Wheat Letter Blog Archive - Page 36 of 101

Adjusting to USDA Estimates in a Record-Setting Year

Marketing year 2021/22 (June to May) has been record-setting to date. USDA estimates of global production, trade, and consumption have all outpaced previous years. However, since it’s initial 2021/22 World Agricultural Supply and Demand Estimates (WASDE), USDA has adjusted its forecast down, led by a 17 million metric ton (MMT) reduction in global wheat production by December. Ending stock estimates for the world’s top exporters are also down.

The weather has played a key role this year in lowering production in Canada, Russia, and the United States. Quality concerns following wet harvests in the EU and Australia have affected milling-quality wheat and supported markets. And Russia’s use of an export tax and now plans for an export cap have tightened supply while adding to prices. Other factors, including ballooning ocean freight rates, natural disasters, Covid-19 restrictions, and smaller domestic production in some key countries, have helped prices climb to multi-year highs (see chart below).

Chart of Wheat Exporting Country Stocks and Wheat Price Relationship

Lower stocks and higher prices dominated the first half of the wheat marketing year 2021/22. USDA steadily reduced its global production estimates from June to December mainly from some large exporting countries. Given record world wheat use, the 2021/22 average export price to date for ordinary U.S. hard red winter wheat from the Gulf ($301/MT, above) reflects the situation. Sources: USDA and USW Price Report.

As U.S. Wheat Associates (USW) marks the middle of the 2021/22 export calendar, the following are snapshots of the influential factors for major wheat exporters and how USDA estimates have changed.

Canada

Weather was a strong factor this growing season for Canadian wheat. In the Prairie Provinces, the Normalized Difference Vegetation Index (NDVI), which measures plant health, had the wheat crop maturing four weeks earlier than normal. Hot and dry weather withered the all-wheat estimate to 21.65 MMT, down 33.5% compared to the 5-year average. StatsCan’s wheat estimate of 21.6 MMT is the lowest all-wheat production since 2007. Durum production took an even steeper cut to 2.7 MMT, the lowest ever recorded for the country. Exports are also projected lower. The latest WASDE report forecast Canadian wheat exports to total 15 MMT, 43% less than last year. Year-to-date, Canadian wheat exports are running 38% behind 2020.

Australia

The South Pacific country continues to rebound from a drought-ravaged 2019/20 crop with expectations for a second bumper crop in a row. The latest WASDE report put Australian wheat production at 34 MMT, 8% higher than November’s report and 41% higher than the 5-year average. Exports too were projected higher at 25.5 MMT. Data on quality is still unknown because the Australian crop is in mid-harvest. However, wet weather has led to concern about the final volume wheat that meets milling quality standards.

Russia

Russian wheat production has been on a downward slope since June when USDA estimates of production stood at 86 MMT. The latest string of WASDE reports have cut that estimate to 75.5 MMT with 36 MMT forecast for export. Year-to-date, Russia has exported 19.4 MMT of wheat, 54% of the overall estimate despite a wheat export tax that increased to $91/MT on Dec. 10, more than double in the rate last July. On top of the fluctuating export tax, Russia is considering a wheat export quota set to begin in mid-February.

Ukraine

The Black Sea country has had an impressive production year, up 30% year-on-year, and exports running 17% ahead of last year’s pace at 14.5 MMT. Ukraine’s agriculture ministry signed an agreement with grain traders capping wheat exports at 25.3 MMT, about 1 MMT higher than the latest WASDE’s export projection.

European Union

The EU also saw higher production this year than last, driven mostly by impressive yields in Romania and Bulgaria. Exports are running 11% ahead of last year’s pace and the EU is expected to replace Russia as the year’s leading wheat exporter. Coceral, a European trade association, forecast that the 2022 soft wheat crop will drop to 125.4 MMT, 3.4 MMT less than their 2021 figure despite the area planted being only marginally reduced. Yields however are estimated to be down 3%.

Argentina

The Buenos Aires Grains Exchange (BAGE) expects the biggest wheat harvest ever for the South American country. Higher than anticipated yields have traders estimating a 22.1 MMT wheat crop, higher than USDA’s estimate of 20 MMT. Even so, the government has taken steps to discourage the pace of export license registrations.

United States

U.S. wheat production is forecast down 5 MMT this year after dry weather in the Pacific Northwest (PNW), Montana, and North and South Dakota withered average yields for soft white hard red spring and Northern durum. In its latest WASDE report, USDA said, “U.S. export prices are expected to remain elevated the rest of 2021/22, further diminishing U.S. competitiveness.” The December WASDE forecasts U.S. wheat exports to total 22.8 MMT, the smallest total in 7 years if realized.

Imports Up, Too

As wheat prices continue to rise, major wheat importers are outpacing their purchases compared to 2020/21 (see chart below). For example, Egypt made its largest single purchase of wheat ever this year, buying 600,000 MT and paid $90/MT more than the average price paid a year ago. Iran’s wheat imports are up 218% compared to last year, while Turkey’s import demand is up 36%.

Graph of wheat import volume for 10 countries at the same date the past two years.

Wheat import volumes are up in several countries even as global wheat prices continued rising. Source: USDA

Looking ahead to the second half of 2021/22, many analysts see little change in ending stocks but continued market volatility given the many unknown factors in the global economy including logistical challenges and pandemic uncertainty. Producers and buyers now look to the potential for increased wheat acres (USDA forecasts a 5% increase in 2021/22) and better growing conditions to help add stability to the global wheat market in 2022/23.

By Michael Anderson, USW Market Analyst

December 15, 2021/by Steve Mercer

Exports, Wheat Export Supply System

Exporters Share U.S. Wheat with the World

The commitment of the people who participate in every step of the U.S. wheat export supply system helps build an unmatched reputation for both quality and reliability.

The 2021 crop is an unfortunate but telling example of how U.S. farmers overcome significant risks to meet domestic wheat demand and still provide sufficient supplies for export markets. Farmers and commercial elevators can store and efficiently transport U.S. wheat in top condition to meet overseas demand when needed and throughout the marketing year. Prices are discovered through futures exchanges and basis costs that are always available to customers.

High Standards

The rigorous crop inspection and management continues with private export companies where high standards create the consistency and trust overseas customers depend on.

These companies use risk management tools to honor sales contract prices often made months before vessel loading. The Federal Grain Inspection Service (FGIS) independently inspects wheat at vessel loading to certify that the quality matches the customer’s specifications.

The Federal Grain Inspection Service weighs and inspects every sub-lot of U.S. wheat to certify it meets each customer’s specifications. This inspector is dividing a wheat sample into two equal sub-samples for various inspection processes.

“It’s a critical function the Federal Grain Inspection Service provides to meet our contractual obligation overseas and create that global standardization,” said United Grain Corp. President and CEO Augusto Bassanini. “I think that separates the value of U.S. wheat and other grain products from the rest of the world.”

Those inspections also yield valuable data down to the sub-lot level of 1,000 to 2,000 metric tons that offer customers even more value from their purchases with help from U.S. Wheat Associates (USW).

Personal Integrity

“Creating that difference for U.S. wheat is all done through relationships,” Bassanini said. “We couldn’t do it without the people, whether in this organization, whether in U.S. Wheat Associates. Really, it is that quality of those individuals that really creates, again, the unrivaled value to our customers.”

Augusto Bassanini, President and CEO, United Grain, Vancouver, Wash.

United Grain and Bassanini generously offered their story in USW’s video presentation “Wholesome: The Journey of U.S. Wheat” as a representative of all private export companies that share the U.S. wheat crop with the world. Now “Wheat Letter” shares that story below.

Learn more about how USW works with buyers and the U.S. wheat export supply system here.

December 14, 2021/by Steve Mercer

Educational Partnerships, South America, Technical Service Activities

New Wheat Flour Lab to Help Promote U.S. Wheat Exports to South America

U.S. Wheat Associates (USW) sees a robust growth opportunity for U.S. wheat exports to South America. To meet rising demand for bread, snacks and other wheat foods, regional flour millers are hungry for information they need to purchase a wider range of high-quality wheat classes.

U.S. wheat must compete in Colombia, Peru, Chile, Brazil and other South American countries with imported Canadian and Argentinian wheat. Technical training and comparative analysis to demonstrate the advantages of U.S. wheat classes are important parts of USW’s work in the region. However, those efforts are somewhat constrained because a substantial portion of the funding for activities was needed for travel costs to conduct activities in sometimes limited facilities in each country or at U.S. educational institutions.

ATP Funding Yields Innovative Idea

A potential answer to this challenge arrived in 2019 when the Agricultural Trade Promotion (ATP) program, administered by USDA’s Foreign Agricultural Service (FAS), was created to help U.S. agriculture build new export markets. Under ATP, USW’s regional South American office staff in Santiago, Chile, proposed an innovative promotional concept to establish a regional flour milling, cereal chemistry and baking laboratory in cooperation with a respected university.

Through pandemic-related delays and customs challenges, USW and its project partner, Universidad Mayor, worked steadily to build a facility on the university’s Santiago campus and equip the lab with a test flour mill, wheat and flour analysis instruments and bread ovens. On Dec. 3, 2021, USW and the university dedicated Laboratorio De Analisis De Granos Harinas Y Panifcacion at an event attended by Chile’s Minister of Agriculture, U.S. State Department and FAS officials, the university rector and executives with several Chilean flour mills.

Photos show honored guests at the dedication of the new lab.

Honored Guests. Learning more about the new lab are, (L to R): Bret Tate, Agricultural Attaché, USDA/FAS; Lisa Swenarski, Counselor for Public Affairs, U.S. State Department; Pedro Pablo Lagos, Purchasing Manager, Luchetti Pasta, Santiago, Chile; Andrés Saturno, Technical Manager, USW/Santiago; Miguel Galdós, Regional Director, USW/Santiago; Lisa Swenarski; María Emilia Undurraga, Chilean Minister of Agriculture; Dr. Patricio Manque, Rector, Universidad Mayor. Photos courtesy of Universidad Mayor.

“We are very pleased to open the first lab of its kind in this region with Universidad Mayor,” said Miguel Galdós, USW Regional Director, South America. “We know that technical managers at South American flour mills have more influence today on the types of wheat their mills need to purchase. USW will be able to help more of those managers understand the differential advantages of U.S. wheat classes by conducting programs at this regional lab. At the same time, having access to consistent and reliable testing and analysis will lead to improvements in production processes and help improve the quality of regional wheat-based end products.”

More Efficient, More Effective

“Before now, South American millers would have to send wheat samples to a commercial company in Guatemala for analysis, so this lab adds much more efficiency in its support for regional customers,” said Mark Fowler, USW Vice President of Global Technical Services, who participated in the dedication event.

As a partner in the new lab, USW purchased and installed all the equipment using ATP funds, while Universidad Mayor built the lab and will cover fixed costs. USW Santiago in return will share equal access with the university to the lab for technical support activities supporting U.S. wheat exports to South America and remain the lab’s only private partner for 15 years.

Photo shows instruments in a new laboratory for measuring wheat quality that will support wheat exports to South America.

Fully Equipped. USW donated the instruments needed to analyze and compare wheat, flour and baking performance at the new lab. Funding for the equipment came from the Agricultural Trade Promotion program administered by USDA/Foreign Agricultural Service. Photo courtesy of Universidad Mayor.

Golden Opportunity

After attending the dedication event, USW Vice President of Overseas Operations Mike Spier called the new lab “a golden opportunity” to demonstrate the competitive baking advantage of U.S. wheat classes compared to wheat from other origins.

“With the ever-changing travel restrictions and quarantines, USW hasn’t been able to organize in-person technical activities for several months,” Spier said. “The lab provides everything USW Technical Specialist Andrés Saturno needs to get back to demonstrating the superior end-use baking performance of U.S. wheat classes to partners in Chile and other customers in USW’s South America region.”

Impressive Team and Project

For USW Chairman Darren Padget, a wheat farmer from Grass Valley, Ore., the dedication event was his first overseas trip to meet with customers in more than two years and his first visit to South America.

“I was very impressed by the enthusiasm of the regional USW team and among the guests at the dedication for this new lab,” Padget said. “I understand why, partly because we visited a supermarket in Santiago and saw the types of bread consumers purchase and how they shop. In Chile, consumption is very high, and they buy most of their bread for the day by the piece. Consumers there and across South America are looking for excellent quality products with a ‘clean label’ – very few additives. I think this lab will help USW demonstrate how flour from our wheat helps millers and bakers meet that demand.”

The evidence of that was on display at the dedication event as artfully crafted bread products and pizza refreshments baked by Master Baker Didier Rosada and his wife Kathy Cruz using flour milled from U.S. wheat. USW frequently works with Rosada’s Red Brick Consulting company to conduct baking seminars in Spanish-speaking countries. The week of the dedication, Rosada and USW held a workshop using U.S. wheat flour for customers representing 75% of Chile’s milling industry.

Impressive artisan bread products display.

An Artful Display. Master Baker Didier Rosada and Katherine Cruz, Red Brick Consulting, produced this impressive display of bread products admired by and shared with guests at the dedication of the new lab, Dec. 3, in Santiago, Chile. Photo courtesy of Universidad Mayor.

Traditional preferences and the landed price of imported wheat will remain a competitive challenge for U.S. wheat in South America. But the complete value of U.S. wheat becomes more obvious to customers through demonstration and training. Now there is a dedicated facility for that work, giving USW the opportunity to interact with regional customers more frequently and invest more of its funding to show them the unique advantages of U.S. wheat.

USW Colleagues at the Lab Dedication that will support Wheat Exports to South America.

Proud Colleagues. The USW/Santiago team who worked tirelessly to build the new laboratory to promote U.S. wheat exports to South America shared their enthusiasm for the project with USW guests. L to R: Mark Fowler, Vice President of Global Technical Services; Maria Martinez, Administrative Assistant; Andres Saturno, Claudia Gomez, Senior Marketing Specialist; Mike Spier, Vice President of Overseas Operations; Paola Valdivia, Finance & Administrative Manager; Miguel Galdos; Osvaldo Seco, Assistant Regional Director; and Darren Padget, USW Chairman.

December 13, 2021/by Steve Mercer

Wheat Industry News

Recent news and highlights from around the U.S. wheat industry.

Speaking of Wheat. “The market is panicking but rightly so. Balance sheets globally were relying on a big Aussie milling wheat crop to cover until new crop Northern Hemisphere [arrived]. I guess the rally in Aussie prices is overdone but prices won’t go back down to where they were a month ago until maybe the end of Q1 and assuming Northern Hemisphere crops are all looking good.” – An Australian wheat trader quoted in a Nov. 23 “AgriCensus” article titled “Australia’s WA Wheat Market Explodes as Protein Levels Disappoint.”

Condolences to our colleague Chang Yoon (CY) Kang, Country Director, USW/Seoul, and his family on the recent passing of his mother.

Congratulations to our colleague Dalton Henry, USW Vice President of Policy, and his wife Sarah on their new baby boy, Samuel Walter Henry, born Nov. 18, 2021.

A “Dizzying” Market. Reuters reported this week that “benchmark wheat traded in Chicago climbed to a nine-year peak late last month, while prices at ports in Russia, the world’s No. 1 supplier, and Australia, typically the fourth largest exporter, are at all-time highs. World food prices rose for a third straight month in October to reach a new 10-year peak, led by increases in cereals and vegetable oils, the UN food agency said. The dizzying price levels are alarming buyers who are still suffering from the economic impact of the coronavirus pandemic, with decade-high freight costs compounding their problem.”

“Hell in a Handbasket.” That is the title Rabobank chose for its November Agri Commodity Markets Research Outlook for 2022. “It is highly unlikely that food prices will go back to the five- or two-year averages in 2021 as commodity prices are now supported by inflation … high shipping costs, energy and fertilizer prices, as well as a shortage of labor in many countries,” the report stated. Rabobank predicts wheat prices will stabilize in the second half of 2022 assuming reduced demand for feed wheat.

Goyings Farms Top Ohio’s SRW Wheat Yield Contest. Congratulations to USW Past Chairman Doug Goyings and his son Jeremy, Paulding, Ohio, who produced the top yield in the state’s 2021 Wheat Yield Contest with an entry of 138.4 bushels. An “Ohio Country Journal” article described their intensive management of their soft red winter (SRW) wheat crop, to the use of fungicides and insecticides to protect the crop in the late spring and early summer. Read more.

Indian Government Spreads More Subsidy Joy to Farmers. Reuters reported Dec.1 that Indian fertilizer stocks jumped after a report the government plans to increase fertilizer subsidies to a record … in 2021-2022 to avoid shortages amid a sharp rise in global prices. India, the top urea importer, has already raised fertilizer subsidies twice in this fiscal year ending March 31, and the new figure is almost double the amount initially budgeted. Studies have shown that India’s massive production subsidies distort trade, causing annual losses of more than $500 million for U.S. wheat farmers.

2022/23 Winter Wheat Conditions. USDA/National Agricultural Statistics Service reported Nov. 30 that nationwide, 92 percent of the winter wheat acreage had emerged by Nov. 28, equal to last year but 1 percentage point ahead of the 5-year average. As of Nov. 28, forty-four percent of the 2022 winter wheat acreage was reported in good to excellent condition, unchanged from the previous week but 2 percentage points below the same time last year.

Cereal & Grain Sciences Events Calendar. Dr. M. Hikmet Boyacioglu, an Applications Development Specialist with KPM Analytics, updates a calendar of cereal and grain sciences industry events every month. Contact Dr. Boyacioglu to receive the calendar link each month via email.

Subscribe to USW Reports. USW publishes various reports and content that are 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 more on LinkedIn.

December 2, 2021/by Steve Mercer

Market and Crop Analysis, Michael Anderson

Stocks-to-Disappearance Ratio Suggests Continuing Wheat Market Volatility

By Michael Anderson, USW Market Analyst

The Food and Agriculture Organization (FAO), a branch of the United Nations (UN), in a biannual report published this month, said “the ratio of major wheat exporters’ closing stocks to their total disappearance is expected to fall to 12.5 percent.” The report also noted that, if realized, this will be the lowest level in more than two decades. From January to October 2021, wheat prices have been 29.1 percent higher compared to the same period in 2020 FAO reported.

An abstract by the Agricultural Market Information System (AMIS) confirmed that when global wheat inventories fall and the stocks-to-disappearance ratio dips below 18 percent, higher volatility will follow. All the major factors that affect volatility AMIS noted have made recent headlines and been exacerbated by higher oil prices, stock market volatility, foreign exchange rates and weather variability, the last being especially relevant to the 2021/22 wheat crop in the exporting countries Canada, Russia and the United States.

Ratio Defined

The stocks-to-disappearance ratio defined by the Organization for Economic Cooperation and Development (OECD) is the ratio of stocks held by exporters to their disappearance (domestic utilization + exports). Among major wheat exporting countries, domestic use strongly influences the export policies of Russia, Ukraine and Kazakhstan. Russia for example uses an export tax to keep domestic prices lower. The Russian government also uses export quotas to tame domestic wheat prices and has already announced plans to curb exports starting in February 2022. Ukraine and Kazakhstan have routinely used export quotas in the past.

USW Vice President and West Coast Office Director Steve Wirsching recently noted that the 2021/22 stocks-to-disappearance ratio for major exporters is 13%, similar to levels last experienced in 2007/08 when wheat prices were exceptionally high. That year, Russia had a good crop, but imposed a substantial export tax. Following a poor crop in 2010, Russia banned wheat exports completely until the next harvest.

This year, world wheat production is expected to set a record high. However, worldwide use is expected to outpace production by more than 12 MMT. Among major wheat exporters, the EU, Ukraine, Argentina and Australia increased production this year while Canada has seen a 40% decline in wheat production with only a 13% drop in domestic use. Despite a 13% fall in production, Russia has seen domestic use go up 6% and export forecasts increase 42%.

Volatility is evident in the periods when stocks-to-disappearance ratios among exporting countries were low in this chart showing wheat futures prices over time

Volatility is evident in the periods when stocks-to-disappearance ratios among exporting countries were low in this chart of wheat futures prices from U.S. exchanges. For example, hard red spring prices (MGEX in red) in 2008 reached as high as $18.30/BU. That year was characterized by limited export supplies, strong international demand and low global wheat stocks.

Southern Harvest Quality Questions

Next week, USDA will release its latest supply and demand report, offering an updated forecast for major exporting regions. While the northern hemisphere crop is mostly in the bin, the southern hemisphere is beginning harvest now, and already concern is growing for the Australian wheat crop.

The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) recently did raise its forecast for Australian wheat production by 1.4 MMT, up 4% compared to last year. However, a rainy harvest there is generating speculation about the volume of milling quality wheat. One trader noted “the mess that wet harvest weather has left us in.” In addition, the EU experienced a wet harvest this season that downgraded milling wheat to only 62% of the total harvest according to Stratègie Grains.

More Volatility Ahead

The volatility inherent in the 2021/22 marketing year has major importers going to great lengths to shore up supply as futures moved lower. This week, Egypt, the world’s largest importer of wheat, suddenly purchased 600,000 metric tons (MT) of the grain at nearly $90 per MT more than the average price paid for wheat tenders last year. The purchase is thought to be Egypt’s largest single wheat purchase ever and surpasses a previous record of a 540,000 MT Egyptian purchase in 2008.

Wheat markets have moved lower recently, but with the exporter stocks-to-disappearance ratio remaining low until at least closer to the 2022 Northern Hemisphere harvest, volatility is likely to continue.

December 2, 2021/by Steve Mercer

Japan

Honoring the Late Mr. Hiroshi Sawada, Chairman, Nippn Corporation

U.S. Wheat Associates (USW) has been blessed to work with many impressive customers in the global flour milling industry. Among them was Mr. Hiroshi Sawada, Chairman of Nippn Corp., who passed away on Nov. 21, 2021, at the age of 90.

Mr. Hiroshi Sawada. Photo courtesy of Nippn Corp.

“Mr. Sawada was a true pioneer in Japan’s flour milling industry, joining Nippon Flour Mills Co. in 1953,” said USW President Vince Peterson. “During most of the 64 years we have had an office in Japan, Mr. Sawada always graciously welcomed our representatives and farmer leaders and was very generous with his time. Serving four terms as Chairman of the Japan Flour Millers Association, Mr. Sawada helped build the close relationship between U.S. wheat farmers and his country’s flour millers. It has been an honor working with him and we send sincere condolences to Mr. Sawada’s family and his colleagues.”

Over his 68-year career at Nippon Flour Mills (which changed its name to Nippn Corp. in January 2021), Mr. Sawada served as Director, Managing Director and Senior Managing Director. He was named President in 1993 then Chairman & CEO in 2002. Nippn Corp. is the second largest flour milling company in Japan.

Legion of Honor

Among his career highlights, Mr. Sawada received Japan’s Legion of Honor award for his contributions to the country’s food industry. In 2017, the “Great Falls (MT) Tribune” featured Mr. Sawada in an article about Nippn’s ownership of Pasta Montana in which he talked about his first visit to that state in 1967.

Chairman Sawada with 2018/19 USW Chairman Chris Kolstad and his wife Vicki at Nippn Corp. in 2019. The photo at the top of this page was taken in 2018 when U.S. wheat industry representatives helped celebrate the 70th anniversary of the Japan Flour Millers Association.

December 1, 2021/by Steve Mercer

Trade Negotiations and Barriers

WTO Ministerial Postponed; U.S. Agriculture’s Engagement to Continue

Though disappointed in the postponement of the 12^th World Trade Organization (WTO) Ministerial Conference this week, U.S. Wheat Associates (USW) will continue working with U.S. agricultural interests toward positive reform of this important organization.

As a member of a U.S. agricultural coalition that is speaking up on the importance of the WTO, USW representatives were set to attend the WTO ministerial “MC12” in Geneva, Switzerland. Ms. Sharon Bomer Lauritsen, the founder of Ag Trade Strategies, LLC, and a former Assistant U.S. Trade Representative for Agricultural Affairs and Commodity Policy, supports the coalition and recently outlined key positions on the WTO in a co-authored Agri-Pulse editorial.

“The WTO is a crucial element in facilitating global trade, but it is in need of reform,” she and her co-author wrote on Nov. 24, 2021. “To revitalize and restore confidence in the WTO, attention must be paid to addressing government policies that distort production and trade, including tariffs and trade distorting domestic support.”

In remarks made to business interests just before the WTO ministerial was postponed, however, WTO Director-General Ngozi Okonjo-Iweala had little optimism for substantial progress on agricultural domestic support negotiations.

There is a stand-off over price supports used for public stocks between some developing countries like India and China and a group of developed and developing countries, especially the United States and several Latin American countries. India, for example, fiercely protects its trade distorting subsidies for wheat and rice as part of its public stockholding program for food security. Unfortunately for the rest of the world’s wheat and rice producers, these hefty subsidies can lead to larger stocks and the need for India to export these grains, often at lower prices than the costs the government incurred for the grain.

The U.S. coalition is also concerned that WTO members are not complying with their transparency requirements for reporting on domestic agricultural subsidies. Less than half of WTO members have submitted notifications on their subsidies since 2016, and many of those are incomplete, manipulated data, or incorrectly categorize their policies.

Data from the WTO shared as part of U.S. dispute cases and counternotifications reflect this issue. The graph below shows the wide disparity between the wheat subsidy levels China and India reported and the actual levels identified by a WTO dispute panel and other members.

Graph shows various wheat subsidies reported to WTO.

Source: World Trade Organization.

Improving transparency requirements for policies impacting agriculture trade and notifications of current commitments was a realistic outcome from the MC12 meeting that USW and the U.S. coalition will continue to encourage.

USW strongly supports the WTO’s mission to liberalize world trade. In a July 2021 letter, USW and the National Association of Wheat Growers joined dozens of other agricultural organizations in sharing key priorities for the WTO to U.S. Trade Representative Katherine Tai and U.S. Secretary of Agriculture Tom Vilsack.

“The WTO has served American farmers, ranchers, and workers across the food and agriculture sector well, but in recent years the flaws in the system have become apparent,” the letter stated. “Reform is … needed, including changes that lead to a market opening agenda for agriculture and a better functioning institution. These changes can help improve global agricultural sustainability and support rural communities, workers, and better-paying jobs.”

USW believes a “better functioning” WTO will also benefit our wheat importing customers around the world.

November 30, 2021/by Steve Mercer

Market and Crop Analysis

A Deep Dive into Ocean Freight Market Factors

The recent run-up in ocean market freight rates is causing heartburn for the world’s grain importers. Vessel rates bounced up on Nov. 22, but a shipbroker quoted in a Reuters report expects dry bulk spot rates to stabilize in November and December “before a seasonally soft first quarter of 2022.”

That would be some good news for wheat importers, but rates remain very high. That is one reason why U.S. Wheat Associates (USW) asked Jay O’Neil, HJ O’Neil Commodity Consulting, to record an in-depth analysis of the ocean freight market as part of its 2021 Crop Quality Report. His presentation is posted online at https://cropquality.uswheat.org with all by-class written and video reports and other special topic presentations translated into several languages.

Demand and Inefficiency

In his report, recorded in mid-October, O’Neil discussed the physical make-up of the global ocean freight fleet. He noted that grain carrying vessels make up about 13% of global seaborne cargo, so its rates “follow the lead” of larger coal and iron ore vessel rates in the Capesize category. Those rates have spiked in recent months due to higher demand, primarily from China, pulling grain rates up with then. O’Neil also described how China’s high demand for grain and oilseed imports has lifted freight rates.

The pandemic is adding cost because it is taking longer to load and unload vessels.

“We have about 16% of the world global dry bulk fleet tied up waiting to unload at various ports,” O’Neil said in October. “That creates inefficiency that requires more ships to carry the same amount of cargo.”

The 13-year high in dry bulk freight rates is partially tied to vessel turn-around slowed by the COVID-19 pandemic, said ocean freight consultant Jay O’Neil.

Vessel Capacity Lagging

For many years following a much more significant price spike around 2008, rates remained somewhat stable at relatively low levels. As a result, “we have not been building many vessels for the last 13 years,” O’Neil said. “Now we don’t have enough ships to carry all the new cargo demand, so we have this spike.” The ship-building process takes years, he noted.

Yet there is what O’Neil described as a “huge inverse between the nearby market and the forward market. Those who need to purchase vessels are paying whatever they have to pay in the nearby market but are not much interested in paying those high rates for freight several months in the future.”

O’Neil sees bulk ocean freight demand growing faster than fleet growth into at least 2023. He noted a two-year backlog in container and tanker vessel production that limits capacity to build bulk vessels. Risk management through a hedge on rates in the Freight Forward Agreement markets is an opportunity for buyers, he said.

Volatility Ahead

There are other unseen factors affecting future bulk ocean rates, O’Neil noted, including global economic conditions and management of vessel emission standards. He also offered a look at container market factors.

“One constant is volatility in the freight markets will continue to plague us,” he said. “If you are a cargo buyer, timing (of purchases and risk management) is going to be very important.”

USW reports ocean freight market rates and weekly changes in the Baltic Index each Friday in its Price Report.

November 22, 2021/by Steve Mercer

USW Announcements

U.S. Wheat Associates Renovated Website Increases Focus on Crop Quality

U.S. Wheat Associates (USW) recently launched its renovated website, www.uswheat.org, with an updated look, improved organization and an expanded Crop Quality section including unique, individual pages for each of its six wheat classes.

“The pandemic has highlighted challenges and changes in how people communicate and consume information across the globe,” said USW Director of Communications Amanda Spoo, who supervised the update. “So, as we adapt, it is important that our outreach continues to reflect the reliable service our customers have come to expect from U.S. Wheat Associates and the long-standing trust they have in U.S. farmers. The new website maintains its strong focus on the importance of the U.S. wheat farmers we represent and provides customers expanded access to the vital information and resources they need when making their purchasing decisions.”

Crop Quality Focus

The expansion of the site’s original Crop Quality section includes unique, individual pages for all six wheat classes and the existing Harvest Report. Users can access these new pages via the “Crop Quality” tab in the main menu across the top of the website. This section provides users with general wheat class information and additional detailed information about the 2021 U.S. wheat crop. In addition to access to the full 2021 USW Crop Quality Report, available in seven languages, users can access individual regional class reports, an overview of U.S. wheat inspection practices, and more.

Other Highlights

The Newsroom features our new home base for USW’s blog “Wheat Letter,” news releases, original video content and more.
Market Information is home to a familiar set of reports, including the popular Price Report, the Price Charting Tool, Supply and Demand and Commercial Sales.
Working with Buyers describes the type of activities USW conducts with its customers, the six U.S. wheat classes and their uses, wheat industry terms, as well as U.S. wheat grade and non-grade factors. The Ask the Expert page allows site visitors to confidentially seek answers to questions about contract specifications, wheat quality, milling and end-product uses, and flour quality. Included in this section is access to our interactive U.S. wheat export supply system map.
The Office Locations section, focused on USW’s 15 office locations and the countries they serve, was expanded to provide more information and resources for customers based on the needs of that region and direct access to local USW representatives.

Other important sections of the site include Policy, Who We Represent and Our Story.

Learn more about USW and its mission here.

November 17, 2021/by Steve Mercer

Wheat Industry News

Recent news and highlights from around the U.S. wheat industry.

Speaking of Wheat. “Durum presents the greatest challenge in terms of balancing global import requirements with global export availability.” – Rhyl Doyle, director of export trading at Paterson Grain, Winnipeg, Manitoba, quoted in a Reuters article covering Italian pasta makers’ fears about a global durum supply shock.

Brazil Approves GMO Wheat Flour Imports. Reuters reported Nov. 11 that Brazil’s biosecurity agency CTNBio has cleared imports of flour from Argentina made with genetically modified wheat. Reuters wrote that the agency’s decision, the first of its kind in the world, “applied only to wheat flour, after Brazilian millers threatened to boycott Argentine grains.”

2021 Fusarium Head Blight Disease Impact Update. The U.S. Wheat and Barley Scab Initiative recently announced publication of its 2021 Fusarium Head Blight Disease Impact Update. In general, drought held back the severity of the plant disease with only isolated problem areas. Read the full announcement here.

USW Publishes Latest Supply and Demand Report. USW updated its monthly World Wheat Supply and Demand Situation Nov. 9 following the release of USDA’s World Agricultural Supply and Demand Estimates (WASDE) report. This month world wheat trade estimate for 2021/22 was raised to a record 203.1 MMT even in the face of reduced exportable supplies. Read the USW report online here.

November 11, 2021/by Steve Mercer