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An Invitation to a Stronger Relationship with Mexico’s Milling and Wheat Foods Industries

By Vince Peterson, USW President

Today, I had the unique privilege to accept an invitation to the White House to represent U.S. wheat farmers, our state wheat commission members and U.S. Wheat Associates (USW) as President Donald Trump signs implementing legislation for the U.S.-Mexico-Canada Agreement (USMCA) into U.S. law (that’s my viewpoint at the ceremony in the picture above).

While this invitation came addressed to me, it is only because I occupy a specific desk at USW with the consent of our U.S. farmer board of directors. I sincerely hope that everyone associated with our organization feels the same pride I do to witness this important national event because everyone put in a tremendous amount of work to help bring it about.

The trade agreement USMCA will replace (after Canada’s parliament approves it and implementing changes are made, as we are sure will happen) opened mutually beneficial trade between U.S. wheat farmers and Mexico’s flour millers and wheat food industry. Under the North American Free Trade Agreement (NAFTA), USW focused on helping Mexico’s buyers, millers and food processors solve problems or increase their business opportunities with U.S. wheat classes—as it does with all U.S. wheat importing customers. This effort, supported by wheat farmers and the partnership with USDA’s Foreign Agricultural Service, has fostered a productive relationship that has endured through many challenges.

So, when the Trump Administration announced in 2017 it intended to renegotiate NAFTA, USW quickly engaged in the process on many levels to advocate for continued duty-free wheat trade and other improvements in the agreement.

For example, I invited José Luis Fuente, President of the Mexican Millers Association (CANIMOLT), to address the USW board of directors meeting in October 2017. Sr. Fuente had been appointed as an advisor to the Mexican Minister of Agriculture in the negotiations. He made a passionate plea for USW to work together toward resolving the trade agreement as soon as possible. In addition, our former Vice President of Policy Ben Conner was granted status as an advisor to the U.S. Trade Representative and was one of only a few agricultural industry representatives who participated in side-briefings at almost all the official negotiating sessions. Vice President of Communications Steve Mercer, his team and our friends at the National Association of Wheat Growers (NAWG) published an on-going series of press statements, social media posts, comments and fact sheets supporting our positions. As the U.S. Congress considered the agreement, NAWG’s staff and its dedicated farmer officers and directors continued to advocate for its passage.

Regional Vice President Mitch Skalicky and our staff in Mexico City steadfastly maintained contact with Sr. Fuente and our other customers. Then, last year at a USW marketing conference in Mexico, USW and Mexican millers renewed our agreement to work together toward approval of the USMCA. We also made it very clear that our commitment to serving their industries was among our most important goals.

“We have 14 farmers here representing 13 different state wheat commissions, and U.S. Wheat Associates staff from 3 offices here to show you that we take your business seriously,” Past Chairman Chris Kolstad told the millers. Those farmers, state commission members and USW, he added, “are all united in our desire to earn your full trust in the United States as your primary source of imported wheat.”

After I received the White House invitation to the USMCA signing ceremony, I forwarded a copy to Sr. Fuente with a note of thanks and congratulations to him and CANIMOLT members for their work and the collaborative effort toward a favorable agreement for each of us.

“We congratulate U.S. Wheat Associates on behalf of the Mexican millers for all of the collaborative work, negotiations, and achievements attained (in negotiating the new USMCA),” Sr. Fuente responded to Mitch Skalicky and me. “I am very happy and proud to have been part of the effort and above all to confirm the excellent relations and friendship that exists between the Mexican milling industry and the U.S wheat industry.”

That is a humbling and generous confirmation that our relationship stayed strong throughout the negotiations. USW will continue to work hard to make our partnership even stronger in the future.

José Luis Fuente, President of CANIMOLT, addresses the USW Mexican Wheat Trade Conference in June 2019.

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Wheat Industry News

Recent news and highlights from around the wheat industry.

Speaking of Wheat: “The last time that U.S. farmers planted so few acres with winter wheat, William Howard Taft was president and the opening salvos of World War I were still five years away.” – Ryan Dezember, Wall Street Journal Reporter, from his article Jan. 17, 2020.

USMCA Pact Moves to Pres. Trump. Senate Finance Committee chairman Chuck Grassley (R., Iowa), as president pro tempore of the Senate, led a ceremony Jan. 22, 2020, to sign the U.S.-Mexico-Canada Agreement (USMCA) Implementation Act. Grassley’s signing of the legislation is the final step before it goes to President Donald Trump for his signature within 10 days. Canada has still not ratified the measure, which its parliament must do before the agreement enters into force, which is expected to happen within the next two months.

Mid-Year U.S. Commercial Sales Update. As of Jan. 2, 2010, total U.S. export sales for marketing year 2019/20 (June to May) of 18.9 million metric tons (MMT) are 6 percent ahead of sales at the same time in 2018/19. Hard red winter (HRW) and durum sales are both significantly ahead of last year’s pace. USDA projects total 2019/20 exports will hit 26.5 MMT (973 million bushels) which, if realized, would be 4 percent greater than 2018/19 and 7 percent more than the 5-year average. USW believes the high quality and competitive pricing for select U.S. wheat classes and other factors support USDA’s estimate. Export sales to date are 71 percent of USDA’s total projected U.S. exports of 26.5 MMT. Commercial sales to 11 of the top 20 markets for U.S. wheat are ahead of last year. Read the latest Commercial Sales report here.

Farmers Follow the Wheat. Intermountain Farm & Ranch reported that group of Idaho wheat farmers and industry representatives visited Portland, Ore., recently on a tour designed to give them a better understanding of the region’s wheat industry and the importance of the Columbia-Snake River system. Portland is the third largest grain export gateway in the world and more than 50 percent of U.S. wheat that is exported travels through the port. Every January, the Idaho Wheat Commission takes two growers from each of five districts in Idaho, and a handful of industry representatives on similar tours. Photo above, Copyright Intermountain Farm & Ranch. Read more online.

Condolences. U.S. Wheat Associates (USW) was sad to receive the news of Mr. Poyen Policarpio’s passing on Jan. 12, 2020. Mr. Policarpio for many years led Pure Foods and, through its acquisition, served as President of San Miguel Flour Milling in the Philippines. Always with a smile and warm, friendly outlook, Mr. Policarpio was a good friend to USW and our extended U.S. wheat family. We offer our sincere sympathy to the Policarpio family and to his many friends and colleagues.

In 2012 at an event in Manila celebrating USW’s 50 years with an office in the Philippines, Mr. Poyen Policarpio of San Miguel Flour Mills accepted this recognition from USW and U.S. wheat farmers.

Subscribe to USW Reports. USW publishes a variety of 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 page at https://www.facebook.com/uswheat for the latest updates, photos and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter at https://www.twitter.com/uswheatassoc and video stories at https://www.youtube.com/uswheatassociates.

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ATP Funding Supports Technical Service and Staff Training in South Asian Markets

The Agricultural Trade Promotion (ATP), administered by USDA’s Foreign Agricultural Service, is intended to help U.S. agricultural exporters develop new markets and help mitigate the adverse effects of other countries’ tariff and non-tariff barriers. One of the ways U.S. Wheat Associates (USW) is applying ATP funds is to expand its ability to conduct technical support to wheat buyers and end users in rapidly growing South Asian markets.

USW has had a long-term effort to help customers improve their products and processes through technical support because inexperience in developing market milling and food production sectors can be a constraint to demand for U.S. wheat. In the highly sophisticated wheat food industries in Japan, Korea and other countries, USW’s long-term investment has benefited customers and consumers while establishing strong and consistent export markets for U.S. wheat producers.

USW Baking Consultant Adrian Redondo

In such markets as the Philippines, Vietnam, Indonesia, Malaysia, Myanmar and Thailand, the imported wheat customer base is expanding, and USW saw a need to increase its technical capabilities to match the growth. At the same time, USW knew that would require additional technical staff and needed to prepare for natural transitions for some senior technical experts.

The addition of ATP funding gave USW the opportunity to add a new Bakery Technician position to work with customers across the South Asian region. Mr. Adrian Redondo, an experienced food technologist and account manager, joined USW in June 2019. He is training with his experienced colleagues and building customer contacts through 2021 when the senior USW bakery consultant based in the Philippines plans to retire. Without additional ATP funding, USW would have had to fund a new technician position from a more limited pool of resources that would, in effect, cut its ability to fund customer activities.

South Asian imports of U.S. hard red spring (HRS), soft white (SW) and hard red winter (HRW) wheat from family farms in the Pacific Northwest to the Northern Plains have grown from an average of about 3.0 million metric tons (MMT) per year 10 years ago to about 5.0 MMT in 2018/19. Future demand for wheat foods is expected to keep growing in the region.

ATP funding provides a wide range of additional opportunities to continue differentiating U.S. wheat in markets like those in South Asia, with no local wheat production and where increasing incomes and urbanization are driving a rapid expansion of wheat food demand.

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Income Potential and Weather Fight Against Winter Wheat Seeding for 2020

By Claire Hutchins, USW Market Analyst

With winter wheat prices remaining at or less than the cost of production and with a very wet planting season, it is no surprise that many U.S. farmers chose to plant slightly less winter wheat for harvest in 2020. USDA’s 2020/21 Winter Wheat Seedings report, released Jan. 10, reported U.S. farmers planted 30.8 million acres (12.5 million hectares) of winter wheat, down slightly from 2019/20 and 7% less than the 5-year average of 33.2 million acres (13.4 million hectares). Decreases for HRW and white winter wheat more than offset an increase in SRW planted area. USDA noted that this is the second smallest number of winter wheat acres on record.

Hard red winter (HRW). USDA assessed HRW planted area at 21.8 million acres (9.35 million hectares), down 1% from 2018. Planted acreage is down year-over-year in several major HRW-producing states with the largest decreases reported in Colorado, Montana and Nebraska. Colorado planted area fell 12% year-over-year to 1.90 million acres due to extreme dryness in the southeast, depressed commodity prices and pest pressure in the northeast. Record low planted area of 900,000 acres (364,000 hectares) in Nebraska can be attributed to weaker marketing conditions and an overly wet, late soybean harvest which prevented fall HRW planting.

“This didn’t just happen overnight,” says Royce Schaneman, executive director of the Nebraska Wheat Board. “State-wide plantings have been trending down for a number of years due to poor marketing conditions.”

HRW planted area in Kansas and Oklahoma is stable year-over-year at 6.90 million acres (2.79 million hectares) and 4.20 million acres (1.7 million hectares), respectively.

Total winter wheat planted area in Texas jumped 9% year-over-year to 4.90 million acres (1.94 million hectares). About 95% of Texas winter wheat is HRW and 5% is SRW.

“Adequate soil moisture in many regions, combined with favorable marketing conditions compared to cotton, allowed producers to maximize HRW acres,” says Darby Campsey, director of communications and producer relations for the Texas Wheat Producers Board.

In South Dakota, North Dakota, Montana and Wyoming, a very wet fall also prevented more HRW seeding, although these states usually plant a relatively small percentage of total U.S. HRW.

Soft red winter (SRW). Total SRW planted area of 5.64 million acres (2.28 million hectares) increased 8% from 2018. Increases in most SRW-producing states more than offset decreases in Delaware, Illinois Indiana, Michigan, Missouri and Wisconsin.

According to Tadd Nicholson, executive director of the Ohio Corn and Wheat Growers Association, the state’s SRW planted area increased 12% over last year to 560,000 acres (227,000 hectares) due to ideal, timely planting conditions following a miserably wet spring which left many corn and soybean acres unplanted.

In Illinois, SRW planted area fell 25% from last year to 490,000 acres (198,000 hectares).

“It was one of the craziest years for weather in Illinois,” says Mike Doherty, interim executive director of the Illinois Wheat Association “It was the third wettest year on record and most of the precipitation fell in the first eight months. Farmers were beside themselves trying to manage other crops through the wet weather. Across the state, corn and soybeans were harvested 30 to 60 days late. You just can’t plant winter wheat if you can’t get the other crops out of the ground.”

There is also SRW grown in areas of Texas and Campsey reports that “strong marketing opportunities and better, dryer planting conditions for SRW compared to last year’s overly wet field conditions led to a significant increase in SRW acreage year-over-year.”

White winter wheat. White winter wheat planted area fell to an estimated 3.37 million acres (1.36 million hectares), down 4% from 2018. White winter wheat planted area in Idaho, Oregon and Washington fell below last year. Idaho farmers reported planting 720,000 acres (291,000 hectares) compared to 730,000 acres (295,000 hectares) in 2018. Planted area in Oregon fell 5% from last year to 700,000 acres (283,000 hectares). Washington planted area fell slightly less than 2018 to 1.70 million acres (688,000 hectares).

Durum. Winter durum planting in the southwestern United States is estimated at 70,000 acres (28,300 hectares), up 9% from 2018 but 41% less than 2017. Arizona and California plant Desert Durum® from December through January for harvest May through July.

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Cereal Chemistry Training in Emerging Wheat Markets Features SRC Analysis

U.S. Wheat Associates (USW) is applying Agricultural Trade Promotion (ATP) program funding to hold “Cereal Chemistry Seminars” in 2020 for the milling industries across several countries that are growing in sophistication to meet expanding demand for wheat foods. USW believes that 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 with which to evaluate the high-quality characteristics of U.S. wheat compared to competing supplies.

To provide the knowledge that will help these managers fully understand the end-use value of U.S. wheat supplies, USW has developed a comprehensive seminar that will be conducted over the next two years in several markets. One of the topics to be covered in the seminars is Solvent Retention Capacity (SRC) analysis of flour (photo above Copyright © Chopin Technologies).

USW believes that the evidence is strong supporting SRC as the most effective method for evaluating the true performance characteristics in flour for biscuits (cookies), crackers and cakes, as well as many hard wheat flour applications, is testing for. The SRC Method was created by scientists to identity the important components of wheat flour that affect end-product cost and productivity for cookie and cracker manufacturing. SRC testing reveals that U.S. wheat has strong “character.” In other words, it functions effectively and produces desirable end-products without heavy additive manipulation.

In a brief video, Bongil (Bon) Lee, operations manager with the Wheat Marketing Center in Portland, Ore., describes the basic functions of SRC flour analysis. Click here to view the video.

USW anticipates that after the seminars, participants will have enhanced skills, like being able to use SRC analysis, to assist co-workers, suppliers and customers in developing new formulations requiring more specific flours and increased volumes of U.S. wheat classes. Participants will gain expertise in flour analysis and the importance of specifications required in large production bakeries. And quality control staff will have enough technical capabilities to defend the functional value of high-quality flour from U.S. wheat.

By funding opportunities like Cereal Chemistry Seminars, ATP, an export market development program administered by USDA’s Foreign Agricultural Service, is helping USW continue to give flour milling and baking managers the information they need to meet demanding consumer needs in their local markets while building a preference for U.S. wheat supplies.

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Wheat Industry News

Recent news and highlights from around the wheat industry.

Speaking of Wheat: “Over the last five years or so, U.S. wheat producers have shouldered many challenges and continued to produce the highest quality, most wholesome milling wheat in the world, as they have done for decades. We do not yet know if positive shifts in market and trade factors will provide the economic boost they need. But in that hope, our team at USW will be watching how they affect the markets – and how that will affect our overseas customers.” – Vince Peterson, President, U.S. Wheat Associates.

From Wheat Fields to Trade Deals. On Dec. 26, 2019, Ohio Farmer magazine profiled USW Chairman Doug Goyings. Here is the opening of the story: When something needs doing, Doug Goyings isn’t the type to pass a job off to someone else. When he needed fields drained, he figured out how to mount a trencher on a tractor and started installing drain tile. When his house needed to be rewired, he rewired it. When a windstorm wrecked his grain legs and bins, he and his family rebuilt them. And, when wheat buyers around the world need a little encouragement to buy U.S. wheat, Goyings gets on an airplane, flies off to meet with potential buyers and tells them about his farm, his family and the superior quality of U.S. wheat. “They all like to know it comes from a family farm,” he says. “Around the world, it’s that way.” Read the entire article here.

Congratulations to Cassidy Marn. The Montana Department of Agriculture has selected Cassidy Marn as the new bureau chief for the Montana Wheat and Barley Committee (MWBC), which is a long-standing state wheat commission member of USW. Cassidy has served as MWBC’s Trade and Marketing Manager since 2010 and has developed many important relationships with USW staff and overseas wheat buyers.

USW Welcomes New CEO at Oregon Wheat Commission. The Oregon Wheat Commission (OWC) and Oregon Wheat Growers League (OWGL) have selected Amanda Hoey as chief executive officer of both organizations. She replaces Blake Rowe who plans to retire soon. OWC is a long-standing state wheat commission member of USW. Amanda comes to the new position after serving as executive director of the Mid-Columbia Economic Development District. She grew up on a dryland wheat farm in Wasco County, Ore.

Who’s Who in Private Wheat Breeding. Successful Farming magazine recently posted an article on its agriculture.com website that profiles the technology companies that are breeding wheat seed for commercial sales in the United States. Much of the certified wheat seed in this country are “public varieties,” financed by farmers through checkoff funds administered by state wheat commissions and bred at land grant universities. The Successful Farming article asserts that private companies, for the most part, still believe that wheat is a viable cropping option for U.S. farmers. Read the entire article here.

NCI Pasta Production and Technology Course. This course at the Northern Crops Institute April 28 to 30, 2020, introduces participants to the fundamental and applied aspects of pasta production and quality through lectures, demonstrations and hands-on processing. Grain and ingredient quality, specifications and processing variables and their impact on final pasta product quality are presented in detail. The course focuses primarily on traditional dry durum-based pasta; however, non-traditional ingredients and fresh pasta are also covered through lectures and demonstrations. Read more and register for the course here.

IGP Grain Procurement and Purchasing Course. Two sections of the IGP-KSU grain procurement and purchasing course will be offered to enhance grain industry professionals’ ability to purchase U.S. grains and commodities with greater effectiveness. The basic course will be held April 20 to 24, 2020, and the advanced course will be offered April 28 to May 2. Participants have the option of attending a supply chain field trip April 24 to 27 and may take both sections of the course concurrently. Read more and register for the courses here.

Subscribe to USW Reports. USW publishes a variety of 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 page at https://www.facebook.com/uswheat for the latest updates, photos and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter at https://www.twitter.com/uswheatassoc and video stories at https://www.youtube.com/uswheatassociates.

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Promoting U.S. Wheat Around the World

As U.S. Wheat Associates (USW) President Vince Peterson often says, at any given hour of the day there is someone, somewhere, talking about the quality, reliability and value of U.S. wheat. Wheat Letter wants to share some of the ways USW was working the past few months to promote all six classes of U.S. wheat in an ever more complex world wheat market.

China

The value of flour made from U.S. wheat shines in quality intensive applications that demand stability and performance. Frozen dough is just such an application. Wheat flour that may pass muster in traditional baked foods can fail when the rigors of freezing, storage, thawing and baking are involved. Moreover, in many Asian markets such as Taiwan and China, the penetration of frozen dough products is still in its early stages, so there is a great interest in discovering solutions to common problems in the production process.

To better understand the current frozen dough market in China and to meet the industry’s demands for frozen dough knowledge, USW/Beijing and USW/Taipei in 2019 invited veteran food production expert Dr. Kirk O’ Donnell of Bakers Growth, LLC, to provide technical services to selected frozen dough manufactures in Mainland China and Taiwan, and to conduct a seminar on freezing technology at the China Grain Products Research and Development Institute (CGPRDI) in Taipei. In addition to providing valuable technical support, USW was able to gain a greater understanding of this growing industry segment.

Dr. Kirk O’Donnell conducts a USW-sponsored frozen dough technology seminar at the CGPRDI.

Mexico

USW/Mexico colleagues and USW farmer directors were invited to the dedication of a newly constructed shuttle train facility located in Villagran, Guanajuato, Mexico. USW was proud to be among more than 300 industry leaders including Mexican wheat buyers, executives from Mexico’s Ferromex railroad, U.S. rail executives and a large contingent from the Mexican grain trade. An average of about 50 percent of roughly 3.0 million metric tons (MMT) of recent annual U.S. wheat exports to Mexico move there by rail. Even before its dedication in September, the new facility had already received nine shuttle trains of U.S. wheat including seven trains of hard red winter (HRW) and two trains of soft red winter (SRW) carrying a total of about 100,000 metric tons.

Ribbon-cutting at the dedication of the new grain shuttle train unloading facility in Mexico.

European Union

USW/Rotterdam Regional Marketing Manager Rutger Koekoek accompanied five European participants to the Northern Crop Institute (NCI) Grain Procurement Management for Importers short course. The focus was on risk management and procurement strategies for U.S. wheat importers. The participants were able to meet representatives of leading grain trading companies and, for the first time ever, were able to board a vessel being loaded with northern durum wheat at the CHS export elevator in the Port of Duluth-Superior (see photo above). Koekoek also organized meetings with NDSU’s Durum Wheat Breeder to discuss the new durum wheat varieties that have recently been released.

Algeria

USW/Casablanca Milling and Baking Technologist Tarik Gahi traveled to Blida, Algeria, to meet with millers and biscuit and cake manufacturers who processed U.S. SRW wheat under a USW Quality Samples Program (QSP) funded by USDA’s Foreign Agricultural Service. The sample was milled in July and the flour was distributed to the processors. Gahi reported back that all the companies were impressed by the SRW flour quality, above all with the low water absorption and the fact that the flour performed very well without adding any chemical enzyme additives. He said the customers noted that more gluten strength would be needed for Maria-type biscuits, which, Gahi explained, can easily be managed by blending with higher protein flour such as from U.S. HRW.

U.S. SRW wheat flour milled from a sample supplied by USW, are a key ingredient in biscuits (above), otherwise known as cookies in the United States.

Brazil

USW President Vince Peterson, USW Chairman Doug Goyings, USW/Santiago Regional Director Miguel Galdos, USW/Santiago Assistant Regional Director Osvaldo Seco and USW/Santiago Technical Specialist Andres Saturno participated in the 26th ABITRIGO Congress, sponsored by the Brazilian Wheat Industry Association, near Sao Paulo, Brazil. Although USW always represents U.S. wheat farmers at this event, this delegation was particularly important given the news that Brazil’s government had agreed to fully open its tariff rate quota (TRQ) for 750,000 MT of wheat imported from outside the Mercosur trade agreement. In a few past years when Brazil opened the TRQ because of limited Mercosur supplies, U.S. wheat represented most of the import volume. At the meeting, the industry was informed that the TRQ would be opened late in 2019, rather than the expected timing of later in 2020.

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Mid-Year Report: U.S. Wheat Export Pace Ahead of Last Year

By Claire Hutchins, USW Market Analyst

With six months gone in marketing year 2019/20, USDA currently believes total U.S. wheat exports will reach 26.5 million metric tons (MMT), which, if realized, would be 4 percent more than 2018/19 and 7 percent more than the 5-year average. U.S. Wheat Associates (USW) believes the high quality and competitive pricing for select U.S. wheat classes and other factors definitely support USDA’s estimate.

As of Dec. 26, 2019, total commercial sales of 18.5 MMT already make up 71% of USDA’s latest export forecast. Commercial sales to 11 of the top 20 markets for U.S. wheat are ahead of last year’s pace and total export sales to all destinations are 6 percent ahead of sales on the same date in 2018/19.

Commercial Sales - U.S. wheat sales to Top 10 Customers - JAN20

Hard Red Winter (HRW)

USDA expects the United States to export 10.6 MMT of HRW in 2019/20, 18 percent more than 2018/19, if realized. Year-to-date HRW sales total 6.91 MMT, 24 percent ahead of last year’s pace and 65 percent of USDA’s total estimate. Exports to three of the top five HRW export markets are significantly ahead of last year’s pace. Sales to Mexico, the largest market for HRW, are 30 percent ahead of last year at 1.80 MMT. Exports to Nigeria are 19 percent ahead of last year at 580,000 metric tons (MT) and sales to Taiwan are 41 percent ahead of last year’s pace at 333,000 MT. USW believes HRW sales could continue to grow through the second half of 2019/20 assuming U.S. HRW prices remain competitive at the global level. According to AgriCensus data, on Dec. 30, 2019, U.S. HRW 11.0 percent (on a 12 percent moisture basis) prices off the Gulf was $222 per MT FOB and comparable Russian 12.5 percent protein wheat (on a dry moisture basis) was $3 per MT less at $219 per MT FOB.

Hard Red Spring (HRS)

USDA forecasts 2019/20 HRS exports will reach 7.10 MMT, in line with last year despite the significant effects of an overly wet harvest. USDA even increased its total HRS export estimate 2 percent between October and November 2019 from 6.94 MMT to 7.10 MMT. Year-to-date total HRS sales of 5.3 MMT are down 4 percent from 2018/19 and fall 7 percent less than the 5-year average. USW believes slower export sales could be attributed to HRS FOB prices between September and December 2019 that were higher than last year at the same time.1 Between late September and late December 2018, the average nearby FOB price for HRS off the Pacific Northwest (PNW) was $259 per MT. Between late September and late December 2019, the average nearby FOB price for HRS out of the PNW was $271 per MT, 5 percent more than the same period last year. Yet year-to-date exports to the top two importers of HRS are only slightly behind last year’s pace. Exports to Japan and Korea, top 5 importers of HRS, are both ahead of last year’s pace at 514,000 MT and 362,000 MT, respectively.

1Source: USW Price Report.

Commercial Sales - U.S. Wheat Sales by Class - JAN20

Soft Red Winter (SRW)

Export sales of 2.10 MMT for SRW through Dec. 26, 2019, are 6 percent less than 2018/19. This difference relates mainly to increased SRW export prices due to a significant decline in exportable supplies. USDA predicts 2019/20 SRW ending stocks will fall to 3.02 MMT, 30 percent less than 2018/19, if realized. USDA forecasts total SRW exports will fall 22 percent year-over-year to 2.72 MMT. Year-to-date commercial sales of SRW to all destinations make up 77 percent of USDA’s total SRW export estimate. Despite lower production and higher prices, SRW sales to five of the top ten export markets are ahead of last year’s pace. Exports to Mexico, the top destination for SRW, total 641,000 MT, up 2 percent from last year. Sales to Colombia and Nigeria, both top 5 export markets for SRW, are up 38 percent and 20 percent from last year, respectively. Imports by Brazil are also running at a faster pace so far this marketing year.

White Wheat (Soft and Hard2)

USDA predicts “white wheat” exports (which includes 99.7 percent soft white) will fall 3 percent in 2019/20 to 5.20 MMT. As of Dec. 26, 2019, export sales of white wheat at 3.77 MMT are 8 percent behind last year’s pace and make up 73 percent of USDA’s final export estimate. The sales pace on the same date for four of the five top white wheat export markets is less than last year. According to industry experts, routine demand from these top markets is lagging in part because some importers believed FOB prices were too high throughout the first half of 2019/20. Some price sensitive buyers in Southeast Asia were focused on relatively low-cost Black Sea supplies. However, export sales to the Philippines, the top market for white wheat, are 9 percent ahead of last year’s pace at 1.0 MMT. USW believes routine demand from top buyers may pick up again in the second half of 2019/20 as Black Sea exportable supplies dwindle before harvest and U.S. white wheat prices grow more competitive with the shortage of Australian white classes.

2USDA sales reports combine SW and hard white (HW) export sales.

Durum

Year-to-date U.S. durum exports total 790,000 MT, which is significantly ahead of the same time last year. Despite significantly lower production, between October and November 2019 USDA increased its 2019/20 U.S. durum export forecast by 40 percent from 680,000 MT to 950,000 MT. Italy and other European Union (EU) countries are significant U.S. durum importers. Demand appears to be up in 2019/20 because EU durum production was 12 percent less than last year. As of Dec. 26, 2019, U.S. durum exports to Italy are more than double last year’s pace at 462,000 MT.

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Will Shifting Market Factors Hibernate the Bear Market in Wheat?

By USW President Vince Peterson

Recently, I have heard several of the farmers that U.S. Wheat Associates (USW) represents say they are hoping for a much better year in 2020. No wonder, given the low farmgate prices, trade uncertainty and difficult harvest conditions last year. A better year would be good for our farmers and for our overseas customers, too, who want farmers to have the incentive to continue producing a reliable supply of high-quality U.S. wheat.

From the perspective of global supply, demand and trade factors, we do see mostly positive influences hovering just out in front of us as we start the new year. After a long-term bear market that pulled Chicago wheat futures down from $9.50 in 2012 to a bottom of nearly $3.50, recent firmness in prices represents possible change and momentum on the horizon.

To highlight the primary market factors, we can start with a look at the Southern Hemisphere. Australia remains in the grips of drought that has reduced this year’s harvest outlook by 35 percent below their 10-year average. Australian wheat export prices are currently among the world’s highest at around $265 per metric ton (MT) FOB. In Argentina, the newly elected government has increased export taxes again for wheat from 7 percent to 12 percent (soybean export taxes were raised by 30 percent!). The bump in wheat export taxes raises FOB prices by more than $10 per MT, allegedly to protect domestic producer prices. That is not good for their importing customers, particularly for Brazil. However, after more than a dozen years of negotiations, Brazil on January 1 opened its 750,000 MT duty free tariff rate quota (TRQ), potentially advancing wheat import demand from outside Mercosur. When Mercosur wheat supplies have been tight, U.S. farmers have supplied an average of 80 percent of Brazil’s non-Mercosur needs.

In the Northern Hemisphere, Russian wheat export expectations have been reduced based on lower domestic supplies and prices for their standard 12.5 percent protein wheat (calculated on a dry matter basis and is most closely comparable to U.S. HRW 11 protein calculated on a 12 percent moisture basis). Russian FOB export prices are now around $219 per MT, with U.S. hard red winter (HRW) 11 percent at approximately $222 FOB from the Gulf. Long gone are the $40 to $50 per MT FOB discount spreads that have disrupted what would be normal logistical trade patterns in some recent years.

In its December “Wheat Outlook” report, USDA noted that cuts in wheat production in Argentina, Australia and Canada create potential opportunities for U.S. wheat exports in marketing year 2019/20.

In trade, despite the uncertain slog of negotiations, the United States has completed trade deals with Mexico through the finalization of the U.S.-Mexico-Canada Agreement (the new NAFTA) and through an initial bilateral agreement on agriculture with Japan. U.S. wheat export shipments to Mexico in marketing year 2019/20 already stand at 2.74 million metric tons (MMT) versus sales at the same date last year of 2.18 MMT. Together, Mexico and Japan account for more than 4.0 MMT and 25 percent of all U.S. wheat export sales to date.

Finally, trade negotiations with China, which have been perhaps the biggest weight on U.S. wheat market fundamentals and psychology, appear to be at a more hopeful position. This week, President Trump announced that the U.S. and China will sign a so-called Phase One deal on January 15. Based on information provided by the Office of the U.S. Trade Representative, China has agreed under the Phase One agreement to cancel retaliatory tariffs and import significantly more U.S. agricultural products, including wheat. Running parallel to this potential demand, China has also agreed to start filling its annual 9.6 MMT reduced tariff TRQ for imported wheat. In the five years before the start of the U.S.-China trade “war” in 2018, U.S. wheat exports to China averaged 1.5 MMT per year. That provides a logical basis for a more robust world and U.S. wheat trade with China.

Over the last five years or so, U.S. wheat producers have shouldered many challenges and continued to produce the highest quality, most wholesome milling wheat in the world, as they have done for decades. We do not yet know if these positive shifts in market and trade factors will provide the economic boost they need. But in that hope, our team at USW will be watching how they affect the markets – and how that will affect our overseas customers.

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USW Office and Publications Schedule for the Holidays

 

During this season, all of us at U.S. Wheat Associates (USW) take time to reflect upon the good things we have … like our partnership with our friends at home and abroad. We appreciate working with you and hope that the holidays and the coming year will bring you happiness and success.

USW Headquarters and West Coast Offices will be closed on Dec. 24 and 25 and on Dec. 31 and Jan. 1. USW Price Report will not be published on Dec. 27. USW Commercial Sales will not be published the week of Dec. 23.

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Think Farm Export Programs Don’t Matter? Think Again.

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