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U.S. Agricultural Organizations Ask for Positive Reforms at the World Trade Organization

U.S. Wheat Associates (USW) recently joined a coalition of several U.S. agricultural organizations calling on the Biden Administration to work toward reforms to the World Trade Organization (WTO) “that lead to a market opening agenda for agriculture and a better functioning institution.”

USW signed the July 23, 2021, letter to U.S. Trade Representative Katherine Tai and Secretary of Agriculture Tom Vilsack because it believes the WTO’s mission to liberalize global trade has benefitted the wheat farm families the organization represents and the world’s wheat importers. As the coalition stated on liberalized trade, “It helps connect American farming communities to peoples around the globe.”

Since it was formed in 1995, global wheat trade has doubled. The WTO provides a trade dispute mechanism that has identified the need to amend trade-distorting practices such as China’s domestic wheat support and unfilled wheat import tariff rate quota.

However, the letter also pointed out that “When the WTO functions poorly, and other governments get away with treating U.S. agriculture exports unfairly, trust erodes in our government and international institutions. To restore trust, WTO reform is needed.”

Leading issues of discussion at the WTO include challenges on tariff implementation, domestic support, transparency, sustainability, and climate. Following are some of the areas the coalition would like the U.S. officials to address at the WTO Ministerial Conference (MC12) in late November 2021:

  • Public stockholding (PSH) disciplines – PSH programs may serve a laudable food security goal but often lead to excessive domestic stockpiles, as we have seen in India and China. Those stocks lead to lower global prices and may force U.S. farmers to compete with subsidized exports.
  • Special safeguard mechanism (SSM) rules – SSM’s allow developing countries to temporarily impose import tariffs to protect domestic producers from competition, and at times may unfairly tax U.S. exports.
  • Domestic support limits – Domestic support, a subsidy that encourages production, is one of the most discussed topics in Geneva. Some countries want the U.S. and EU (both of whom are within the limits they agreed to) to slash their farm program spending, while the U.S. argues that many advanced developing countries are dramatically exceeding their own limits. The coalition supports negotiating new limits on domestic support if market access is also considered.
  • Export restrictions are policies that may limit the amount of a product being exported from a country in the form of a tax or set quantity. Some countries will impose export restrictions on commodities to control domestic prices. During the COVID pandemic, Russia imposed export restrictions on wheat exports to control domestic wheat prices. Countries are expected to consider a proposal to exempt purchases by humanitarian organizations like the World Food Program from these limits.

Addressing transparency is a leading concern because it has a significant effect on market access and export competition. For example, global wheat production and trade are negatively impacted by India’s domestic support policies for wheat. Resolving such issues would help the market operate more freely and allow more fair and equal trade for all wheat producers.

The world continues to change, and the demand on the agricultural industry to feed more people in more environmentally and socially sustainable ways is increasing. The coalition supports using science-based approaches to embrace innovations and technologies to address these challenges of sustainability and climate. Also, with this, the coalition supports a declaration on sanitary and phytosanitary (SPS) measures, which would establish a committee on SPS measures to focus on harmonized regulation, risk analysis, sustainability, and innovation at the WTO.

USW remains committed to the WTO’s mission and believes that, with positive reforms, the organization can once again become a functioning, trusted institution for equal and fair trade for the people of the world.

By Shelbi Knisley, USW Director of Trade Policy

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Wheat Industry News

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

Speaking of Wheat.

“The overall sentiment is not great, but they are farmers, so they are thinking next year is going to be better.” – Casey Chumrau, Executive Director, Idaho Wheat Commission, describing the farming community’s outlook. Read more.

U.S. Millers Weigh in on Drought Effects. Reuters reports that millers and bakers are draining wheat reserves and paying more for spring wheat used in baking, as drought shrivels crops across the Canadian Prairies and northern U.S. Plains that produce more than half of the world’s world’s supply. While overall global wheat stocks are large, the drought affects mainly the high-protein spring wheat crop that millers such as Archer Daniels Midland Co (ADM.N) and bakers, including Grupo Bimbo (BIMBOA.MX), rely on to produce the texture and moistness in baked goods that consumers expect. Read more.

Oregon Wheat Hiring. The Oregon Wheat Growers League and Oregon Wheat Commission are hiring a new Director of Communications. This position supports the Chief Executive Officer to provide the development and growth of Oregon Wheat communications, outreach, advocacy, education and public relations programs. Read more about the position and how to apply here. The position will stay open until it is filled but apply for first-round consideration by September 7, 2021.

U.S. Wheat Associates Publishes Commercial Sales every Thursday, documenting wheat export sales-to-date by country and class for the current marketing year compared to the previous marketing year on the same date. The report includes a 10-year commercial sales history by class and country. Data is sourced from the USDA Foreign Agricultural Service Weekly Export Sales Report. Read the latest report on the USW website.

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.

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Checking the 2021/22 Global Wheat Crop Ahead of August WASDE Report

The effects of weather on the 2021/22 global wheat crop have sparked a run-up in prices even as harvest progresses in the Northern Hemisphere. Given the market’s supply concerns, U.S. Wheat Associates (USW) gathered information from major wheat exporting countries to see what may affect USDA’s next estimates of world supply and demand due on Aug. 12.

Both USDA and the International Grain Council (IGC) still expect 2021/22 global wheat crop production to reach a record level. USDA’s July estimate of 792.4 million metric tons (MMT) was down 2.0 MMT from June. IGC trimmed its latest forecasts by about 1.0 MMT to 788 MMT.

Hot, dry weather in the northern and Pacific Northwest (PNW) regions of the United States and, recently, in Canada, has attracted much of the market’s attention.

United States

The Wheat Quality Council Hard Spring and Durum Tour estimated this year’s hard red spring (HRS/DNS) yield average at 29.1 bushels per acre, compared to 43.1 bushels per acre in 2019. Even so, the tour’s consensus is HRW/DNS protein and kernel size will be very good. U.S. northern durum and soft white (SW) wheat yields are also expected to be down significantly. On the other hand, hard red winter (HRW) and soft red winter (SRW) average yields and production are expected to be higher for 2021/22. In addition, Kansas-based HRW grower Brian Linin, noted, “We put a lot into this crop. Protein [levels] have been awesome.” Follow USW’s weekly Harvest Report for more information.

HRS wheat rows showing effect of drought in North Dakota

Drought in the Northern U.S. Plains could cut the 2021/22 HRS/DNS yield average by one-third, but industry experts expect protein and kernel quality will be good.

Canada

Canada, the largest spring wheat producer, has experienced record temperature and drought in portions of its Prairie Provinces. Agriculture and Agri-Food Canada (AAFC) cut its most recent forecast of spring wheat production by 11% to 25.6 MMT, down sharply from previous estimates. That agency also reduced spring wheat export forecasts to 17.7 MMT, down 16% from last year.

South America

In Argentina, dry weather is also a concern, depleting soil moisture for the winter wheat crop and creating a logistics headache. The Buenos Aires Grains Exchange (BAGE) reported potential leaf damage and developmental delays caused by a severe cold front in July. Neighboring Brazil and Paraguay have also experienced potentially damaging cold weather. Brazil experienced some of the lowest temperatures in years throughout July. One local newspaper in Paraguay, “La Nación,” reported there may be a need to import wheat this year instead of marketing excess domestic production.

EU

The European Union’s top wheat-producing states, France and Germany, received persistent rain leading to flooding in some areas, which slowed harvest and created quality concerns. On Aug. 3, France’s farm ministry lowered the estimate for wheat production there by 410 thousand metric tons (TMT), but total production is still expected to be at least 25% more than in 2020/21. In a report following the flooding, a German farmers group suggested there may be crop failures in many areas. Despite this, total German production is expected to be 23.1 MMT, up almost 5% compared to last year. Further east, Romania and Bulgaria each expect to harvest record crops, although official reports said rains could downgrade a portion of Bulgaria’s harvest to feed.

Black Sea

USDA’s May Russian wheat production forecast of 85.0 MMT was seen as bullish by many at the time. Two private Russia-based analysts cited lower-than-expected yields in the Central and Volga regions when they cut their production estimates recently. IKAR cut its forecast for the 2021 wheat crop by 3.0 MT to 78.5 MMT and SovEcon cut its forecast 6.6% to 76.8 MMT. Rosstat, the Russian state statistics agency, reduced winter wheat planted area by 7.5% compared to last year, blaming dry weather. Export prices, as a result, increased at least $7 per MT following the news. The current Russian government export tax scheme is also adding part of that increased export cost.

Ukraine’s wheat harvest lags last year’s pace but yields are up 12% compared to 2020. In reaction to reduced wheat production in Russia, prices for Ukrainian wheat gained $3 to $5 per MT settling between $240 to $243 per MT. The USDA estimates Ukraine’s wheat production to rise 15% this year to 30.0 MMT.

According to one Ukrainian-based broker, farmers in Kazakhstan are expecting a 30% drop in wheat production this year from hot, dry weather in the early summer. The Kazak government is considering banning feed wheat exports while also considering a tax on milling wheat exports following a meeting of the foreign affairs and trade commission last month.

Australia

Wheat growing areas of Australia, especially Western Australia, are “looking extremely good” said one analyst with the Australian Export Grain Innovation Centre. Production estimates are expected to fall 17% compared to 2020/21 when Australia produced a record crop. This year’s crop is expected to be 15% above the 10-year average to 28.5 MMT following a 1% increase to the planted area. Some areas are reporting water logging and would benefit from a couple of weeks of sunny dry weather to dry out the fields.

screenshot from Australian Export Grain Innovation Centre

The Australian Export Grain Innovation Centre reports a second year of good wheat production potential after breaking a severe drought in 2020.

In-Born Optimism

Back in the drought areas of the United States, many wheat farmers are looking ahead to the next crop with winter wheat seeding likely to start in some areas by early September. In an interview with the Pacific Northwest Ag Network, Casey Chumrau, Executive Director of the Idaho Wheat Commission, described the farming community’s outlook this way: “The overall sentiment is not great, but they are farmers, so they are thinking next year is going to be better.”

By Michael Anderson, USW Market Analyst

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The Passing of Ron Lu

U. S.  Wheat Associates (USW) colleagues and many friends in Taiwan were very sad to learn that retired USW Country Director Ron Lu passed away July 23, 2021, in Taipei at the age of 73. Our most sincere sympathy goes out to Ron’s family and friends.

Ron Lu at CGPRDI with bakery students

In 2016, Ron Lu talked with Taiwanese bakery students at the China Grain Products Research Institute (CGPRI), which he served as Chairman. This photo was taken during a joyous celebration marking 50 years of representation in Taiwan by USW and its legacy organization Western Wheat Associates.

Ron L. J. Lu retired from USW in 2017 after 33 years of service to U.S. wheat farmers and the Taiwan milling and baking industry he loved. In September 2016, USW shared these tributes to our colleague.

“Today, per capita wheat consumption in Taiwan has exceeded that of rice. It is a market that prefers the quality and reliability of U.S. wheat and Ron played key roles in that success,” said USW Regional Vice President Matt Weimar. “USW has a strong presence in Taiwan, across all sectors and entities in the food industry because of that dedication and commitment representing U.S. wheat farmers. By hosting so many public introductions of those new wheat food products with his customers and educational partners, Ron truly [was] the face of U.S. wheat in Taiwan.”

Ron Lu with USW colleagues and the owner of R Den Dessert Factory

Ron Lu (right) often brought visiting colleagues and U.S. wheat farmers to the delightful R Den Dessert Factory in Yilan City, Taiwan. Here, USW Regional Vice President Matt Weimar (left), Past USW Chairman and Ritzville, Wash. wheat farmer Mike Miller visit with R Den proprietor Lai Wen-dian.

Lu joined USW in 1983 as a technical specialist and was appointed country director in 2004. During his tenure, Lu worked directly with end users and importers to help them strengthen commercial links with U.S. export companies through trade servicing, technical assistance and promotional activities. From 2007 to 2009, Lu served as the chairman of the China Grain Products Research and Development Institute (CGPRDI). During his USW career, he has facilitated countless customer and trade team visits to the United States, including the biennial Agricultural Trade Goodwill Mission during which the Taiwan Flour Mills Association (TFMA) traditionally signs letters of intent to purchase U.S. wheat during the following two marketing years.

Ron Lu and Taiwan team at the Wheat Marketing Center, Portland, Ore., in 2013.

Ron Lu (left) often travelled to the United States during his 33 years with USW, hosting Taiwanese flour miller trade teams like this one in 2013 outside the Albers Mill Building headquarters of USW West Coast Office, the Wheat Marketing Center (WMC) and Oregon Wheat Commission. This photos is from a tribute to Ron from his colleague and friend Gary Hou (right), who was WMC’s Technical Director at the time and is now Managing Director, Flour Business Unit, SPC Group, Korea.

“Over many years, Ron added value to every level of USW’s work in Taiwan — from improving and creating the finest wheat food products for consumers to strengthening the long-standing trade relationship between Taiwan and the United States,” said USW President Vince Peterson. “Through his steady efforts and successes, he made immeasurable contributions to both the wheat food industry in Taiwan and the U.S. wheat production and export industries.”

Ron Lu at a 2011 media event celebrating the development of healthy bread products for the Taiwanese people.

In his position as USW Country Director, Ron Lu (second from right above) worked closely with the Taiwan milling and baking industry to help develop and promote new wheat products made primarily with flour from imported U.S. wheat. Today, per capita consumption of wheat food exceeds rice.

 

 

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Spring Wheat Tour Observes Variable Conditions, Good Quality

Commenting on his participation in the 2021 Wheat Quality Council Hard Spring and Durum Tour completed July 29, U.S. Wheat Associates (USW) Market Analyst Michael Anderson said “variable” was the word of the week.

“The crop condition varied across North Dakota, across counties and even across every 10 miles we traveled,” Anderson said. “We would see one nice looking field with wheat up to my waist then see sparse fields with stalks below my knee.”

USW Vice President of Programs Erica Oakley noted the variability in crop maturity.

“Most of the fields in the south and central areas of North Dakota will be ready for harvest within a week,” she said. “But as we moved north along the U.S.-Canada border, those fields were 4 to 6 weeks from harvest.”

It will come as no surprise that the tour confirmed that the U.S. hard red spring (HRS/DNS) wheat and northern durum production will be down significantly for 2021/22. The tour’s HRS yield estimate was 29.1 bushels per acre (bu/a) compared to the 2016 to 2019 tour average of 47.5 bu/a. The tour’s durum yield estimate was 24.3 bu/a, slightly higher than the tour’s durum yield estimate of 23.3 bu/a in 2008.

(L to R) USW staff Catherine Miller, Michael Anderson and Erica Oakley attended the Wheat Quality Council Spring Wheat Tour in North Dakota this week.

There is Good News

However, there seemed to be much less variability with what tour participants said about HRS/DNS quality.

Wheat Quality Council Executive Director Dave Green said even in the driest area of North Dakota, kernel quality looked good. Josh Longtin with Miller Milling Company told the Red River Farm Network that, “on a positive note, we hardly saw any quality issues, which is good for millers.”

“We saw many fields where the wheat was short, but the kernels were round and plump,” said Oakley. “So, the general consensus is the quality will be there – it is just a matter of how much wheat there will be.”

Wheat farmer and USW Director representing the North Dakota Wheat Commission Phil Volk was on tour and shared this observation with Progressive Farmer: “The bottom line is that we want our foreign customers to see that we will do our best to get them the best wheat possible, even with the drought conditions.”

Wheat Quality Council Spring Wheat Tour Day 2 stop in Burleigh County, North Dakota on the blue route. Photo shared by Kim Chapman, Bloomberg.

Great Experience

Every year, the Wheat Quality Council hosts the HRS and durum crop tour in North Dakota, bringing together participants from across the industry, including millers, traders, farmers, researchers, government officials and media. These participants travel in small teams along eight distinct routes covering most of the state’s wheat production, as well as into parts of South Dakota and Minnesota. The 2020 tour was canceled due to COVID-19. During the three-day tour this year, 43 participants inspected 273 fields. When scouting fields, participants measure yield potential, determine an average for the day’s route and estimate a cumulative daily tour average when all scouts come together again in the evening. The tour is also a tool to help educate a broad range of stakeholders about wheat production challenges.

USW is always pleased to send colleagues to the Wheat Quality Council tours. Michael Anderson and Erica Oakley have participated in other tours, but this was the first time for USW Programs Coordinator Catherine Miller.

“The tour was an incredible learning experience,” Miller said. “I got hands-on knowledge of the new spring wheat crop and the chance to meet so many new people from our shared industry. I have a much stronger appreciation for the challenges our farmers face every year to produce quality wheat for people here and around the world.”

USW is happy to share several photos from the tour here and thanks to Dave Green and the Wheat Quality Council for bringing the U.S. wheat industry together again.

USW will continue monitoring crop conditions and sharing updates in its weekly harvest report published every Friday during the U.S. wheat harvest season. The 2021 U.S. Crop Quality Report will be published in October. Subscribe here to receive the harvest reports and other crop quality updates directly to your inbox.

Green wheat field

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Protein Alone Does Not Predict Soft White Wheat End-Quality Performance

There is an easily understood expression in English that “you cannot judge a book by its cover.” Applied to the new 2021/22 U.S. soft white wheat crop that is good advice for the world’s flour millers and wheat food producers.

The persistent Pacific Northwest (PNW) drought is expected to lower yields and push 2021/22 SW protein levels higher than average. As USW Bakery Consultant Roy Chung says, however, protein level alone does not say everything about soft white end-quality performance.

Instead, U.S. Wheat Associates (USW) is helping flour millers learn that testing for Solvent Retention Capacity (SRC) is the most effective and valuable method for predicting the true performance characteristics of flour for biscuits (cookies) and crackers.

The SRC method, approved by the American Association of Cereal Chemists (56-11.02), examines the characteristics of glutenin, gliadin and arabinoxylan and the level of starch damage in flour. These values describe the flour’s ability to absorb water during the mixing process and its ability to retain or release that water during and after the baking process, among several other performance characteristics.

The combined pattern of the four component SRC values establishes a practical flour quality profile useful for predicting functionality, giving the miller and baker a ‘fingerprint’ of U.S. soft white (SW) and soft red winter (SRW) wheat flour end-quality performance.

Image of a video describing SRC analysis of soft white wheat and other classes

Noted cereal chemist Dr. Art Bettge, ADB Wheat Consulting, described SRC use and interpretation in-depth in a video lecture for USW’s 2020 Crop Quality Seminars.

“While rheological analysis tools measure the combined effect of the components in flour, individual component functionality, measured by SRC, gives a better picture of whether you are going to get the desirable performance from the flour for the product you want to make,” Chung told a large audience of millers and bakers in a USW webinar on SRC in June 2021.

With a more complete understanding of the functional value of wheat proteins, carbohydrates and other properties, flour milling quality control managers will have additional information to evaluate the characteristics more accurately of U.S. soft white wheat and Western White (a blend of SW and a minimum 10% white club) this year compared to competing supplies.

Test of cookie spread using soft white wheat flour and other low protein flour to show protein % does not always predict performance.

These test results, provided by USW Bakery Consultant Roy Chung, show cookie spread increases and then declines as the flour protein percentage lowers, demonstrating that protein percentage alone is not an accurate predictor of performance.

Clean Label Input

“In addition, more wheat food manufacturers are looking for ways to ‘clean up’ their ingredient labels,” said USW Regional Technical Director Peter Lloyd. “USW can show SRC results to millers and bakers that prove flours from U.S. soft white wheat and SRW wheat can make beautiful end products without adding any ‘magic powder’ like enzymes that have to be added to medium protein wheat flour to make weak gluten products.”

USW has helped flour mills understand the advantages of SW by introducing SRC analysis and training mills to use the tool to expand their business. Vietnam is one example, where several flour mills use SRC analysis of flour products milled from SW to demonstrate how end-product performance is improved compared to flour milled from alternative wheat supplies.

“Our baking experts have already had several sessions with flour millers across South and North Asia about the benefits of evaluating flour from SW with SRC over protein levels alone,” said USW Regional Vice President Matt Weimar. “We were also pleased with the number of millers who participated in the June webinar on SRC, in which Roy Chung and Tarik Gahi, our Milling and Baking Technologist, demonstrated the SRC method. We also had a well-attended second session in July featuring Peter Lloyd discussing how to use SRC data to blend flour streams for better performance and profit.”

Excellent SW Will Be Available

Buyers, millers and end-users can be reassured that excellent quality SW is available even with a short 2021/22 crop. Beginning stocks carry in 1.91 million metric tons of total U.S. white wheat following a 2020/21 PNW SW crop with excellent performance characteristics. Local USW offices and U.S. export grain companies are also prepared to help their customers develop tenders that will deliver the wheat qualities needed at the highest value possible.

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Chinese Government Grain Policy TRQ Dispute Moving Ahead

By Ben Conner, Partner, DTB AgriTrade

Over the last several years, U.S. Wheat Associates (USW) and other industry groups have demonstrated how the policies of a few advanced developing countries are distorting world wheat trade and hurting farmers in the United States and other wheat exporting countries. Chinese government grain policy attracted special attention, leading to two dispute cases at the World Trade Organization (WTO), one on excessive subsidies and one on China’s administration of a tariff rate quota on wheat, corn, and rice. By April 2018, WTO dispute panels had sided with the United States in both cases.

Today, the official settlement process for one of those cases has entered the next phase. On July 26, 2021, the United States asked the WTO Dispute Settlement Body (DSB) for authorization to raise tariffs on imports from China due to its failure to comply with the DSB recommendations on its tariff-rate quota (TRQ) administration. China blocked the request, which puts the matter before an arbitration panel. Simultaneously, China made its own request for another panel to review whether it has brought its policies into compliance.

Very close observers of WTO processes might experience deja vu because this is exactly what happened with the case on China’s subsidies for the same commodities last summer.

The next step is for the WTO to form two panels to review the requests of both China and the United States. The compliance panel will look at whether China’s TRQ administration is now functioning on a “transparent, predictable, and fair basis … using clearly specified administrative procedures,” as required by the DSB recommendations. An arbitration panel will review the U.S. request to raise tariffs and decide whether its methodology is appropriate.

Two Reasons for the Challenge

Why is the U.S. government taking this step forward on this case? After all, China has been importing record amounts of wheat and corn since the signing of the Phase One deal (rice is notably lagging) that included implementation of the WTO recommendations on TRQs and subsidies. There are two main reasons.

Procedurally, the U.S. government had to continue extending the window for China to comply (they had already agreed to seven extensions), allow that window to expire with no further action and forfeit its right to suspend concessions, or request that right within 20 days after the window expired. It chose the third option.

Even though China has allowed higher imports, there is still little clarity on how TRQ shares are allocated and reallocated.

If the process remains opaque and unpredictable, China will not be in compliance with its TRQ obligations, which could prevent imported wheat with qualities supplementing Chinese domestic wheat from reaching the Chinese wheat millers who could use it most effectively. It is encouraging that the U.S. and Chinese governments are continuing this case as it will help resolve disagreements over whether China is in compliance with its TRQ commitments and exert pressure to fix problems with Chinese government grain policy permanently.

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Wheat Industry News

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

Speaking of Wheat. “It was just an excellent wheat crop. On our farm, we had the best wheat … we’ve ever had. It was a challenging harvest, between the [rain] showers, but the quality held up and our test weight stayed above 58. The genetics and farmers’ overall management of wheat is also better than in the past.”– Danny Rubin, farmer and President of the Illinois Wheat Association, describing in an article by “FarmWeek Now” how farmers in that state have harvested record yields of soft red winter wheat this year. Photo above: Illinois Wheat Field © Nordike899 | Dreamstime.com

FAS Administrator Daniel Whitley

FAS Administrator Daniel Whitley. Photo courtesy of USDA.

Congratulations to FAS Administrator Whitley. Agriculture Secretary Tom Vilsack has named Daniel Whitley as Administrator of the USDA’s Foreign Agricultural Service, who has served as the agency’s Acting Administrator since December 2020. He is no stranger to FAS stakeholders like U.S. Wheat Associates (USW) and the agricultural trade community, having served a 20-year career with the agency. USW President Vince Peterson congratulated Administrator Whitley, saying, “our worldwide staff, who so closely work with those on your side, all join me in expressing just how pleased we are to have you settled in this position.”

2020 Annual Report for the CGIAR Research Program on Wheat. The International Maize and Wheat Improvement Center (CIMMYT) recently published its 2020 Annual Report for the CGIAR Research Program on Wheat. This report focuses on significant impacts made during a time of unprecedented challenges. Although they are reported for 2020, the stories reflect years of dedicated science and strong collaborative relationships with partners. Sixty-three new CGIAR-derived wheat varieties were released globally in 2020 – including six high-yielding and nutritious varieties in Nepal, a historic first. View the report online here.

School Meals: Nutrition, Health and Education for Every Child. Led by USDA, the United States is joining a global coalition focused on improving the nutrition, health, and education of vulnerable children and adolescents worldwide, Agriculture Secretary Tom Vilsack announced in June. The coalition, called “School Meals: Nutrition, Health and Education for Every Child,” will officially launch at the United Nations’ Food Systems Summit in September. It is led by U.N. member states and spearheaded by Iceland, Finland, and France, with support from the U.N.’s World Food Program (WFP). WFP is already a key partner in implementing USDA international food assistance programs. Read more about this coalition.

Close up of durum wheat kernelsNCI Offering Online Durum Foods Course from August 1 to 30. The course will touch on many unique traits of durum, nutritional components, baking and working with durum, as well as a basic understanding of the milling process through networked lectures and video tours. Participants can also interact with presenters during live Q & A sessions. Learn more and register by July 30 here.

U.S. Wheat Associates Publishes Commercial Sales every Thursday, documenting wheat export sales-to-date by country and class for the current marketing year compared to the previous marketing year on the same date. The report includes a 10-year commercial sales history by class and country. Data is sourced from the USDA Foreign Agricultural Service Weekly Export Sales Report. Read the latest report on the USW website.

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, 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.

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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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Rail Rates Directly Affect Basis Values for Wheat Importers

Grain companies serving Pacific Northwest (PNW), Gulf, Lakes and Atlantic ports overcome challenging logistics to efficiently deliver wheat that consistently meets contract specifications to buyers around the world. Rail rates, for example, make up a significant percentage of U.S. wheat export basis and, ultimately, the FOB price paid by importers.

Exporting grain companies draw from inland country elevators that play a vital role in the U.S. wheat export system. And, according to the National Grain and Feed Association (NGFA), which represents and provides services for country elevators and other related commercial businesses, having access to efficient, competitive rail transportation is crucial. In fact, NGFA notes that 72% of U.S. wheat moves to domestic and export markets by rail.

Base and Secondary Rail Markets

Dr. Frayne Olson, Crop Economist/Marketing Specialist with the North Dakota State University Extension, says the United States has a very strong network of reliable freight rail systems that move wheat and other grains from where it is produced to domestic and export locations. He suggests that most deliveries to export elevators in the Pacific Northwest (PNW) or the Western Gulf rely on 110-car shuttle trains dedicated to wheat or other grain deliveries. The total cost of shuttle train delivery includes a base tariff rate and, if needed, a secondary market.

Shuttle loading system to present rail rates background

A shuttle train is loaded with grain at an inland elevator in this image from a video lecture by Dr. Frayne Olson, North Dakota State University, produced for USW. Arrows indicate the rail engines and covered grain cars.

“The base rate does not change rapidly,” Dr. Olson said in a recently produced video lecture on grain transportation for U.S. Wheat Associates (USW). “With shuttle systems, the base rate reflects the use or leasing of a train for about a 12-month period by the exporting company.”

U.S. railroads are also allowed to apply a fuel surcharge per car.

The secondary market allows exporters to contract for unanticipated rail requirements by purchasing unused space in a rail car and move the grain to the export terminal. Because the secondary rail market correlates directly with the principles of supply and demand, it can be considerably more volatile than the base rate tariff.

The Agricultural Marketing Service (AMS) of USDA notes that secondary rates are most often a small fraction of the full cost or rail shipments relative to the base tariff rate.

Total rail rates make up a significant percentage of U.S. wheat export basis. Each week, USW Market Analyst Michael Anderson polls export grain traders about changes in export basis. In their reports, the traders consider factors that directly affect basis including rail capacity’s effect on rates. Nearby futures prices and average basis are included in the USW Price Report to provide an estimate of weekly FOB prices for several classes and protein levels from PNW, Western Gulf and Lakes ports.

Current Rail Rates

Overall, current rail rates for shipping U.S. wheat are about equal to or slightly less than they were one year ago. In its July 15, 2021, “Grain Transportation Report,” AMS reported the following base rail tariffs, plus a fuel surcharge, per metric ton (MT) for shuttle trains:

Great Falls, Mont., to PNW Ports:                  $39.90

Wichita, Kan., to Western Gulf Ports:            $42.07

Grand Forks, N.D., to PNW:                            $56.37

Grand Forks to Western Gulf:                         $59.54

Colby, Kan., to PNW:                                        $63.35

NGFA points out that agricultural producers and shippers now are dependent upon only four U.S. Class 1 carriers to haul most grains and oilseeds by rail. Those four railroads typically originate more than 80 percent of such traffic, compared to only 53 percent in 1980.

USW map of Class 1 U.S. railroads to help demonstrate rail rates.

U.S. Class 1 railroad routes are shown in this image from USW’s interactive map of the U.S. Wheat Export Supply System.

Monitoring Rail Rates and Policies

Like NGFA, the U.S. wheat industry is closely watching the current proposal for control of Kansas City Southern Railroad by Canadian National Railway and a potential competitive offer by Canadian Pacific Railways. USW’s Wheat Transportation Working Group will weigh in on these proposals to the U.S. Surface Transportation Board (STB) with public comments.

In addition, USW has joined several other organizations, including NGFA, urging the STB to adjust rail regulations to ensure sufficient competition and, ultimately, the most efficiency and value for farmers, the grain trade and overseas wheat buyers. Anderson will report on that effort in the next Wheat Letter post July 22, 2021.

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