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Wheat Futures Tumble, While Protein Premiums Soar

By Stephanie Bryant-Erdmann, USW Market Analyst

As the Dec. 12 World Agricultural Supply and Demand Estimate (WASDE) confirms, global wheat supplies are at a record high this year. USDA increased its estimate for 2017/18 global wheat production to 755 million metric tons (MMT), up slightly from 2016/17 and a new record high. If realized, it would be the fifth consecutive year of increased global wheat production.

The record large global wheat production has pressured U.S. wheat futures to six and twelve-month lows. Since the beginning of the 2017/18 marketing year, the Chicago Board of Trade (CBOT) soft red winter (SRW) wheat futures and the Kansas City Board of Trade (KCBT) hard red winter (HRW) wheat futures have fallen 37 cents and 32 cents, respectively to levels not seen since last December. The Minneapolis Grain Exchange (MGEX) hard red spring (HRS) wheat futures climbed in July, supported by concerns over severe drought in the U.S. Northern Plains, but has since fallen to within 14 cents of the June 2 price. This decline in wheat futures prices represents a significant opportunity for customers to lock in low futures values to hedge the risk of growing protein premiums due to the tight global supply of high protein wheat.

The USDA report also noted that lower year over year wheat production for 2017/18 was reported in Canada, Kazakhstan, Ukraine and the United States, and is also expected in Australia. This is important for customers needing high protein wheat, because nearly all the world’s high protein wheat exports (13 percent protein on a 12 percent moisture basis (mb) or higher) originate from those five countries plus Russia.

While Russian wheat yields exceeded expectations and boosted total production, high protein wheat supplies are very limited according to the Federal Centre of Grain Quality and Safety Assurance for Grain and Grain Products (Centre) preliminary data for winter wheat. According to Centre data, 25 percent of samples graded as Russian 3rd class wheat (10.5 to 11.9 percent protein on a 12 percent mb); 44 percent of the samples graded as Russian 4th class wheat (8.8 to 10.5 percent protein on a 12 percent mb); and 31 percent as 5th class wheat (feed wheat). Less than 1 percent of samples graded as Russian 2nd class wheat (11.9 to 12.8 percent protein on a 12 percent mb).

With global high protein wheat supplies shrinking for the second consecutive year and demand continuing to be strong, the premium between MGEX and KCBT wheat futures has continued to widen. In 2016/17, the inter-market spread between MGEX and KCBT averaged $1.05 compared to just 40 cents the prior marketing year. Year to date in 2017/18, the MGEX to KCBT spread averages $2.09.

The demand for higher protein wheat also supports HRW protein export basis spreads, which have widened significantly this year at both Gulf and Pacific Northwest (PNW) ports. Over the past 15 years, the average premium for 12 percent protein (12 percent mb) at the Gulf has been 14 cents per bushel. This year that premium is $1.96 per bushel. The 15-year average premium for 12 percent protein HRW at the PNW is $1.09 per bushel. Since the beginning of the 2016/17 marketing year on June 1, that average premium is $1.94 per bushel.

Despite the increased premiums for high protein HRW and HRS, a review of USDA Federal Grain Inspection Service (FGIS) data reveals an increased percentage of high protein exports. Seventy-seven percent of 2017/18 HRS exports have at least 14 percent protein (12 percent mb), compared to the 5-year average of 70 percent. The percentage of HRW exports of 13 percent protein and above (12 percent mb) is double the 5-year average.

With six months left in the marketing year, many customers are securing their high protein wheat demands for the year. While premiums for high protein continue to grow, U.S. wheat futures markets have fallen for four straight weeks, which offers a good opportunity for customers to lock in the lowest HRS futures prices seen since June and the lowest SRW and HRW futures prices since last December.

Please call your local U.S. Wheat Associates (USW) representative if you have any questions about the U.S. wheat marketing system or U.S. wheat supply.

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Hoping the Good News on EU Re-registration of Glyphosate is Not Meaningless

By Ben Conner, USW Director of Policy

Many European farmers breathed a sigh of relief this week as the European Commission chose to extend registration of the broad-spectrum herbicide glyphosate for five years. But farmers in Europe and elsewhere around the world are justifiably worried about the challenges represented by the European Union’s pesticide policy.

The extension of glyphosate approval is good news — even a bit surprising. The European Food Safety Authority has been emphatic in its position that glyphosate presents no human safety hazard when used in compliance with regulations. Yet the Commission only extended the registration for five years based only on a political compromise rather than sound scientific evidence or and accepted risk assessment standards. The activists trying to derail the glyphosate approval process are ignoring the integrity of that agency’s risk assessment process, which undermine the principles of scientific approaches to regulation.

The fight over glyphosate re-registration is symptomatic of broader concerns about pesticide policies in the European Union. Its so-called “hazard-based” approach to registration of certain pesticides and innovative plant breeding ignores scientific risk assessments that lead to standards for proper use of pesticides. This creates a greater risk of major trade disruptions, potentially including wheat and certainly including other food ingredients.

It should be noted that there are many well-meaning individuals who are sincerely concerned about the safety of their food supply and environment. As the father of two small children, I can certainly understand that. But to my mind, being able to put food on the table and ensure our planet can support future generations clearly outweighs immeasurably small odds of harm. My children deserve to live in a world that is willing to thoughtfully evaluate the risks and rewards of progress, based not on fear, but rather on accepted scientific evidence and standards.

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New Consumer Food Safety Resources for Flour Millers

Two new resources developed by milling and baking organizations in North America that communicate how consumers can reduce the risk of food-related illness are now available. The North American Millers’ Association (NAMA) and the Canadian National Millers Association (CNMA) have produced a new food safety educational video designed to help eliminate the food safety risk associated with wheat flour by educating consumers on proper handling and baking instructions. In addition, NAMA worked with the U.S. based Home Baking Association to add specific information to its “Baking 101” resource about how consumers can minimize food safety risks with raw flour.

“Wheat is a healthy and wholesome grain, and an important part of the global food supply,” said NAMA President and CEO James A. McCarthy. “From farm to kitchen, the entire wheat industry is committed to best practices for food safety, and the simple and easy to use video is designed to help consumers understand and apply proper handling and baking procedures so they can safely enjoy their favorite baked goods.”

NAMA, CNMA and the U.S. Food & Drug Administration advise that flour is made from wheat grown and harvested on the farm, and it is possible for wheat to be exposed to environmental sources of E. coli and other bacteria that may present a food safety risk. Thus, raw flour is not ready to eat, and consumers should not eat or taste raw flour, dough or batter prior to cooking or baking as they can cause illness if harmful bacteria are present. However, proper cooking and baking eliminates the food safety risk associated with E. coli and other bacteria in raw wheat flour, dough and batter.

“An informed consumer is a safe consumer when it comes to food safety and at-home baking,” said CNMA President Gordon Harrison. “This video will make it easier for consumers to understand and implement a few simple food safety precautions that help protect them and their families.”

USW has posted the video on its YouTube channel. It is also posted on the CNMA website.

The “Baking 101” developed by the Home Baking Associations now features these baking food safety steps:

  1. Store raw flour, baking mixes, dough and eggs separately from ready-to-eat foods.
  2. Before baking, tie back long hair, clean counters, assemble ingredients and equipment, wash hands, and apron-up.
  3. Keep separate the measuring, mixing and handling of unbaked batter or dough from cooling, serving and packaging of baked products.
  4. Test baked products with wooden toothpick or cake tester and food thermometer at center to ensure products are completely baked.
  5. Clean tools, work surfaces and equipment with hot, soapy water or in dishwasher.
  6. Wash hands before you taste, serve or package baked goods.
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Northern Crops Institute Names Next Director

Everyone at USW is looking forward to working with Mark Jirik who was recently selected as the next director at the Northern Crops Institute (NCI), Fargo, N.D.

NCI is a respected educational partner with USW that supports regional agriculture and value-added processing by conducting educational and technical programs that expand and maintain markets for northern-grown crops. After working closely with Mark Weber over the six years he led NCI, USW was sad to learn that he planned to retire at the end of 2017. With Mark Jirik’s background, NCI should not miss a beat in the transition.

“We are confident that Mark is the right choice to lead NCI,” said Northern Crops Council Chairman Greg Kessel, a producer from Belfield, N.D.

Jirik has more than 17 years of experience in commodity merchandising and commercial management at Cargill. He earned a bachelor’s degree in agricultural economics from North Dakota State University and a master’s degree in agricultural economics at the University of Illinois, Urbana-Champaign.

We wish Mark Jirik the best of luck in this new position, and we also wish Mark Weber a very long and happy retirement.

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Annual Crop Quality Seminars Help Customers Make Purchasing and Milling Decisions

By Amanda J. Spoo, USW Assistant Director of Communications

Each year, after thousands of wheat crop samples are analyzed and the results are published in the USW Crop Quality Report, USW invites its overseas customers, including buyers, millers and processors, to seminars led by USW staff, U.S. wheat farmers, state wheat commission staff and educational partner organizations. The seminars dive into grade factors, protein levels, flour extraction rates, dough stability, baking loaf volume, noodle color and texture and more for all six U.S. wheat classes, and are tailored to focus on the needs and trends in each regional market.

In 2017, USW hosted 33 seminars in 25 countries, and many reported seeing record participation. Customers share that they use the report throughout the year as a reference manual and to guide them through purchases and future planning. The seminars provide a first look at the overall crop and a deep dive into the data and how to use it.

“The crop quality booklet is very useful for us as millers for reference and information on wheat quality available for production,” said one participant from Indonesia.

“If we encounter quality issues in our products, we use the wheat quality data to help us make necessary adjustments,” said participants from the Philippines.

Customers will often use the seminars and report as educational training for new employees.

The reports and seminars have been a traditional part of USW’s strategy since 1959, growing to become its single largest marketing activity.

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USDA Reports Offer Early Snapshots of 2018/19 U.S. Winter Wheat Crop

From USDA and Media Reports

Hours of work will come to fruition this week for market analysts at USDA and the farmers and buyers they serve. The results of some new reports provide an early look at the next U.S. winter wheat crop, which includes hard red winter (HRW), soft red winter (SRW) and fall-planted soft white (SW) classes.

Starting with a brief look back, we do know that U.S. farmers harvested the smallest area of wheat in 2017 since detailed records started in 1919. That was not a surprise because USDA had estimated planted area for all wheat classes, including spring wheat, for 2017/18 at a similar record low. Winter wheat planted area was down 9 percent from 2016/17.

New estimates suggest the base will be even lower for 2018/19. Reuters reported Nov. 28 that USDA estimates U.S. farmers are likely to expand corn and soybean plantings while reducing wheat seedings to 45.0 million acres for 2018/19, down from the record low of 46.0 million for 2017/18. Reuters noted that the forecasts are developed by consensus within the USDA on a long-term scenario for the agricultural sector for the next decade. USDA will release its complete report on projections for the next 10 years in February.

Arlan Suderman, chief commodities economist for INTL FCStone, expects U.S. wheat farmers will continue plant less wheat because of the price pressure from the record global wheat stocks. He estimates seeded area will be down another 4 percent to 6 percent in 2018. Suderman said the strong U.S. dollar pressures demand for U.S. wheat while encouraging wheat expansion overseas, such as in the Black Sea region. He believes markets that value high quality wheat and strong protein offer stronger opportunity for U.S. wheat.

As a counterpoint, a poll by a national agricultural publication fielded last July suggests farmers may slightly increase wheat seedings. The Farm Futures magazine survey found growers wanting to boost wheat seedings by 2.5 million acres to 48.1 million, a 5.4 percent increase over 2017. The survey suggested that winter wheat would make up nearly 90 percent of that increase.

The first official estimate of winter wheat planted area from USDA will be released in its Prospective Plantings report in March 2018.

USDA’s latest conditions report released on Nov. 26 suggests the new HRW wheat crop seeded in the Central and Southern Plains is stressed by dry weather. Oklahoma farm broadcaster Ron Hays reported that “winter wheat crop ratings continue to slide as Oklahoma, Kansas and Texas wheat conditions all fell in the latest reporting week. Oklahoma has seen its good to excellent score on the 2018 wheat crop drop from 41 percent two weeks ago to 30 percent this week; Kansas dropped five points from two weeks ago to 51 percent good to excellent and Texas dropped ten percentage points to 36 percent good with no score for excellent in this week’s final weekly score of the season.”

On Nov. 30, USDA will issue a quarterly update to its forecast of U.S. farm exports for fiscal year 2018 (Oct. 2017 to Sept. 2018). In a previous report, USDA said the total of $140.5 billion for FY2017 ended a two-year decline and was the third-highest on record. USDA currently forecasts U.S. wheat exports for marketing year 2017/18 at 27.2 million metric tons (MMT), down slightly from 28.7 MMT in 2016/17.

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New Study Examines Shifts in Global Agricultural Trade

Participants at the U.S. Agricultural Export Development Council annual meeting, Nov. 14 and 15, 2017, in Baltimore, Md., got an early look at a new study indicating that developing countries have been competing quite effectively in global agricultural trade. In addition, the study showed that agricultural products are often classified as “sensitive products” in trade agreements, leading to a significant level of protection, especially by developing and advanced developing countries.

The report is “The Global Landscape of Agricultural Trade, 1995-2014,” just released by USDA’s Economic Research Service. The authors’ summary says the Uruguay Round Agreement on Agriculture (URAA) of 1994 imposed new disciplines on market access barriers, domestic support and export subsidies, and set up rules for non-tariff measures. In the two decades since the URAA, government interventions in agricultural trade have evolved, agricultural trade has expanded and BRIIC countries (Brazil, Russia, India, Indonesia, and China) and other emerging economies have become significant agricultural traders. The summary adds that although clear progress has been made in such areas as tariff reductions and elimination of export subsidies, there is room for further disciplines on tariffs, nontariff measures and domestic policy.

Specifically, the study showed that the value of global agricultural exports adjusted for inflation has doubled since 1994, indicating a significant increase in the total market size. Overall, as the BRIIC country share of total imports is increasing, North American and Western European countries are importing a smaller percentage of the total. Conversely, the total share of world agricultural exports from the United States is down from 20 percent to 14 percent, while BRIIC country share is up from 14 percent to 23 percent. Global wheat trade has displayed a similar pattern: as U.S. exports have remain fairly stable, the U.S. share of a growing total world wheat market has declined.

The report summary adds that major emerging economies have increased the support they provide to farmers, sometimes using methods like price supports or input subsidies that are more likely to distort trade. In some of these countries, the study showed, recent emphasis on agriculture support is a sharp departure from earlier policies that implicitly taxed agriculture. Read the entire report online here.

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Promoting Wheat Around the World

As 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 September and October to promote all six classes of U.S. wheat in an ever more complex world grain market.

Asia. USW scheduled several meetings and wheat grading and flour milling seminars for Rob Bundy, Quality Assurance Specialist with the Federal Grain Inspection Service (FGIS), during a temporary duty (TDY) assignment to Southeast Asia in September. Throughout his trip, Bundy made stops with USW staff in China, Singapore, Myanmar, the Philippines, Taiwan and Japan. He discussed U.S. wheat grading procedures and documentation with hands-on grading exercises, wheat classes and characteristics as well as the FGIS review and appeals processes.

China. USW worked with a flour mill to help sponsor the Savor USA Home Baking Competition held in China via the online platform, WeChat, where contestants could submit recipes and food photographs. USDA’s Agricultural Trade Office (ATO) in Shanghai created the competition to bring together U.S. ingredient providers and Chinese customers, and capitalize on increasing interest in home baking. USW chef consultant Heinz Fischer demonstrated U.S. wheat flour performance with a live baking demonstration at the competition’s award ceremony.

United Arab Emirates (UAE). In October, USW participated in the 28th Annual International Association of Operative Millers (IAOM) Middle East and North Africa (MEA) Conference and Expo 2017, in Dubai, UAE. As a founding organization of the IAOM MEA, USW has maintained an active role in the annual event. Vice President of Overseas Operations Mark Fowler and Regional Vice President Ian Flagg are currently members of the IAOM MEA Leadership Council.

Philippines. Also in October, USW staff conducted two baking workshops entitled “The Korean Way of Bread Making,” to help Philippine bakers diversify product offerings and production techniques. The workshops focused on Korean baking processes and formulations, including several Korean pan bread and baguette styles.

Mexico. Colleagues from USW Mexico City conducted a Transportation and Logistics Workshop in Mexico, Sept. 11 to 13 for wheat buyers and executives from U.S. and Mexican railroads. Forty-five participants, attended the workshop to learn more about vital information and technology used to facilitate U.S. wheat shipments to Mexico via rail.

Belgium. USW participated in the 57th European Commodities Exchange, Oct. 12 to 13, in Brussels, Belgium, which attracted 3,000 professionals involved in grain trade and processing from 56 countries. Visitors to the USW booth received updates on U.S. wheat quality data and marketing and were invited to USW’s upcoming Crop Quality Seminars.

Costa Rica. USW conducted an on-site Contracting for Wheat Value Seminar with a leading Costa Rican flour miller in September. USW Consultants Dr. Bill Wilson from North Dakota State University and Shawn Thiele from the IGP Institute helped lead the seminar with a focus on how to increase U.S. wheat value by making appropriate adjustments to purchasing specifications and production methods. Staff from the mill’s purchasing, quality control and production departments learned how to maximize the value gained from quality attributes such as lower moisture content and maximizing flour extraction rates through proper tempering times.

Colombia. The Servicio Nacional de Aprendizaje (SENA) is Colombia’s largest technical institute that prepares students for technical service jobs, including bakers. USW Consultant Didier Rosada conducted a five-day seminar for SENA instructors from the bread baking department, with the goal of providing improved baking methods to incorporate into the regular SENA curriculum. The seminar also provided a chance to discuss the characteristics and end uses of U.S. wheat classes.

Chile and Bolivia. USW Consultant Jay O’Neil traveled to La Paz, Bolivia, and Santiago, Chile, to conduct purchasing seminars for wheat buyers. He focused on the U.S. wheat production and marketing systems, U.S. grain standards, purchasing contracts and negotiations, futures markets and ocean freight. USW covered wheat classes and their use, and in Bolivia, a local grain trader led a discussion on the current Bolivian market.

Ecuador. USW and milling consultant Andrea Saturno, traveled to Quito, Ecuador, to conduct two technical milling seminars, Oct. 17 to 20. The first seminar for a private mill focused on the control elements critical to maintaining efficiency and quality. The second seminar for ASEMOL, the Ecuadorian Milling Association, included an introduction to wheat cleaning, tempering, quality control, mill performance, new developments in milling science and the best application of U.S. wheat classes for different end products. An FGIS official joined the seminar to discuss the U.S. grain grading system and different buying strategies, and led a hands-on activity to identify grain damage.

South Korea. Wheat import managers and wheat flour quality control managers from flour mills in Korea participated in a Contracting for Value Workshop at the Wheat Marketing Center (WMC), Aug. 19 to 26, in Portland, Ore. During the workshop, the participants also visited the EGT export facility in Longview, Wash., met with several grain traders and toured an Oregon wheat farm. In the WMC lab, participants saw several functional test demonstrations and participated in WMC product evaluations on a variety of end products.

Indonesia. In August and September, USW’s milling and baking specialists provided in-plant consultations for four of Indonesian flour milling companies on the island of Java, and sanother milling company in Medan on the island of Sumatra. The consultations focused on contracting for U.S. wheat value, best practices to improve end product quality, baking tests, troubleshooting technical issues and concerns, assessing potential opportunities and increasing the use of solvent retention capacity (SRC) tests to analyze flour streams.

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Study Finds No Link Between Cancer and Glyphosate Use

In 2015, the U.S. wheat industry expressed concern about a report by the non-regulatory International Agency for Research on Cancer (IARC) that moved to reclassify glyphosate as a “probable” human carcinogen, even though more than 25 years of several, separate studies had concluded that the mammalian toxicity levels of glyphosate are low and glyphosate is not carcinogenic.

On Nov. 9, 2017, the Journal of the National Cancer Institute (JNCI) published new research on the use of glyphosate by agricultural workers. The study found no association between exposure to glyphosate, “and any solid tumors or lymphoid malignancies overall, including non-Hodgkin Lymphoma…and its subtypes.”

This research was conducted as a part of the Agricultural Health Study (AHS), described on a website as “a prospective study of cancer and other health outcomes in a cohort of licensed pesticide applicators and their spouses from Iowa and North Carolina. The AHS began in 1993 with the goal of answering important questions about how agricultural, lifestyle and genetic factors affect the health of farming populations. The study is a collaborative effort involving investigators from the National Cancer Institute, the National Institute of Environmental Health Sciences, the Environmental Protection Agency and the National Institute for Occupational Safety and Health. More than 89,000 farmers and their spouses in Iowa and North Carolina have participated in the study. Their participation has provided, and continues to provide, the data that researchers need to help current and future generations of farmers and their families live healthier lives.”

Glyphosate is an active ingredient in many “non-selective” herbicide formulations. To learn more about how U.S. wheat farmers manage the use of glyphosate, visit the National Wheat Foundation for a five-part blog series on “The Facts About Glyphosate.”

This new research comes at an important time, as several U.S. agriculture groups, including the National Association of Wheat Growers (NAWG), recently “joined forces to file a lawsuit in federal court against the State of California for ignoring science and conclusions from regulatory bodies around the world in a fundamentally flawed regulatory classification of glyphosate.” The coalition’s case was filed in the U.S. District Court for the Eastern District of California. Read the full announcement here.

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Latest USDA Forecast Accounts for Increased U.S. Wheat Export Demand

By Steve Mercer, USW Vice President of Communications

USDA market analysts cited Iraq’s major purchase of hard red winter (HRW) wheat as the specific basis for a significant drop in U.S. ending stocks in the November World Agricultural Supply and Demand Estimates (WASDE) report. The report correspondingly put its total U.S. export forecast for 2017/18 up 0.7 million metric tons (MMT) to reach 27.2 MMT. This would be down 5 percent from 2016/17 but 2 percent above the 5-year average, if realized.

The ending stocks forecast continues to be the primary plot of the 2017/18 global wheat market story. The WASDE report noted that even with slightly lower supplies and higher use, ending stocks are still expected to hit a record level.

USW Market Analyst Stephanie Bryant-Erdmann, who is currently on an international assignment, shows in USW’s latest Supply and Demand Report that global ending stocks are projected to reach a record level: 268 MMT, or 5 percent higher than 2016/17, if realized. Estimated Chinese ending stocks of 127 MMT account for 48 percent of global ending stocks, which is 58 percent greater than the 5-year average.

Bryant-Erdmann provides a more nuanced analysis of global stocks by charting the current global stocks-to-use ratio with and without China’s stocks, which are not likely to move to export. She shows that the 2017/18 ratio drops about 64 percent from 36 percent to 22 percent without Chinese stocks. More significant, though, is the historical look, showing that exportable stocks are on a three-year downward trend. In fact, Bryant-Erdmann shows that exporter ending stocks are expected to fall 5 percent year over year to 74.3 MMT, and ending stocks in importing countries are forecast to fall to 66.0 MMT, 5 percent below the 5-year average of 70.5 MMT.

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