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Wheat Industry News

News and Information from Around the Wheat Industry

Speaking of Wheat

“[The] recent counter notification at the World Trade Organization (WTO) regarding India’s rice and wheat subsidies is a step in the right direction in publicly addressing India’s blatant disregard for the commitments they made when they joined the WTO … India subsidized up to 81% of the value of their wheat crop in the 2020/21 crop year, far exceeding the … limit they are obliged to adhere to.” – Several members of the U.S. Congress in a letter to USTR Katherine Tai and USDA Secretary Tom Vilsack. Read more here.

Farmer’s Wheat Crop a Complete Loss

Western Kansas farmer Jim Sipes tells Brownfield Network he has abandoned 4,000 acres of his winter wheat crop due to on-going drought. “All of our wheat for the first time in my farming career was a complete loss, zeroed out on appraisal about four weeks ago.” Sipes says the region received up to 3 inches of rain last week and that might help get the sorghum crop off to a good start. “If that doesn’t work, then we’ll plant it back to wheat a third time [as a cover crop].” Read more here.

Is Whole-Wheat Bread Healthier Than Whole-Grain Bread?

Fortunately, both types of bread can be healthy. Reproductive dietitian Rachelle Mallik, MA, RDN agrees, adding that “including whole-grain or whole-wheat bread to your diet can be an easy way to increase your whole grain intake.” The word “whole” implies all three parts of the kernel—the bran, germ and endosperm—were included when the grain was processed into flour. That maximizes its nutritional composition. Read more here.

EU’s Wheat Export Restrictions Explained

Reuters reports that farmers in eastern Europe initially benefitted from the Ukraine conflict as prices for their crops rose sharply in line with global grain markets. They have, however, faced increased competition in local markets from Ukrainian grain and oilseeds. The farmers have also found it more difficult and more expensive to transport their crops because of the added Ukrainian volume. Read more here.

American Woman Named 2023 World Food Prize Recipient

Heidi Kühn of the United States will receive the 2023 World Food Prize for her farmer-focused development model that revitalizes farmland, food security, livelihoods and resilience after devastating conflict. For more than two decades, she has shown more than a million people living in war-torn regions around the world a way forward for restoring peace and prosperity through agriculture. Read more here.

CIMMYT Director Wins Borlaug CAST Communications Award

The Council for Agricultural Science and Technology (CAST) announces the 2023 Borlaug CAST Communication Award goes to Dr. Alison Bentley, Director of the Global Wheat Programme at the International Maize and Wheat Improvement Center (CIMMYT). Bentley is known for her global research on wheat genetics and proficiency in science communication. Bentley has a passion for delivering practical applications from innovation to farmers, extensive reach through communicating and influencing, and mentoring and support of individuals and community efforts. Bentley’s exceptional work in raising awareness about the importance of wheat as a food crop is also evidenced by her wide-ranging list of communication activities. Read more here.

Subscribe to USW Reports

USW publishes various reports and content available to subscribe to, including a bi-weekly newsletter highlighting recent Wheat Letter blog posts and wheat industry news, the weekly Price Report, and the weekly Harvest Report (available May to October). Subscribe here.

Follow USW Online

Visit our Facebook page for the latest updates, photos, and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter, video stories on Vimeo and YouTube, and more on LinkedIn.

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Video: Summary of the 2023 USW South and Southeast Marketing Conference in Phuket, Thailand

Nearly 200 flour millers, grain traders, bakers and other customers of U.S. wheat participated in the 2023 South and Southeast Asian Marketing Conference, presented by U.S. Wheat Associates (USW) in Phuket, Thailand. Watch the video below for a brief summary on the event, which was last held in 2012.

 

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Photo of a panel discussion at the USW South and Southeast Asia Marketing Conference.
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USW Holds First South and Southeast Asian Marketing Conference Since 2012

U.S. Wheat Associates (USW) in cooperation with the USDA Foreign Agricultural Service welcomed close to 200 guests to a South and Southeast Asian Marketing Conference May 9 to 11 in Phuket, Thailand. This was the first such conference in that region since 2012 and comes at a challenging time for the milling and wheat foods business.

Demonstrating Partnership

“It was great to have everyone back together again,” said Joe Sowers, USW Regional Vice President. “Our regional milling and baking customers are dealing with a lot of uncertainty and market volatility and the pandemic limited our direct service work for a long time, so this is another way for us to demonstrate our commitment to them and why U.S. wheat remains important to their businesses.”

The conference theme, “Building Prosperity Through Partnership,” and presentations reminded customers that USW is committed to being a steadfast partner in both challenging and stable times. The program provided perspective on geopolitical and market forces shaping the regional wheat food industry, an early look at the 2023 U.S. wheat crop, and reports from millers in several South and Southeast Asian countries, including Antonina Sio, Assistant Vice President and General Manager of San Miguel Flour Mills in Batangas, Philippines.

Value in Networking

“I am attending the conference to learn more about the industry, the trends and what’s happening all over the world and, at the same time, to collaborate and network with my counterparts around the region,” Sio said.

Those millers expressed hope that flour demand will grow in the future based on population growth and changing economic factors. To give millers and bakers additional tools to help achieve that growth, USW included technical presentations on using solvent retention capacity analysis to select specific flours that perform best for specific end uses.

“The experience that we gain by learning from Mr. Roy Chung and from conferences like this gives us a lot of knowledge so we can improve our baking skills and improve products for our customers,” said Daniel Tay, Founder of Foodnostics in Singapore.

Darren Padget stands in front of a panel with a photo of his hand with his calculation of how much bread can be made from wheat grown on his farm at the South And Southeast Asian Marketing Conference.

Growing Wheat is Dirty Work. Presenting to the South and Southeast Asian Marketing Conference May 10, USW Past Chairman Darren Padget, a wheat farmer from Grass Valley, Ore., shared how he calculated (in his own way), how many loaves of bread can be made from the wheat he produces every year on his farm.

Thanks to Sponsors

Several USW farmer board members travelled to Phuket to participate in the conference, as did representatives from sponsoring organizations including the Idaho Wheat Commission, Nebraska Wheat Board, North Dakota Wheat Commission, Oregon Wheat Commission, and Washington Grain Commission. Additional funding was provided by Agrex, Inc., Bunge, Cargill, CHS, CoBank, Columbia Grain, Pacificor, LLC, United Grain Corp., and Viterra.

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Competitive U.S. Soft Wheat Creates Buying Opportunity

Just one year ago, U.S. wheat prices hovered near record highs. The geopolitical ramifications of Russia’s invasion of Ukraine stoked supply concerns and fears of spiraling food price inflation, and India had just banned wheat exports, further fueling wheat supply fears.

Flash forward to the week of May 2, 2023, Chicago Board of Trade soft red winter wheat (SRW) futures traded at their lowest level since March of 2021 at $5.95/bushel, earning that class the elusive honor of being the cheapest wheat on the world market.

After months of high prices, SRW and soft white (SW) classes have finally become more price competitive, providing a buying opportunity for importers. In this article, we will look in-depth at the market conditions for U.S. soft wheat classes and the factors influencing the entire market.

U.S. soft white wheat futures prices.

U.S. wheat prices retreated significantly the week of May 5 to touch near two year lows before ending slightly higher, demonstrating how quickly price sentiment can shift, though soft red winter wheat prices have trended lower. Source: U.S. Wheat Associates Price Charting Tool.

Competitive U.S. Soft Wheat Classes

Looking back, the U.S. soft wheat classes were poised to be more competitive thanks to several positive supply-side factors. Last year, both SW and SRW registered above-average production. The SW harvest came in at 4% above the five-year average and 35% above the drought-afflicted 2021/22 crop, while SRW was 16% above the five-year average, even boasting two large crops at 9.8 MMT in 2021/22 and 9.1 MMT in 2022/23.

Moreover, heading into marketing year 2023/24, the production outlook for SRW and SW remains positive. According to the USDA Prospective Plantings Report, SRW planted area increased 18% to 7.8 million acres (3.1 hectares), while white wheat plantings are estimated up 2% at 4.33 million acres (1.75 million hectares). The combination of good production last year and a positive outlook for the 2023 crop helped position SW and SRW to capture demand and remain competitive on the world market.

With the production bump and increased global competition, U.S. soft wheat prices have steadily decreased in the last few weeks. For a brief moment on May 2, U.S. SRW was the cheapest wheat in the world, coming in on average $10.00/MT FOB less than French wheat, $14.00/MT less than Russian wheat, and $13.00/MT less than Ukrainian. As a result, the U.S. Wheat commercial sales recorded 145,000 MT of SRW last week, the entire quantity likely bound for China. Meanwhile, SW wheat FOB prices hovered at $275.00/MT compared to $288.00/MT for Australian Standard White.

U.S. soft white wheat FOB export prices.

U.S. soft wheat prices have trended lower in search of demand. Soft white wheat prices have decreased by 39% since April 2022, while SRW has dropped by 45%. Even since the start of 2023, prices have come down 12% and 18%, respectively. Source: U.S. Wheat Associates Price Report

Underlying Bearish Market Factors

In addition to the positive supply outlook for soft wheat classes, recent bearish market factors have also been at play, influencing all U.S. wheat class prices. Last week hard red spring (HRS hit a nearly two-year low of $7.58/bu while hard red winter wheat (HRW) breached the $8.00/bu barrier to close at $7.71/bu. Seasonal influences also contribute to a fall in prices, especially for the soft wheat classes with a looser balance sheet and optimistic production outlook. Farmers and exporters will need to clear out their bins as new crop approaches to make room for the upcoming harvest.

Additionally, In the last two weeks, rain has fallen on some of the most drought-afflicted areas of the U.S. Southern Plains. Before these showers, it had been over 270 days since 0.25 inches of moisture (6.35 mm) had been recorded in some areas. The rains helped relieve some price pressure as the market assessed the moisture’s impact on drought conditions in the HRW growing region.

Beware The Bull

Demonstrated by this week’s jump in futures prices from the previous week’s lows, bullish influences are always lurking, especially as the Black Sea conflict continues to be an unpredictable bullish influence. As the Black Sea Grain Initiative approaches its May 18 expiration date, the longevity of the corridor hinges on Russia’s continued cooperation.

Furthermore, though the major HRW growing region in the Southern Plains received needed rains, there is concern about its impact. Some say the showers were “too little too late” for the crop as many fields already face abandonment.

Map of NOAA's prediction of long-term drought showing how U.S. soft white wheat is outside of the drought area.

Despite the rains in the U.S. Southern Plains, drought persists throughout the central HRW growing region. The recent showers helped improve soil moisture but not enough to reverse the drought impacts. Source: U.S. Department of Agriculture Drought Monitor.

Key Takeaways

This week’s price movements are just the latest example of how quickly market sentiment can shift, especially with influences as unpredictable as the weather and the war in Ukraine. Amidst the persistent market volatility, buyers must be wary of the market trends and be positioned to take advantage of every buying opportunity. As always, U.S. Wheat Associates (USW) representatives are committed to helping customers capitalize on market opportunities and navigate the ever-changing wheat market.

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Listening Session Reinforces Support for Key Farm Bill Programs Impacting U.S. Farmers and Their Global Customers

Between ceiling-high stacks of seed and against a backdrop of multi-colored combines, House Agriculture Chairman Glenn ‘GT’ Thompson (PA-15) and U.S. Representative Tracey Mann (KS-01) conducted a food and agriculture listening session in early May. The remarks revealed support for the future of market development programs, food aid assistance and the continued reliability of the U.S. wheat supply.

The listening session took place at the farm of Justin Knopf, immediate past president of the Kansas Association of Wheat Growers. Trade teams may recall visiting this machine shed in Saline County, where farmers, ranchers, agricultural producers and leaders in Kansas agriculture gathered to provide their comments and questions. The current version of the Farm Bill expires on September 30, 2023, so this session is one of many happening across the country.

Photo of Kansas farmer Justin Knopf in his wheat field examining plant leaves for disease pressure with the front of a self-propelled application machine in the background.

Kansas Farmer Justin Knopf hosted a Farm Bill listening session in early May. “When we think about being the most reliable, consistent supplier of grain around the world to our international customers, crop insurance is an important part of our ability to do that,” Knopf said.

Farm Safety Net

“We heard a lot about the importance of the U.S. farm safety net from a production standpoint to feed not just consumers here in the U.S., but around the world,” said USW Vice President of Policy Dalton Henry.

Behind the shed, Knopf’s wheat crop is in better shape than many, but still below average. Knopf started his welcome by recognizing that thousands of Kansas wheat acres will not be harvested due to extreme drought conditions – a point repeated by numerous commentators. For these producers, crop insurance is a vital Farm Bill program, benefiting both farmers and customers that rely on a steady supply of U.S. wheat.

“When we think about being the most reliable, consistent supplier of grain around the world to our international customers, crop insurance is an important part of our ability to do that,” Knopf said. “Because in the wake of a disaster, it allows us the means to move forward in putting in that next crop that hopefully will fare better the following year.”

The Farm Bill provides direct support to overseas markets through food aid assistance, which both lawmakers and commenters expressed support for during the listening session. Kansas farmers, in particular, feel a strong tie to programs like USAID Food for Peace, the roots of which originated in Kansas.

“I’m very proud of the legacy of Food for Peace and food aid,” Knopf said. “We can stand as a country that is here to support people around the world that are experiencing hard, difficult times and provide food as a beacon of hope and freedom.”

Vital Export Market Development

Both lawmakers also recognized the importance of two other internationally focused Farm Bill programs – the Market Access Program (MAP) and the Foreign Market Development (FMD) program. These public-private partnerships provide competitive grants for export development and promotion activities to non-profit farm and ranch organizations, like USW, that contribute funds from checkoff programs and industry support.

Both programs need more investment to strengthen their effectiveness as MAP’s authorized funding has not changed since 2006 and FMD funding has remained the same since 2002. Congressman Mann is helping lead the effort to double the funding for this pair of agricultural export market development programs administered by the USDA’s Foreign Agricultural Service (FAS). He was a lead sponsor for the Agriculture Export Promotion Act (H.R. 648), which is currently making its way through the U.S. political process, along with the Senate equivalent – the Expanding Agricultural Exports Act (S. 176).

In the end, export promotion programs, food aid and crop insurance were just a few topics discussed at the Kansas listening session. Still, supportive comments from lawmakers and Kansans alike will help ensure the next Farm Bill supports not only U.S. farmers, but also their global customers.

By Julia Debes

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Japan Flour Millers Express Appreciation for Wheat Farmers While on First Visit to U.S. Since 2019

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

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

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

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

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

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

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

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

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

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

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

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Wheat Industry News

News and Information from Around the Wheat Industry

Speaking of Wheat

“The ongoing fighting [in Sudan] is preventing WFP from delivering critical emergency food, providing school meals for children, or preventing and treating malnutrition. WFP also cannot carry out its work to support farmers to boost agriculture productivity in a project that aims to more than double Sudan’s annual wheat production, nor help people rebuild their livelihoods.” – UN World Food Programme (WFP) Executive Director Cindy McCain. Read more here.

Obscuring Price Discovery

Cargill’s world trading head Alex Sanfeliu told Bloomberg recently that Russia’s increased control of its wheat exports threatens to obscure prices and curb efficiency in the global grains market. “The price discovery is going to be way more opaque,” and because Russian wheat tends to be the price setter “that puts an additional difficulty for all the wheat traders across the globe.” Read more here.

Bearish News

Barchart Analyst Sean Lusk noted three bearish market factors for wheat this week: rain (finally) in the parched Southern Plains; Canadian spring wheat planting intention estimate coming in above trade expectations; and a UN-confirmed Russian export deal that may have side-stepped Western sanctions. Lusk also commented that “managed funds have pushed out to a net short of approximately 130,000 contracts…that seems to be nearing the record managed short of 171,000 last decade.”

Canadians to Seed More Wheat

Statistics Canada reported this week that farmers will seed 26.968 million acres of wheat, up 6.2% from 2022, the largest area since 2001, if achieved. Spring wheat area is expected to increase 7.5% to 19.39 million acres, durum wheat is expected to edge up 0.9% to 6.06 million acres, while winter wheat area (mostly soft red winter in eastern Canada) is forecast up 12.7% to 1.52 million acres. Mike Jubinville with MarketFarm said, “The gain in spring wheat was anticipated. The one surprise … is a rise rather than slight decline registered in this report on durum acres.” Read more here.

Striking Workers Target Canadian Port

The Wheat Growers Association has called for the Canadian government to allow outside workers to weigh and inspect grain at a Vancouver port as a massive strike by public sector workers threatens shipments. Unionized inspectors at the Cascadia Terminal have purposely targeted the port, according to a news release by the group, which advocates for farmers. The protests could further tighten global supplies already affected by the war in Ukraine.

Rain Arrives; Too Late for Regional HRW Wheat?

Local media are reporting on a good, soaking rain over much of the exceptional drought areas in Kansas, Oklahoma, Texas, and Colorado this week. Southwestern Kansas farmer and U.S. Wheat Associates (USW) director Gary Millershaski told Brownfield Network rain is “going to help me plant some dryland corn and a lot of milo [sorghum],” but it will not help his winter wheat. In Okarche, Okla., northwest of Oklahoma City, wheat farmer and USW Vice Chairman Michael Peters said rain this week will help with grain fill and could help push his winter wheat yields up to an average of about 25 bushels per, lower than normal but more than expected before the rain.

National Weather Service map of southwest Kansas showing accumulated rainfall on April 26, 2023

Rain At Last. Substantial rain fell in southwestern Kansas April 26, the literal center of an area of exceptional drought. The rain was welcome but mainly as an opportunity to plant spring crops like corn or grain sorghum (milo).

Subscribe to USW Reports

USW publishes various reports and content available to subscribe to, including a bi-weekly newsletter highlighting recent Wheat Letter blog posts and wheat industry news, the weekly Price Report, and the weekly Harvest Report (available May to October). Subscribe here.

Follow USW Online

Visit our Facebook page for the latest updates, photos, and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter, video stories on Vimeo and YouTube, and more on LinkedIn.

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‘Building Prosperity Through Partnership’ Theme of Revitalized USW Conference for Trade in South, Southeast Asia

USW's . The 2023 South and Southeast Asian Marketing Conference will be held May 9-11 in Phuket, Thailand.

The 2023 South and Southeast Asian Marketing Conference will be held May 9-11 in Phuket, Thailand.

After more than a decade of absence, U.S. Wheat Associates (USW) is restarting an event that brings together customers and partners in an important region of the world. The 2023 South and Southeast Asian Marketing Conference will be held May 9-11 in Phuket, Thailand.

“Building Prosperity Through Partnership” is the theme of the conference, which will focus on the value of U.S. wheat and people who produce, supply and support it in the global marketplace. Asian millers, buyers and importers in the region will have the opportunity to meet with U.S. wheat farmers, state wheat associations, USDA representatives and USW technical and marketing staff. Likewise, those from the U.S. wheat industry will be able to interact with customers and potential customers.

The conference will include input from major flour mills in the region, with a panel discussion focused on the perspective of millers in Thailand, Vietnam, Indonesia, Myanmar and the Philippines.

“We recognized that the time had come to revitalize the conference to engage the trade and visit with our dedicated customers in the region,” said Joe Sowers, USW Regional Vice President for South and Southeast Asia. “At the same time, there are opportunities to make new customers while also tackling challenges and identifying ideas for business growth. We have a top-notch lineup of speakers and presenters, along with a host of panel discussions that address critical issues in 2023 and beyond.”

USW’s Wheat Letter Blog will provide regular updates from the conference. Videos and blog posts will appear on the site throughout the event.

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USW Explores Opportunities to Collaborate with Australia on Policy Initiatives

USW Director of Trade Policy Peter Laudeman (left) chats with NAWG Vice President Of Policy And Communications Jake Westlin during the recent NAFB "Washington Watch" event in the nation's capital. Laudeman is currently in Australia to engage grain industry stakeholders in that country and explore ongoing global issues involving trade, plant breeding technologies and World Trade Organization (WTO) commitments.

USW Director of Trade Policy Peter Laudeman (left) chats with NAWG Vice President of Policy and Communications Jake Westlin during the recent “Washington Watch” event in the nation’s capital. Laudeman is currently in Australia to engage grain industry stakeholders in that country and explore ongoing global issues involving trade, plant breeding technologies and World Trade Organization (WTO) commitments.

U.S. Wheat Associates (USW) Director of Trade Policy Peter Laudeman is in Australia this week to engage grain industry stakeholders in that country and explore ongoing global issues involving trade, plant breeding technologies and World Trade Organization (WTO) commitments.

While a major competitor for U.S. wheat, Australia presents many opportunities for collaboration on policy initiatives that mutually impact both U.S. and Australian producers.

Laudeman will interact with researchers, government regulators, producer organizations, and private sector plant breeding and grain handling companies. His discussions will primarily be focused on the regulatory environment guiding plant breeding technologies, including transgenic and gene edited wheat. Both the U.S. and Australia regulators are reviewing applications to deregulate HB4 wheat produced by Argentinian company Bioceres.

HB4 wheat, a drought-tolerant transgenic wheat, received approval for commercialization and cultivation from Brazil in early March. Brazil joined Argentina, which granted commercialization approval to the genetically modified (GM) wheat in 2022. HB4 wheat is also approved for food and feed use in the U.S., Australia, Colombia, New Zealand, South Africa, Nigeria and Indonesia.

Growing global demand for wheat combined with persistent drought conditions that hamper production is leading the push for greater acceptance of new plant breeding technologies. Bioceres said HB4 drought-tolerance technology has been shown to increase wheat yields by an average of 20% in water-limited conditions.

USW and the National Association of Wheat Growers (NAWG) are guided by jointly approved “Wheat Industry Principles for Biotechnology Commercialization,” which lay out specific steps expected from plant breeding companies if they wish to commercialize transgenic wheat in the U.S.

India’s oversubsidization of wheat and rice is another topic Laudeman will visit while in Australia, which has been a partner with the U.S. in holding other trading partners accountable to their WTO commitments. Australia recently joined WTO counternotification filed by the U.S. against India.

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CPKS Railroad Merger and U.S. Wheat Exports

On April 18, 2023, Kansas City Southern Railway Company (KCS) and Canadian Pacific Railway Limited (CP) officially merged to create a new Class 1 railroad CPKS, the first single-line service across Canada, the U.S., and Mexico (map above from Trains.com).

CPKC railroad logoRail logistics comprise a sizeable portion of U.S. wheat export basis, encompassing the costs of transporting wheat from the vast growing region in the central U.S. to export hubs in the Great Lakes, Gulf of Mexico, and the Pacific Northwest. The acquisition brings the total number of Class 1 railroads in North America from seven to six and may potentially impact wheat exports as the industry restructures in response to the merger.

In this article, we will summarize the importance of domestic rail for U.S. wheat buyers and look at the current trends in bulk rail as we look ahead to the merger’s implications.

Historical Perspective

Since the 1980s, the railroad industry has seen significant consolidation, going from 33 North American Class 1 railroads in 1980 to six in 2023.

In 2022 the four largest rail companies, Burlington Northern Santa Fe (BNSF), Union Pacific (UP), Canadian Pacific (CP), and Canadian National (CN), held 82% of the market share for grain origination in North America, creating an oligopoly in the U.S. rail transportation sector. The increased consolidation decreased the number of firms in the market competing for business, shifting the market power to favor rail service providers.

Pie chart showing the % market share for the 7 Class 1 railroad companies in North America before the merger of CP and KCS.

The top four Class 1 railroads in North America control 82% of the grain market share. The merger of CP and Kansas City Southern brings the total number of Class I railroads from seven to six. Source: U.S. Department of Agriculture, Agricultural Marketing Service. Grain Transportation Report. April 20, 2023. Web: http://dx.doi.org/10.9752/TS056.04-20-2023

A potential consequence of increased concentration in the industry, tariff rates for all grains have steadily increased over the last 20 years; thus, making transportation costs greater for exporters who, in turn, increase basis for customers. A 2020 study by USDA found that from 2000 to 2014, rail rates increased by 30% for wheat, 31% for corn, and 30% for soybeans. Since 2014 wheat rail tariff rates have increased by an additional 18%. As rates rise, it erodes the competitiveness of U.S. wheat classes in the export market and makes U.S.-origin wheat more expensive for importers.

Line graph showing an increase in railroad tariff rates for corn, soybeans, and wheat from 2010 through 2023 to date.

Rail tariff rates have been on the rise for all bulk grains since 2010. Rates continued to increase even as shippers experience what they considered poor performance through most of 2022. Source: USDA AMS Rail Dashboard

Ongoing Issues

Throughout 2022 rail logistics faced considerable challenges that impacted the quality of performance throughout the bulk rail sector, including service interruptions and crew shortages. In October 2022, Secondary Railcar Auction Market Bids hit their highest level since 2014, reflecting massive demand for rail freight and an insufficient supply to meet the demand.

Graph showing historical secondary auction market railroad rates for grain from 2013 through 2023 to date.

Secondary auction market rates move more quickly than tariff rates and better reflect current supply and demand shifts as shippers buy and sell claims for guaranteed service. If demand is high during a particular period, bids increase, meanwhile when supplies are adequate secondary rates will hover near zero or negative if demand hits a low threshold. In the fall of 2022, Secondary Railcar Auction Market Bids hit their highest level since 2014. Source: USDA AMS Rail Dashboard

Performance issues and subsequent demand for rail cars contributed to elevated export basis throughout the fall of 2022. Strong basis levels and elevated wheat futures, a response to the geopolitical tensions brought on by the Russian invasion, created enormous price risk for U.S. wheat importers and further diminished U.S. wheat’s competitiveness in the world market.

Line graph showing changes in the "basis" for hard red spring wheat to Gulf, PNW and Lakes ports from April 2022 to April 2023 to demonstrate a spike attributed to railroad rates for shipping wheat.

Though wheat basis levels often increase during the fourth quarter of the calendar year as exporters focus on corn and soybean export programs, in the fall of 2022 basis levels skyrocketed. Basis levels jumped to $0.50/bu ($18.40/MT) over the previous five-year average, combined with historically high futures prices. Source: U.S. Wheat Associates Price Report

A Look Ahead

The Surface Transportation Board approved the merger on the grounds of efficiency, positive environmental impacts, improved rail performance, and increased employment; still, the STB necessitated additional oversight to ensure the preservation of competition. Despite the approval, the U.S. wheat industry remains skeptical of the merger’s effects on wheat export competitiveness, taking into account performance issues from major railroads, basis and logistics costs, and the oligopoly of the U.S. railroads.

On the other hand, CPKCS could help increase competition in some regions, due to increased access routes previously unserved by individual companies. Nevertheless, U.S. Wheat Associates will continue to support oversight from the STB and policies such as reciprocal switching that help preserve competition and contribute to our dependable, reliable supply chain.

By USW Market Analyst Tyllor Ledford

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