Wheat Letter
August 24, 2017
U.S. Wheat Associates (USW) is the industry’s market development organization working in more than 100 countries. Its mission is to “develop, maintain and expand international markets to enhance wheat’s profitability for U.S. wheat producers and its value for their customers.” USW activities are funded by producer checkoff dollars managed by 17 state wheat commissions and USDA Foreign Agricultural Service cost-share programs. For more information, visit www.uswheat.org or contact your state wheat commission.
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In This Issue:
1. Opportunities Abound for Customers to Lock-in Competitive Prices
2. Historic NAFTA Renegotiation Underway
3. Growth in South Asia Leads Customers to Learn More About the U.S. Wheat Industry
4. Millers and Processors Should Like the 2017/18 Soft Red Winter Crop
5. Promoting U.S. Wheat Around the World
6. Wheat Industry News
Online Edition: Wheat Letter – August 24, 2017 (http://bit.ly/wheatletter08242017)
PDF Edition:
USW Harvest Report: http://www.uswheat.org/harvest
1. Opportunities Abound for Customers to Lock-in Competitive Prices
By Stephanie Bryant-Erdmann, USW Market Analyst
Sharply lower U.S. wheat production pushed futures prices to 2-and 3-year highs earlier this summer. However, bearish factors have recently pushed prices down. And when wheat futures are under pressure, wheat importers have the opportunity to lock in competitive prices and maybe even find some bargains.
Chicago Board of Trade (CBOT) soft red winter (SRW) wheat futures and export basis are both under pressure from a growing 2017/18 (June to May) supply, which USDA estimated at 14.2 million metric tons (MMT). The year-to-date average SRW Gulf FOB value of $196 per metric ton (MT) is $50 below the 5-year average, and this is a very good quality new crop (for more information on 2017/18 SRW quality, read “Millers and Processors Should Like the 2017/18 Soft Red Winter Crop” below).
Though U.S. hard red winter (HRW) production is forecast to shrink 30 percent in 2017/18, year-to-date Kansas City Board of Trade (KCBT) HRW wheat futures average $58 per MT below the 5-year average. This is due mainly to KCBT contract specifications and lower average protein levels in the 2016/17 and 2017/18 crops. While HRW futures trickle lower, protein premiums continue to widen. Historically, Gulf HRW protein premiums ranged between $1.50 to $4.40 per MT for each additional 0.5 percent of protein. Pacific Northwest (PNW) HRW protein premiums normally average $2.95 to $7.35 per MT. In 2017/18, that range is now $11 to $32 per MT for the Gulf and $8 to $18 per MT for the PNW.
The widening protein premiums represent the tightening global supply of higher protein wheat. Yet FOB prices for 12 percent Gulf and PNW HRW are $40 and $41 per MT below the 5-year averages, respectively (all U.S. wheat protein is based on 12% moisture). Customers who can use lower protein HRW can take advantage of FOB prices for ordinary/unspecified protein HRW, which are $73 per MT below historic levels at the Gulf and $57 per MT below the 5-year average in the PNW. Preliminary data shows 2017/18 HRW average protein is 11.5 percent, slightly above last year’s final of 11.2 percent, but below the 5-year average of 12.6 percent.
The Minneapolis Grain Exchange (MGEX) hard red spring (HRS) wheat futures have retreated from the 3-year highs reached earlier this summer. However, U.S. and Canadian spring wheat production estimates are supportive of current price levels. StatsCan expects Canadian wheat production (excluding durum) to fall 7 percent to 22.3 MMT. MGEX HRS futures are hovering near the August 5-year average of $6.79 per bushel ($249 per MT), but HRS export basis levels are $15 to $25 per MT below normal at both PNW and Gulf export locations. With harvest still underway in the U.S. Northern Plains and Canada, customers can mitigate some of their risk by locking in these competitive basis levels.
Export pricing for soft white (SW) wheat is not tied to a wheat futures market, but as noted in the July 27 Wheat Letter, protein premiums are shrinking for SW due to the excellent quality and more normal protein distributions in recent crops. PNW FOB export prices for 10.5 max protein SW are $62 per MT below the 5-year average, while FOB prices for 9.5 max protein SW are $70 per MT lower.
Well-informed customers can take advantage of these buying opportunities and lock in lower prices for high-quality U.S. wheat in the next few weeks. Your local USW representative is ready to help answer any questions about U.S. wheat pricing or the U.S. wheat marketing system. To track U.S. wheat nearby prices, review and/or subscribe to the USW Price Report here.
2. Historic NAFTA Renegotiation Underway
By Ben Conner, USW Director of Policy
On Aug. 16, 2017, the United States, Mexico and Canada began negotiations to modernize the North American Free Trade Agreement (NAFTA). The first round concluded on Aug. 20. It was historic, in the sense that this is the first time the United States has attempted to renegotiate all parts of an existing trade agreement.
The Mexican market is extremely important to U.S. wheat farmers, and duty-free access under NAFTA to U.S. wheat is extremely important to Mexican flour millers. As the top export destination in marketing year 2016/17, Mexico accounted for 12 percent of all U.S. wheat exports. This growth stems without doubt from a successful trade agreement that has provided positive economic opportunity for a growing Mexican middle class that is able to spend more money on products made from U.S. wheat.
It is too early to say what kind of outcome to expect, but U.S. agriculture has been emphatic in its message to “do no harm” in these negotiations to the agricultural industry and its customers. That was reflected in the opening remarks of Ambassador Lighthizer, the U.S. Trade Representative, when he acknowledged the importance of NAFTA to U.S. farmers.
However, he also said the agreement had fundamentally failed many parts of the U.S. economy and required major changes. As the negotiations move forward, we will find out what changes will be proposed and acceptable to all three parties — and what tradeoffs will be required.
One change that would benefit wheat farmers and the wheat trade, particularly in northern border states, is a commitment from Canada to treat U.S. wheat farmers equitably when delivering across the border to a Canadian elevator. The current system is a legacy of the old Canadian Wheat Board monopoly, and there is broad recognition that it should be updated to allow reciprocal treatment for U.S. and Canadian farmers.
As these negotiations continue, USW, the National Association of Wheat Growers (NAWG) and other agricultural organizations will be vigilant in pursuing the interests of the North American food and agriculture supply chains.
3. Growth in South Asia Leads Customers to Learn More About the U.S. Wheat Industry
By Amanda J. Spoo, USW Assistant Director of Communications
In South Asia, the market for wheat-based foods is rapidly growing, and people are starting to take notice. The largest company serving those markets is Singapore-based Wilmar International. Its holdings include flour milling operations in Vietnam, Indonesia and Malaysia that process about 2 MMT, or about 73.5 million bushels, of wheat. As the company expands its milling operations, most of the wheat it needs must be imported, and USW is working with Wilmar wheat buyers and flour millers to promote the value U.S. wheat can add to their expansion.
USW welcomed a trade team of four executives from Wilmar’s Singapore, Vietnam and Indonesia operations to the United States, Aug. 9 to 16, 2017. USW collaborated with the Montana Wheat & Barley Committee (MWBC), Washington Grain Commission (WGC), Idaho Wheat Commission (IWC) and the Oregon Wheat Commission (OWC) to organize and host this trade team. Funding also came from the USDA Foreign Agricultural Service (FAS).
“These executives understand the business side, but selecting the right wheat is important to see those business plans through,” said Matt Weimar, USW Regional Vice President in South Asia. “We want to help them develop a deeper understanding of how to use data on crop quality, supply and demand, contract specifications and U.S. federal grain inspections to minimize price risk and meet or exceed the company’s milling and end-use standards.”
The team began its trip in Montana and Idaho, where they were welcomed by local growers and participated in HRS and SW wheat harvest. This is included a visit with USW Vice Chairman Chris Kolstad, who produces HRS and HRW wheat and other crops. They also toured Montana State University’s variety development programs, the Lewis and Clark Grain Terminal and the Pacific Northwest Farmers Cooperative.
“The team saw firsthand that U.S. wheat producers have a direct investment in their crops. With funding from grower organizations combined with other public and private funds, they are able to develop new varieties and fund on-going research to increase yield and end-use performance in those varieties,” said Blaine Jacobsen, IWC Executive Director.
The team shared that they gained a new appreciation for the large investment individual producers and the rest of the industry put into getting a reliable supply of wheat with consistent quality to traders, millers and food processors in Asia.
The team continued their tour of the supply chain in Washington state, where they visited the USDA ARS Western Wheat Quality Laboratory and Highline Grain Rail Loading Facility, which receives regional rail shuttles of grain, and ships 15 hopper car shuttle trains to export facilities on the Columbia River and Puget Sound. The timing of their visit also allowed the team to meet with the WGC to discuss supply and demand, as well as Washington State University wheat researchers to learn about new variety development. They learned that the information from these programs is shared with wheat farmers at through meetings conducted every year on new high quality and good yielding varieties.
Mary Palmer Sullivan, WGC Vice President, explained that while all the participants represented the same company and shared priorities, their separate business units have different end-products.
“Consistency is essential to their brand, especially as demand grows, and they are working directly with their consumers to maintain that consistency,” said Palmer Sullivan. “These meetings allowed us to do the same for them and demonstrate the quality of U.S. wheat.”
“We need to educate the end-users because now everything is based on price. We need to help them see that if they buy quality, they will get quality,” said Hairuddin Halim, General Manager, Wilmar Indonesia.
In Oregon, visits included the OWC, Wheat Marketing Center, Federal Grain Inspection Service and the Pacific Grain Exporters Association. They also visited the Columbia Export Terminal and met with U.S.-based grain traders, which allowed them in turn to inform the traders about Wilmar’s wheat quality needs in their many markets.
“The U.S. system of public universities, grower organizations and USW maintains a stream of research and development, quality assurance and control, yield growth and communications with domestic mills, retailers, consumers and international U.S. customers,” said Weimar. “This chain of support, both through trade and technical servicing, does not exist in other markets that originate wheat, so it is essential to witness it in action.”
“When we buy U.S. wheat, we assume that the quality we are asking for is what we are going to get,” said Tze Shien Ang,” Senior Executive, Oilseeds and Grains, Wilmar Trading, Singapore. “Now, because of this trip, I can see why.”
4. Millers and Processors Should Like the 2017/18 Soft Red Winter Crop
U.S. farmers produced lower volumes of a very good SRW crop for marketing year 2017/18. This SRW crop has uniformly low dockage, good test weight, somewhat lower protein, very good kernel size and weight, low DON values and no notable pockets of low falling number. Flour extraction rate is somewhat lower than last year.
That is a good summary of results from USW’s 2017 SRW Quality Survey Report, now posted online at www.uswheat.org/cropQuality. To complete the report, Great Plains Analytical Laboratory in Kansas City, Mo., collected and analyzed 270 samples from 18 reporting areas in the 11 states that account for 77 percent of total SRW 2017 production. USW and the USDA FAS fund the annual SRW survey.
Economic conditions kept 2017 SRW seedings down and USDA estimates production at 8.3 MMT. That is down from 9.4 MMT in 2016 and well below the 5-year average. However, USDA estimates that the total SRW supply (excluding imports) for the 2017/18 marketing year is 4 percent higher than 2016/17 because of higher 2017/18 beginning stocks.
The overall average 2017 SRW grade is U.S. No. 2. The overall weighted average test weight is 59.1 pounds per bushel, which is above the 5-year and 2016 averages. The Gulf Port average is similar to 2016, while the East Coast average is well-above its 2016 average. The Gulf Port dockage value of 0.3 percent is lower than any recorded in the previous five years. Other grade factors, including moisture and dockage for both areas are similar to or better than the 5-year averages.
The survey indicates almost no significant quality issues with the crop in any area. Average wheat protein content of 9.5 percent (12 percent moisture basis) is similar to last year and only slightly below the 5-year average of 9.8 percent. The 2017 East Coast and Gulf Port protein averages are similar. However, the East Coast average protein of 9.4 percent is below the region’s 2016 and 5-year averages, while the Gulf Port average of 9.5 percent is above the region’s 2016 average of 9.1 percent and slightly below its 5-year average. The composite average falling number of 319 seconds is below 2016, but above the 5-year average. The composite DON average of 0.4 ppm is below the 2016 value of 0.6 ppm and well-below the 5-year average of 1.3 ppm, indicating that the crop sampled is relatively free of DON. The East Coast DON value of 0.8 ppm and the Gulf Port value of 0.3 ppm are both below last year’s values and 5-year averages.
A summary of flour and baking data shows Buhler laboratory mill flour extraction averages overall are below the 2016 and 5-year averages. The composite farinograph peak and absorption values are similar to 5-year averages, but the stability value of 2.2 minutes is slightly shorter than last year and the 5-year average. The Gulf Port peak and stability averages of 1.3 min and 2.4 min, respectively, are similar to last year and the 5-year averages, while the East Coast peak and stability values of 1.2 min and 1.7 min are both shorter than last year and the 5-year averages. The composite and Gulf Port alveograph W values of 91 and 93, respectively, are higher than the 5-year averages. The East Coast alveograph W values and the remaining L and P values for the composite and both regions are all similar to the 5-year averages, given the variability of alveograph analysis. The composite and Gulf Port cookie spread ratios are lower than last year and the 5-year average while the average loaf volumes are all similar to last year and the 5-year averages.
Buyers are encouraged to construct specifications carefully to be sure they receive qualities that meet their needs either for traditional soft wheat products or for blending with higher protein wheat.
USW will share complete data for all classes of U.S. wheat with hundreds of overseas customers at USW’s annual Crop Quality Seminars, and in its annual Crop Quality Report.
5. Promoting U.S. Wheat Around the World
As USW President Vince Peterson often says, at any given hour of the day, there is someone, somewhere, talking about the quality, reliability and value of U.S. wheat. Wheat Letter wants to share just some of the ways USW was working in June and July to promote all six classes of U.S. wheat in an ever more complex world grain market.
Thailand. USW Baking Consultant Roy Chung, from the USW Singapore Office, conducted the annual 3-week Cookie and Cracker short course for 24 participants from across the South Asia region. As usual, there were more applicants than available spots. Participants noted that the course helps in applying new technology in their operations, developing new snack foods and other products and improving production processes, formulations and end product quality by using U.S. SW and SRW wheat classes instead competing origin wheat.
Morocco. The USW Casablanca Office continues to use the Quality Sample Program (QSP) for the Moroccan Milling Training Center (IFIM) in Casablanca. The milling school tests all classes of U.S. wheat and conducts blending activities. Through the USP program, USW arranged for procurement and shipping of three containers of HRS and SRW wheat for the milling school. Over the next few months, USW will lead many promotional and training seminars to showcase U.S. wheat quality and functionality to millers and end-product manufacturers from Morocco and neighboring countries.
Philippines. USW Baking Consultant Gerry Mendoza, from the USW Manila Office, conducted a short course on Bakery Operations Management at the Filipino Chinese Bakery Association Training Center in cooperation with the Philippine Society of Baking. Mendoza focused on increasing knowledge of four key elements that every bakery owner or manager must fully understand to help increase operational efficiency and profitability: ingredients, equipment, recipes and process.
Mexico. USW Technical Specialist Marcelo Mitre, from the USW Mexico City Office, worked with USW Baking Consultant Didier Rosada to conduct a series of baking seminars in Mexico City and Toluca. USW designed the seminars to help bakeries adapt to growing demand and requirements for tastier and healthier bread products, which supports consumption growth. Management for both bakeries confirmed their interest in launching some variations of these products in selected stores, as they realize there is a market for the quality end-products demonstrated in the seminars.
Jamaica. Technical Specialist Mitre worked with USW Baking Consultant Bernard Bruinsma to conduct two baking seminars in Kingston. The seminars focused on the entire baking process and allowed participants to test how their practices affect the quality of the end-product.
Ecuador. The USW Santiago Office and USW Baking Consultant Didier Rosada worked with bakery personnel in Quito, Ecuador. Rosada demonstrated using U.S. wheat flour blends to make par-baked bread that can be frozen and distributed. He also helped formulate new baked goods that will appeal to consumers and identify appropriate U.S. wheat flour blends for existing and newly formulated products.
Indonesia. USW Regional Vice President Matt Weimar, and Assistant Regional Vice President Joe Sowers, both from the South Asia region, traveled to Jakarta to meet with key members of the wheat foods industry, including procurement managers and decision makers at key flour mills. Discussions focused on world and U.S. market analysis and quality information and learning more about the Indonesian market and its wheat quality needs.
China. USW and the Wuxi Buhler Company conducted a week-long milling seminar at the Wuxi Buhler Milling Training Center for millers. Together, USW Technical Director Peter Lloyd, from the USW Casablanca Office, and Buhler Milling Technician Vincent Shao focused on flour milling technology, wheat cleaning and tempering equipment, mill maintenance and management, laboratory testing and the solvent retention capacity (SRC) method of flour performance testing. The participants have the opportunity to further practice milling HRW wheat at Buhler’s test flour mill.
Taiwan. USW cooperated with the De Lin Institute of Technology to host a noodle cooking seminar for nutritionists and cooks from school lunch centers and catering companies in New Taipei City. The seminar participants designed 12 noodle meal packages, two kinds of steamed breads and one Chinese pastry for school lunch programs. This experience demonstrated different flour performance for making healthy Chinese foods.
6. Wheat Industry News
· Quote of the Week: “Nobody eats wheat — we eat products made with wheat…and that’s where quality comes into play.” – Mark Fowler, USW Vice President of Overseas Operations. Read the full article from the High Plains Journal here.
· Buhler-KSU Milling Short Courses. The IGP Institute is once again partnering with Buhler Inc. and the Kansas State University Department of Grain Science and is offering two more milling courses in 2017 at its conference center in Manhattan, Kan. The Executive Milling (English) course is Nov. 6 to 10, 2017 for mill owners, directors and managers. The Flow Sheet Technology (English) course is Nov. 13 to 17, 2017, for productions managers, head millers and experienced shift managers. Register for Buhler-KSU courses here.
· Subscribe to USW Reports. USW has added a “Subscribe” menu at www.uswheat.org where visitors may subscribe to this newsletter, the weekly Price Report and the weekly Harvest Report (available May to October.) Click here to subscribe or unsubscribe.
· Follow USW Online. Visit our page at www.facebook.com/uswheat for the latest updates, photos and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter at www.twitter.com/uswheatassoc and video stories at www.youtube.com/uswheatassociates.
Nondiscrimination and Alternate Means of Communications
USW prohibits discrimination in all its programs and activities based on race, color, religion, national origin, gender, marital or family status, age, disability, political beliefs or sexual orientation. Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact USW at 202-463-0999 (TDD/TTY – 800-877-8339, or from outside the U.S., 605-331-4923). To file a complaint of discrimination, write to Vice President of Finance, USW, 3103 10th Street, North, Arlington, VA 22201, or call 202-463-0999. USW is an equal opportunity provider and employer.
Source: U.S. Wheat Associates