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A Risky Proposition

By Steve Mercer, USW Vice President of Communications

Two recent market articles by Reuters have caught our attention here at U.S. Wheat Associates (USW).

At first glance, the Aug. 20  story “Russian Traders May Speed Up Grain Exports Amid Risks of Curbs,” and the Aug. 22 story “Global Wheat Supply to Crisis Levels; Big China Stocks Won’t Provide Relief” may not seem related. Together, however, they are another caution sign for the world’s wheat buyers.

We understand why the Russian traders would want to “speed up” exports if they could: they are afraid of export restrictions. There is plenty of proof that the Russian government is willing to curb overseas sales. Restrictions in 2007/08 helped tip the markets into a supply shock with unprecedented price increases. A complete Russian export ban in 2010 pushed prices higher and showed complete disregard for the sanctity of sales contracts. Two years later when drought again hurt the Russian crop and the government threatened an export ban, global wheat prices moved up. Then when the government imposed an export tax in 2014, the market reacted as expected.

What is quite striking to us, however, is the fact that the possibility of export restrictions has come up again in a year in which Russia has produced its third largest wheat crop.

As an unnamed industry source in the Reuters article said: “When it comes to choosing between meeting food security or curbing exports, they will be choosing (limits on) exports again and again.”

Yes, a Russian government official said, “the introduction of grain export duty is not planned so far.” But we all saw futures prices bounce up quickly when just the subject of Russian restrictions came up last week. We should not forget that prices jumped “limit up” just on an apparently false rumor that Ukraine’s government might restrict wheat exports.

Which brings up the second Reuters article that started this way:

“A scorching hot, dry summer has ended five years of plenty in many wheat producing countries and drawn down the reserves of major exporters to their lowest level since 2007/08, when low grain stocks contributed to food riots across Africa and Asia.”

A bit of hyperbole there, perhaps, and the article suggests that there are factors that could mitigate a similar supply shock. Yet, the article noted: “Experts predict that by the end of the season, the eight major exporters will be left with 20 percent of world stocks – just 26 days of cover – down from one-third a decade ago.”

“The world just continues to grow,” said USW President Vince Peterson. “If we check on it, we see that world wheat consumption has grown 100 million metric tons in just the last 10 years. And we’re now at a place that even a very good crop in Russia causes concern.”

There is an old saying that keeping all your eggs in one basket is a risky proposition. Instead, the world’s wheat buyers might consider keeping a more diversified stable of suppliers — ahead of what could be, if not yet “crisis level,” at least a steady rise in global wheat prices.

Fortunately, the U.S. government long ago learned from experience that disrupting export grain trade only brings logistical problems and potential economic catastrophe for every segment of the market, including farmers. By law the only way to block U.S. grain exports is through a presidential declaration of national emergency. Importantly, a national emergency does NOT include short-term, fundamental rises in wheat prices. Further, export taxes are expressly forbidden by the U.S. Constitution.

The U.S. wheat industry offers reassurance in the fact that our doors are open for business 365 days per year. In our collective efforts to offer and efficiently supply the widest range of the highest quality wheat in the world, we live up to our claim as the world’s most reliable supplier.

The Russian government’s past actions prove that even a hint of rising domestic food costs can spark intervention in the free flow of its wheat to an increasingly hungry world.

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Can U.S. Wheat Exports Reach USDA’s 27.9 MMT Estimate?

By Stephanie Bryant-Erdmann, USW Market Analyst

On Aug. 10, USDA increased its U.S. wheat export forecast to 27.9 million metric tons (MMT), up 14 percent from 2017/18, if realized. With 2018/19 global wheat production falling to 730 MMT, down 4 percent year over year, and supply in exporting countries shrinking to the lowest level in four years, USDA seems to anticipate global demand turning to U.S. wheat supply. That raises two questions:

  • Is there that much demand for U.S. wheat out there?
  • Can the U.S. grain transportation system handle the increase in wheat exports?

Is there that much demand for U.S. wheat out there?

Based on USDA estimates, global wheat trade will need to increase to a new record high of 184 MMT in 2018/19 to meet global wheat consumption. With Russia and the European Union (EU) wheat exports expected to decline by a combined 7.5 MMT in 2018/19, and the extreme drought in Australia threatening its exportable supply, it is logical that U.S. wheat supplies will fill a crucial role in global wheat consumption.

Still, the United States will need to record an additional 19.6 MMT of export sales in the remaining 42 weeks of the 2018/19 marketing year, which began on June 1, or an increase in weekly sales from an average of 409,300 MT to 466,000 MT. Put another way, the United States needs to sell about two more vessels of wheat per week to reach the USDA estimate.

However, nearly two-thirds of that increase could come from just the top 20 U.S. customers, excluding China, based on historic buying patterns. For example, the top five U.S. wheat customers — Japan, Mexico, the Philippines, Nigeria and Korea — imported an average of 11.4 MMT of U.S. wheat exports the past five years. U.S. export sales to many top customers are behind last year’s pace, traders report continued interest in U.S. wheat and note that many customers are engaging in “just-in-time” buying patterns that result in large, last minute shipments that are challenging logistically. And that leads to the question:

Can the U.S. grain transportation system handle the increase in wheat exports?

The short answer is, “it depends.” The slightly longer answer is, “it depends on weather and trade policies.” Both of which are relative unknowns at this point. One thing is certain. Winter is coming and will bring, as it always does to some extent, cold weather and snow across the U.S. Northern Plains and Pacific Northwest (PNW) and ice and fog on the Mississippi River system, along with associated commodity movement delays.

During the winter months of December, January and February, U.S. Gulf all grain exports — including corn, sorghum, soybeans and wheat — average 6.67 MMT per month, down 24 percent from the peak month of October when 8.81 MMT of grain typically moves through the ports. For comparison, PNW all grain winter month exports average 3.13 MMT per month. This is an average 19 percent below the PNW peak export month of October when all grain PNW exports average 3.86 MMT.

Trade policies will determine how much competition U.S. wheat exports face for freight and export elevation. U.S. Gulf grain exports center around four main commodities — corn, sorghum, soybeans and wheat, while U.S. PNW grain exports typically include barley, canola, corn, flaxseed, sorghum, soybeans and wheat. In the Gulf, soybeans account for roughly two-thirds of total grain shipments during the peak fall months of October and November. In the PNW, it is closer to 75 percent.

USDA’s August estimate is based on the current, enacted trade policies. As such, USDA expects U.S. feed grain and soybean exports to decrease by a combined 3.53 MMT year over year due primarily to decreased demand from China. In theory, reduced U.S. feed grains and soybean exports should increase freight and export elevation availability for wheat. However, through Aug. 16, there are already 8.86 MMT of U.S. corn export sales booked for the 2018/19 marketing year (beginning Sept. 1).  That is up 54 percent from last year and 12 percent above the 5-year average. U.S. soybean export sales for the new marketing year (beginning Sept. 1) are also up 45 percent year over year at 11.5 MMT. That increased drain on export capacity and the tightening global feed grain supply situation, as discussed in Ahead of USDA Report, Wheat Futures on a Powder Keg, indicate there may be upside potential for USDA’s estimates even with the existing uncertainty around U.S. trade policies. Customers should carefully watch the corn, soybean and feed grain supply and demand situation as it will impact freight and export elevation demand. While the expectation is that U.S. soybean and corn exports will be down, right now the data suggests otherwise.

With increased global demand for U.S. wheat likely and an uncertain outlook for U.S. transportation logistics, customers should take a serious look at the benefits of securing U.S. wheat supplies now. As always, the U.S. wheat store is open and ready to supply high-quality wheat — there just may be longer lines at checkout this year.

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In Spite of Trade Conflicts, U.S. Wheat Farmers Will Not Abandon Customers in China

By Vince Peterson, USW President

Chinese Vice Minister of Agriculture Han Jun recently acknowledged the decades of work that U.S. farmers have put into growing the Chinese market for U.S agriculture. He then warned that this market may never come back to where it was if the trade dispute with the United States continues much longer.

We can guarantee the Vice Minister, and the wheat food industry in China, that U.S. Wheat Associates (USW) and the farmers we represent will not turn our backs on our outstanding customers in China. We remain dedicated to our core mission in China, as we are everywhere in the world, to bring profitability and value to our customers even if that is temporarily more difficult today.

Presumably, Chinese leaders believe that U.S. farmers can persuade the Trump Administration to end this trade war with China. However, U.S. farmers have been clear with their own government that China’s predictable response to the conflict has harmed them and we have supported negotiations to resolve this conflict. While we agree that escalating rounds of tariffs are a bad idea, we also believe that many of the U.S. government complaints about China’s policies are valid.

In our experience, state disruption of the wheat trade has been an enormous problem, severely limiting opportunities and profitability for both U.S. farmers and our wheat food industry customers in China. Through opaque administration of its wheat tariff rate quota (TRQ), China has deprived its flour mills of an average of 6.5 MMT of imported wheat annually over the past decade. In fact, recent import volumes are still well below what China imported in the 1980s and early 1990s; that is, before it joined the World Trade Organization (WTO). One could be forgiven for thinking China was a more promising market before joining the WTO than after; almost entirely because of excessive subsidies to the domestic wheat crop in recent years, as well as tight limits on TRQ access. This is why the U.S. government, under the Obama Administration, initiated two WTO cases on these issues in the fall of 2016. The prosecution of those cases have been continued and pressed forward by the Trump Administration. We are highly supportive of this action.

The Chinese government should recognize that its many years of flouting international commitments and highly interventionist “state capitalism” have led directly to the present conflict. If China had lived up to the commitments made when it joined the WTO, it is highly doubtful that we would still find ourselves in this situation. If Chinese leaders want to avoid further conflict and bolster the international trading system that they claim to defend, China can first start behaving like a responsible economy and adhere to its trade commitments in both letter and spirit. Of course, we are urging the same from the United States, which must also approach China with clear demands and a path towards achieving them.

Nevertheless, we are confident that this trade confrontation will one day be resolved. In the meantime, we will continue to reach out to our customers and friends in China, to reassure them of our unfailing dedication to our work with them. Further, we will make the guarantee that, once this trade dispute is resolved and behind us, we will work harder than ever to continue earning their business as we chart a path, together, to build the commercial channels that hold so much promise for Chinese and American industries and people.

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The Wheat Code is Finally Cracked

By Haley Ahlers, Innovation Lab for Applied Wheat Genomics Project Manager. Reprinted with permission from Kansas Wheat. See the original article here.

Kansas State University scientists, in collaboration with the International Wheat Genome Sequencing Consortium (IWGSC), published in the international journal Science on August 16, 2018, a detailed description of the complete genome of bread wheat, the world’s most widely-cultivated crop. This work will pave the way for the production of wheat varieties better adapted to climate challenges, with higher yields, enhanced nutritional quality and improved sustainability.

The research article-authored by more than 200 scientists from 73 research institutions in 20 countries- presents the reference genome of the bread wheat variety Chinese Spring. The DNA sequence ordered along the 21 wheat chromosomes is the highest quality genome sequence produced to date for wheat. It is the result of 13 years of collaborative international research and the generous support of the National Science Foundation, Kansas farmers and many others.

“It is a dream come true for Kansas wheat farmers, who were the first to invest in the wheat genome sequencing project and pivotal in rallying U.S. wheat farmers in support of the wheat genome sequencing project,” said Dr. Bikram Gill, distinguished professor at Kansas State University who organized the first National Science Foundation and U.S. Department of Agriculture-sponsored workshop planning meeting on wheat genome sequencing in Washington, D.C., in 2003.

A key crop for food security, wheat is the staple food of more than a third of the global human population and accounts for almost 20 percent of the total calories consumed by humans worldwide, more than any other single food source. It also serves as an important source of vitamins and minerals.

Kansas farmers grow an average of 340 million bushels of wheat each year, but acres planted to wheat have dropped dramatically over the past decade, from 10 million acres to fewer than 8 million. To meet future demands of a projected world population of 9.6 billion by 2050, wheat productivity needs to increase by 1.6 percent each year. In order to preserve biodiversity, water and nutrient resources, the majority of this increase has to be achieved via crop and trait improvement on land currently cultivated, rather than committing new land to cultivation. In order for farmers to dedicate these precious resources to wheat production rather than production of other crops, wheat farming must become profitable.

With the reference genome sequence now completed, breeders have at their fingertips new tools to address global challenges. They will be able to more rapidly identify genes and regulatory elements underlying complex agronomic traits such as yield, grain quality, resistance to fungal diseases and tolerance to physical stress-and produce hardier wheat varieties.

“Completion of the sequence is a landmark event that will serve as a critical foundation for future wheat improvement,” said Dr. Allan Fritz, Kansas State University professor and wheat breeder. “It is the key to allowing efficient, real-time integration of relevant genetics, making the selection process more efficient-it’s a turbocharger for wheat breeding!”

It is expected that the availability of a high-quality reference genome sequence will boost wheat improvement over the next decades, with benefits similar to those observed with maize and rice after their reference sequences were produced.

“Kansas wheat farmers have been supporting the wheat genome sequencing efforts through the Kansas Wheat Commission’s wheat assessment since the establishment of the IWGSC in 2005, with a cumulative amount of nearly a quarter of a million dollars,” said Justin Gilpin, chief executive officer for Kansas Wheat. “The sequence of the bread wheat genome has already had a positive effect on wheat improvement, which not only affects the science behind wheat breeding, but has a long-lasting positive outcome in regard to wheat producer productivity, profitability and, ultimately, livelihoods.”

Sequencing the bread wheat genome was long considered an impossible task, due to its enormous size – five times larger than the human genome-and complexity-bread wheat has three sub-genomes and more than 85% of the genome is composed of repeated elements.

“It is exciting to be a part of this landmark achievement,” said Dr. Jesse Poland, associate professor at Kansas State University and director of the Wheat Genetics Resource Center and the USAID Innovation Lab for Applied Wheat Genomics. “This international effort, toward something that was once deemed impossible, will have tremendous impact on wheat in Kansas, and the world.”

The impact of the wheat reference sequence has already been significant in the scientific community, as exemplified by the publication on the same date of six additional publications describing and using the reference sequence resource, one appearing in the same issue of Science, one in Science Advances and four in Genome Biology. In addition, more than 100 publications crediting the reference sequence have been published since the resource was made available to the scientific community in January 2017.  “We are extensively using the new reference sequence for more informed molecular breeding” commented Poland.  “It is really having a big impact.”

In addition to the sequence of the 21 chromosomes, the Science article also presents the precise location of 107,891 genes and of more than 4 million molecular markers, as well as sequence information between the genes and markers containing the regulatory elements influencing the expression of genes.

The IWGSC achieved this result by combining the resources it generated over the last 13 years using classic physical mapping methods and the most recent DNA sequencing technologies; the sequence data were assembled and ordered along the 21 chromosomes using highly efficient algorithms, and genes were identified with dedicated software programs.

All IWGSC reference sequence resources are publicly available at the IWGSC data repository at URGI-INRA Versailles and at other international scientific databases such as GrainGenes and Ensembl Plants.

The Science article is entitled “Shifting the limits in wheat research and breeding using a fully annotated reference genome” and can be read here.

About the IWGSC

The IWGSC, with 2,400 members in 68 countries, is an international, collaborative consortium, established in 2005 by a group of wheat growers, plant scientists, and public and private breeders. The goal of the IWGSC is to make a high-quality genome sequence of bread wheat publicly available, in order to lay a foundation for basic research that will enable breeders to develop improved varieties. The IWGSC is a U.S. 501(c)(3) non-profit organization. www.wheatgenome.org

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Rain-Challenged 2018 SRW Crop Still Grades Above Average and Offers Performance Value

U.S. farmers growing soft red winter (SRW) wheat, especially in the East Coast states, experienced difficult growing conditions in 2018 with excessive moisture affecting test weight, falling number and DON values. Overall, however, several grade factors in the 2018 SRW crop are better than the 5-year averages, protein is somewhat above average, and DON is somewhat below average. Processors should find good qualities for crackers and segments of the crop with good cookie and cake qualities. With higher protein and good extensibility, the crop should also be valuable in blending for baking applications.

That is a summary of results from the U.S. Wheat Associates (USW) 2018 SRW Crop Quality Report, now posted online here. To complete the report, Great Plains Analytical Laboratory in Kansas City, Mo., collected and analyzed 265 samples from 18 reporting areas in the 11 states that account for most of U.S. SRW 2018 production. USW and the USDA Foreign Agricultural Service fund the annual survey.

Wheat and Grade Data

With analysis result weighted by estimated state production, the average grade of all samples collected for the 2018 SRW harvest survey is U.S. No. 3. The weighted average test weight is 57.9 lb/bu (76.2 kg/hl), slightly below the 59.1 lb/bu (77.1 kg/hl) 2017 average. The Gulf Port average of 58.2 lb/bu is similar to the 5-year average of 58.4 lb/bu (76.8 kg/hl). The East Coast test weight average of 56.6 lb/bu (74.5 kg/hl) is below both last year. All other grade factors, dockage and moisture are similar to or lower than 2017 average values. The Gulf Port Total Defects average of 0.8% is below the previous 5-year minimum, indicating that damaged and shrunken and broken kernels are unusually low in that portion of the crop.

The composite average wheat protein content of 9.9% (12% moisture basis) is higher than 2017’s 9.5% and the 5-year average of 9.7%. Both the Gulf Port protein average of 9.9% and East Coast average of 10.2% are above the 2017 and 5-year averages. The composite average falling number of 322 seconds is similar to 2017. The Gulf Port average of 327 seconds is slightly above last year, while the East Coast average of 301 seconds is slightly below last year. Fewer than 10% of samples had a falling number below 250 seconds in 2018. The composite DON average of 0.7 ppm is above the very low 2017 value of 0.2 ppm but is below the 5-year average of 1.3 ppm. The East Coast value of 1.1 ppm is similar to the 5-year average while the Gulf Port value of 0.7 ppm is below the 5-year average. Of the samples tested for DON, 75 percent of the Gulf Port results and 65 percent of the East Coast results were less than 1.0 ppm.

Flour and Baking Data

The composite, East Coast and Gulf Port Buhler laboratory mill flour extraction averages are below 2017 and the 5-year averages. The farinograph peak values are similar to 5-year averages, but the stability and absorption values are all below last year and the 5-year averages. The SRC values generally indicate acceptable quality for crackers; some Gulf Port areas also have acceptable SRC values for cookies. The composite and Gulf Port alveograph L averages of 97 and 98 are higher than last year and the respective 5-year average of 89 for both, indicating good extensibility.

All other alveograph averages are similar to the respective 5-year averages given the variability of alveograph analysis. The Gulf amylograph average of 614 BU indicates good quality for cakes. The composite and Gulf Port cookie spread ratios are all higher than last year and similar to the 5-year averages, again indicating good extensibility. Average loaf volumes are also all higher than last year and the 5-year averages.

USW will share complete data for all classes of U.S. wheat with hundreds of overseas customers at several upcoming events, including USW’s annual Crop Quality Seminars, and in its annual Crop Quality Report. Buyers are encouraged to review their quality specifications to ensure that their purchases meet their expectations.

View the 2018 Soft Red Winter Crop Quality Report here. 

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Shrinking Global Wheat Production Could Be Bullish for Farmers

By Stephanie Bryant-Erdmann, USW Market Analyst

USDA updated its monthly World Agricultural Supply and Demand Estimates (WASDE) on August 10 and expects the global wheat supply and demand situation to be more favorable for U.S. farmers this year due to shrinking global wheat production. USDA lowered its global wheat production estimate by 6.63 million metric tons (MMT) to 730 MMT, down 4 percent year over year and the lowest level since 2014/15, if realized.

Widespread drought across Germany and northern Europe is one reason why USDA dropped its production forecast. USDA expects European Union total wheat production to fall to 138 MMT, 9 percent below both the 5-year average and 2017/18 production. With smaller EU wheat production, USDA lowered marketing year 2018/19 (June 1 to May 31) EU wheat exports to 23.0 MMT. If realized, that would be 2 percent below the year prior, and 25 percent below the 5-year average.

At the same time, USDA also expects Russian wheat production to fall 20 percent year over year to 68.0 MMT due to unfavorable winter wheat planting and growing conditions. With Russian wheat supplies shrinking, the 2018/19 Russian wheat export forecast is down 7.00 MMT from 2017/18 to 35.0 MMT.

With lower exportable wheat supplies (production plus beginning stocks minus domestic consumption) in Russia and the EU, USDA expects the United States to have the largest exportable supply of wheat in the world in 2018/19 at 49.7 MMT.

Consequently, USDA expects 2018/19 U.S. wheat exports to reach 27.9 MMT, up 14 percent from 2017/18 and 7 percent above the 5-year average, if realized. Still, U.S. wheat export sales pace will need to increase to meet this goal, as year-to-date U.S. wheat export sales total just 7.53 MMT or 27 percent of USDA’s anticipated total.

The shrinking global wheat supply, increasing global wheat consumption and large U.S. wheat supply have all lead to U.S. wheat futures rallies over the past month. Since the last WASDE update on July 12, U.S. HRW futures are up 72 cents per bushel ($26 per MT), SRW futures grew 54 cents per bushel ($20 per MT) and HRS climbed 67 cents per bushel ($25 per MT).

Each month, U.S. Wheat Associates (USW) updates a graphic summary of USDA’s WASDE (World Agricultural Supply and Demand Estimates) report. View the August summary here.

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Wheat Industry News

Recent news and highlights from around the wheat industry.

Quote of the Week: “I want people to know that I’m producing a safe product. I think there is a lot of fear around where our food comes from. But hopefully coming straight to the source you can see that we take pride in what we do and we want to produce food that is safe to eat, because our family eats it, too.“ – Scott VanAllen, Kansas wheat farmer, speaking at his farm to food bloggers on a visit sponsored by Kansas Wheat and Red Star Yeast.

Congratulations. U.S. Wheat Associates (USW) Regional Program Coordinator Domenique Opperman, based in the Cape Town Office, recently welcomed a baby girl, Calia, who joins father Shaun and big brother Javier.

Best Wishes to Pamela Ann Leckie Wiese who is retiring after serving as an Administrative Assistant in the USW Cape Town office for more than 25 years. USW thanks Pam for her service to U.S. wheat farmers and their customers in Sub-Saharan Africa.

IGP Seeks Ag Economist. IGP International’s long time Senior Agricultural Economist Jay O’Neil retired in late June and IGP is currently seeking national or international candidates to replace him. Ideal candidates will serve as on-site expert on grain trading and risk management, and program manager for the Grain Procurement and Risk Management Curricula. Here is a link to more information about the position and to apply: https://careers.k-state.edu/cw/en-us/job/504320/senior-agricultural-economist.

Gene Editing Coalition. A multi-stakeholder steering committee of the Coalition for Responsible Gene Editing in Agriculture met recently to “develop a framework that can provide assurance to the food system and other stakeholders that those using gene editing … are doing so responsibly,” said Charlie Arnot, chief executive officer of The Center for Food Integrity (CFI), which facilitates the Coalition. “The framework will provide an opportunity for those engaged in gene editing to demonstrate their commitment to values that build trust.” For more information, visit https://geneediting.foodintegrity.org/.

Business World Notices Wheat Weather Market. An article in the “Wall Street Journal” Aug. 4 attributed rising wheat prices to heat-related short crops around the world. The article noted that “after years of over-supply, this year’s heat is hitting wheat yields in key growing areas like Russia, Ukraine, France and Britain, while also affecting the crop in Australia, China and other parts of Asia.” About price increases, AgResource analyst Ben Buckner said: “If everyone comes to the U.S. [wheat farmers] in November, it could be incredible, and that part hasn’t yet been fully digested.” Read more at: https://www.wsj.com/articles/global-heat-wave-toasts-wheat-and-prices-soar-1533391201.

New World-grain.com Website. The publication says the new world-grain.com will present users with a fresh layout to access content. With a new navigation system, topics are broken down into multiple categories allowing users to take a surface-level look at news or a deep dive into a topic. For users wanting to browse industry news, they can access the homepage where the newest stories are available. By clicking the “More News” icon, readers can find a feed of latest articles. Read more at https://bit.ly/2OUnfdE.

Grain Procurement Management for Importers. The Northern Crops Institute will host this eight-day course, Sep. 10 to 19, 2018, at its facilities in Fargo, N.D. The course will focus on the mechanics of grain merchandising and providing training for individuals responsible for purchasing grain. The registration deadline is Aug. 15, 2018. Learn more about the course here.

IAOM-KSU Basic and Advanced Milling Principles. The IGP Institute will host two short courses focused on milling principles in October at its conference center in Manhattan, Kan. The Basic Milling Principles short course, scheduled Oct. 8 to 12, 2018, will help participants develop a conceptual understanding of the milling process with a focus on mill balance, understanding critical control points in the milling system, and milling different wheat classes. The Advanced Milling Principles short course, scheduled Oct. 15 to 19, 2018 will educate participants on quantitative tools and practices to influence and impact, optimal machine adjustment, milling efficiency and flour quality in the mill. Learn more about 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 www.twitter.com/uswheatassoc and video stories at https://www.youtube.com/uswheatassociates.

Photo credit: Kansas Wheat

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Ahead of USDA Report, Wheat Futures on a Powder Keg

By Stephanie Bryant-Erdmann, USW Market Analyst

Wheat prices are in for a wild ride. Just last week, all it took to trigger a limit up move in futures prices was a rumor that Ukraine might restrict milling wheat exports. Although the market took back most of those gains after the rumor was retracted, Chicago soft red winter (SRW) futures ended the week up 5 percent while Kansas City hard red winter (HRW) climbed 6 percent and Minneapolis hard red spring (HRS) increased 3 percent.

That short-term volatility is indicative of how tightly wound global wheat markets are, and the next big price move could be triggered on Aug. 10 when USDA updates its monthly World Agricultural Supply and Demand Estimate (WASDE). We will look for factors that could trigger additional price moves including changes to production, export demand and world feed grain supply estimates.

Shrinking Global Wheat Production. A saying among wheat people suggests that at harvest, “big crops get bigger and small crops get smaller.” This seems to be a “small crop” year with analysts and traders alike expecting USDA to reduce world production estimates based on new harvest numbers from France, Germany, Poland and Russia. Current estimates from Stratégie Grains put EU common wheat production (excluding durum) below 130 MMT, down 8 percent year over year if realized.

The Russian Ministry of Agriculture expects 2018/19 Russian wheat production to total 64.4 MMT, down 25 percent from the year prior. According to analysts at IKAR, sprouting and disease pressure from late season rains further decreased Russian exportable supply. Australian wheat production may also be reduced as the region that produces Australian Prime Hard and Australian Hard wheat is experiencing “the worst drought in living memory.”

Bullish supply news has pushed both U.S. and global wheat prices higher in recent weeks. Since July 13, U.S. HRW futures are up 75 cents per bushel ($28 per metric ton [MT]), SRW futures grew 59 cents per bushel ($22 per MT) and HRS climbed 81 cents per bushel ($30 per MT). At the same time, free-on-board (FOB) prices paid by Algeria and Egypt for wheat in public tenders have increased an average 90 cents per bushel ($33 per MT).

Changes to Wheat Exports. United States. Despite global FOB wheat prices climbing at a faster rate than U.S. wheat futures, U.S. wheat exports remain slow. Through July 27, U.S. wheat export sales totaled 7.20 MMT, down 28 percent from 2017/18. That pace must quicken soon to meet USDA’s current U.S. wheat export forecast of 26.5 MMT.

Ukraine. Each year, the Ukraine Agricultural Ministry signs a memorandum with grain exporters outlining an agreed volume of milling wheat trade not subject to government restriction. This year, the proposed volume is 8.0 MMT, down from 10.0 MMT exported in 2017/18. Milling wheat exports generally make up a little more than half of the country’s wheat exports. In July, USDA forecast Ukraine total wheat exports (milling and feed wheat) at 16.5 MMT, down 1.0 MT from 2017/18.

Decreases to the Global Feed Grain Supply. While higher wheat prices would normally ration feed wheat demand, tightening global feed grain supply and demand is creating a price floor for global wheat prices. USDA expects global feed grain consumption — barley, corn, mixed grains, oats, rye and sorghum — to outpace global feed grain production by 34.1 MMT in 2018/19. With global consumption outpacing global production for the second year in a row, USDA anticipates global feed grain ending stocks falling to 179 MMT, the lowest level since 2012/13.

As we have suggested (Lower U.S. Wheat Prices Are an Anomaly and An Excellent Opportunity), U.S. and global wheat prices are sitting on a powder keg with an anticipated global stocks-to-use ratio (excluding China) of 19 percent, a level that has not been seen since 2007/08. Both U.S. and global wheat prices have rallied in recent weeks. Continued reports of quality damage and lower yields in the EU and Russia and drought conditions in Australia indicate the 2018/19 crop is shrinking. If last week’s limit up movement is any indication, wheat prices could go much higher very quickly if additional bullish news comes out.

To track U.S. wheat export basis levels and prices, subscribe to the USW Weekly Price Report.

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A Mid-Season Look at the U.S. Winter Wheat Harvest for Buyers

U.S. farmers are making good progress now on the second half of their 2018 winter wheat harvests and U.S. Wheat Associates (USW) wants to provide a mid-season look at winter wheat harvest and quality in this “Wheat Letter” entry. USW publishes a new Harvest Report every Friday on this website.

 

Soft Red Winter (SRW) harvest of a crop that was quite affected by rain throughout the growing season is now complete. Planted area was up somewhat compared to last year’s record low level. With abundant rain, yields were above average for the year but test weights from crops in both the East Coast and Gulf port tributaries are less than last year and the 5-year average. That knocks down the U.S. Grade for this crop to #3 SRW. DON levels are slightly higher in 2018 but are below the 5-year average. Processers should find good qualities for crackers overall and for cookies from segments of the crop. With higher protein and good extensibility, the crop should also be valuable for blending for baking applications. USW will post the final SRW quality report within the next few weeks.

John Hoffman SRW Wheat

Past USW Director John Hoffman of Circleville, Ohio, just beat the rain to complete his 2018 SRW harvest.

 

Hard Red Winter (HRW) harvest is more than 80 percent complete and buyers should want to take a very good look at the 2018 crop. Starting with another record low planted area, USDA believes farmers will harvest 17.9 million metric tons (MMT) of HRW this year or 12 percent less than in 2017. That amount is likely to change as USDA measures the effects of abandoned area in drought stressed areas of the Southern Plains. For buyers, however, this is a very good supply of HRW with composite protein holding at 12.6% (12% moisture) and test weights at 79.7 kg/hl (60.6 lb/bu). Quality reports from Montana’s harvest are even better. While flour and dough properties are just being measured for this crop, domestic millers and processors are saying they like what they see in this HRW crop.

HRW Harvest Peter Miller

HRW farmer Peter Miller of Lodgepole, Nebraska, posted this photo on his Twitter account @pmiller1320 on July 23.

 

Soft White (SW) winter wheat growing conditions across the Pacific Northwest (PNW) were nearly ideal for the 2018 crop. As of Aug. 3, the PNW SW harvest was 55% complete in Oregon (sadly aided by destructive fires in the north-central part of the state), 28% in Washington and 12% in Idaho. Industry sources say continued dry weather has pushed progress beyond those levels since early this week. Dryland yields are well above normal and early quality analysis indicate good test weight at 61.8 lb/bu (81.3 kg/hl), very low moisture content at 8.4%, low protein at 9.4% (12% moisture basis), and sound falling number value at 305 seconds.

Harvest Time Logan Padget

Logan Padget, son of USW Secretary-Treasurer Darren Padget, of Grass Valley, Oregon, posted this beautiful image of SW “Harvest Time” on their farm July 23.

 

We hope you will subscribe to USW’s Harvest Report and if you want to ask questions about this year’s crops or about other topics related to U.S. wheat and U.S. wheat exports, visit our new “Ask the Expert” section of this website at https://www.uswheat.org/market-and-crop-information/ask-the-expert/.

 

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Promoting 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 in June and July to promote all six classes of U.S. wheat in an ever more complex world grain market.

Sub-Saharan Africa. Flour milling executives from Nigeria, South Africa, Tanzania and Liberia traveled to Texas, Oklahoma and Kansas in June to get the latest information about hard red winter (HRW) wheat quality and value. The delegation experienced each part of the supply chain by visiting the Port of Corpus Christi and local grain elevators, participating in wheat harvest, meeting with USDA officials and discussing wheat quality at the Kansas Wheat Innovation Center. Also in June, another delegation from Nigeria and South Africa attended a two-week milling short course at the IGP Institute in Manhattan, Kan. Read more about these activities here and here.

South Asia. In June, the USW Singapore and Manila Offices led a week of Procurement and Mill Profitability Workshops in Thailand, Indonesia and the Philippines. Funded by the Washington Grain Commission (WGC), the activities included three full-day workshops focused on commodity price analysis to guide purchasing strategies and increase mill profitability.

Philippines. A delegation of four leaders from the Philippine flour milling industry traveled to Oregon, Washington D.C. and Washington state in June to meet with state wheat commissions, producers and grain traders, and visit a port loading facility and an FGIS dockside laboratory. In the U.S. capital, the team discussed various trade policy topics, including issues related to Turkish flour imports. Read more about this delegation here.

Ecuador and Chile. In June, a delegation of four millers from Ecuador and Chile traveled to Nebraska, North Dakota and Oregon to gain a better understanding of the wheat marketing and the supply chain. The delegation’s travel included visits to HRW and soft white (SW) producing area, an export elevator, FGIS laboratory and meetings with wheat producers and grain exporters.

Haiti. USW staff traveled to Haiti in June to meet with Haitian millers, wheat importers, the U.S. Embassy and the Haitian Ministry of Commerce and Industry (MCI) to discuss and review the status of possible dumping of Turkish wheat flour exports to Haiti and how it negatively affects the local wheat milling industry. Industry sources estimate Haitian Turkish flour imports have reached nearly 40,000 tons annually, and are entering the country at an understated price on the invoice value presented to Haitian customs. Read more about this activity here.

Taiwan. USW collaborated with the Lien Hwa Flour Mill and Chia Nan University in June to host a noodle making contest using flour from U.S. wheat classes. The contest was divided into two groups for machine-made noodle and hand-made noodles. After making their noodles, participants had to include them in a creative dish for the judges. 64 participants entered the contest.

Korea. In June, USW sponsored a Baking Product Development Course for Korean millers at the Wheat Marketing Center (WMC), Portland, Ore., that focused on U.S. wheat flour blending research.

Japan. A delegation of Japanese mid-level mill managers traveled to Oregon, Washington and North Dakota in July to learn more about this year’s crop and better understand the U.S. wheat supply chain.

Honduras. USW conducted baking seminars and in plant consultations with leading Honduran bakeries in July which focused on using new technological advancements. USW Baking Consultant Didier Rosada was interviewed on a live television program for 40 minutes that was disseminated through Facebook to consumers across the country.

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