justin Gilpin added in his striking Tweet, “Just terrible.” Perhaps some of the wheat — and all Central and Southern Plains wheat farmers — will recover from these stresses.

We can only hope.

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Wheat Quality Improvement Team Travels to Asia to Discuss Quality Control

By Steve Wirsching, USW Vice President and Director, West Coast Office

The USW Wheat Quality Improvement Team (WQIT) connects wheat breeders who develop new varieties with overseas customers to discuss which quality characteristics end users value the most. This is essential to the breeding process because for farmers about half of their wheat is exported and importers expect high value from those purchases.

The latest WQIT travelled to Bangkok, Thailand, and Taipei, Taiwan, where they met with quality control specialists April 3 to 12, 2017. The team included:

  • Mike Pumphrey, Washington State University;
  • Phil Bruckner, Montana State University;
  • Robert Talley, AgriPro/Syngenta;
  • Steven Wirsching, USW.

To learn more about the team members, click here.

In Bangkok, the breeders met with milling managers from Vietnam, Indonesia, Thailand and the Philippines who gathered at the UFM Baking and Cooking School to test selected U.S. wheat varieties against their own flours made from competitor wheats under the supervision of Roy Chung, USW Bakery Consultant. An annual event, this year the WQIT observed test results demonstrating that U.S. hard red spring (HRS) wheat quality is improving with longer farinograph stability times and better water absorption. This group also provided feedback on hard red winter (HRW) wheat used for Asian style noodles that require color stability. Many new HRW varieties under development in Montana have very low polyphenol oxidase (PPO) enzymatic levels that help noodles remain bright during processing. U.S. soft white (SW) wheat stands out as the best option for sponge cakes, cookies and crackers. Solvent retention capacity (SRC) values are used to distinguish U.S. wheat quality from other competitors that have similar protein values but vastly different starch and baking qualities.

In Taipei, the team met with the Taiwan Flour Millers Association (TFMA) to discuss wheat quality and supply reliability. Overall, the Taiwanese are satisfied with U.S. wheat quality, but there is always room for improvement, and the U.S. wheat industry is working to stay ahead of the competition. The WQIT also attended the Taipei International Bakery Show and met with several flour millers. Over the years, USW, in partnership with TFMA, has worked to develop this market, and the fruits of our joint efforts were in full display at this international event. The market is incredibly sophisticated with thousands of products that continue to drive wheat flour consumption higher, such that Taiwanese now consume more wheat than rice on a per capita basis. The team also met with China Grain Products Research and Development Institute (CGPRDI) staff who have trained thousands of bakers and other end users to create a wide range of products that keep consumers interested in wheat foods. Established in the 1960s with funding from USW and state wheat commissions, CGPRDI provides technical training for bakers and millers as well as wheat quality analysis.

The wheat breeders also discussed the benefits of hybrid wheat and other non-GMO plant breeding innovations. Talley, the Syngenta wheat breeder, is developing commercial hybrid wheat varieties that promise to increase drought tolerance, heat resistance and overall yield, which could bring benefits to the wheat industry within 5 to 7 years. Some of the millers asked if the new hybrid wheat would be considered a GMO. Talley explained that hybridization has been used for many crops, most notability corn, since the 1930s. Hybrid wheat will not be a GMO crop, but will benefit from the hybrid vigor of crossing two dissimilar high quality parent lines. Like all U.S. public and private breeding programs, Syngenta is committed to bringing high quality wheat to the market.

In today’s hyper-competitive market, overseas customers are not just looking for the lowest prices. More and more are seeking real value. USW is working with public and private breeders to develop high quality wheat varieties that perform not only in the flour mill, but also in the bakery or cookie/cracker line, delivering economic value to the end users and, in turn, to millers and farmers alike.

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Importer Ending Stocks Shrink to 6-Year Low

By Stephanie Bryant-Erdmann, USW Market Analyst

On April 11, USDA released its latest World Agricultural Supply and Demand Estimates (WASDE) report. With six weeks left in marketing year 2016/17, USDA expects wheat world ending stocks to reach a record high 252 million metric tons (MMT), up 4 percent year over year and 22 percent ahead of the 5-year average, if realized. The current marketing year factors in this report are well defined and the record large ending stocks are neither surprising nor new to those who follow the wheat industry. However, the position of those stocks has been quietly changing.

Historically, global wheat exporters — Argentina, Australia, Canada, the European Union (EU), Kazakhstan, Russia, Ukraine and the United States — have held roughly 30 percent of global ending stocks. China has historically held one third of global endings stocks and the mostly net importers that remain have held about 37 percent. The 5-year average breaks out with exporter stocks at 61 MMT, China holding roughly 70 MMT and the world’s importers carrying out about 75 MMT

However, USDA expects that ratio to shift at the end of 2016/17. Chinese ending stocks are expected to reach a record high 111 MMT, or 44 percent of global ending stocks. In global wheat exporting countries, ending stocks are also expected to grow slightly to 74.0 MMT, but the ratio will fall to about 29 percent of global ending stocks. Carryout stocks in the world’s wheat importing countries are expected to fall 16 percent year over year to 67.1 MMT. If realized, that would be 11 percent below the 5-year average and 27 percent of global ending stocks, down 10 percentage points from the 5-year average.

This decrease is due in large part to a shift in purchasing behavior. Four consecutive record production years have enticed many buyers to adopt a “just-in-time” approach to take advantage of the lower prices and reduce storage costs where possible. That is why ending stocks in the top 20 markets for U.S. wheat (excluding China) are expected to cover just over two months of consumption, 6 percent below the 5-year average.

Additionally, 28 countries (including the EU, the world’s largest wheat consumer and normally a top wheat exporter) expect to have one month or less of domestic consumption in carryout stocks at the end of 2016/17, compared to the 5-year average of 20 countries with one month or less of domestic consumption. There are also 23 countries for which USDA does not show ending stocks data. These countries import 6.09 MMT of wheat annually and, with limited storage capacity, tend to buy “just-in-time.”

With lower planted area and an expected return to trendline yields, world wheat production is poised to decrease in 2017/18. With importing country stocks drawn down to the lowest level since 2010/11, any supply shocks would increase price volatility in wheat futures markets. On paper, the world has ample wheat, but 44 percent of that supply resides in China, which rarely offers wheat or flour for export.

After four consecutive years of larger global production and lower global wheat prices, many customers have minimal stocks on hand to weather supply shocks, and as one wheat buyer noted, “wheat (export) prices take the stairs down and the elevator up.” Fortunately for our customers, the United States holds 12 percent of world wheat ending stocks, ensuring the U.S. wheat store is always open. What is still uncertain is whether the price of U.S. high-quality wheat will remain at the current low levels. As always, weather is the wildcard, both in its direct effects on world wheat production and the wheat price impacts of any production problems with other major grains, especially corn and soybeans.

Customers should be aware of changing conditions around the world, and can track USDA weekly wheat crop condition and planting progress reports, as well as the latest U.S. weather forecast on the weekly USW Price Report.

USW will begin weekly Harvest Reports in May. To subscribe to any of USW’s reports, click here.

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