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On Jan. 30, 2024, Casey Chumrau, CEO of the Washington Grain Commission, offered compelling testimony supporting the crucial infrastructure of dams and locks on the Columbia Snake River System (CSRS) at a U.S. House Energy, Climate, and Grid Security Subcommittee hearing. U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) sent separate letters with their observations of the essential nature of the CSRS for U.S. wheat export competitiveness.

Following are excerpts from Chumrau’s testimony.

Grain growers in the Pacific Northwest (PNW) rely on the Columbia Snake River System, and the Lower Snake River Dams (LSRD) in particular, for their livelihoods. More than 55 percent of all U.S. wheat exports move through the PNW by barge or rail. Specifically, 10 percent of wheat that is exported from the United States passes through the four locks and dams along the Lower Snake River. This is especially important for our state because Washington is the fourth largest wheat exporter in the nation, exporting 90% of the wheat produced in the state. Across the agriculture industry, the Columbia Snake River System is the second largest gateway for soybean and corn exports coming from as far as the Midwest. The river system also serves as an important channel to bring crop inputs, like potash, to farmers in the region who need fertilizer to produce the safe and affordable food supply that is found on every American’s table.

Casey Chumrau, CEO, Washington Grain Commission, giving testimony on Columbia Snake River System Jan. 30, 2024, to a U.S. House subcommittee hearing.

Casey Chumrau, CEO, Washington Grain Commission, giving testimony on Columbia Snake River System Jan. 30, 2024, to a U.S. House Energy, Climate, and Grid Security Subcommittee hearing.

Economic Impact

Washington’s agriculture industry, and its ability to produce and export products globally, are critical to the state and region’s economy. The total value of wheat exported through the PNW is nearly $4 billion per year.

For Washington, the state is among the top 20 states for agricultural exports in the nation, with over $8 billion in Washington-grown or processed food and agriculture exports in 2022. A significant volume of food and agriculture products from other states including soybeans, wheat, and corn are exported through Washington state ports each year. Once these pass-through exports are combined with Washington-grown or processed exports, the total value reaches over $23 billion.

The Washington wheat industry alone contributed over $3.1 billion to the state’s economy in 2022, with a heightened impact in rural areas. In the same year, total direct employment associated with Washington wheat production amounted to 3,672 jobs in 2022. Indirect and induced employment also grew and supported another 11,676 jobs.

The impact that Washington farmers have on their local and regional economy is similar in communities across the country. In addition to direct sales of farm goods and commodities, farmers contribute to the economy and support other rural businesses through purchases of farm business inputs – everything from seed and fertilizer to business services. Additionally, the personal purchases of both farmers and their employees help to stimulate local economies and keep small businesses ruining.

Locks and dams on the Lower Snake River and the Columbia River provide essential infrastructure for moving U.S.-grown wheat to high-value markets around the world. We cannot overstate the positive value they create for U.S. farms, [the] economy of the Pacific Northwest and far beyond. – From USW letter to House subcommittee hearing on the Columbia Snake River System

Supply Chain and Transportation

Over the last seventy years, growers and their federal government partners at the U.S. Department of Agriculture have invested billions of dollars and countless hours to build strong relationships with our trading partners. The U.S. wheat industry differentiates itself by providing high-quality wheat and reliable delivery. The United States is a reliable trading partner in large part because of our world class, multi-modal infrastructure, which allow us to safely and efficiently ship products around the world. Any disruption to that system would hurt our ability to consistently provide abundant, high-value food products and remain competitive with other agricultural exporters in the world and weaken the competitiveness of U.S. producers in global markets.

Grain growers in PNW states are at the tip of the spear of those who would feel the disruption of having to divert export goods to trucking and rail because there is insufficient alternative transportation infrastructure to replace the barge shipments of grain along the Columbia Snake River System to export markets. For example, one loaded covered hopper barge carries over 58,000 bushels of wheat. It would take 113,187 semi-trailers each year carrying 910 bushels of wheat to replace the 103 million bushels shipped on the Snake River via barge annually. That is 310 more trucks each day, making round trips to the Tri-Cities, 365 days per year. To that end, barging is the most fuel-efficient mode of transportation when compared to railroads and trucking. Each barge that must be replaced by a truck means more pollution, more traffic, increased costs and increased wear and tear on our roads – and that’s if we could even hire the drivers needed to drive these trucks in the increasingly tight labor market for drivers.

Path Forward

We strongly believe that dams and salmon can and do co-exist. With a myriad of challenges facing the salmon population, we are committed to building upon current investments and technological advancements. Currently, the Lower Snake River Dams have world-class fish passage and juvenile survival rates upwards of 95 percent. We believe any work moving forward should build off the fish passages, instead of eliminating them. We also support investments made at the federal and state level for culvert removal, fish habitat restoration, toxin reduction, and predator abatement.

Conclusion

The opportunities to ensure salmon populations continue to grow do not have to come at the cost of destroying the integrity of the Columbia Snake River System and the livelihood of farmers. The importance of the river system for the agriculture industry, and particularly for grain growers across Washington, cannot be overstated. I look forward to discussing the importance of the four Lower Snake River Dams with you today. Thank you.

To read more about this issue, see these previous “Wheat Letter” posts:

Exports Depend on Snake River Dams

USW Expresses Support for Maintaining Lower Snake River Dams

Wheat Leaders: Protect Lower Snake River Dams

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Kitchen table math can be a chore this time of year, as U.S. wheat farmers shovel their crop production costs into calculators, hoping the numbers they scoop out next year will be magically heavier than those they tossed in this year.

But here’s a secret about the math of farming: it isn’t really magic.

“There’s a lot of work and a lot of luck involved in making a profit in our business,” is how U.S. Wheat Associates Chairman Michael Peters put it. “The numbers are rarely where you need them to be or where you want them to be.”

An important thing for customers of U.S. wheat to keep in mind is that input costs and the prices farmers receive for their crops each year go a long way toward determining which crops farmers choose to plant the next year.

“The goals of a U.S. farmer are to help feed the world and to also feed our own families,” said Peters, who grows wheat and raises beef cattle in Oklahoma. “We make a lot of decisions each year based on market conditions and expenses. And those are two things that tend to go up and down a lot. They are never stagnant.”

This chart by USDA shows the average cost per acre to produce crops in the U.S. between 2020 and 2024. According to USDA, among the major field crops, the cost-of-production for wheat is forecast to be the lowest at $416 per acre, down 2.3%.

This chart by USDA shows the average cost per acre to produce crops in the U.S. between 2020 and 2024. According to USDA, among the major field crops, the cost-of-production for wheat is forecast to be the lowest at $416 per acre, down 2.3%.

Farming’s ‘Reality’ Math

Although 2023 input costs have been, in general, mostly lower than the costs wheat farmers endured a year ago, a profitable 2024 is far from guaranteed. While crop production expenses have fallen a bit and are expected to remain lower compared to last year’s cycle, commodity prices – including the prices paid to farmers for their wheat – are also forecasted to be lower.

That’s farming’s reality math.

Wheat prices have declined about 27% since the start of 2023, according to Rabobank, and now trades at levels well below those seen before the war in Ukraine began in early 2022. Lower wheat prices are attributed mostly to strong Russian wheat production and a pattern of opportunistic import purchases.

Despite lower prices, farmers appear committed to putting wheat in the ground. In its most recent forecast, USDA put the planted area for wheat that will be harvested in 2024 at 48 million acres, which would be down 1.2 million acres from the 49.6 million acres in 2023 but above the 5-year average of 46.4 million acres.

In general, the cost of putting wheat seed into the ground in 2023 saw a slight decline in many parts of the country, as fertilizer and fuel costs dropped after spiking the past two years. However, wheat prices also fell, cutting into potential farmer profits.

In general, the cost of putting wheat seed into the ground in 2023 saw a slight decline in many parts of the country, as fertilizer and fuel costs dropped after spiking the past two years. However, wheat prices also fell, cutting into potential farmer profits.

Better and Worse

In mid-2024, USDA’s Economic Research Service released a cost-of-production forecast for major field crops that included updated projections for 2023 costs and the first look at estimated production expenses for 2024. Notably, input costs for the 2024 growing season are expected to be the third-highest all-time, behind only 2022’s record-high and 2023’s second-all-time high.

The slight downward trend in input costs does hold some promise, farmers say.

“Chemical prices are probably half of what they were and fertilizer prices are down 30% to 40%, maybe 50% in some cases, depending on the product,” said North Dakota wheat farmer and USW Secretary-Treasurer Jim Pellman. “Fuel prices have moderated a little bit. So generally, major inputs have reduced the last couple of years. But at the same time, you’re seeing lower prices. The best-case scenario for a farmer is low inputs and high grain prices. The worst-case scenario is high inputs and low prices. We are not seeing either of those right now. So it could be better, but it could be worse.”

This chart provided by USDA shows the percentage change in farm production expenses between 2020 and 2023.

This chart provided by USDA shows the percentage change in farm production expenses between 2020 and 2023.

Some Hope for Wheat Growers?

While input costs remain relatively high, according to USDA, among the major field crops, the cost-of-production for wheat is forecast to be the lowest at $416 per acre, down 2.3%. Yet challenges remain.

“Describing the last three years of global agricultural commodity prices as volatile is an understatement,” said Carlos Mera, head of agri-commodities at Rabobank. “Producers are still grappling with the after-effects of war, adverse weather, high farm input inflation and weak consumer demand, but eyeing 2024 as the return to a semblance of normality.”

Winners and Losers

Rabobank predicts that prices wheat will remain subject to weather and export-related uncertainty, as it has for several years now.

“Winners and losers will emerge as agricultural commodities go through different points of the cycle next year,” Mera said.

For wheat, Rabobank expects another supply deficit in the global market. There will be little relief from the Southern Hemisphere crops in the coming months, with both Argentina and Australia underperforming. El Niño could leave fields in Australia with little moisture ahead of the 2024 planting season, according to Rabobank.

U.S. wheat farmers have been through these kinds of up-and-down supply and demand cycles before. They do their best to make planting decisions based on the best information they have in the fall and spring each year.

“The difficult part for a farmer is that we have to make our planting plans far in advance, well before we know exactly what the market is going to be like at harvest time,” explained Pellman. “We can’t predict the weather, either. That’s our world. But, we are still able to produce a high-quality crop every year.”

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“It was a challenging year,” said Oregon farmer David Brewer of the 2023 soft white (SW) wheat production season. “However, I believe that our investments into variety development and adoption of sustainable management practices have helped us ensure the best functionality from the 2023 crop.”

Seeding conditions were good in the fall of 2022 with sufficient moisture to get the soft white winter wheat crop off to a good start in the Pacific Northwest (PNW). Dryness set in just as the crop was breaking dormancy and turned hot as farmers seeded their spring SW. Hot, dry conditions persisted and accelerated maturity and harvest.

Those growing conditions affected yields, with SW production now estimated at 5.3 million metric tons (MMT) or almost 195 million bushels. That is 23% less SW than PNW farmers produced in 2022.

U.S. soft white wheat kernels

Soft white (SW) wheat.

The dry conditions also contributed to a SW crop with above-average protein. Yet, the crop has appropriately weak to medium gluten strength and acceptable or better finished product characteristics. Stocks of more typical protein SW from 2022 are also available to buyers. In addition, the higher protein SW in this crop provides opportunities in blends for crackers, Asian noodles, steamed breads, flat breads, and pan breads.

The following 2023 crop quality highlights include functional data for Club, a sub-class of SW with very weak gluten strength, typically used in a Western White blend with SW for cakes and delicate pastries.

U.S. Club wheat kernels

Club wheat.

2023 SW Crop Highlights

  • The overall average grade of the 2023 SW crop is U.S. No. 1 SW; Club average is also U.S. No. 1.
  • Test weight averages trended lower this year with an average of 60.3 lb/bu (79.3 kg/hl) for SW and 60.7 lb/bu (79.8 kg/hl) for Club.
  • Protein (12% mb) is higher this year with an average of 11.1% for SW and 10.6% for Club.
  • Falling number average is 336 sec or higher for all SW composites and 327 sec for Club.
  • Buhler Laboratory Mill average extraction for SW is 70.3%, and 72.1% for Club. Commercial mills should see better extractions, although some adjustments may be necessary for portions of the crop with lower test weights. Flour extractions should not be compared to last year or the 5-year average as the calculation has shifted from a total product weight basis to a tempered wheat weight basis.
  • Solvent Retention Capacity (SRC) lactic acid and water values for SW are 105% and 51%, respectively, indicating weak to medium gluten strength. Overall, SW composites have SRC profiles suitable for good cookie and cracker performance. Lactic acid and water SRC values for Club are 71% and 51%, respectively, and are indicative of very weak gluten with low water holding capacity.
  • Starch pasting properties include amylograph and RVA viscosities for SW and WC indicating the crop is suitable for batter-based products. The low protein SW composite average of 368 BU/2122 cP peak viscosity is reflective of a slightly lower falling number (313 sec). The overall SW and WC averages are similar to last year.
  • Soft white and Club dough properties are typical and suggest very weak to medium gluten strength and low water absorption values similar to their respective 2022 and 5-year averages.
  • Sponge cake volumes average 1089 cc for SW and 1110 cc for Club. Hardness value for SW is 353 g and 337 g for Club. All SW and Club cakes were baked from an experimentally milled straight grade flour. For comparison, control cakes baked at the same time from a commercially milled short patent cake flour (2022 harvest) have an average volume of 1205 cc and an average firmness of 242 g.
  • Cookie diameter values are 7.7 for SW and 7.9 for Club. Spread ratio for SW is 8.2 and 8.8 for Club. These values should not be compared to 2022 or the 5-year averages as the cookie method has changed as of 2023 (see analysis methods).
  • Average soft white pan bread bake absorption is 56.1% and loaf volume is 696 cc. Blends of hard wheat with up to 20% SW should produce acceptable pan breads, especially from higher protein SW.
  • Chinese southern-type steamed bread values for Club, and medium and high protein SW composites scored similar to or better than the control due to greater volume and whiter internal crumb color. Specific volume and total score averages are SW 2.7 mL/g, 70.8 and Club 2.7 mL, 70.7, respectively.
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U.S. Wheat Associates (USW) continued a tradition of promoting the value of U.S. agricultural products together with other USDA Foreign Agricultural Service cooperator organizations by co-hosting the annual U.S. Agricultural Cooperators Conference Sept. 12 to 14, 2023, in Da Nang, Vietnam. This conference is designed as a value-added service for Southeast Asian buyers served by USW, and co-hosts U.S. Grains Council (USGC) and U.S. Soybean Export Council (USSEC).

USW Regional Vice President Joe Sowers on a panel at the 2023 U.S. Agricultural Cooperators Conference

USW Regional Vice President Joe Sowers participated in a panel discussion of U.S. cooperator leaders at the 2023 U.S. Agricultural Cooperators Conference.

“Our collaboration with these organizations on conferences in South and Southeast Asia not only increases opportunities to connect with our milling customers in the region, but also with grain trade and other industry representatives,” said Regional Vice President Joe Sowers who represented USW and the conference. “Many flour millers in the region also have feed milling operations, so this conference leverages the investments of all three host organizations to educate and increase positive contact with regional stakeholders.”

Building Bridges, Sharing Knowledge

Titled “Globalization 2.0: Building Bridges for Food Security, Sustainability, and Innovation,” the conference in Da Nang covered the global challenges identified in its name and, according to USGC, emphasized “the need to build bridges that facilitate collaboration, sharing knowledge, and acting on common issues.”

“It is very important that customers hear the message that U.S. farmers are producing safe, reliable and abundant supplies of wheat, feed grains and oilseeds,” Sowers said. “Vietnam, for example, is a quickly growing market with an exploding middle class eager to consume more and better-quality wheat-based foods.”

Vietnam’s annual milling wheat imports are more than 2 million metric tons and growing at a similar rate in the South and Southeast region.

Visit the USGC website for more information about the 2023 Southeast Asia U.S. Agricultural Cooperators Conference.

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As we continue a series of articles on U.S. supply chain logistics, rail is arguably the most important mode of transporting wheat for export.

According to a recent USDA Modal Share Analysis Study, rail accounted for an average of 59% of inland transportation for wheat exports between 2016 and 2020, or an average annual total of 17.0 million metric tons. This article will focus on the importance of rail freight in wheat exports and address current trends in rail performance.

Two vertical bar charts showing the volume of U.S. wheat shipped domestically and to export locations by truck, rail and barge between 2004 and 2020.

Rail and barging are the main modes of transportation for wheat exports, as they can handle large volumes of grain over long distances. Together, they transport 89% of the total wheat export shipments. Source: USDA Modal Share Analysis Study.

An Interesting Year

In 2022, increased demand for railcars and performance issues sent U.S. rail rates soaring, with Secondary Railcar Auction Market Bids hitting their highest since 2014. Since then, rail rates have eased drastically. From March 2023 to July 2023 secondary bids for railcars have been negative, indicating that the current supply of railcars is sufficient for meeting the needs of shippers.

Decreased volumes and the subsequent decrease in rail tariff rates and Secondary Railcar Market Auction Bids have added additional pressure to already low basis levels, helping boost the competitiveness of U.S. wheat to importers. However, as the 2023 soy and corn harvest progresses, we can expect rail rates to rise due to increased demand and a higher volume of grain moving via rail.

This vertical bar and line chart show a comparison of grain carloads average from previous years to the current 4 week period up to 8/25/23.

According to the latest Grain Transportation Report, grain carloads (corn, soybeans, and wheat) moved by Class I railroads were down 3% from the previous week and are sitting 22% below the three-year average. The current decreased volume alleviates pressure on basis as rail companies have a sufficient supply of cars to meet the current demand. Source: September 3, 2023 USDA Grain Transportation Report.

Even so, the outlook for fall logistics appears positive. In a recent interview with “Freightwaves,” transportation export Jay O’Neil indicated that “Weather is always a question mark that makes it [performance] impossible to predict. But overall, I think the railroads… have some excess capacity because of [reduced grain export volumes]. I think [railroads] are very much looking forward to the harvest season … So, I don’t see any particular influences right now that should get in their way and prevent them from providing a decent service for harvest.”

Part of a Reliable System

U.S. Wheat Associates (USW) is committed to sharing transparent and pertinent information to customers about inland logistics issues. It is beneficial for U.S. wheat importers to be aware of transportation trends, as seasonal shifts and potential issues have a direct influence on export basis and the Free-on-Board export price.

Encompassing the largest share of inland logistics, the railroads are a critical component for moving U.S. wheat to export. After last years’ service disruptions, steps have been taken to help address the root issues such as hiring additional crew and investing in infrastructure. U.S. railroads are committed to moving U.S.-grown commodities. With diverse origination options and numerous modes of transportation, regardless of the class or export point, rail helps U.S. wheat remain the most reliable choice for world importers.

This article is part of a series outlining the inland logistics for U.S. wheat, highlighting barge freight, the railroads, infrastructure investments, and maritime transportation trends.

By USW Market Analyst Tyllor Ledford

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Drought conditions have grown progressively worse in the PNW over the last few months as temperatures increased rapidly and measurable precipitation remained scarce, depleting soil moisture and stressing the planted wheat crop.Source: NOAA Climate Prediction Center

Drought conditions have grown progressively worse in the PNW over the last few months as temperatures increased rapidly and measurable precipitation remained scarce, depleting soil moisture and stressing the planted wheat crop.
Source: NOAA Climate Prediction Center

Amid this year’s volatile markets and relatively slow demand, U.S. soft white wheat (SW) has provided many customers with buying opportunities, positioning itself as one of the most competitive classes of U.S. wheat.

In recent months, dryness in the Pacific Northwest (PNW) this spring dominated market news and discussions about quality. As harvest ramps up across the SW growing region, more information is expected to become available regarding SW production, yield, and quality. In the meantime, this article will recap the current soft white wheat situation and provide background on supply factors as harvest progresses in the PNW.

Production Outlook: A Tri-State Effort

White wheat is typically one of the classes with the most stable planted area. The June 30 USDA acreage estimates showed a slight increase in white wheat acres to 4.28 million acres, up from 4.24 million acres in 2022/23, with a specific increase in the SW producing state of Oregon. Despite the increased area, dry conditions have lingered, and have had a potentially detrimental impact on yield potential and quality. The USDA Crop Production Report released on July 12 forecasts SW production at 6.7 MMT, down from 7.4 MMT the year prior and 600,000 MT below the five-year average of 7.2 MMT. However, the forecast is still above the 2021/22 production levels of 5.47 MMT after severe drought diminished yield potential and increased protein levels.

On a per state basis, production potential differs throughout the growing region. Wheat production is forecast to be down in Washington and Oregon by 15% and 16%, respectively. Meanwhile, in Idaho, all wheat production is forecast at 2.45 MMT, down 2% from the year prior. Though the Idaho crop is behind on development, some growing regions have benefitted from cool weather and scattered showers.

2023/23 SW production is forecast at 6.7 MMT, down 9% from last year and 7% below the five-year average.Source: USDA ERS Wheat Data

2023/23 SW production is forecast at 6.7 MMT, down 9% from last year and 7% below the five-year average.
Source: USDA ERS Wheat Data

The Current Balance Sheet

Throughout the latter part of the 2022/23 marketing year, industry sources reported slow selling by farmers and increased stocks held on the farm. Due to the increased stocks held by farmers, beginning stocks for the 2023/24 marketing year increased by 500,000 MT to 2 MMT, the first stocks increase since 2020/21. Though protein levels of the 2023 crop are not yet known, the increased old crop wheat stocks can be blended with new crop to help meet customer specifications.

Moreover, SW prices have softened substantially over the past year, weighed down by recovered production in the 2022/23 crop year, decreased export demand, competition from other origins, and seasonal pressures as exporters more aggressively price SW into the global market. Over the last six months, SW prices have decreased from $321/MT in January 2023, to $263/MT in July 2023, their lowest level since November 2020. Furthermore, there has been little to no premium for max 9.5% protein versus max 10.5% protein throughout a majority of the 2022/23 crop year.

Despite the 9% decrease in SW production for 2023/24, total supply is down only 2% due to increased carryover stocks from the year prior. Source: USDA World Agricultural Supply and Demand Estimates

Despite the 9% decrease in SW production for 2023/24, total supply is down only 2% due to increased carryover stocks from the year prior.
Source: USDA World Agricultural Supply and Demand Estimates

Looking Ahead

As of July 17, the USDA crop progress report put winter wheat in Washington, Oregon, and Idaho at 6%, 15%, and 5% harvested, respectively. With little harvest progress and no quality data collected, no definitive information is yet available regarding SW production yield, and quality characteristics. Keep in mind that anecdotal evidence generally indicates that dryland areas and regions with shallow soil are harvested first. Thus, higher protein is expected to be registered early in the season.

U.S. Wheat Associates recommends closely monitoring the SW harvest and maintaining regular communication with your supplier regarding protein availability and premiums. For weekly updates to harvest and price information subscribe to the U.S. Wheat Associates Harvest Report and Price Report.

SW prices have softened substantially over the last six months, decreasing from $321/MT in January 2023, to $263/MT in July 2023. SW prices hover at their lowest level since November 2020, pressured by low demand, competition from other origins, and seasonal pressures.Source: U.S. Wheat Associates Price Report

SW prices have softened substantially over the last six months, decreasing from $321/MT in January 2023, to $263/MT in July 2023. SW prices hover at their lowest level since November 2020, pressured by low demand, competition from other origins, and seasonal pressures.
Source: U.S. Wheat Associates Price Report

 

 

 

 

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The news that U.S. flour milling companies have imported European wheat has raised concerns and frustrations for U.S. wheat stakeholders. To an organization like U.S. Wheat Associates (USW) that with our state wheat commission members promotes exports on behalf of U.S. wheat farmers, such news is particularly disappointing. After all, U.S. farmers produce enough wheat each year to meet domestic demand and still offer about half the crop to export markets.

The concern is not about imported wheat per se. Flour millers do import varying amounts of Canadian spring wheat every year. And conditions have in the past made it possible for feed-grade wheat to be imported into coastal pork and poultry production markets. It is important to state that there is more than enough high-quality U.S. wheat available to produce all the flour we need in this country, and the 2023 harvest is already underway.

However, imported European wheat to produce domestic flour is a highly unusual situation. USW wanted to share what is behind these imports and perhaps answer the questions from stakeholders.

Dynamic market factors have created a large price spread between similar classes of European and U.S. wheat. In May 2023, according to AgriCensus data, the published FOB export price for Polish wheat was more than $107 per metric ton less than the U.S. hard red winter (HRW) Gulf FOB export price. German wheat export price in May showed a similar discount to Gulf HRW FOB.

In looking at this difference between the bargain purchase price in Europe versus the current U.S. domestic market replacement values, USW President Vince Peterson recently said that “this may be the biggest trade margin that I’ve ever heard of” in all his years in the grain trade.

Supply Shock

This remarkable difference in prices happened mainly because the relative volume of exportable wheat supplies in Eastern Europe has exploded this year. Putin’s invasion of Ukraine drastically curtailed Ukraine’s ability to export by vessel from its Black Sea ports, in turn sending war-distressed Ukrainian wheat and other commodities pouring across their land borders into Eastern European countries. That movement severely depressed local wheat prices, harming EU farmers and causing five EU countries to implement bans on imported Ukrainian grain staying within their countries. Russia’s record 2023 wheat crop and unfettered exports (now projected at 45 million metric tons (MMT), also a record) created more regional price pressure.

Even though the EU-27 is the world’s second largest wheat producer after China and second largest exporter after Russia, EU wheat imports increased by 6 MMT in the 2022/23 marketing year. Combined with the unprecedented disruption of regional grain movement, USDA estimates the EU’s ending wheat stocks will rise from 10.1 MMT in 2020/21 to 16.2 MMT in 2022/23. And USDA expects European wheat production to increase this year over 2022 even though there is dryness in western Europe.

Yet over the same 3 years, U.S. wheat supplies have gone in the opposite direction, especially supplies of HRW wheat. Drought has hurt total U.S. supplies for three years in a row, first reducing hard red spring and soft white crops. Then drought cut HRW production in 2021/22 and intensified in 2022/23, resulting in a high number of abandoned wheat fields and short overall production. U.S. exportable wheat supply concerns, combined with the disruptive news constantly flowing from the Black Sea conflict, are supply shocks that continue to support the surprisingly high gap between U.S. and EU wheat prices.

Ocean v. Rail Rates

Considering imported European wheat, the question must be asked about the difference in cost between bulk ocean freight rates from Europe to the United States and U.S. rail rates to move wheat to its flour mills. Comparing those rates today, U.S. rail tariffs and fuel charges to transport wheat are close to twice the ocean freight cost on a per-metric-ton basis.

Unfortunately, this transportation cost spread indicates that rail rates have been and continue to be a burden on the value of delivered wheat for domestic and export markets.

A 2020 study by USDA found that rail rates increased by 30% for wheat, 32% for corn, and 30% for soybeans from 2000 to 2014, and wheat rail tariff rates have increased by an additional 18% since 2014. Rising and unfair rail rates for wheat erode its competitiveness for domestic as well as overseas buyers.

That is why USW’s Transportation Working Group is focused on addressing uncompetitive wheat rail tariff rates to make sure that when global market conditions readjust – and they will – domestic rail rates for wheat do not diminish U.S. wheat’s value at home and abroad.

Image shows grain rail cars by a country elevator to illustrate USW comments to the Surface Transportation Board.

Rail rates have been and continue to be a burden on the value of delivered wheat for domestic and export markets.

An Unwanted Hit

Without doubt, the import of European wheat and the market factors that encouraged it are most unfortunate. As Kansas Wheat Vice President of Research and Operations Aaron Harries said, this situation is “another hit against our domestic farmers” who are battling drought, increased operating costs and other headwinds to produce high quality wheat that is more than sufficient to supply all U.S. flour mills and export demand.

USW and others in the industry believe the imported European wheat will likely move to coastal U.S. flour mills – in part because of the high rail rates milling companies would have to pay to transport it to interior mills.

The supply challenges in today’s global wheat market are likely to continue at least through the 2023 harvest. USW sincerely believes that absent the illegal and highly disruptive invasion of Ukraine, the price spread incentivizing U.S. imports would be much closer. Sadly, the conflict rages on.

Domestically, higher wheat prices also encourage increased production, seen in the significant increase in U.S. HRW planted area for the 2023 crop. Unfortunately, the devastating drought undercut that positive trend this year, but prices remain an incentive for U.S. farmers.

If there is a grace note to this situation, USW President Peterson points out that the price spread between EU wheat and U.S. HRW wheat has recently narrowed. The potential for recent rainfall in Northern Plains HRW and hard red spring production regions to push 2022/23 production higher than expected would help fill the price gap – and offers hope for a better outcome in 2023/24.

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Eight executives from top Japanese flour mills arrived in the U.S. this week, bringing with them an astute observation about the global wheat market: Supply and demand have had an odd relationship over the past three years.

Through it all, Toshiaki Yokoyama emphasized, “the relationship between U.S. wheat and Japan has not wavered.”

During a meeting between U.S. Wheat Associates (USW) and the Japan Flour Millers Association (JFMA) on Monday, Yokoyama, JFMA Chair and Director of Nisshin Flour Milling Inc., expressed JFMA’s appreciation for the ability of U.S. farmers to produce a stable and consistent supply of high-quality wheat – even amid challenging times and conditions.

Members of the Japan Flour Millers Association pose for a photo with USW President Vince Peterson and USW Japan Country DIrector Rick Nakano following a meeting at USW headquarters.

Members of the Japan Flour Millers Association pose for a photo with USW President Vince Peterson (center) and USW Japan Country Director Rick Nakano (front row, far left) following a meeting at USW headquarters.

“Over the past three years, the spread of COVID-19 and Russia’s invasion of Ukraine have had a great impact on the relationship between wheat supply and demand, but the strong ties established over the years between Japan and the United States have remained solid,” Yokoyama said. “We are very happy to get back to the U.S. It is quite important to maintain and develop this good relationship under all circumstances, and we value continued cooperation by the U.S. wheat industry.”

JFMA, which also visited USDA and the Japanese Embassy during its time in Washington, D.C., was seeking updates on U.S. wheat production and exploring U.S. attitudes and opinions on biotechnology, including gene-edited wheat and drought-resistant wheat. International trade, disruption in the Black Sea region and the climate were other discussion topics.

It was JFMA’s first visit to the U.S. since 2019.

“These are our primary customers in Japan, which is regularly our second or third largest wheat market in the world, so we were very happy to have them here again and to be able to discuss things with them face to face,” said USW President Vince Peterson. “U.S. wheat has a long-term investment in Japan, and I believe they have a long-term investment in us, as well. It’s a great partnership and we are looking forward to continuing that partnership.”

Peterson and USW Vice President of Trade Policy Dalton Henry met with the JFMA team, which was led by Rick Nakano, USW Country Director in Japan. After its stop in D.C., the team moved on to Portland, Oregon, where it visited USW West Coast staff, state wheat associations in the Pacific Northwest, the Wheat Marketing Center and United Grain’s export facility.

See a brief video of JFMA’s visit to USW below.

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News and Information from Around the Wheat Industry

 

Speaking of Wheat

Until some of these geopolitical conflicts are resolved — it’s difficult to envision a return to the level of free trade we enjoyed through the late 20th and early 21st centuries. Difficult as it may be, governments must resist the urge to limit or ban grain exports unless the food security situation in their countries is truly dire. The fate of a growing number of food insecure people on this planet — estimated at nearly 350 million people (more than the population of the United States) in 2023 by the World Food Programme — depends on it.” – Arvin Donley, Editor, World Grain. Read more here.

SW Kansas: “One of the Worst Wheat Crops in 50 Years”

That is how wheat farmer and agricultural journalist Vance Ehmke described the situation in the southwestern corner of Kansas. Ehmke said there will be “no dryland [winter] wheat at all” this year there and extending about 160 kilometers into the Texas and Oklahoma Panhandles and southeastern Colorado. “I looked at 30 to 35 years of Kansas wheat crops and abandonment runs about 10%. I could see 25% abandoned here this year with very low yields on the rest,” he wrote in The Hutchinson News. See also Bloomberg News’ video summary here.

Winter Wheat Conditions Still Lower

Farm broadcaster Ron Hays’ Oklahoma Farm Report notes the April 10 USDA NASS Crop Progress Report shows U.S. winter wheat conditions are tied with 1996 for the lowest rating in 40 years. Nationwide, winter wheat is 27% good to excellent. That is down one point from the previous week and compares to 32% good to excellent at the same time in 2022. Read more here.

The Passing of Joe Kejr

U.S. Wheat Associates (USW) joins so many others in our industry in expressing our condolences to the family of Ottawa County, Kan., farmer Joe Kejr, who passed away suddenly April 8, 2023. “Joe loved being a wheat farmer — thoughtfully growing, observing and discussing the crop throughout each unique season,” said Justin Knopf, immediate past president of the Kansas Association of Wheat Growers and close family friend. “We will miss his focus and efforts on building relationships, trust and unity throughout the industry. His example, steady presence, leadership and friendship will be sorely missed by so many of us here in his community and across the country.” Learn more about the Kejr’s farm operation here.

China to Lead 2022/23 Wheat Import Volume

USDA reports that Chinese wheat imports are forecast up to 12.0 million tons in 2022/23—the country’s highest level of imports since 1995/96 when imports reached 12.5 million. Domestic grain prices have remained high given the country’s minimum support price policy and reduced auction activity amidst uncertainty surrounding the government’s COVID-19 policies. Competitive pricing has prompted China to import large volumes of both milling and feed quality wheat. Australian wheat is especially competitive following 3 consecutive years of record crops. China continues to aggressively purchase Australian wheat supplies, with July-February imports up 66% compared to the previous year. Read more.

2023 Hard Winter Wheat Quality Tour Registration Ends May 1

The tour, sponsored by the Wheat Quality Council, will be May 15 to 18. Register for the Wheat Tour at wheatqualitycouncil.org. The tour brings in participants from around the world who interact with Kansas farmers, network with their peers, learn more about wheat production while they assess the condition and yield potential of the hard winter wheat crop across the state of Kansas. USW will report on tour results in Wheat Letter.

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Farmers who spent the past year staring at charts and graphs that gauge costs and returns would certainly by now be quite familiar with the sensation of vertigo.

Up and down, down and up.

The proper term is “volatility,” and for those who make a living growing wheat and other crops, it can affect decisions made in spring – a time when farmers typically spend a lot of money on the front end of one crop while also waiting for the rear end on another.

As they arrive at that sensitive juncture in 2023, growers are finding a “mixed bag” compared to 2022. Analysis have revealed that most farmers are projecting their 2023 production costs to increase 6% to 15% compared to 2022. USDA’s most recent Farm Sector Forecast is slightly more optimistic, but still points to the expectation of higher input costs:

  • Production expenses are forecast to increase for a sixth consecutive year, growing in 2023 by 4.1%.
  • Fertilizers, lime and soil conditioners are expected to decrease 3%, from $43.42 billion to $42.17 billion. Typically, fertilizers represent about 15% of a crop farmer’s costs.
  • Fuels and oils are expected to experience the largest percent decline – 17% – from 2022.
  • These drops, however, are easily outpaced by increases in other expense categories including marketing, storage and transportation, which are forecast to increase 11%.

“Input costs are still quite elevated, but nitrogen fertilizer has decreased since its peak last year,” confirmed Jason Scott, a U.S. Wheat Associates (USW) Board of Directors member who grows soft red winter (SRW) wheat on the eastern shore of Maryland. “One of the larger issues we have been dealing with so far this year is availability of some specific inputs, as well as some parts for equipment.”

Indeed, national agriculture groups say input costs are once again the top concern among farmers in 2023, though there has been some “wiggling toward the positive” in recent months.

“Higher input costs remain the number one concern, chosen by 34% of producers in March, but concern about input costs has been falling since last summer’s peak when it was chosen by 53% of producers,” James Mintert, the Purdue University/CME Group Ag Economy Barometer principal investigator, noted in the most recent Barometer, which was released April 4. “Although producers still cite high input costs as their top concern in the upcoming year, they are becoming more worried about rising interest rates and the impact those higher rates will have on their operations.

Michael Peters, who farms in central Oklahoma, inspects an emerging hard red winter wheat crop.

USW Vice Chairman Michael Peters, who farms in central Oklahoma, inspects an emerging hard red winter wheat crop a few years ago. As was the case back then, production input costs continue to be a major concern for wheat farmers all across the country. Weather and lack of rain, of course, is another point of worry.

But First, Here’s the Weather . . .

USW Vice Chairman Michael Peters, who grows hard red winter (HRW) wheat in Oklahoma, is the farmer who put the “mixed bag” label on his current inputs situation.

He has bigger problems with moisture, or lack thereof.

His farm being located on the Southern Plains, Peters has an added challenge he and other Oklahomans share with fellow producers in northern Texas, most of western Kansas and portions of Nebraska and Colorado.

“The problem for my area is the lack of rainfall,” he said. “Our winter wheat crop is looking a little tough at this point.”

According to USDA, approximately 51% of U.S. winter wheat is produced in an area currently experiencing drought, down from 69% as the year began.

For Oklahoma, in mid-March the USDA rated 34% of the winter wheat crop in “good-to-excellent” condition. For Texas, 18% of the crop was “good-to-excellent.” Roughly 22% of Nebraska’s winter wheat crop was “good-to-excellent.”

Equipment Inputs Rise

While fertilizer and chemical prices have mostly decreased heading into the 2023 spring planting season, sticker shock on parts and machinery have stepped in to replace them as causes for consternation.

“The prices for parts to fix our equipment have really spiked, as have prices for equipment that we would need to purchase new,” said Scott. “The supply chain has still not caught up on some key things.”

Part of the problem being recognized this spring is that there is a transition of sorts in the farming equipment arena. Fixing a broken-down combine or tractor used to take wrenches and a steady hand. Now repairs might require a mobile-device interface, online diagnostic tools and secure software updates. Those “parts” aren’t just hanging on someone’s wall.

As a result, breakdowns that might have been repaired in hours can now take days or weeks. During busy times such as spring planting and harvest, that can mean losing time and money.

“You really think about what you need to get you through the season and what you can do without,” said Peters. “There’s a lot of deferred maintenance on farms right now. When you see elevator prices seep down, you erase projects off your list. If prices start to spike, you add things to the list.”

Jason Scott, who grows soft red winter wheat in Maryland, stands in one of his fields during a spring tour of his farm.

Jason Scott, a member of the USW Board of Directors who grows soft red winter wheat in Maryland, stands in one of his wheat fields during a spring tour of his farm.

Chemicals Leveling Off

“It’s this and that, up and down,” said Peters. “Some fertilizer prices have fallen. Chemicals are mixed, with prices on products like Roundup falling substantially. Other chemicals seem steady.”

Farmers Business Network (FBN) recently released its 2023 Ag Chemical Price Transparency Report, which highlights the extreme price variation facing farmers from coast to coast.

“The last two years have seen extreme fluctuations in chemical pricing for farmers,” said Kevin McNew, chief economist for FBN. “We know, this season in particular, a lot of farmers have postponed or waited a little longer than normal to make purchases because prices have been declining. We’re close to the point of needing those pre-emergents and I don’t think prices are going to slide much more.”

McNew also acknowledges higher interest rates make some farmers hesitant to borrow against an operating loan for chemical purchases.

“The takeaway is a lot of the inputs we’ve come to rely on like fertilizer, ag chem, and energy are going to remain high priced for the foreseeable future,” he said. “For years to come, in some sense. It is really important for farmers to think strategically about investing in new technologies that improve or reduce those inputs.”

The Bottom Line

Enduring volatility is what farmers do, so those preparing to harvest winter wheat and those getting ready to plant spring wheat will adjust to conditions.

It won’t be long until fall arrives and the process repeats itself.

As far as profits, every farm is different. USDA expects inflation-adjusted net farm income to drop 18%. But it notes last year’s net farm income was well above the 20-year average.

The decline will be felt a little differently in each sector of agriculture, said Seth Meyer, the USDA’s chief economist, who spoke at the 2023 Agricultural Outlook Forum in Arlington, Virginia.

Wheat acreage is expected to be its largest since the 2016-17 season, thanks to high prices and tight supply.

“After a period of trending lower (U.S.) wheat acres, this represents a sharp rebound, but is not likely to be a trend reversal for the long term,” Meyer said.

As always the biggest question about 2023 is grain prices, especially wheat prices, which are expected to remain strong, though lower than in 2022.

From a wheat farmer’s perspective, Peters summed it up in a simple manner.

“No matter who you listen to, everything is up and down, up and down,” he said.