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A Decade Lost: Give Farmers the Freedom to Compete

This week marks the 10-year anniversary of the signing of the U.S.-Panama Trade Promotion Agreement and the Korea-U.S. (KORUS) Free Trade Agreement. These were the last free trade agreements completed by the United States. In the decade since, there has been plenty of negotiating, but nothing to show for it.

The Trans-Pacific Partnership (TPP) is on its way to ratification without the United States. The Transatlantic Trade and Investment Partnership (TTIP) is indefinitely on ice. The North American Free Trade Agreement (NAFTA) modernization effort is now likely to slip into 2019. An update to KORUS made only cosmetic changes.

Meanwhile no other country has agreed to sit down at the negotiating table as the United States slaps unilateral tariffs on close allies and strategic competitors alike.

The familiar African proverb says that when elephants fight, it is the grass that suffers. Unfortunately for farmers, that grass is the wheat growing in their fields as the big guys in the United States, China and other countries escalate this trade fight.

In a trade war, agriculture always gets hit first and the effects are likely to force overseas customers who want quality U.S. farm products to compromise or seek alternative supplies and to further erode the incomes of farm families who strongly support addressing the real concerns about trade barriers.

That is why in 2016, U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) called for World Trade Organization (WTO) cases intended to push China to meet its WTO commitments on domestic support and tariff rate quota management. We are glad the Trump Administration supports and is pursuing those cases. That is also why USW will continue to press for new trade agreements, including U.S. accession to TPP.

USW and NAWG know that farmers still want our organizations to keep fighting for fair trade opportunities because they know they can compete successfully in the world based on the quality and value of what they produce — given the freedom to do so.

We would prefer, however, to see our government do that first within the processes already in place.

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Strong Demand Pushes Global Wheat Prices Higher

By Stephanie Bryant-Erdmann, USW Market Analyst

With the world consuming more wheat than it produces for the first year since 2012/13, prices are also on the rise. According to Global Trade Atlas data, the average global wheat price increased 4 percent year over year to $203 per metric ton (MT) in 2017/18 (June 1 to May 31). Most of that price increase occurred in the last five months of the marketing year as the market digested lower Northern Hemisphere wheat production estimates and strong demand for 2018/19.

Here is a by-country look at current production estimates and the average wheat prices (noting that prices vary by class and quality) from major exporting countries and regions.

United States. According to the U.S. Wheat Associates Price Report, the average price for U.S. wheat rose an average $47 per MT from one year ago. Hot, dry conditions in the U.S. hard red winter (HRW) growing region decreased yield potential and pushed prices up for this largest U.S. wheat class. USDA forecasts U.S. 2018/19 wheat production at 49.7 million metric tons (MMT), up 5 percent year-over-year, but still 11 percent below the 5-year average. U.S. beginning stocks are estimated at 29.4 MMT, down 8 percent from 2017/18, but still 28 percent above the 5-year average. Increased U.S. wheat production is expected to offset the lower U.S. beginning stocks and total U.S. supply is expected to remain stable year over year at 79.1 MMT.

Canada. The International Grains Council (IGC) reported the average price for Canada Western Red Spring (CWRS) at 13.5 percent protein (13.5 percent moisture basis) from Vancouver rose to $255 per MT in May. This is up $24 per MT from May 2017 and reflects the tighter global supply and demand picture. On June 21, Agriculture and Agri-Food Canada (AAFC) forecasted 2018/19 common wheat production (excluding durum) at 25.4 MMT, up slightly from 2017/18. A 15 percent bump in spring wheat planted area contrasts with an 11 percent drop in winter wheat planted area. Predicted 2018/19 durum production will increase 15 percent to 5.7 MMT due to an 11 percent year over year increase in planted area. The global supply and demand situation for durum wheat is also supporting prices. Canadian durum prices at $282 per MT are an average $7 per MT above 2017 levels.

European Union (EU). IGC reported the average French wheat price reached $205 per MT in May, up from $187 per MT the year prior. French production is expected to increase to 37.8 MMT, up 4 percent due to higher expected yield and larger planted area. 2018/19 EU wheat production is expected to fall 1.80 MMT from 2017/18 to 140 MMT according to Stratégie Grains, which is providing continued price support for exportable French supplies.

Australia. The current average price for Australian wheat of $239 per MT is up 22 percent year over year according to IGC data, which point to lower carry-in stocks and hot, dry conditions. In June, the Australian Bureau of Agricultural and Resource Economics and Science (ABARES) forecasted 2018/19 Australian wheat production to rise 3 percent from 2017/18 to 21.9 MMT, despite a 3 percent decrease in planted area to 29.5 million acres (12.0 million hectares).

Argentina. In May, the average price for Argentine wheat reached $261 per MT according to IGC data. That is up 38 percent year over year. This month, the Buenos Aires Grain Exchange reported Argentine farmers see higher revenue potential and expects them to plant 7 percent more area to wheat in 2018/19, reaching 15.1 million acres (6.1 million hectares). USDA’s June estimate for 2018/19 Argentina’s wheat production was 19.5 MMT (716 million bushels), up 8 percent from 2017/18 and 35 percent greater than the 5-year average.

Black Sea (Russia, Ukraine and Kazakhstan). The average price for Russian 4th grade milling wheat (8.8 to 10.5 percent protein on a 12 percent moisture basis) reached $213 per MT in May, up 14 percent from the year prior according to IGC. Expectations for lower 2018/19 production in the Black Sea region are supporting export prices. USDA projects combined 2018/19 output from Russia, Ukraine and Kazakhstan will drop 14 percent to 109 MMT (4.00 billion bushels) based on an expected return to trendline yields. If realized, the combined harvest would still be greater than the 5-year average.

At the end of May, the Russian Meteorological Service noted hot, dry conditions threatened winter wheat in Russia’s southern regions, which have not received rain since April. Conversely, cold wet weather is delaying spring wheat planting in other regions. To date, 23.3 million acres (9.43 million hectares) of spring wheat has been planted, compared to the 2017/18 total spring wheat area of 30.9 million acres (12.5 million hectares). Russian consultancy SovEcon forecasted Russian wheat production to decline to 77.0 MMT (2.83 billion bushels), down 10 percent from 2017/18.

UkrAgroConsult reported Ukrainian wheat planted area increased 2 percent year over year to 15.5 million acres (6.28 million hectares). The Ukrainian meteorological service expects wheat yields to fall 8 percent year over year to 56.5 bu/acre (3.80 MT/ha). 2018/19 Ukrainian wheat production is forecast at 23.9 MMT (878 million bushels), compared to 25.4 MMT (933 million bushels) in 2017/18.

IGC expects yield declines and smaller planted area will lower Kazakhstan wheat production to 13.7 MMT (503 million bushels), down 7 percent from 2017/18, if realized.

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Wheat Exports on the Line in U.S.-China Tariff Dispute

By Ben Conner, USW Vice President of Policy

Tomorrow, June 15, 2018, marks the next step in the accelerating U.S.-China trade dispute as the Trump Administration plans to reveal its final tariff list on up to $50 billion in Chinese exports. China is expected to retaliate immediately, an outcome that could further erode the incomes of farm families who strongly support addressing the real concerns about China’s trade policies.

In marketing year 2016/17, China was the fourth largest export destination for U.S. wheat. That dropped to eighth in 2017/18, in part because of uncertainty about whether the U.S. would implement tariffs on Chinese goods.

U.S. Wheat Associates is not in the business of ceding a market like China with so much potential for growth. That is why in 2016 we called for World Trade Organization (WTO) cases intended to push China to meet its WTO commitments on domestic support and tariff rate quota management. We are happy that the Trump Administration supports and is pursuing those cases.

USW and the National Association of Wheat Growers know that farmers still want our organizations to keep fighting for fair opportunities to compete in China and other countries. They would prefer, however, to see our government do that within the processes already in place.

On June 1, 2018, USW and 17 other agriculture groups sent a letter to President Trump asking the Administration to continue negotiations to address trade concerns with China, rather than imposing mutually destructive tariffs

At this point it remains unclear what will happen after U.S. tariffs are implemented; but there no doubt that it will be a bumpy ride.

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AIB International Empowers and Adds Value to the Baking Industry

By Amanda J. Spoo, USW Assistant Director of Communications

Global demand for wheat food grows stronger every year, making exports vitally important to U.S. wheat farmers. As the export market development organization for the U.S. wheat industry, U.S. Wheat Associates (USW) works to help wheat buyers, millers, bakers, wheat food processors and government officials understand the quality, value and reliability of all six U.S. wheat classes. USW relies on its successful working relationships with world-class educational partners that, through courses, workshops and seminars, enhance the technical and trade service assistance to help separate U.S. wheat from its competitors. One of those partners is AIB International (AIB) in Manhattan, Kan.

AIB was founded in 1919 as a technology and information center for bakers and food processors. Its mission is to empower the global food industry to elevate their food safety and grain-based production capabilities. AIB’s staff includes experts in baking production, experimental baking, cereal science, nutrition, food safety and hygiene. While most of its training occurs at its United States headquarters office, both AIB’s physical and virtual overseas offices are involved in coordinating its food safety services as well as public and private training on location.

“AIB has evolved as a company, but that educational piece of our mission has remained at the core of everything we do,” said Brian Strouts, AIB Vice President of Baking and Food Technical Services.

In 2018, USW is sponsoring participants from Japan, China and Hong Kong at AIB courses focused on variety breads and rolls, and baking science and technology. USW Technical Specialist Dr. Ting Liu recently completed the Baking Science and Technology Resident Course, an intensive, 16-week residency held twice a year that combines science, hands-on lab work and baking tradition. Liu shares her first-hand experience at the course in the story (The AIB Baking Science and Technology Course: A Pathway to Success) below.

Participants learn how key ingredients function and interact in baked products, which processes are critical to finished products, sound manufacturing practices and how to manage the production process. The course is accredited by the Kansas Board of Regents, so participants who pass it also receive 60 IACET (International Association for Continuing Education and Training) continuing education units.

“This course is the capstone of our baking training programs and holds quite a bit of weight in the industry because of its historical significance,” said Strouts. “This most recent class to graduate was class 192, and the true value of this certificate is the knowledge of the students who came before them in classes 1 through 191, and what that experience means to them individually and to their organizations.”

AIB also offers an extensive database of online resources, webinars and guides, both free and for purchase. This includes several resources focused on helping bakeries address key elements of the U.S. Food Safety Modernization Act.

USW recognizes the value of sending both its own staff and U.S. wheat customers to AIB for training. Strouts explained that the key component of AIB’s relationship with USW is the international perspective from the participants that USW sponsors.

“Our courses — especially one as long at the Baking Science and Technology Course — is an immersion of its participants, their cultures and individual experiences,” said Strouts. “That value is intangible.”

Learn more about AIB and its programming and services at www.aibonline.org.

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The AIB Baking Science and Technology Course: A Pathway to Success

By Dr. Ting Liu, Technical Specialist, USW Beijing Office

Before attending the Baking Science and Technology (BST) course at AIB International, I was told by a former BST graduate that it would be an intensive, demanding, and competitive course. The course curriculum guide advised us to expect “a minimum of eight hours in class/laboratory and two to four hours preparing homework each day.” So even before the start of the coursework, I realized that the BST course was no piece of cake. But only later did I fully realize the abundant and comprehensive baking knowledge that is included in this course.

The majority of attendees were from industrial bakeries, including Grupo Bimbo and Yamazaki Baking Co., Ltd, and the remaining were from the baking industry, including flour mills, machine manufacturers, educational programs and market development organizations. Attendees from the United States, Mexico, Japan, South Korea, China, Philippines, India and Uganda not only shared their different cultures, but also their diverse production experience. The instructors created a great learning atmosphere, helping participants with their studies and coping with the new environment. Without support and encouragement from instructors and fellow classmates, one may not successfully finish the course.

The content consists of six major components: Baking Science, Bread and Roll Production, Cake and Sweet Goods, Operations, Food Safety and Bakers Math. The curriculum emphasizes the fundamentals of baking science, formulations and procedures, but also approaches to solving commercial industrial-scale production problems.

As expected, AIB is fully equipped, representing the state of the art equipment and tools used in current production. The instructors are very knowledgeable, experienced and patient in lecturing and answering students’ questions. The curriculum design is very clear and the instructors have clear divisions in their coursework.

Naturally the coursework focuses on extracting the highest value possible from U.S. wheat flour. The milling and flour science curriculum helped students to further understand the characteristics of U.S. wheat and flour, the flour milling process, testing methods and how to adjust formulas and processes according to flour specifications. This directly benefits U.S. wheat growers by promoting their wheat to customers in international markets.

I gained many useful skills and knowledge from the BST course. The baking fundamentals on ingredients, formulas and processes further increased my knowledge and laid the foundation for answering customers’ technical questions about using U.S. wheat. Large-scale production experiments and the operation component deepened my understanding of actual production, making me feel more confident to provide on-site technical service. Moreover, the introduction of global bakery trends enabled me to learn about other countries and promote these trends in China — hopefully to contribute to the development of the Chinese bakery industry.

U.S. Wheat Associates (USW) has a long-standing partnership with AIB and frequently sends attendees to the BST course, and assists in the application and accommodations for attendees from U.S. wheat importing countries. This cooperation is a win-win strategy for all involved. International attendees will bring what they learned at AIB back to their countries and contribute to the development of the baking industry there. The course is beneficial for U.S. wheat producers by demonstrating the high quality of U.S. wheat. USW helps spread baking culture, and promotes AIB to potential participants. All the while, AIB instructors can also learn from students about baking practices in different countries. Only by sharing knowledge can we promote the progress of all parties.

Ting Liu

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USDA Report Shows U.S. Wheat Farmers Have What the World Needs

By Stephanie Bryant-Erdmann, USW Market Analyst

In its June World Agriculture Supply and Demand Estimates (WASDE), the U.S. Department of Agriculture (USDA) noted that global wheat consumption is expected to exceed global wheat production for the first time since 2012/13 (June 1 to May 31). USDA estimated 2018/19 global wheat consumption at a record 751 MMT, up 7.7 MMT from 2017/18. Human consumption is driving this growth and is expected to increase 2 percent or 10.5 MMT, which is good news for everyone involved in the milling wheat supply chain, including U.S. farmers who are uniquely positioned to meet the demand.

 

In 2018/19, the United States will hold the largest exportable supply of wheat in the world (production plus beginning stocks minus domestic consumption). USDA’s forecast for U.S. exportable supply of wheat is 49.7 MMT, accounting for 22 percent of world wheat exporter stocks. If realized, that is 8.2 MMT more than Russia and 13.9 MMT more than the European Union (EU).

This large exportable supply of high-quality milling wheat highlights the importance of trade to everyone’s bottom line. USDA projects world wheat trade to increase 2 percent from 2017/18 to a record high 187 MMT (6.88 billion bushels), and the United States is expected to have 14 percent market share by volume.

USDA predicts that total 2018/19 imports by most top U.S. wheat customers will remain stable year-over-year or increase slightly. Mexico, the top U.S. wheat importer the past two marketing years, is expected to increase total wheat imports by 8 percent year-over-year to 5.5 MMT. If realized that would be 14 percent above the 5-year average.

USDA expects Japan, the top U.S. customer over a 5-year period, will import an estimated total of 5.8 MMT, down 3 percent from 2017/18. Total wheat imports by both the Philippines and China will remain stable year-over-year at 5.8 MMT and 4.00 MMT, respectively. Nigerian imports are expected to grow year-over-year to 5.5 MMT, 17 percent from the 5-year average. Korean total wheat imports will increase 5 percent year-over-year to 4.6 MMT. USDA also expects Indonesia to import a record 12.5 MMT of wheat in 2018/19, up 4 percent from the year prior and 33 percent greater than the 5-year average.

The growth in total wheat imports in these countries is driven by increasing demand for high-quality wheat products. In the top 20 U.S. wheat markets, human wheat consumption is expected to increase about 3.6 MMT year-over-year with the largest increases noted in China and Indonesia.

Additionally, in those markets where the United States has a majority market share (greater than 50 percent), but that fall outside the top 20, such as Honduras, Costa Rica and Jamaica, human consumption is expected to grow an average 2 percent in 2018/19.

With wheat consumption driven by “sticky” food demand, the long-term outlook for global wheat demand is strong. The short-term outlook for demand is also pointing to higher prices for wheat with USDA expecting 2018/19 global wheat production to fall for the first time in 5 years due to forecast production declines in half of the major exporting countries. All of which is good news for U.S. farmers who are ready to meet the global demand for high-quality milling wheat.

To track U.S. wheat harvest, subscribe to the USW Weekly Harvest Report.

To track U.S. wheat export prices and stay updated on global wheat forecasts, subscribe to the USW Weekly Price Report.

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USW Harvest Reports Now Posting Every Friday

Generally cool spring conditions delayed the start of the 2018/19 U.S. winter wheat harvest, but the combines are now in the fields and U.S. Wheat Associates (USW) published a preliminary Harvest Report on May 25. USW Harvest Reports are published every Friday afternoon, Eastern Daylight Time, throughout the season with updates and comments on harvest progress, crop conditions and current crop quality for hard red winter (HRW), soft red winter (SRW), hard red spring (HRS), soft white (SW) and durum wheat.

The weekly Harvest Report is a key component of USW’s international technical and marketing programs. It is a resource that helps customers understand how the crop situation may affect basis values and export prices.

USW’s 14 overseas offices share the report with their market contacts and use it as a key resource for answering inquiries and meeting with customers. USW also publishes the report in Spanish as  “Trigonoticias,” distributed to Latin American wheat buyers and millers and posted on www.uswheat.org.

Anyone may register to subscribe to an email version of the Harvest Report. For the first time this year, USW includes links in the email to additional wheat condition and grading information, including the U.S. Drought Monitor, USDA/NASS Crop Progress and National Wheat Statistics, the official FGIS wheat grade standards and USDA’s World Agricultural Supply and Demand Estimates report. Harvest Reports are also posted online at www.uswheat.org/harvest.

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Innovation in the Breadbasket of the World

By Jennifer Latzke, High Plains Journal, May 22, 2018, Excerpts Reprinted with Permission

Editor’s Note: This article covers innovative ways wheat farmer organizations and public universities in several Plains states are investing to produce more wheat with improvements for farmers and end users in ways that are most sustainable.

The reports from the U.S. Department of Agriculture can feel bleak. This year farmers are projected to plant the second lowest total wheat acreage on record for the U.S. since 1919 — 47.3 million acres.

Winter wheat acres for 2018 are at the second lowest acreage since 1909, at 32.7 million acres. From new branding efforts, to new structures, to innovative research many scientists and industry professionals across the High Plains are working to ensure that the breadbasket of the world stays right here.

Farmers growing hard white (HW) winter wheat have dealt with a “Catch-22” situation for years. To grow demand, they must grow more white wheat. But to grow the quantities to meet demand, they must have an established market for the wheat that makes segregation worth the price.

Kansas Wheat is rolling out a branding campaign, “High Plains Platinum,” that aims to capture the added value of hard white wheat while still growing production.

Aaron Harries, vice president of research and operations with Kansas Wheat, explained that Platinum is a project developed with a grant from the Kansas Department of Agriculture to establish and promote the high quality of hard white winter wheat grown in Kansas. Farmers plant Platinum-identified hard white winter wheat varieties that have excellent quality characteristics that millers and bakers demand. At harvest, the farmer takes his Platinum white wheat grain to a participating elevator that can then market that wheat to buyers as meeting the standards established by the program.

“It’s an effort to differentiate by establishing a market for hard white wheat through branding,” Harries said … In this case, Platinum white wheat must have: a minimum 12 percent protein; a minimum 60-pound test weight; less than 11.5 percent moisture; and contain less than 2 percent other classes of wheat. However, because of grain inspection rules a label or certificate can’t be attached to white wheat coming from a producer’s field.

With this attempt to establish a level of quality under the Platinum name, the hope is farmers and elevators can fully capture the value of their crop. And if this proves successful, the hope is neighboring states can come on board under the Platinum umbrella too.

Oklahoma Builds Capacity. In November 2017, [Oklahoma Foundation Seed Stocks] (OFSS) cut the ribbon on its new 20,000-square-foot facility at the Oklahoma State University Agronomy Research Station in Stillwater … to support the growing demand for certified seed from the public breeding program at Oklahoma State University.

Jeff Wright, coordinator of production and operations at OFSS, said this facility’s improved storage space means they can keep larger numbers of seed available for seedsmen to increase earlier in the variety release process.

“We are trying to have a larger amount of seed available so that when we do release a variety, it can get to the farmer at the end certified level quicker,” Wright said …

Currently, the Oklahoma Wheat Commission estimates that half of all the state’s wheat acres are planted with OSU-bred varieties. Sales revenue from those varieties goes back to OFSS to support future wheat breeding and research efforts. OFSS also licenses certain wheat varieties to Oklahoma Genetics, Inc.

Colorado Releases Grassy Weed Control. Grassy weed control in wheat acres is a challenge to growing high quality grain the market demands. But a new discovery out of Colorado State University is poised to revolutionize the market.

CoAXium is a wheat production system using the genetic trait, AXigen, identified through traditional wheat breeding methods at Colorado State University. Wheat varieties with the AXigen gene are immune to … a Group 1 ACCase inhibiting herbicide that controls grassy weeds, such as brome, feral rye, jointed goatgrass and wild oats.

Brad Erker is the new executive director for the Colorado Wheat Research Foundation. The CWRF takes ownership of CSU wheat varieties, and provides money to the wheat breeding program from royalties charged on those varieties …

“If we have a successful launch of a trait from a public institution like this, it shows that trait development at CSU is fruitful,” he said. “It could be the start of more patentable traits, and proving we can tackle the big problems wheat farmers face.”

Texas Drones Gather Data … Jackie Rudd, Texas A&M University wheat breeder, explained how his breeding program is utilizing new technology to better capture and crunch data.

“We’ve used a lot of sensor type data collecting rigs…” he said. “But this year we jumped in and we are using a drone to fly over plots and collect data.” Texas A&M invested in a data processing system that … tabulates that data and in a day’s time Rudd has at his fingertips plot by plot data and can make breeding decisions.

“We are increasing our efficiency and doing more with the resources we do have. We can reduce the time frame new varieties come out, and provide growers more and better material.”

And, the drone flyovers can happen on a daily basis, allowing Rudd to see how the plant changes day by day according to weather and other stressors. This year alone he’s been able to see daily changes to moisture on the dryland plots that he’s never been able to capture and quantify before. That makes a big difference when you’re trying to breed the next wheat variety that will perform well in harsh environmental conditions.

Nebraska Uses Genetic Markers for Improvement. Data is the key to finding the next great wheat variety. Today, with the sequencing of the wheat genome, Stephen Baenziger, wheat breeder for the University of Nebraska, can use genetic markers along with estimated breeding values to better select what lines to advance in his purebred and hybrid wheat variety trials.

“So, let’s say you go to a field and a couple of lines look similar, but you can predict one will work better,” Baenziger said. “Phenotypic data augmented with genotypic data shows us which is better.” It’s evaluating by sight, but also with genetic information found from DNA sequencing.

In 2016, … genomic data saved six years of wheat breeding and countless dollars invested. Ultimately, this tool means his program can be more efficient and provide a quicker return on investment for wheat growers …

“We are committed to the economic sustainability of the American farmer,” Baenziger said. “We’re going to try to get high quality and profitable wheat and save farmers money while they produce more.”

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USW Technical Specialist Excels at AIB International Course

By Jeff Coey, USW Regional Vice President, Hong Kong

The Baking Science and Technology course at AIB International in Manhattan, KS, is an intensive, 16-week program combining science, hands-on lab work and baking tradition. It is the “gold standard” for baker training and is well attended by aspiring, industrial scale bakers from around the world.

U.S. Wheat Associates (USW) has helped many bakers participate in this and other AIB International courses over the years. This year, however, USW invested some of its activity funding to send USW Technical Specialist Dr. Ting Liu from our Beijing, China, office to the course. With her doctorate in food science and experience in cereal chemistry, we knew she would do well — but she far exceeded our expectations.

We are so happy and proud to report that Ting represented herself and USW with distinction, earning top student honors and an “Excellence in Laboratory Leadership” award for her participation in the course!

The context for Ting’s achievement at AIB is the changing nature of wheat food in China. Traditional Chinese wheat foods have been successfully made for thousands of years using local wheat. However, demand today is sharply skewing toward non-traditional baked goods like chewy breads and fluffy cakes, products that rely on the functionality of higher and lower strength gluten flours that are best made with the classes of U.S. wheat specifically bred for those purposes.

There is intense interest in professional baking expertise, especially in the scaling up of industrial sized operations in China. USW intends to help channel that interest in ways that work for U.S. wheat, whether through Ting’s work, our consulting experts or through our long, respected collaboration with the Sino-American Baking School in Guangzhou.

Ting brings the unique set of tools needed to enhance our customers’ effective processing of U.S. wheat flour and how its functional attributes perform for the baker. Now, after succeeding so well in AIB International’s prestigious Baking Science and Technology course, she will be better prepared to lead such services and, in concert with our milling experts, to troubleshoot and solve customer problems as they come up.

So, we say congratulations to Ting and, along with our other talented colleagues, we look forward to much more success representing U.S. wheat farmers in the challenging but growing Chinese market.

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Drought and U.S. Rail Rates Prop Up U.S. Export Prices

By Stephanie Bryant-Erdmann, USW Market Analyst

Since the beginning of the calendar year, export cash prices for hard red winter (HRW) wheat prices have rallied an average 73 cents at the Gulf across all protein levels. However, export cash prices are made up of two components — wheat futures and export basis. Most of the export price rally matches the futures market, which climbed from $4.37 per bushel in January to $5.64 per bushel on May 25. However, U.S. Wheat Associates (USW) and the farmers it represents also face historically high rail rates that support the export basis.

The futures rally is based on two fundamental factors — drought in the U.S. HRW-growing area, which is shrinking the U.S. HRW supply, and concern about poor crop conditions around the world, which the market believes is increasing potential demand for U.S. HRW.

On May 10, USDA forecast global world wheat consumption to outpace global wheat production in 2018/19 for the first time since 2012/13 due to reduced production in Russia, Ukraine and Kazakhstan. The growing demand for wheat around the world and the expectation of smaller Black Sea supplies are pushing up U.S. export prices.

As of May 31, the U.S. Drought Monitor reported that the Oklahoma and Texas panhandles and 75 percent of Kansas are still in a moderate to exceptional drought. The corresponding wheat condition ratings reflect the effects: USDA rated 48 percent, 63 percent, and 54 percent of HRW in poor or very poor condition, respectively, in the region.

The market also expects the drought to help increase new crop HRW protein levels (although the data to support that expectation is not yet available). This has caused protein premiums and discounts to erode. In the Gulf, the protein premium for 12.0 percent protein (12 percent moisture basis) HRW over 11.5 percent protein (12 percent moisture basis) fell from an average $23 per MT ($0.64 per bushel) in January to $8 per MT ($0.21 cents per bushel) year to date in May (See “HRW Export Basis and Rail Rates”). Similarly, the average protein premium for 11.5 percent protein over 11.0 percent protein (12 percent moisture basis) fell an average ($0.35 per bushel) during the same time frame.

The declining protein premiums for HRW partially offset the futures rally, and export cash prices for 12.0 percent protein and 11.5 percent protein (12 percent moisture basis) HRW in the Gulf remain below the respective 5-year averages.

However, while the weather fundamentals are dominating the news, there is also a third factor that is quietly playing a role in U.S. export prices — increased U.S. rail rates. According to USDA/Agricultural Marketing Service Grain Transportation Report data, year-to-date in 2018, the average cost of railcar transportation for wheat from Kansas to the Gulf is $45 per MT ($1.21 per bushel). That is the highest level since USDA began tracking rail rates in 2010. Rail rates for wheat will increase to a new record high this summer according to notices that went out to customers in March and April.

Rail rates are a key component of export basis, which also includes elevation, barge freight and labor costs. Yet the cost of transporting wheat is shared by the farmer and the overseas customer through country elevator basis levels and export basis levels. Consequently, higher rail rates act as both a ceiling for farm gate prices and simultaneously as a floor for export prices.

On the export basis side, this can most easily be seen in the export basis levels for ordinary or unspecified protein wheat. Year-to-date in 2018, ordinary protein HRW export basis has averaged $42 per MT ($1.15 per bushel), compared to $27 per MT ($0.74 per bushel) in 2017, when the average rail rate from Kansas to the Gulf (See “HRW Export Basis and Rail Rates”) was $43 per MT ($1.18 per bushel).

As customers ride out the market volatility that always occurs this time of year, they should keep in mind that U.S. export basis levels are supported by increased transportation costs, and the 2018/19 global stocks to use ratio without China is forecast at a tight 20 percent as noted in the USW May 17 Wheat Letter article “Chinese Wheat Stocks Mask Tight Stocks to Use Ratio.”

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