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Export Policies Shrink Global Wheat Supply, Increase Uncertainty

By Stephanie Bryant-Erdmann, USW Market Analyst

It is no secret that global wheat production will fall this year due to unfavorable weather across the European Union (EU), Black Sea — Kazakhstan, Russia and Ukraine — and Australia. However, government policies are further constraining the global wheat supply, increasing costs and uncertainty for global wheat buyers.

Currently, there are two countries that have changed their export policies — Argentina and Ukraine — and a third, Russia, is thinking about it. These three countries account for an average 26 percent of global wheat exporter supplies and an average 50.7 MMT of global wheat exports. In Russia and Ukraine, the respective agricultural ministries are actively monitoring domestic wheat prices and wheat export quantities following a decline in 2018/19 production and rising domestic bread prices.

On Aug. 10, the Ukrainian Agricultural Ministry, in consultation with Ukrainian wheat traders, set the 2018/19 wheat export limit at 16.0 million metric tons (MMT), including 8.0 MMT of milling wheat. The export limit will cause Ukraine’s total wheat exports to fall by 7 percent year over year, but the milling wheat portion will fall by 20 percent compared to last year’s milling wheat export volume of 10.0 MMT. The export limit memorandum could be reviewed as early as the end of September, causing additional uncertainty about the availability of Ukrainian wheat.

On Sept. 3, the Russian Agricultural Ministry stated that it did not have plans to implement a grain export duty or “curb grain exports in any other way.” The Ministry released this statement following its second meeting with Russian grain exporters about export volumes in just 17 days. While the statement eased immediate concern from the markets (and resulted in 11 to 16 cent per bushel decreases for nearby wheat futures contracts on Sept. 4), the frequency of the meetings and letters obtained by Reuters have grain markets on edge.

As noted in the Aug. 23 Wheat Letter article A Risky Proposition, Russia implemented export taxes twice and completely banned wheat exports twice over the past decade. Each time, those policy changes resulted in significant, rapid price movement. Russia currently has an export tax on wheat that is set at zero percent, though it can adjust that tax at any time.

While Russia and Ukraine policies are adjusting to decreased domestic production and resulting increases in domestic prices, in Argentina, an export tax has been implemented in an attempt to shore up the domestic currency, which has fallen more than 50 percent compared to the U.S. dollar year over year. On Sept. 3, Argentina President Macri announced a 4 peso per dollar export tax on wheat and corn shipments.

According to International Grains Council (IGC) data, Argentine wheat has averaged $252 per metric ton (MT) since the beginning of the 2018/19 marketing year on June 1. This export tax will raise Argentine wheat prices by roughly 10 percent at today’s exchange rate of 39 Argentine pesos to 1 U.S. dollar, or about $25 per MT, on average. Argentine wheat production is expected to total 19.5 MMT, up 8 percent from 2017/18 and 35 percent above the 5-year average.

These policy changes and uncertainty from three of the world’s top wheat exporters come at a time when global wheat consumption is increasing and with it, the need for additional global exportable supply. USDA expects 2018/19 world wheat trade to rise 1 percent to a new record high of 184 MMT; if realized, it would be 6 percent greater than the 5-year average of 174 MMT.

With all of the uncertainty in the global wheat futures today, the U.S. wheat industry commitment to being the world’s most reliable supplier remains constant. Your local U.S. Wheat Associates representative stands ready to help with any questions about the U.S. marketing system, U.S. wheat supply and demand situation and U.S. wheat pricing.

To track U.S. wheat prices, subscribe to the USW Weekly Price Report.

By law, the only way to block U.S. grain exports is through a presidential declaration of national emergency. Importantly, a national emergency does NOT include short-term, fundamental rises in wheat prices or weakness in the U.S dollar. Further, the U.S. Constitution expressly forbids export taxes.

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A Risky Proposition

By Steve Mercer, USW Vice President of Communications

Two recent market articles by Reuters have caught our attention here at U.S. Wheat Associates (USW).

At first glance, the Aug. 20  story “Russian Traders May Speed Up Grain Exports Amid Risks of Curbs,” and the Aug. 22 story “Global Wheat Supply to Crisis Levels; Big China Stocks Won’t Provide Relief” may not seem related. Together, however, they are another caution sign for the world’s wheat buyers.

We understand why the Russian traders would want to “speed up” exports if they could: they are afraid of export restrictions. There is plenty of proof that the Russian government is willing to curb overseas sales. Restrictions in 2007/08 helped tip the markets into a supply shock with unprecedented price increases. A complete Russian export ban in 2010 pushed prices higher and showed complete disregard for the sanctity of sales contracts. Two years later when drought again hurt the Russian crop and the government threatened an export ban, global wheat prices moved up. Then when the government imposed an export tax in 2014, the market reacted as expected.

What is quite striking to us, however, is the fact that the possibility of export restrictions has come up again in a year in which Russia has produced its third largest wheat crop.

As an unnamed industry source in the Reuters article said: “When it comes to choosing between meeting food security or curbing exports, they will be choosing (limits on) exports again and again.”

Yes, a Russian government official said, “the introduction of grain export duty is not planned so far.” But we all saw futures prices bounce up quickly when just the subject of Russian restrictions came up last week. We should not forget that prices jumped “limit up” just on an apparently false rumor that Ukraine’s government might restrict wheat exports.

Which brings up the second Reuters article that started this way:

“A scorching hot, dry summer has ended five years of plenty in many wheat producing countries and drawn down the reserves of major exporters to their lowest level since 2007/08, when low grain stocks contributed to food riots across Africa and Asia.”

A bit of hyperbole there, perhaps, and the article suggests that there are factors that could mitigate a similar supply shock. Yet, the article noted: “Experts predict that by the end of the season, the eight major exporters will be left with 20 percent of world stocks – just 26 days of cover – down from one-third a decade ago.”

“The world just continues to grow,” said USW President Vince Peterson. “If we check on it, we see that world wheat consumption has grown 100 million metric tons in just the last 10 years. And we’re now at a place that even a very good crop in Russia causes concern.”

There is an old saying that keeping all your eggs in one basket is a risky proposition. Instead, the world’s wheat buyers might consider keeping a more diversified stable of suppliers — ahead of what could be, if not yet “crisis level,” at least a steady rise in global wheat prices.

Fortunately, the U.S. government long ago learned from experience that disrupting export grain trade only brings logistical problems and potential economic catastrophe for every segment of the market, including farmers. By law the only way to block U.S. grain exports is through a presidential declaration of national emergency. Importantly, a national emergency does NOT include short-term, fundamental rises in wheat prices. Further, export taxes are expressly forbidden by the U.S. Constitution.

The U.S. wheat industry offers reassurance in the fact that our doors are open for business 365 days per year. In our collective efforts to offer and efficiently supply the widest range of the highest quality wheat in the world, we live up to our claim as the world’s most reliable supplier.

The Russian government’s past actions prove that even a hint of rising domestic food costs can spark intervention in the free flow of its wheat to an increasingly hungry world.

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Can U.S. Wheat Exports Reach USDA’s 27.9 MMT Estimate?

By Stephanie Bryant-Erdmann, USW Market Analyst

On Aug. 10, USDA increased its U.S. wheat export forecast to 27.9 million metric tons (MMT), up 14 percent from 2017/18, if realized. With 2018/19 global wheat production falling to 730 MMT, down 4 percent year over year, and supply in exporting countries shrinking to the lowest level in four years, USDA seems to anticipate global demand turning to U.S. wheat supply. That raises two questions:

  • Is there that much demand for U.S. wheat out there?
  • Can the U.S. grain transportation system handle the increase in wheat exports?

Is there that much demand for U.S. wheat out there?

Based on USDA estimates, global wheat trade will need to increase to a new record high of 184 MMT in 2018/19 to meet global wheat consumption. With Russia and the European Union (EU) wheat exports expected to decline by a combined 7.5 MMT in 2018/19, and the extreme drought in Australia threatening its exportable supply, it is logical that U.S. wheat supplies will fill a crucial role in global wheat consumption.

Still, the United States will need to record an additional 19.6 MMT of export sales in the remaining 42 weeks of the 2018/19 marketing year, which began on June 1, or an increase in weekly sales from an average of 409,300 MT to 466,000 MT. Put another way, the United States needs to sell about two more vessels of wheat per week to reach the USDA estimate.

However, nearly two-thirds of that increase could come from just the top 20 U.S. customers, excluding China, based on historic buying patterns. For example, the top five U.S. wheat customers — Japan, Mexico, the Philippines, Nigeria and Korea — imported an average of 11.4 MMT of U.S. wheat exports the past five years. U.S. export sales to many top customers are behind last year’s pace, traders report continued interest in U.S. wheat and note that many customers are engaging in “just-in-time” buying patterns that result in large, last minute shipments that are challenging logistically. And that leads to the question:

Can the U.S. grain transportation system handle the increase in wheat exports?

The short answer is, “it depends.” The slightly longer answer is, “it depends on weather and trade policies.” Both of which are relative unknowns at this point. One thing is certain. Winter is coming and will bring, as it always does to some extent, cold weather and snow across the U.S. Northern Plains and Pacific Northwest (PNW) and ice and fog on the Mississippi River system, along with associated commodity movement delays.

During the winter months of December, January and February, U.S. Gulf all grain exports — including corn, sorghum, soybeans and wheat — average 6.67 MMT per month, down 24 percent from the peak month of October when 8.81 MMT of grain typically moves through the ports. For comparison, PNW all grain winter month exports average 3.13 MMT per month. This is an average 19 percent below the PNW peak export month of October when all grain PNW exports average 3.86 MMT.

Trade policies will determine how much competition U.S. wheat exports face for freight and export elevation. U.S. Gulf grain exports center around four main commodities — corn, sorghum, soybeans and wheat, while U.S. PNW grain exports typically include barley, canola, corn, flaxseed, sorghum, soybeans and wheat. In the Gulf, soybeans account for roughly two-thirds of total grain shipments during the peak fall months of October and November. In the PNW, it is closer to 75 percent.

USDA’s August estimate is based on the current, enacted trade policies. As such, USDA expects U.S. feed grain and soybean exports to decrease by a combined 3.53 MMT year over year due primarily to decreased demand from China. In theory, reduced U.S. feed grains and soybean exports should increase freight and export elevation availability for wheat. However, through Aug. 16, there are already 8.86 MMT of U.S. corn export sales booked for the 2018/19 marketing year (beginning Sept. 1).  That is up 54 percent from last year and 12 percent above the 5-year average. U.S. soybean export sales for the new marketing year (beginning Sept. 1) are also up 45 percent year over year at 11.5 MMT. That increased drain on export capacity and the tightening global feed grain supply situation, as discussed in Ahead of USDA Report, Wheat Futures on a Powder Keg, indicate there may be upside potential for USDA’s estimates even with the existing uncertainty around U.S. trade policies. Customers should carefully watch the corn, soybean and feed grain supply and demand situation as it will impact freight and export elevation demand. While the expectation is that U.S. soybean and corn exports will be down, right now the data suggests otherwise.

With increased global demand for U.S. wheat likely and an uncertain outlook for U.S. transportation logistics, customers should take a serious look at the benefits of securing U.S. wheat supplies now. As always, the U.S. wheat store is open and ready to supply high-quality wheat — there just may be longer lines at checkout this year.

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Lower U.S. Wheat Futures: An Anomaly and Excellent Opportunity

By Stephanie Bryant-Erdmann, USW Market Analyst

 

There is an old saying: “When there’s blood on the streets, buy property.” Given recent price movements, that could easily be changed to: “When trade policies are in the news, buy wheat.”

 

Since the steel and aluminum tariffs went into full effect for major U.S. wheat customers, September Kansas City hard red winter (HRW) wheat futures have fallen 51 cents per bushel ($19 per metric ton [MT]), September Chicago soft red winter (SRW) wheat futures dropped 25 cents per bushel ($9 per MT) and Minneapolis hard red spring (HRS) plunged 58 cents per bushel ($21 per MT).

 

Seasonal harvest pressure always impacts U.S. wheat prices during the summer months; however, this year the unique trade environment is also pressuring export demand and driving U.S. wheat prices lower. As of July 19, U.S. export sales for marketing year 2018/19 (June 1 to May 31) totaled 6.43 MMT, down 32 percent year over year. Exporters note that customers are choosing to purchase smaller than normal volumes of U.S. wheat, just what they need for the short-term or are waiting to make purchases, noting uncertainty about U.S. trade policies and their own countries’ retaliatory measures. Sales to the top five U.S. wheat customers — Mexico, Japan, the Philippines, Korea and Nigeria — are 27 percent behind last year’s pace.

 

Futures v Global S&D

U.S. wheat futures prices are not reflecting global supply and demand realities. Buyers are uncertain about the effects of unforeseen tariff wars and have altered their typical wheat import cadences.

With trade policy issues dominating the headlines, U.S. wheat futures markets are mostly ignoring global wheat supply and demand fundamentals, which can be seen in competitors’ wheat prices. The average global wheat price is up 41 cents per bushel ($15 per MT) with larger increases noted in Australia and Argentina, which compete with the United States in key quality-driven markets. According to International Grains Council (IGC) data, the average price of Australian wheat is up $19 per MT and the average price of Argentine wheat is up $75 per MT. These price increases are driven by increased global wheat demand, shrinking global wheat supplies and their location.

 

USDA noted in last week’s World Agricultural Supply and Demand estimates that global wheat production will fall to 737 MMT in 2018/19, the first drop in 5 years and down 3 percent from 2017/18. Decreased production is expected in the European Union (EU), Russia, Ukraine, Kazakhstan, and Australia. While the United States, Canada and Argentina are expected to have increased production, exporter supplies are expected to fall 20.2 MMT year over year.

 

Simultaneously, many importers are engaging in “just in time” purchases since wheat price movement has rewarded their patience the last few years. USDA expects importer ending stocks to fall to 49.8 MMT in 2018/19, the lowest amount in a decade.

 

While importer stocks are shrinking, USDA expects global wheat demand to surge to a new record high of 749 MMT, 4 percent above the 5-year average. That means that global wheat consumption will outpace global wheat production by 12.6 MMT this year and drop the global wheat stocks-to-use ratio (excluding China) to less than 20 percent. A level that has not been seen since 2007/08.

 

For perspective, in July 2007 all three wheat futures were above $6.00 per bushel ($220 per MT) and would continue climbing until March 2008 when prices peaked at $11.60 per bushel ($426 per MT) for SRW, $12.17 per bushel ($447 per MT) for HRW and $17.30 per bushel ($636 per MT) for HRS. On Friday, July 20, those three futures were at $5.16 per bushel ($190 per MT), $5.08 per bushel ($187 per MT) and $5.55 per bushel ($204 per MT), respectively, indicating there is a lot of room for upward mobility.

 

With exporter supplies shrinking and importers continuing a “just in time” purchasing pattern, global wheat prices are sitting on a powder keg that trade policy issues are currently disguising. Customers should take advantage of current U.S. futures price levels and lock in the competitive prices.

 

To track U.S. wheat export prices, subscribe to the USW Weekly Price Report.

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The Long, Hard Road to Export More U.S. Farm Products is Filled with Potholes

By Jonathan H. Harsch, Agri-Pulse, Excerpted with Permission

(Editor’s note: This is the third in a new series of Agri-Pulse in-depth stories dealing with the challenges and opportunities for U.S. agriculture when it comes to selling more commodities and value-added products to overseas customers. This article was sponsored by funding from the National Association of Wheat Growers, U.S. Wheat Associates, Washington Grain Commission, North Dakota Wheat Commission and Idaho Wheat Commission.)

Prospects for U.S. farm exports can change suddenly and dramatically.

Breaking into foreign markets takes decades of persistent hard work and hefty investments in building infrastructure, relationships and, ultimately, sales.

Augusto Bassanini, chief operating officer for United Grain Corp., knows firsthand the challenges of building all three. This experienced grain exporter tells Agri-Pulse that after taking years to build trust and a reputation for reliability, “any interference with that trust, that reliability, is going to have an immediate impact … So, you spend years building that rapport and everything could change overnight.”

“It takes years, especially in Asia, to build that rapport,” he says, “and you have to build it face-to-face.”

Bassanini says he’s seen major new export markets developed in South America, Asia and elsewhere thanks to vital funding from farmers’ checkoff dollars and USDA’s export promotion programs. But he warns that current concerns over U.S. trade agreements and tariff battles with China “create an environment of uncertainty,” forcing buyers and end-users to scramble to find new sources for the grain, soybeans, or other commodities they need to stay in business.

Vancouver, Wash.-based, United Grain operates grain terminals in Oregon, Montana, and North and South Dakota where, Bassanini says, “small farming communities are dependent upon grain exports for providing crucial revenue to those remote locations.” So, any threat to export growth will have a disproportionate impact on these farming areas. And he says that threat is already here.

“We continue to lose market share in terms of volume to competing major export hubs like South America, Brazil, Argentina, Russia and the Black Sea region,” he says. “If we are going to compete with them on a yield basis, I don’t think we are going to win that fight.”

Still, he says that despite headwinds, “we continue to expand our share in regions like Southeast Asia because competing countries are not able to deliver quality products on a consistent, reliable basis.” Maintaining these gains, he says, depends on the U.S. investing in improving supply chain efficiencies, upgrading the infrastructure needed to deliver product reliably, and avoiding even rumors about trade disruptions.

Disruption Concerns. Since taking office, the Trump administration has made several gains on the export front for agricultural products.

However, the administration has also unnerved trading partners by renegotiating the North American Free Trade Agreement (NAFTA), pulling out of the Trans-Pacific Partnership (TPP) and announcing tariffs on steel, aluminum and a variety of other products – prompting retaliatory threats from the Chinese and other countries.

Several U.S. agricultural groups say that one of the best ways to keep pressure on the Chinese and counter the Asian giant’s influence is for the U.S. to rejoin what used to be called the Trans-Pacific Partnership (TPP).

The U.S. Wheat Associates (USW) and the National Association of Wheat Growers (NAWG) welcomed the possibility of reviving the full 12-nation pact. “If the United States joins TPP, U.S. wheat should be able to compete on a level playing field with Canadian and Australian wheat,” said USW Chairman Michael Miller, a wheat farmer from Ritzville, Wash.

Representing 140,000 American wheat farmers, USW and NAWG wrote USTR’s Lighthizer in March, warning that “Lost market share is incredibly difficult to regain.” They pointed out that under new CPTPP rules, Japan will cut its tariffs on imported Canadian and Australian wheat to $85 per ton but keep the current $150 per ton tariff in place for U.S. wheat. While the change will phase in over nine years, the wheat groups said the “loss in market share and its negative effect on farm-gate prices are likely to come much sooner, as Japanese millers reformulate their product mix to avoid the need to purchase artificially expensive U.S. wheat.”

Hopes were also raised that the farm sector’s major role in the U.S. economy would translate into White House support for increasing rather than flat-lining or reducing funding for the two USDA cost-share programs that, in partnership with farmer-funded checkoff dollars, have played a vital role in expanding U.S. farm sales abroad: the Market Access Program (MAP) and the Foreign Market Development (FMD) Program.

Export promotion legislation. To support these programs, last September Sen. Angus King, I-Maine, introduced S. 1839, the “Cultivating Revitalization by Expanding American Agricultural Trade and Exports Act.” Along with the companion House bill, H.R. 2321, King’s CREAATE bill would steadily raise MAP [and] FMD funding.

The House version of the new farm bill takes a different approach. USDA’s trade programs, including the MAP and FMD, would be combined under a new International Market Development Program … Under current law, only MAP would have funding after this year under the expiring 2014 farm bill. Combining the programs would ensure all the programs have a permanent funding baseline. Boosting both ag exports and export promotion funding has become vital to both the rural and the national economy.

Success in the Philippines. Based in Manila, USW Regional VP for the Philippines and South Korea Joseph Sowers is keenly aware of … aggressive competition. He says it’s an “uphill battle” to convince buyers to opt for premium-priced but better performing U.S. wheat. He also points to significant gains.

In the Philippines, Sowers says, “We have a program here where we invest in increasing consumption of wheat-based foods. And we’ve done it.” He adds that almost all the gains benefit the U.S. with its 97 percent market share, proving that “These kinds of investments are paying off.”

Key to this level of market dominance, Sowers insists, is being on-the-ground for decades with regional offices and regular seminars. He says this presence builds trust with buyers and end-users to the point that “decision makers trust us, they look to us for advice.” He considers [state wheat] checkoff, FMD and MAP funding vital to maintaining USW’s foreign offices and “absolutely essential to everything we do.”

“Our mandate is twofold,” Sowers says. “One is to create the greatest returns to our farmers, to the people who fund us. The other mandate is to make the local industry here the most profitable they can be, to increase their profits so they will buy from us.”

To make it all happen, Sowers hosts seminars year-round, with upcoming ones set for Manila, Bangkok and Jakarta, “talking to buyers about methods that they can use to decrease their purchasing price or to plan their purchases through the year. And then at the same time, have a mill management seminar showing them how to increase their profitability using, of course, U.S. products.”

Along with working to increase exports to developing markets like Sri Lanka and Malaysia, Sowers says Thailand, Indonesia and Vietnam offer “the most opportunity for huge increases in sales” and that new trade agreements offer the best way to make U.S. products more competitive.

New Coalitions. USW’s President Vince Peterson and VP of Overseas Operations Mark Fowler [say] with the farm economy struggling in an already down market, the tariff battle with China puts 1.5 million metric tons of U.S. wheat sales at risk just when unsettled NAFTA and TPP issues threaten sales to other major buyers like Mexico and Japan.

Peterson says the trade battles have “forced us to form coalitions” with other U.S. stakeholders and with “customers overseas worried about their supply relationship with us. They don’t like this any more than we do.” He says the new coalitions aim to alert the Trump administration to escalating impacts on U.S. agriculture from recent policy changes.

Peterson and Fowler tell Agri-Pulse that the strategy to success is to sign new trade agreements, complete the NAFTA negotiations without harming ag exports, reconsider joining the TPP, use the WTO dispute settlement process, and double funding for USDA’s MAP and FMD programs as … CREAATE legislation proposes.

Trade Battles Undermine U.S. Reputation as a Reliable Supplier. U.S. Grains Council President and CEO Tom Sleight warns that due to the trade battles launched by the U.S., “our loyal, longtime customers are actively looking at alternative sources of supply … We’re hurting our reputation not only in China, but with other trading partners, with key ones like Japan, Korea, Mexico. Even in places in Southeast Asia that are new and growing markets for the U.S., we’re creating doubt.”

“There are definite consequences if these battles do not get settled expediently and with proper attention to the impact on agriculture,” he says.

National Association of Wheat Growers President Jimmie Musick explains that with his wheat, cattle, alfalfa, cotton and sorghum operation in Sentinel, Okla., “it doesn’t appear like I raise a commodity that China [is] not [targeting] in their tariff trade war.” To help remove this threat, he wants the administration to understand “how important it is that we maintain good trade relationships and how devastating it will be to our farmers when China puts a 25 percent tariff on our commodities.”

Musick’s also at work on getting more support from farm-state members of Congress. He’d like them to persuade the administration to switch from tariffs to negotiations by offering in return to support legislation that’s on Trump’s priority list.

With today’s long list of farm and trade organizations linking arms as never before, Musick and his colleagues are hopeful their concerted pressure on Congress and the White House will pay off in terms of less turbulent waters ahead and continued growth in the U.S. ag export markets that they’ve worked so diligently to build over several decades.

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Sustained Demand for U.S. Wheat in a New Price Environment

By Stephanie Bryant-Erdmann, USW Market Analyst

Six months into marketing year 2017/18 (June to May), total U.S. export sales of 19.5 million metric tons (MMT) are 8 percent behind last year’s pace according to USDA Export Sales data through Jan. 4. However, the estimated total value of U.S. wheat export sales is 4 percent greater than last year on the same date at $4.72 billion, due to slightly higher export prices according to USDA Export Sales data and USW Price Report data.

A deeper analysis of USDA data shows total sales to six of the top 10 U.S. export markets in 2016/17 are ahead of last year’s pace, demonstrating strong demand for U.S. wheat. Sales of soft red winter (SRW) and soft white (SW) are both ahead of last year’s pace. USDA projects total 2017/18 exports will fall slightly to 26.5 MMT, which, if realized, would be 8 percent below 2016/17 but 1 percent above the 5-year average pace.

USDA reported hard red winter (HRW) year-to-date exports at 7.79 MMT, down 10 percent from the prior year. Still, 2017/18 export sales are 10 percent ahead of the 5-year average due to competitive prices for medium protein HRW and the good, overall quality of this year’s crop. The estimated value of year-to-date HRW export sales is 6 percent above 2016/17 due to a 14 percent increase in the average U.S. HRW free-on-board (FOB) price that is supported by the increased premiums for HRW with higher protein. Mexico is currently the number one HRW purchaser. As of Jan. 4, HRW sales to Mexico totaled 1.58 MMT, up 28 percent from last year’s pace. Sales to Indonesia are also up 28 percent year over year at 430,000 metric tons (MT). HRW purchases by Algeria total 456,000 MT, more than double last year’s sales on this date. To date, HRW sales to Venezuela totaling 120,000 MT are nearly four times great than the 2016/17 pace.

Both export sales volume and value of SRW for 2017/18 are up due to the excellent quality of this year’s crop and relatively competitive pricing. Export sales are up 7 percent year over year at 2.02 MMT, boosting estimated export sales value to $400 million, or 12 percent more so far this year. As of Jan. 4, total sales to 11 of the top 20 U.S. SRW export markets from 2016/17 are higher than last year. Sales to Colombia are 12 percent ahead of 2016/17 at 198,000 MT. Nigerian SRW purchases total 234,000 MT, up 12 percent from last year. Sales to other Central and South American countries, including Brazil, Peru, Panama, Venezuela and El Salvador, are also ahead of the 2016/17 pace.

Hard red spring (HRS) sales of 5.15 MMT are down 25 percent year over year and 7 percent below the 5-year average. Higher prices due to smaller 2017/18 production have slowed HRS exports thus far in 2017/18, but global demand for HRS is strong. Year-to-date in 2017/18, the average FOB price of HRS is $293 per metric ton ($7.97 per bushel), compared to $241 per metric ton ($6.55/bu) in 2016/17, according to USW Price Report data. As of Jan. 4, buyers in Japan purchased 878,000 MT, up 20 percent from 2016/17. Sales to Taiwan of 518,000 MT are up 17 percent from last year’s sales on the same date. The Philippines continues to import the largest volume of HRS, though at a 6 percent slower pace so far.

As of Jan. 4, exports of soft white (SW) wheat are up 22 percent year over year at 4.30 MMT. That is 28 percent greater than the 5-year average. Sales to the top 10 SW customers are ahead of last year’s pace, supporting an estimated export value of $896 million, up 25 percent from the prior year. Philippine millers purchased 946,000 MT, up 16 percent compared to last year’s sales on the same date. South Korean sales are up 43 percent at 674,000 MT. U.S. SW sales to China, Thailand and Indonesia are also up. Year-to-date, Indonesia has purchased 515,000 MT, compared to total 2016/17 purchases of 270,000 MT. Thailand sales are up 18 percent year over year at 217,000 MT. Chinese purchases of 306,000 MT are already greater than 2016/17 total SW sales.

Year to date durum exports total 272,000 MT, down 32 percent from the same time last year, and below the 5-year average, with tighter supplies and resulting higher prices. The average export price for U.S. durum is up 5 percent over last year at this time according to USW Price Report data. To date, Nigeria, the European Union (EU), Algeria and Guatemala are the top durum buyers. A significant portion of the first quarter 2017/18 sales is designated as “sales to unknown designations.

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

By Steve Mercer, USW Vice President of Communications

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

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

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

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

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Shifting Destinations of U.S. Wheat Exports

By Stephanie Bryant-Erdmann, USW Market Analyst

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

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

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

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

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

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

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

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

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Rail and Port Operation Recovery in Texas Gulf is Encouraging

By Steve Mercer, USW Vice President of Communications

Officials have classified it as a 1,000-year flood event, unleashed at the center of U.S. HRW wheat’s export industry. Following the catastrophic flooding from Hurricane Harvey, some ports are still closed, rail embargos remain in effect and virtually no wheat was inspected for export last week at Texas grain export elevators. Even with the human and industrial costs of the storm, the supply chain is making good progress toward bringing the system fully back on line as soon as possible.

Federal Grain Inspection Service (FGIS) reporting regions of Louisiana and North and South Texas account for account for 46 percent of total U.S. wheat exports based on the 5-year average. Texas elevators are near Galveston, Houston and Corpus Christi and account for about 56 percent of total Gulf wheat export volume. Texas wheat exports are almost all HRW, and most of the volume moves through elevators in the Galveston and Houston area, which took the brunt of the storm.

The Corpus Christi area did not experience the full force of the hurricane, so rail and elevator service will likely come back on line there first.

“Reports from the Port of Corpus Christi indicate that grain elevators are mostly operational,” said Darby Sullivan, communications director with the Texas Wheat Producers Board, Amarillo, Tex. “Last week’s closure was to ensure that ships were able to enter the port safely. This week, they estimated that the railroads are running at about 80 percent speed and capacity.”

USW has not been able to obtain much detail about elevator operations in the North Texas region, but

Sullivan said flood recovery work is still needed at some of the elevators. One elevator manager from the Houston area told her they loaded and unloaded some rail cars, but did not expect to be fully operational until late this week. At this point, the status of rail bed repairs will have the most influence on when the interruption eases.

With the safety and well-being of its employees and their families as its top priority, the Union Pacific (UP) Railroad said on Sept. 2 it is making good progress repairing lines serving the North Texas elevators. Some lines have re-opened, and the UP said even crucial east-west lines blocked by flood damage may be repaired by Sept. 7. The railroad’s report on Sept. 6 confirmed its progress on repairs. Union Pacific posts line status at https://www.up.com/customers/embargo/list/index.htm.

The BNSF Railroad also serves the Texas Gulf supply system. Its latest report to customers on Sept. 5  said “with improving conditions and aggressive efforts by our BNSF crews, rail service on most BNSF subdivisions in the Houston area and throughout southeastern Texas has been restored.”

Although the railroad said it is experiencing ongoing challenges involving the primary rail line that provides access to locations southwest of Houston, including Corpus Christi and Brownsville, it is re-routing or diverting as much traffic as possible around this affected location as well as other areas that are currently blocked. BNSF access into the Houston complex from the north and west is largely clear, the railroad said, which is important for HRW wheat moving from western Texas, Oklahoma, Kansas, Colorado and southwestern Nebraska.

Considering that Hurricane Harvey set a new, single storm rainfall record of more than 50 inches (127 centimeters), the progress toward re-opening the Texas grain ports is quite remarkable. We are glad the interruption is being managed by the supply chain participants and our overseas customers to the best of their abilities. At the same time, we are keeping the people affected by this storm in our concerns — as well as the farmers, ranchers and industry affected by the devastating fires in Montana, Oregon, Washington and many other western states.

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U.S. Wheat Sales on Pace to Match 5-Year Average

By Stephanie Bryant-Erdmann, USW Market Analyst

Three months into the 2017/18 marketing year (June to May), total U.S. export sales-to-date of 12.1 million metric tons (MMT) are 2 percent ahead of last year’s pace and in line with the 5-year average pace. Though hard red winter (HRW) and hard red spring (HRS) sales are currently below last year’s levels, both are ahead of the respective 5-year averages. As of Aug. 24, total sales to eight of the top 10 2016/17 U.S. export markets are higher than last year. In addition, the other three U.S. wheat classes are all ahead of last year’s pace. USDA projects 2017/18 exports will fall to 26.5 MMT, which, if realized, would be 8 percent below 2016/17, but 1 percent above the 5-year average pace.

USDA reported HRW year-to-date exports at 4.49 MMT, down 7 percent from the prior year but 10 percent ahead of the 5-year average due to competitive prices and good quality. Mexico is currently the number one HRW purchaser. As of Aug. 24, before Hurricane Harvey’s catastrophic flooding closed Texas Gulf ports, HRW sales to Mexico totaled 973,000 metric tons (MT), up 72 percent from last year’s pace. Sales to Nigeria are also up 19 percent year over year at 488,000 MT. HRW purchases by Indonesia total 335,000 MT, three times greater than last year’s sales on this date. To date, HRW sales to Algeria totaling 273,000 MT are five times greater than the 2016/17 pace. It is too early to tell if Texas Gulf closures will affect total exports for 2017/18, but current reports suggest that rail and port facilities are making good progress toward resuming operations (Read more in Rail and Port Operation Recovery in Texas Gulf is Encouraging, below).

Sales of soft red winter (SRW) for 2017/18 are up 8 percent year over year at 1.19 MMT due to the excellent quality of this year’s crop. As of Aug. 24, total sales to four of the top 10 U.S. SRW export markets from 2016/17 are higher than last year. Sales to Mexico are 12 percent ahead of 2016/17 at 472,000 MT. Colombian SRW purchases total 121,000 MT, up 50 percent from last year. Sales to other Central and South American countries, including Ecuador, Peru, Panama, Brazil, Guatemala and El Salvador, are also ahead of the 2016/17 pace.

HRS sales of 3.26 MMT are down 13 percent year over year, but remain 4 percent above the 5-year average. Higher prices due to smaller 2017/18 production have slowed HRS exports thus far in 2017/18, but global demand for HRS is strong. As of Aug. 24, buyers in the Philippines held the top purchaser post with 746,000 MT, up 27 percent from 2016/17. Sales to seven of the top ten HRS customers are also ahead of last year’s pace. Sales to Japan of 475,000 MT are up 25 percent from last year’s sales on the same date, while year-to-date sales to Taiwan of 321,000 MT are up 93 percent from 2016/17.

As of Aug. 24, exports of soft white (SW) wheat are up 47 percent year over year at 2.93 MMT. That is 56 percent greater than the 5-year average. Sales to nine of the top 10 SW customers are ahead of last year’s pace. Philippine millers purchased 578,000 MT, up 19 percent compared to last year’s sales on the same date. South Korean sales are up 65 percent at 477,000 MT. Sales to Japan are up 24 percent year over year at 301,000 MT. U.S. SW sales to China, Thailand and Indonesia are also up. Year-to-date, Indonesia has purchased 266,000 MT, compared to total 2016/17 purchases of 193,000 MT. Thailand sales are up 72 percent year over year at 147,000 MT. Chinese purchases of 271,000 MT are already greater than 2016/17 total SW sales.

On average, 24 percent of U.S. total durum sales occur in first quarter of the marketing year, compared to 29 percent from September through November. Year to date durum exports total 211,000 MT, up 20 percent from the same time last year, still 14 percent below the 5-year average. Many durum buyers may be waiting for final quality reports for the Canadian crop before making purchasing decisions. To date, Nigeria, the European Union (EU), Algeria and Nigeria are the top durum buyers. A significant portion of the first quarter 2017/18 sales is designated as “sales to unknown designations.”

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