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Agriculture Calls on STB to Increase Rail Competition Following Executive Order

On the heels of a White House Executive Order on competition this month, a large group of agricultural shippers recently wrote to the U.S. Surface Transportation Board (STB) to advocate for several policy proposals in front of the board that can make a significant difference in increasing rail competition in transportation of wheat and other commodities.

The letter was written by a diverse grouping of agricultural organizations, including U.S. Wheat Associates (USW), that created an informal coalition, the Agricultural Transportation Working Group (ATWG), in 2003. The group meets regularly to discuss critical transportation policy issues that affect U.S. agriculture. The group also identifies policy priorities and suggests needed changes to help maintain U.S agriculture’s international competitiveness.

Elevator and train to illustrate rail competition story.

About 70% of U.S. wheat is transported by train from inland country elevators to domestic and export markets, so rail competition is important for the entire supply chain.

More Room for Negotiation Needed

With about 70% of U.S. wheat moving to domestic and export markets by rail, railroads provide an essential logistical function that neither farmers nor grain companies can perform on their own. Yet those shippers are often “captive” because they lack economic alternatives to a single railroad.

The letter specifically encouraged STB to enable “competitive switching” (see below for more information) and urged “the Board to finalize other regulations … to provide rail customers greater ability to negotiate prices and challenge unreasonable rates and fees.” The letter points out that “fees are increasingly becoming a larger source of revenue for railroads and expense for their customers.” Click here to read more about how rail rates affect U.S. wheat export basis.

The President’s Executive Order was particularly broad and focused on proposals to increase competition in many industries, with the transportation portion including rail competition and maritime initiatives,  stating that “robust competition is critical to preserving America’s role as the world’s leading economy … inaction has contributed to these problems, with workers, farmers, small businesses, and consumers paying the price.”

“Competition is critical to the health of the rail industry and the significant role rail serves in the larger economy, and this Executive Order will help focus attention on these important issues.” – Surface Transportation Board Chairman Martin J. Oberman

The Order explicitly states that agencies like the STB and Federal Maritime Commission (FMC) can influence the conditions of competition through their exercise of regulatory authority. In addition to the competitive switching rule, the STB has the latitude to propose or finalize other options such as bottleneck rate rules and Final Offer Rate Review – for which USW has advocated – both of which would start to tip the scales in favor of a level playing field for rail shippers.

Opposition Anticipated

While the rail industry will almost certainly oppose any changes to the current regulatory model that affects rail competition, executive pressure and political initiative may encourage the STB majority to act on these proposals (click here to read STB Chairman Martin J. Oberman’s statement on the President’s Executive Order). Many industry watchers are even speculating that the focus on increasing competition and attention on consolidation will factor into the STB’s consideration of the proposed Canadian National Railways purchase of Kansas City Southern Railroad – something the USW Wheat Transportation Working Group is closely watching.

In USW’s mission “to enhance wheat’s profitability for U.S. wheat producers and its value for their customers,” a potential solution may be found in the President’s directive if it indeed does rebalance the relationship between railroads and their customers.

By Michael Anderson, USW Market Analyst

“Competitive switching” is a policy proposal in which a rail customer such as an inland country grain elevator could seek bids for service from nearby competing railroads even if the customer is not located directly on the competing railroad’s track. It is designed to inject competition into what is otherwise a captive transportation market, where many rail customers, especially grain elevators, have direct access to only a single freight railroad, leaving them with little to no bargaining power over shipping rates. Freight rail reform advocates who have sought such policies for a long time are enthusiastically looking to the President’s “Promoting Competition in the American Economy” executive order to add momentum to the call for greater competition.

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2021 Soft Red Winter Wheat Crop Outlook is Positive

While drought has dominated the headlines about U.S. wheat, the outlook for the 2021 soft red winter (SRW) wheat crop is a more positive story. Farmers growing this weak gluten class in the eastern third of the United States enjoyed timely rainfall and mild temperatures as the crop developed, leading to good yield potential and at least average quality so far.

The July 6 Crop Progress report published weekly by the National Agricultural Statistics Service indicated the percentage of SRW crops rated in good to excellent condition were 50% in Arkansas, 49% in Missouri, 74% in Illinois, 78% in Indiana and 74% in Ohio.

Big Crop Ahead

Many of the SRW producing states saw planted area increase for the 2021 crop from 5.63 million acres in 2020 to 6.59 million acres according to USDA’s June 30, 2021, Acreage Report.  With yield potential up, too, the 2021 SRW crop is expected to be significantly bigger. At the spring conference of the North American Millers’ Association, millers estimated SRW wheat production for 2021 to increase 25% compared to 2020, to 332.7 million bushels (9.05 MMT). The most recent crop production estimates, published by the USDA in June, forecast SRW bushels to be 335.4 million. Either way, there will be plenty of high-quality SRW available.

2021 soft red winter wheat crop image

Grown in the eastern third of the United States and shipped via Gulf, Atlantic, and Great Lakes ports, soft red winter (SRW) wheat is a high-yielding wheat with low protein, soft endosperm, red bran, and weak gluten. It is used in pastries, cakes, cookies, crackers, pretzels, flatbreads and for blending flours.

The 2021 SRW harvest is well underway. Even with recent rains slowing progress, the July 2 USW Harvest Report showed 57% of the growing region has completed harvest. The report, which will be updated July 9, included grade and non-grade data from analysis of 135 SRW harvest samples from the southern and southeastern states. That data showed an improvement in grade from to U.S. No. 2 week-over-week. Both test weight (TW) and falling number (FN) increased this week compared to last. USW’s goal is to test a total of 300 samples for its 2021 SRW Crop Quality Report.

Better Quality than Expected

Jason Scott, 2016/17 USW Chairman and a Maryland SRW wheat farmer, just completed his harvest and said that the crop was “way better than expected despite a very wet fall.” He added that disease concerns are minimal including limited vomitoxin levels. He said conditions during mid-spring at flowering were dry, which helped hold back pressure from the fusarium (scab) disease that causes vomitoxin.

The image shows a crop and sprayer to illustrate the 2021 soft red winter wheat crop.

A field of soft red winter wheat growing toward maturity on Jason Scott’s farm in Maryland. Scott’s 2021 soft red winter wheat crop produced higher yields and better quality than he expected.

Shawn Branstetter, a SRW wheat trader with The Andersons, noted that SRW quality is good overall in the Mid-Atlantic region, and prospects are expected to stay good.

Brad Reynolds, Communication Director for the Ohio Small Grains Marketing Program (OSGMP), said that with increased production and good quality, overseas customers are interested in the Ohio SRW crop. To date, total SRW exports are up 75% in the 2021/22 marketing year that began June 1 compared to 2020/21. Exports to Mexico, a leading importer of SRW from the U.S., are up 129% compared to the same time last year.

USW Trade Support Included

USW works closely with its state wheat commission members and the U.S. government to help customers get the most value from their U.S. wheat purchases. In 2020, for example, USW’s Mexico City regional office arranged for quality control managers from a Mexican mill to meet with the USDA-ARS Soft Wheat Quality Laboratory in Wooster, Ohio, and OSGMP to identify SRW quality and supply. OSGMP collected samples that were analyzed at the ARS laboratory. Based on the two rounds of tests, the mill identified SRW harvested in 2020 from southern Ohio as having the flour and baking qualities needed to meet their snack food customer’s needs. Supported by additional trade service information from USW and OSGMP, the mill purchased Ohio SRW that was loaded in Toledo, shipped via the St. Lawrence Seaway.

With strong production numbers, promising quality data, and dependable export service, the outlook for the 2021 SRW wheat crop should remain positive.

By Michael Anderson, USW Market Analyst

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U.S. Wheat Supply and Demand Outlook Available

U.S. wheat Associates (USW) Market Analyst Michael Anderson recently prepared a Wheat Supply and Demand Outlook report based on USDA’s latest market data published in May 2021.

The report is shared with the USW Board of Directors three times per year. Directors include wheat farmer leaders representing the organization’s 17 state wheat commission members.

Vie the full Summer 2021 report online here.

The World Wheat Supply and Demand Outlook includes the first look at USDA’s estimates of marketing year 2021/22 (June 1 to May 31) world wheat supply and demand and production in the major wheat exporting countries and regions. U.S. by-class estimates for 2021/22 are not published until July, but this report includes USDA’s estimate of U.S. commercial wheat sales for 2020/21 and its first forecast for 2021/22.

USDA Production and Use data to support world wheat supply and demand outlook.

USDA’s latest forecast continues the trend of record world wheat supply and demand.

USDA sees a record-setting trend in world wheat production and use continuing in 2021/22. Based on USDA’s May estimates, total world wheat production is expected to reach a record 794.4 million metric tons (MMT). Among exporting regions, production is forecast to increase in the United States, the Black Sea (Russia, Ukraine, Kazakhstan), the European Union (EU) and Argentina. Declines are expected in Australia and Canada. USDA estimates 2021/22 world wheat ending stocks will reach 296.8 MMT, a volume similar to last year.

Higher global production is matched by increased global demand as USDA expects total global wheat consumption will reach a record 791.1 MMT, or 9.6 MMT more than last year. This forecast is driven primarily by higher feed and residual use. Global human consumption of wheat is expected to increase 1% on the year but still a record level of 630.4 MMT. USDA expects global trade to reach 203.2 MMT, up 4.1 MMT from last year.

2021/22 U.S. Commercial Sales

Throughout the year, even in the face of the pandemic restrictions on travel and meetings, USW representatives were able to sustain a strong level of service and information flow to its customers, with support from its state commission members and USDA’s Foreign Agricultural Service export market development programs.

The World Wheat Supply and Demand Outlook report shows USDA’s final estimate of total 2020/21 U.S. wheat commercial sales was 25.5 MMT, 4% less than in 2019/20. In part because of larger exportable supplies in other major exporting regions, USDA currently expects 2021/22 U.S. wheat export sales to be 24.5 MMT.

2020/21 U.S. wheat commercial sales by class and importing country

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Pacific Northwest Drought Signals Production Challenges

Hot, dry weather following a parched fall and a winter with less snow in some areas has many parts of Washington, Oregon and Idaho experiencing some of the driest weather in a generation. Much of the area that grows spring and winter soft white (SW) and white club wheat is experiencing some form of drought. All eyes will be on USDA’s first estimate of new crop SW production in its July World Agricultural Supply and Demand Estimates report, although a reduction in yield potential and concerns about protein levels are already anticipated.

The market has reacted to the weather with FOB prices for ordinary SW up $140.00 per metric ton ($4.00 per bushel) more than a year ago. Demand for the 2020/21 SW crop was quite strong and ending stocks of 1.31 million metric tons are half of what they were in 2019/20. The stocks-to-use ratio for SW ended the year at only 13%.

Now, the hot dry weather leaves farmers unwilling to forward contract new crop sales as they struggle to identify what volume they will produce and because dry conditions tend to increase protein, what protein levels they will be able to offer. Traders are cautious because the drought’s effect on protein levels could make securing lower protein SW difficult. It is important to remember that SW protein levels have been elevated in some past years. Your local U.S. Wheat Associates (USW) office is an excellent resource to help you identify how to get the most value from every new crop.

Showing the U.S. Drought Monitor for the Western states.

Extreme drought is intensifying in the Pacific Northwest and throughout the western United States.

Michelle Hennings, Executive Director of the Washington Association of Wheat Growers, recently noted that while winter planted SW is stressed with lower yield potential, spring planted SW has had so little moisture some farmers may not have any harvest.

Washington state, which accounts for around 50% of the Pacific Northwest (PNW) SW crop, has received only half of its usual average rainfall according to NOAA’s National Centers for Environmental Information and areas falling into the drought category makeup well over half the state. Areas rated in extreme drought are increasing fast week-over-week and winter wheat conditions in Washington are rated 15% good to excellent.

Karin Bumbaco, Assistant State Climatologist, University of Washington, recently noted that the drought in the state has expanded quickly. Just three months ago none of Washington was in extreme drought versus today when more than 23% of the state – and almost all the state’s wheat country – falls into the category (see the PNW SW wheat production area above from the interactive U.S. wheat export supply system map on www.uswheat.org).

Driest in More than 40 Years

The once-in-a-generation drought led one farmer to observe “if you can get an average crop, consider yourself lucky!”

Darren Padget, a dryland wheat farmer in north-central Oregon and the current USW Chairman, noted that harvest may come early this year. The lack of rain has matured his crop enough that harvest, which usually comes at the end of July, may start in less than a month. Padget also mentioned that it is the driest weather he has seen since 1977, a year many farmers remember when looking for a comparison to this year. In Oregon, which accounts for around 20% of the PNW SW crop, winter wheat conditions are rated 11% good to excellent.

Some Good to Excellent Wheat

Idaho, which accounts for around 30% of the PNW SW crop, has also been very dry. Similar to neighboring states, spring planted SW in Idaho is severely stressed, especially on non-irrigated fields. However, some wheat in Idaho is grown under irrigation and farmers there are more optimistic about the condition of fall planted SW fields. In fact, USDA’s latest report puts 44% of SW winter wheat in good to excellent condition.

Despite the challenges to the 2021/22 PNW SW crop, many farmers do have crop insurance and the state governments are also considering other ways to help farmers through this challenge, and USW is there for overseas buyers who have questions and concerns.

Producers, by nature, remain optimistic. One producer in Washington state put it best: “…we are not going to give up.”

By Michael Anderson, USW Market Analyst

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Severe Drought Continues in U.S. Spring Wheat Country

By Michael Anderson, USW Market Analyst

Hard red spring (HRS) futures rose $0.85 week-over-week to close at $8.10 per bushel on Friday, June 4, a level nearly $3.00 more per bushel than they were a year ago. Some recent rain in western Canada took some pressure off HRS prices, but severe drought in North Dakota, the top producing HRS state, remains the crucial market factor. AgriCensus on June 8 said the USDA is likely to slash its spring wheat forecast in its June 10 WASDE report, following the prolonged period of drought.

Daily Futures Settlement Prices 28052021 to 04062021

An unusually dry winter with very little snow cover meant that soil moisture was far below average for the state when spring wheat planting started. Dryness persisted through planting, and following very cool conditions, the HRS production region had been in one of the hottest and driest periods in over 30 years. The dry soil makes it hard for rain to absorb into the hard ground when it has come in localized areas, leading to water runoff. The unusual heat causes the moisture to evaporate quickly.

More Concerned

Erica Olson, Market Development and Research Manager for the North Dakota Wheat Commission (NDWC), remains optimistic but said the HRS and durum crops are definitely stressed. She said rain is needed now, and consistent rain needs to follow. In 2017, North Dakota experienced another dry growing season leading to lower yields and some abandonment. A key difference this year is the lack of soil moisture growers started with. Farmers tell her they are growing more concerned by the day.

Olson noted that they would see more abandonment and a smaller crop with below-average yields if things do not turn around.

 

Farmer anxiety over this year’s crop potential means that grain traders are having difficulty securing offers from growers. Unsure of their yield potential, many farmers are unwilling to commit to much forward sales, and if they have stored wheat to sell, they may expect prices to go higher. A U.S. wheat trader said rain is needed now and compared this year to 1988 when a severe drought cut spring wheat yields in half. The USDA’s initial crop condition rating for spring wheat is the “second-lowest first crop rating ever next to the disastrous year of 1988,” noted one wheat analyst.

“The word of the year will be ‘timely’ rains,” said NDWC Policy and Marketing Director Jim Peterson in an interview with DTN. That article pointed to many factors affecting the current wheat conditions in the Northern Plains. While dryness is expected to continue in the near term, conditions can change quickly.

Speaking of things changing quickly, after this story was written and scheduled to publish June 9, south-central North Dakota received some respite with isolated rain showers overnight on June 8. More rain is expected this week; however, it may not be enough or soon enough to turn conditions around.

Source: North Dakota Agricultural Weather Network

Canada

Farmers in the Canadian Prairie Provinces are also experiencing unseasonably hot weather but recently received what was dubbed the “billion-dollar rainfall” for their spring wheat crops.

USDA reported that drier conditions returned to Manitoba, but beneficial showers continued elsewhere, further improving emerging spring grains and oilseeds prospects. Most agricultural districts in Manitoba received less than 5 mm, with near-complete dryness in Canada’s Red River Valley.

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World Wheat Market Factors to Watch in the New U.S. Marketing Year

By Michael Anderson, USW Market Analyst

The first predictions for global wheat supplies and demand in the new U.S. marketing year (June 1, 2021, to May 31, 2022) are in. Most estimates call for relatively stable world supplies in 2021/22. Only time will tell the real story, but U.S. Wheat Associates (USW) will be watching several market factors closely over the next few months.

USDA published its initial supply and demand forecast for the new 2021/22 U.S. marketing year this month. According to the May World Agricultural Supply and Demand Estimates (WASDE), estimated world beginning stocks will be 295 million metric tons (MMT), down 2% from 2020/21, with ending stocks also projected at 295 MMT. While global wheat production is expected to reach a record 789 MMT, global consumption is also forecast at a record 789 MMT.

U.S. Stocks Decline

In the United States, except for soft red winter (SRW) wheat, the stocks-to-use ratio for the other wheat classes all declined in 2020/21. For example, soft white (SW) wheat stocks-to-use ratio went from 35% in 2019/20 to 15% in 2020/21.

Along with USW, buyers of soft white (SW) and hard red spring (HRS) wheat will want to monitor the weather across the PNW and Northern Plains, where conditions have been very dry for growing winter crops and newly seeded spring crops. Recent rain has been helpful but spotty. Timely rains will be needed to avoid a fall-off in production for those wheat classes and northern durum.

Late rain in the primary hard red winter (HRW) states has helped the new crop, but it is too soon to know if that precipitation came too late for wheat in sections of Colorado, Kansas and Oklahoma. USW’s Harvest Report is a helpful way to track crop conditions.

Supplies in Other Exporting Countries

Beginning stocks for the five major historic exporters, the United States, Canada, Australia, Argentina, and the European Union (EU), are forecast to be 45 MMT, down from 50 MMT in 2020/21. Ending stocks for 2021/22 U.S. marketing year are forecast to be 42 MMT, a decline of 3 MMT compared to 2020/21.

Ending stocks for the United States, Canada, Australia, Argentina, and the EU reached their highest on record in 2017/18 with 60.0 MMT of global ending stocks. Since then, stocks have fallen. If realized, USDA now expects 2021/22 ending stocks for those five major exporters will be the lowest since 2007/08 at 42 MMT, down 19% from the 10-year average. However, beginning stocks for 2021/22 for Black Sea exporters Russia, Ukraine and Kazakhstan are forecast at 15 MMT, up 67% from 2020/21. The ending stocks forecast for the Black Sea exporters was also raised compared to 2020/21 and double 2019/20 to 18 MMT.

Canada is experiencing dry weather in its key growing regions, adding to anxiety there, beginning stocks and production are all projected down.

Australia is poised for a second consecutive bumper wheat crop. Near perfect conditions ahead of planting season in April and May and favorable crop weather forecasts from the Australian weather bureau have traders there confident. One broker called for a 29.5 MMT crop compared to the WASDE forecast of 27 MMT.

The Rosario Grain Exchange (BCR), an Argentine association, projects a record 20.0 MMT crop for the lead South American wheat producer following a 3% increase in planted area.

Coceral, an EU-based association representing the cereals trade, revised its EU wheat output upward by 4.3 MMT after “excellent yield prospects in the Balkan countries and Spain.” Germany also increased winter wheat sown area by 3%. The European Commission increased its forecast for common wheat production to 126.2 MMT, 6% less than the most recent WASDE report forecast for 2021/22.

Russia Weighs In

It will be interesting to see how USDA adjusts its forecast for Russian wheat production in 2021/22 in its June WASDE report. The May WASDE forecasted 2021/22 production in Russia, the leading world wheat exporter, at 85 MMT, down slightly from the record 2020/21 crop. However, a separate report from the USDA Foreign Agriculture Service Attaché based in Moscow forecast Russian wheat production at a much lower volume. SovEcon, a Russia-based analyst, forecast in May that the Russian wheat crop will be 81.7 MMT.

China Demands Attention

Monitoring China’s actions in global grain trade will be important over the next few months.

Record corn imports have slashed world corn stocks. China has purchased 11.38 MMT of U.S. corn in the current marketing year, and an additional 11.98 MMT is still awaiting shipment. China purchased $400 million of U.S. corn in May 2021 alone.

The effect of China’s unprecedented corn demand on the wheat market should draw any wheat buyer’s attention. China’s unusually large wheat imports beginning in early 2020 through most of 2020/21, including 3.2 MMT of U.S. wheat, helped pull up global wheat prices. Then, as China’s government buyers ramped up corn imports, the price relationship between corn and wheat narrowed and even reversed at times.

Market watchers know that USDA expects wheat feeding in China to reach 40 MMT in 2021/22 but also expects its notoriously large volume of wheat stocks to decline by only 3.0 MMT. And China, notoriously, holds half the world’s wheat stocks, but USDA’s forecast expects ending stocks to be 3.0 MMT less than 2020/21.

IGC Expects Higher Prices

In its May Grain Market Report, the International Grains Council (IGC) noted that despite an increase in wheat production, a rise in consumption and tightened ending stocks in 2020/21 will lead to a drawdown in global grain stocks for 2021/22. The IGC said that ending stocks will be at a seven-year low.

As the 2021 U.S. wheat harvest moves north, USW colleagues, our state wheat commission members and farmers across the country will continue monitoring the critical market factors that affect our overseas customers.

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Rail Merger Proposals Should Improve Competition, Hold Down Wheat Shipping Rates

On March 21, 2021, Canadian Pacific (CP) Railways announced a $25 billion plan to merge with Kansas City Southern (KCS), calling it a “transformative” remake of the freight-rail industry. The proposed new railroad would be the first U.S.-Mexico-Canada-linked rail line.

To illustrate rail merger proposals

The proposed rail merger of Canadian Pacific and Kansas City Southern would create a new rail system linking Canada, the United States and Mexico. Map: Canadian Pacific.

Not to be outdone, Canadian National Railway (CN) began talks with KCS in late April, saying it could yield a “superior” rail merger proposal and offering $30 billion for KCS compared to CP’s $25 billion.

Wheat is Watching

The U.S. wheat industry is closely watching both proposals but has not taken a position in support of or opposition to either proposed merger. U.S. Wheat Associates (USW), along with a coalition of shippers, has asked the Surface Transportation Board (STB), which regulates U.S. rail service, to apply its most strict standard of “enhances competition” to both proposals.

Also in April, however, the STB granted a waiver to CP that exempted its proposal from that high standard established in 2001. That ruling effectively lowered CP’s burden for winning the deal. The STB defended its decision noting that because the combination of CP and KCS would be the smallest of the large North American railroads, it would “result in the fewest overlapping routes.”

A Dissent

However, one STB member, Robert Primus, dissented in part, saying, “Special treatment for this proposed merger between Class I [railroads] runs counter to the Board’s responsibility to review such major mergers and protect the public interest.”

While the STB waived CP’s proposal from that standard, it has not yet ruled on the CN proposal. However, CN’s effort to brand the merger as enhancing competition has received over 600 letters of support.

USW’s desire to see increased rail competition in these merger proposals is directly related to their potential effect on U.S. wheat export prices.

To show proposed rail routes

Alternative routes created by Canadian National’s proposed rail merger with Kansas City Southern. Map: U.S. Department of Transportation via Bloomberg.

Rail Rates Affect Sellers and Buyers

U.S. railroads are a crucial part of the most efficient grain supply system in the world. The rail system fulfills an essential logistical function that neither grain handlers nor farmers can perform on their own. Wheat must compete for limited rail capacity with other grains as well.

USW, however, has learned that since June 2014, the cost of wheat shipments has increased substantially, due at times to higher basic rates for shipping wheat and other rail pricing strategies. For Mexican wheat buyers who bring in more than 60% of their total U.S. imports directly by rail, rates have a significant, direct impact on their bottom-line costs.

As rail costs increase, grain handlers may try to recover these costs by offering higher grain prices to terminal or export elevators and, as some in the industry believe, by offering lower prices to farmers. As basis increases, overseas buyers must pay more for all classes of wheat, and that affects demand.

While it is unlikely these proposed rail mergers would make Canada more competitive in Mexico due to long shipping distances, Canada’s history of nationalism in rail policies is concerning as it favors only some shippers. It is also possible a merger would increase Canada’s competitiveness in the U.S. domestic market, while the Canadian industry continues benefitting from an archaic, government-mandated variety registration system that helps minimize any large-scale U.S. wheat imports north.

Next Steps

The KCS’s board of directors must next decide if they want to accept one of the rail merger proposals. In the meantime, the STB will review the proposed mergers.

In response to the impacts of increasing rail rates on our export competitiveness, USW formed a Wheat Transportation Working group in 2018. The group is currently working with researchers on scenarios that will help identify potentially positive or negative outcomes that could result from a merger. The STB is likely to seek public comments on the final rail merger proposals later in 2021 and the Wheat Transportation Working Group will weigh in on behalf of U.S. wheat farmers.

For more information: https://www.freightwaves.com/news/cn-and-canadian-pacific-vie-for-shippers-and-kcs-shareholders-favor.

By Michael Anderson, USW Market Analyst

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USW Harvest Report for 2021/22 Returns May 14

The new U.S. winter wheat crop is rapidly developing and U.S. Wheat Associates (USW) will publish its first “Harvest Report” for marketing year 2021/22 on Friday, May 14.

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.

Anyone may subscribe to an email version of the “Harvest Report” at this link. 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 on the USW website here.

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 overseas offices share the report with their market contacts and use it as a key resource for answering inquiries and meeting with customers. Several USW offices publish the reports in the local language. Additional links to Harvest Report are available on USW’s Facebook, Twitter and LinkedIn pages.

USW wants to thank and acknowledge the organizations that make “Harvest Reports” possible, including:

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Global Growth Forecast Likely to Support Higher Ocean Freight Rates

As the world’s economies begin picking up pace, the increasing demand for raw materials is pushing up ocean freight rates worldwide. A less volatile freight market is possible but there are factors that suggest rates will remain higher for some time.

Aristides Pittas, CEO of EuroDry, noted recently that dry bulk rates in January were the highest in a decade.

“The period from 2000-2010 was an extraordinarily good decade for dry bulk. In 2010-2020, it was an extraordinary bad decade,” he added. However, as another industry insider noted, “a lethargic decade for the [ocean freight] industry is behind us.” Rates for Panamax and Supramax vessels are double what they were at the same time last year, ahead of the global shutdowns brought on by the spread of COVID-19.

Why Freight Rates are Increasing

Dry bulk demand is overwhelmingly driven by China’s buying spree, which accounted for 48.5% of all dry bulk-ton miles in 2020, reported BIMCO. Unlike many countries last year, China’s economy grew by 2.3%. China’s growth translated directly to demand for grains, coal, iron ore, and other commodities delivered in dry bulk vessels.

Another cause is a diplomatic dispute between China and Australia that has left 70 bulkers carrying coal anchored off northern China. China is looking elsewhere for coal while Australia is finding other export markets, leading to longer shipping times and tying up the vessel supply on longer shipping routes.

News of President Biden’s plans to push a significant U.S. infrastructure plan could also affect demand. Martyn Wade, CEO of Grindrod Shipping, said shipping demand could be “through the roof” if deliveries of building materials like steel and cement tie up smaller ship sizes. In fact, Chinese steel exports in March were 40% above January and February, respectively. That is a four-year high according to Marine Strategies International (MSI).

Can the Market Stabilize?

Rates for Panamax and Supramax vessels have steadily increased in the first quarter of 2021 and remain very strong. Rates have been steady in April. Today’s Panamax rate is $22,949, or about $600 more than on April 1. Forward freight agreement (FFA) derivatives indicate continued strength. The Baltic Index is up 39% in April.

Proving ocean freight rates are rising.

Ocean Freight Rates Comparison, April 2020 to April 2021.  This chart gives a snapshot of freight price trends for routes from the U.S. Pacific Northwest to Northeast Asia, the U.S. Gulf to Northeast Asia, and the Black Sea to Northeast Asia. The chart shows the trend of shipping rates over the course of one year (April 2020 to 2021). The Y-axis represents the percent change over the course of a year with 0% representing the benchmark. Source: “AgriCensus.”

New ship orders can increase the worldwide supply of dry bulk carriers, but new orders are not keeping pace with demand. New build orders for container ships in comparison are triple the dry bulk ratio, reported “American Shipper.”

In addition, COVID-19 protocols in many countries have slowed vessel discharge time. Australia, for example, requires ships to hold at sea for 14 days before calling at ports. This protocol has had a major impact on the Capesize route between China and Australia, said Nick Ristic, lead dry cargo analyst at Braemar ACM Shipbroking.

Strength in Freight Market to Persist

It looks like the market is at a turning point for the shipping industry. As the year progresses, rates remain strong. Global economic growth and momentum in the equities markets point to an optimistic outlook for the year. Limits on vessel supply cannot be met quickly.

For those contracting for shipping, these factors are likely to sustain the higher dry bulk carrier rates.

For additional information on freight and other trade service needs, please contact your local USW Office.

By Michael Anderson, USW Market Analyst

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U.S. Hard Red Winter Wheat Farmers Looking for Rain

The 2021/22 U.S. hard red winter (HRW) wheat crop is developing under a range of conditions. However, rain makes grain, so anxious farmers are looking for clouds on the horizon.

Based on the USDA’s Crop Progress reports, issued each week on Mondays, the HRW crop seems to be starting on average footing compared to condition reports at the same time last year. Yet USDA this week reported a 2% drop in the amount of winter wheat rated good and a 3% drop in the amount rated fair, while wheat rated as very poor grew by 16%. Overall, the USDA puts 53% of the U.S. HRW wheat crop between good and excellent conditions, a 2% drop from the week before.

Michael Peters, an Oklahoma HRW producer and U.S. Wheat Associates (USW) Secretary-Treasurer, noted that he had not received more than a half-inch of rain in the last 45 days.

Warm to Cold

Above-average temperatures in March only added to anxiety, especially as the crop enters its reproductive stage. And in typical spring fashion, unseasonably warm weather last week turned cold this week, with much of the Plains and Midwest experiencing below-average temperatures.

To show rainfall across the U.S. April 4 to 10, 2021

Some precipitation in the eastern Plains was some help for the 2021/22 HRW wheat crop from April 4 to 10 but dry conditions remain a concern. SRW conditions in the East look much better. Source: National Oceanic and Atmospheric Administration.

Following are brief summaries of growing conditions in six major U.S. HRW-producing states based on USDA’s April 12 report.

Colorado

The entire state of Colorado is experiencing some form of drought and windy weather has made conditions worse. Cold soil temperatures are keeping winter wheat progress back slightly. Recent snow helped with some moisture deficits with more snow in the forecast over the next week. USDA rates winter wheat conditions at 26% good or excellent.

Kansas

The winter wheat conditions in Kansas are above average. Wheat planted in September had significant soil moisture leading to a good looking and considerably different crop then wheat planted in October challenged by dry weather since seeding, creating two unequal crops. Much needed rain fell in March and more rain is predicted. Kansas wheat is rated 55% good or excellent.

Nebraska

Across Nebraska, uneven moisture means uneven crop development. Overall, the wheat crop there is rated 43% good or excellent, but dryness is a key concern. Wheat planted early is well established, but later plantings are behind.

Oklahoma

Cool, wet weather has 70%of the Oklahoma wheat crop in good or excellent condition over recent weeks. A lack of snow cover and severe cold damaged some growing areas in February. Still, overall, it did not have much adverse impact, said Amanda de Oliveria Silva, a small grains specialist with Oklahoma State University Extension Service. Insect pressure is minimal, and, because of the dry conditions, disease is nearly nonexistent.

South Dakota

Moisture deficits in topsoil and subsoil are weighing on winter wheat conditions. Despite the lack of rain, winter wheat condition ratings improved this week to 38% good to excellent. Rain in the forecast for this week would help improve conditions even more.

Texas

In February, Texas saw temperatures as high as 80 degrees followed by a prolonged period of record cold temperatures. This likely made freeze damage worse in some areas. Texas is also extremely dry in much of its wheat production regions and USDA reported only 28% of the state’s winter wheat crop as good or excellent.

Overall, Oklahoma’s Michael Peters had this to say about the U.S. hard red winter wheat crop: “We are in a critical stage, but we have time to recover if rain comes in the next 10 days. Either way, we will have a crop.”

To show % of HRW production by six U.S. states.

Among the six states included in this report, the chart shows each state’s percent of their combined total HRW production. Source: USDA NASS.

A Note on Soft Red Winter Wheat Conditions

Contrary to dry growing conditions in much of the Plains region, soft red winter (SRW) production areas have experienced favorable growing conditions, with one farmer calling them “ideal.” Mild winter conditions, modest snow cover, and little ice has farmers feeling positive overall. Many growers have been in the field to apply fertilizer and they note minimal concern about weeds or disease to date.

By Michael Anderson, USW Market Analyst

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