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Cuba’s Recovery from Another Hurricane Should be Eased by an End to the U.S. Embargo

By Steve Mercer, USW Vice President of Communications

The aftermath of Hurricane Irma is simply stunning. So many of our Caribbean neighbors are facing so much destruction, including in Cuba where the full fury of Irma raked the northern coastline as a Category 5 hurricane that killed at least 10 people and flooded central Havana.

As I read about the damage in Cuba, I could not help thinking about other hurricanes and their impact on our relationship with the island nation.

In 1998, Hurricane Lily hit Cuba hard, too, putting flour mills offline. The Kansas Wheat Commission responded with a generous offer to donate 20 MT of flour to help Cuban people in need. USW helped coordinate the donation, but it had to be made to Caritas, a CARE affiliate non-governmental organization relief organization, not directly to Cuba, because the U.S. government’s embargo prevented them from sending it directly to Cuba.

We believe that the donation did help open some hearts and minds, and the Trade Sanctions Reform Act (TSRA) of 2001 opened exports of wheat and other U.S. agricultural products to Cuba. Yet, the travel and financing restrictions that remained continued to compound the regulatory difficulties of trading with Cuba.

When another hurricane, Michelle, struck Cuba later in 2001, the U.S. government offered aid. The Cuban government refused that offer, but the gesture helped encourage Alimport, Cuba’s food buying agency, to import its first bulk load of U.S. HRW wheat. According to former USW President Alan Tracy, “Cuba’s flour millers and bakers loved that wheat.”

More and more HRW was imported until the annual volume reached almost 500,000 MT, a substantial portion of Cuba’s annual imports of about 800,000 MT.

In 2005, it was not a hurricane, but rather new regulations implemented by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) that interrupted this trade. The changes forced Cuba to obtain and present letters of credit from a third-party, foreign bank, and U.S. exporters had to receive payment only from a third-party bank, rather than through direct payment from Alimport. It was an excessive and unnecessary administrative burden that increased Cuba’s cost of buying U.S. wheat. OFAC also modified the definition of “cash in advance” that required payment before a shipment left a U.S. port rather than before the title changed hands at the shipment’s destination. This rule was unique to our exports to Cuba and removed the ability of Alimport officials to inspect U.S. origin cargo before payment.

Alimport slowed and ultimately stopped importing U.S. HRW wheat completely by marketing year 2011/12.

There was renewed hope when the Obama Administration announced its intention to renew and, eventually, re-open diplomatic relations with Cuba and ease some travel restrictions. Several organizations, including USW, formed the United States Agricultural Coalition for Cuba (USACC) to work together toward more open trade. However, the OFAC rules were never reversed and Cuba continued to import all its wheat from Canada and the EU — no doubt at higher freight rates and likely at higher relative FOB costs.

And, sadly, just hours before Irma struck Cuba, the United States officially renewed its embargo for another year, as required under TSRA.

Cuba’s proximity, as well as historical and cultural ties, should make it a natural trading partner for the United States. The U.S. wheat industry supports easing travel restrictions, permanently overturning the 2005 regulatory changes and increasing access to credit and USDA commercial loan programs. However, the larger political implications of the embargo and its negative effects will likely preclude effective competition by U.S. wheat exporters even if these other changes are implemented.

“Aside from hurting the Cuban people, the embargo has only strengthened the Castro brothers’ grip on power and stymied any change for the better,” Tracy said.

Soon after the most recent hurricane, our organization and other USACC member organizations sent a letter of support and concern to the Cuban people through Cuba’s ambassador. We wrote: “It is at these times when humanity stands together both in fear of the destructive forces of nature that impact us all, and in solidarity in the determination to help one another recover.”

In that spirit, we stand with U.S. wheat farmers to support ending the Cuban embargo entirely.

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Taking Stock of the 2017/18 World Wheat Crop

By Stephanie Bryant-Erdmann, USW Market Analyst

USDA’s latest forecast of total world wheat production stands at 745 million metric tons (MMT), down 1 percent from 2016/17. Though USDA expects global wheat production to decrease by 8.46 MMT, it expects global wheat consumption to remain high at 737 MMT, down 1.13 MMT from the 2016/17 record. With lower production and stable consumption, staying abreast of the location and quality of the 2017/18 wheat crop is key. The following is a look at production and quality expectations for major exporting regions and countries outside the United States.

Black Sea. On Sept. 15, Russia’s Ministry of Agriculture reported wheat harvest was 84 percent complete. To date, the reported average yield is 3.51 metric tons per hectare (MT/ha) (52.2 bu/acre) compared to 2.95 MT/ha (43.9 bu/acre) on the same date in 2016. Russian consultancy SovEcon forecast 2017/18 Russian wheat production at 81.1 MMT, up 13 percent from 2016/17. Strategie Grains reported that Ukrainian farmers harvested 26.0 MMT of wheat this year, on par with 2016/17. Kazakhstan wheat harvest is underway, and Strategie Grains pegged 2017/18 Kazakh wheat production at 14.2 MMT, which would be down 5 percent from 2016/17. USDA expects Black Sea exports to total 56.5 MMT, up 7 percent from 2016/17, if realized.

SGS Russia, an independent crop inspection service, reported preliminary quality data for winter wheat in Russia’s South, Central and Volga-Urals regions, which showed lower protein levels due to favorable growing conditions and high yields. According to the SGS data, 52 percent of the samples graded as Russian 4th class wheat, up from 46 percent of samples in 2016/17. Russian 4th class wheat has between 8.8 and 10.5 percent protein on a 12 percent moisture basis. Though the percentage of samples that graded 3rd class wheat (10.5 to 11.9 percent protein on a 12 percent moisture basis) and 5th class (feed wheat) decreased in 2017/18, impacts on supplies of those two classes are expected to be minor due to record large production. SGS reports that some areas have Fusarium damage, high levels of sprout damage and very low falling numbers; but test weight values are generally higher across all regions. SGS reports the average protein of Ukraine’s 2017/18 wheat crop is 10.1 percent (12 percent mb) compared to 10.5 percent in 2016. The crop has higher average moisture and higher bug damage compared to 2016 per SGS.

Canada. In its Sept. 15 report, Agriculture and Agri-Food Canada (AAFC) projected 2017/18 wheat production (excluding durum) to be 21.6 MMT, down 10 percent from 2016/17. A 1 percent increase in planted area was more than offset by sharply lower yields. AAFC expects total Canada Western (Hard) Red Spring (CWRS) to account for 74 percent of total Canadian wheat production at 16.1 MMT. Canadian durum production is estimated at 3.90 MMT, down 50 percent year over year due to a 16 percent decrease in planted area and lower than average yields.

According to Alberta crop reports, favorable conditions are allowing harvest to proceed rapidly. As of Sept. 12, 50 percent of the crop was harvested compared to 31 percent at this time last year. Hot, dry conditions are aiding Saskatchewan wheat harvest as well. As of Sept. 14, Saskatchewan spring wheat and durum harvests were 63 and 81 percent complete, respectively, compared to 38 and 62 percent complete the week prior and significantly better than last year when frequent rainfall delayed harvest. Preliminary durum grade data from the Saskatchewan weekly crop report shows 97 percent of the crop graded as #1 or #2 Canadian Western Amber Durum (CWAD). On average, Saskatchewan produces 85 percent of the Canadian durum crop.

European Union. Stratégie Grains (SG) forecast total European Union (EU) wheat production at 151 MMT, up 4 percent year over year due to a return to normal production levels in France. Durum production is expected to decrease to 8.9 MMT, down from 9.9 MMT in 2016/17, but common (non-durum) wheat production will climb 5 percent to 142 MMT. After a disastrous 2016/17 French harvest when late rain damaged yields and quality, 2017/18 French wheat production rebounded to 37.4 MMT, up 31 percent year over year. SG noted French wheat quality is very good, but rain at harvest hurt German and Polish wheat quality. SG estimated EU milling quality wheat output at 66 percent of total 2017/18 production, putting total EU common wheat milling quality production at 93.9 MMT. That is in line with the 5-year average and 12 percent greater than 2016/17. SG expects EU total wheat exports to fall to 23.1 MMT, down 4 percent year over year, if realized, due to quality issues in Germany and increased competition from the large Black Sea supply.

Argentina. Bolsa de Cereales Buenos Aires (Buenos Aires Grain Exchange) recently estimated farmers in Argentina planted 5.35 million hectares (13.2 million acres) of wheat in 2017/18, up 5 percent from 2016/17. As of Sept. 7, Bolsa rated 71 percent of Argentine wheat in very good to excellent condition compared to 63 percent the prior year. However, excessive moisture is preventing fieldwork in some areas and threatening emerging wheat plants. The International Grains Council (IGC) pegged Argentine wheat production at 16.5 MMT, down 6 percent from 2016/17 if realized. With carry-in stocks expected to remain stable year over year at 600,000 MT, Argentine supply will also decrease 6 percent from 2016/17 to 17.1 MMT. IGC expects Argentina to export 10.5 MMT, down from 11.5 MMT in 2016/17 due to the smaller supply.

Australia. The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecasts 2017/18 wheat production at 21.6 MMT, down 38 percent from 2016/17 due to a 3 percent reduction in planted area and sharply lower yields. Australian farmers decreased planted wheat area for 2017/18 to 12.4 million hectares. A drier than normal winter has depleted soil moisture reserves in the many wheat-producing areas, which need timely rains to maintain current yield potential. USDA expects Australian exports to increase to 18.5 MMT, down 20 percent from 2016/17 and 1 percent below the 5-year average.

Together with its partner organizations across the United States, USW is testing more than 2,000 samples of wheat this year for its annual Crop Quality survey. The preliminary results are reported every Friday in the USW Harvest Report, and the final results for all classes are published in by-class reports and in our annual Crop Quality Report near the end of October. Please contact your local USW representative for more information about the USW Crop Quality survey, report or seminars.

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The European Union’s Uneasy Relationship with Science

By Elizabeth Westendorf, USW Assistant Director of Policy

Last week, the European Court of Justice ruled that EU member states cannot ban cultivation of genetically engineered crops without scientific evidence of risk to human health. The ruling was on a case that dates back to 2013, when an Italian farmer wanted to plant biotech corn. Italy has long banned the planting of genetically engineered crops. The farmer in question, Giorgio Fidenato, planted the corn on his land in defiance of Italy’s ban. Four years later, it is a win for science-based regulation that the European Court of Justice sided with Fidenato and ruled that Italy does not have the right to ban GM crops without a scientific reason.

It is not all good news for science in Europe though. The EU has previously had pesticide legislation that sets risk-based tolerances and maximum residue levels (MRLs). However, the EU is now in the process of introducing hazard-based restrictions on import tolerances. These restrictions are not only contrary to the EU’s MRL legislation but also contrary to the World Trade Organization (WTO) Sanitary and Phytosanitary (SPS) Agreement, which requires that decisions be based on risk assessments. A hazard-based approach risks significantly impacting trade and affecting product availability in the EU. This would also jeopardize trade litigation that could result in retaliation against billions of dollars of its exports.

For a highly traded commodity like wheat, it is imperative that regulatory systems worldwide be transparent and science-based. Otherwise, exporters jeopardize having shipments held up — or prevented altogether — and importers cannot rely on deliveries arriving in a timely manner. When technology does not have a negative impact on health or the environment, there is no reason for countries to needlessly restrict its use, or worse, vilify its existence. It is heartening that the EU has taken a step in the right direction on biotechnology, but they are moving backward on SPS issues that could inhibit trade and hurt domestic businesses. Unscientific regulations make it hard for a globalized market to function well.

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Congressional Support for U.S. Agricultural Export Market Development Programs

Legislation that would amend the U.S. Agricultural Trade Act of 1978 to extend and expand the Market Access Program (MAP) and the Foreign Market Development (FMD) program, which are administered by USDA’s Foreign Agricultural Service (FAS), has now been introduced in the U.S. House of Representatives and the U.S. Senate.

The Cultivating Revitalization by Expanding American Agricultural Trade and Exports (CREAATE) Act was introduced in the House May 3, 2017, by its original sponsors U.S. Representatives Dan Newhouse (R-Wash.) and Chellie Pingree (D-Maine). Several other U.S. representatives have co-sponsored the bill since then. On Sept. 20, 2017, U.S. Senators Angus King (I-Maine), Joni Ernst (R-Iowa), Joe Donnelly (D-Ind.) and Susan Collins (R-Maine) introduced the CREAATE Act in the Senate.

USW is a participant in both MAP and FMD, with funding awarded by FAS, based on annual matching funds from U.S. wheat farmers, currently through 17 state wheat commissions, evaluation of a detailed annual export market development plan and other competitive factors. USW uses program funds primarily for overseas staff and office expenses, and for trade servicing, technical support and other activities designed to help overseas wheat buyers, millers and food processors understand how to get the most value from U.S. wheat as specific ingredients in high quality wheat foods.

Statutory funding of $200 million per year for MAP and $34.5 million per year for FMD has been static since 2006 and 2002, respectively. In fiscal year 2017, FAS awarded MAP funds to 68 organizations and FMD funds to 23 organizations. CREAATE calls for phasing in additional annual funding for MAP to $400 million in FY 2023, and additional annual funding for FMD to $69 million in FY 2023.

The House version of the CREAATE Act is posted online here. To read more about MAP and FMD and other topics related to agricultural export market development, visit www.AgExportsCount.org.

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Rail and Port Operation Recovery in Texas Gulf is Encouraging

By Steve Mercer, USW Vice President of Communications

Officials have classified it as a 1,000-year flood event, unleashed at the center of U.S. HRW wheat’s export industry. Following the catastrophic flooding from Hurricane Harvey, some ports are still closed, rail embargos remain in effect and virtually no wheat was inspected for export last week at Texas grain export elevators. Even with the human and industrial costs of the storm, the supply chain is making good progress toward bringing the system fully back on line as soon as possible.

Federal Grain Inspection Service (FGIS) reporting regions of Louisiana and North and South Texas account for account for 46 percent of total U.S. wheat exports based on the 5-year average. Texas elevators are near Galveston, Houston and Corpus Christi and account for about 56 percent of total Gulf wheat export volume. Texas wheat exports are almost all HRW, and most of the volume moves through elevators in the Galveston and Houston area, which took the brunt of the storm.

The Corpus Christi area did not experience the full force of the hurricane, so rail and elevator service will likely come back on line there first.

“Reports from the Port of Corpus Christi indicate that grain elevators are mostly operational,” said Darby Sullivan, communications director with the Texas Wheat Producers Board, Amarillo, Tex. “Last week’s closure was to ensure that ships were able to enter the port safely. This week, they estimated that the railroads are running at about 80 percent speed and capacity.”

USW has not been able to obtain much detail about elevator operations in the North Texas region, but

Sullivan said flood recovery work is still needed at some of the elevators. One elevator manager from the Houston area told her they loaded and unloaded some rail cars, but did not expect to be fully operational until late this week. At this point, the status of rail bed repairs will have the most influence on when the interruption eases.

With the safety and well-being of its employees and their families as its top priority, the Union Pacific (UP) Railroad said on Sept. 2 it is making good progress repairing lines serving the North Texas elevators. Some lines have re-opened, and the UP said even crucial east-west lines blocked by flood damage may be repaired by Sept. 7. The railroad’s report on Sept. 6 confirmed its progress on repairs. Union Pacific posts line status at https://www.up.com/customers/embargo/list/index.htm.

The BNSF Railroad also serves the Texas Gulf supply system. Its latest report to customers on Sept. 5  said “with improving conditions and aggressive efforts by our BNSF crews, rail service on most BNSF subdivisions in the Houston area and throughout southeastern Texas has been restored.”

Although the railroad said it is experiencing ongoing challenges involving the primary rail line that provides access to locations southwest of Houston, including Corpus Christi and Brownsville, it is re-routing or diverting as much traffic as possible around this affected location as well as other areas that are currently blocked. BNSF access into the Houston complex from the north and west is largely clear, the railroad said, which is important for HRW wheat moving from western Texas, Oklahoma, Kansas, Colorado and southwestern Nebraska.

Considering that Hurricane Harvey set a new, single storm rainfall record of more than 50 inches (127 centimeters), the progress toward re-opening the Texas grain ports is quite remarkable. We are glad the interruption is being managed by the supply chain participants and our overseas customers to the best of their abilities. At the same time, we are keeping the people affected by this storm in our concerns — as well as the farmers, ranchers and industry affected by the devastating fires in Montana, Oregon, Washington and many other western states.

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U.S. Wheat Sales on Pace to Match 5-Year Average

By Stephanie Bryant-Erdmann, USW Market Analyst

Three months into the 2017/18 marketing year (June to May), total U.S. export sales-to-date of 12.1 million metric tons (MMT) are 2 percent ahead of last year’s pace and in line with the 5-year average pace. Though hard red winter (HRW) and hard red spring (HRS) sales are currently below last year’s levels, both are ahead of the respective 5-year averages. As of Aug. 24, total sales to eight of the top 10 2016/17 U.S. export markets are higher than last year. In addition, the other three U.S. wheat classes are all ahead of last year’s pace. USDA projects 2017/18 exports will fall to 26.5 MMT, which, if realized, would be 8 percent below 2016/17, but 1 percent above the 5-year average pace.

USDA reported HRW year-to-date exports at 4.49 MMT, down 7 percent from the prior year but 10 percent ahead of the 5-year average due to competitive prices and good quality. Mexico is currently the number one HRW purchaser. As of Aug. 24, before Hurricane Harvey’s catastrophic flooding closed Texas Gulf ports, HRW sales to Mexico totaled 973,000 metric tons (MT), up 72 percent from last year’s pace. Sales to Nigeria are also up 19 percent year over year at 488,000 MT. HRW purchases by Indonesia total 335,000 MT, three times greater than last year’s sales on this date. To date, HRW sales to Algeria totaling 273,000 MT are five times greater than the 2016/17 pace. It is too early to tell if Texas Gulf closures will affect total exports for 2017/18, but current reports suggest that rail and port facilities are making good progress toward resuming operations (Read more in Rail and Port Operation Recovery in Texas Gulf is Encouraging, below).

Sales of soft red winter (SRW) for 2017/18 are up 8 percent year over year at 1.19 MMT due to the excellent quality of this year’s crop. As of Aug. 24, total sales to four of the top 10 U.S. SRW export markets from 2016/17 are higher than last year. Sales to Mexico are 12 percent ahead of 2016/17 at 472,000 MT. Colombian SRW purchases total 121,000 MT, up 50 percent from last year. Sales to other Central and South American countries, including Ecuador, Peru, Panama, Brazil, Guatemala and El Salvador, are also ahead of the 2016/17 pace.

HRS sales of 3.26 MMT are down 13 percent year over year, but remain 4 percent above the 5-year average. Higher prices due to smaller 2017/18 production have slowed HRS exports thus far in 2017/18, but global demand for HRS is strong. As of Aug. 24, buyers in the Philippines held the top purchaser post with 746,000 MT, up 27 percent from 2016/17. Sales to seven of the top ten HRS customers are also ahead of last year’s pace. Sales to Japan of 475,000 MT are up 25 percent from last year’s sales on the same date, while year-to-date sales to Taiwan of 321,000 MT are up 93 percent from 2016/17.

As of Aug. 24, exports of soft white (SW) wheat are up 47 percent year over year at 2.93 MMT. That is 56 percent greater than the 5-year average. Sales to nine of the top 10 SW customers are ahead of last year’s pace. Philippine millers purchased 578,000 MT, up 19 percent compared to last year’s sales on the same date. South Korean sales are up 65 percent at 477,000 MT. Sales to Japan are up 24 percent year over year at 301,000 MT. U.S. SW sales to China, Thailand and Indonesia are also up. Year-to-date, Indonesia has purchased 266,000 MT, compared to total 2016/17 purchases of 193,000 MT. Thailand sales are up 72 percent year over year at 147,000 MT. Chinese purchases of 271,000 MT are already greater than 2016/17 total SW sales.

On average, 24 percent of U.S. total durum sales occur in first quarter of the marketing year, compared to 29 percent from September through November. Year to date durum exports total 211,000 MT, up 20 percent from the same time last year, still 14 percent below the 5-year average. Many durum buyers may be waiting for final quality reports for the Canadian crop before making purchasing decisions. To date, Nigeria, the European Union (EU), Algeria and Nigeria are the top durum buyers. A significant portion of the first quarter 2017/18 sales is designated as “sales to unknown designations.”

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Millers and Processors Should Like the 2017/18 Soft Red Winter Crop

U.S. farmers produced lower volumes of a very good SRW crop for marketing year 2017/18. This SRW crop has uniformly low dockage, good test weight, somewhat lower protein, very good kernel size and weight, low DON values and no notable pockets of low falling number. Flour extraction rate is somewhat lower than last year.

That is a good summary of results from USW’s 2017 SRW Quality Survey Report, now posted online at www.uswheat.org/cropQuality. To complete the report, Great Plains Analytical Laboratory in Kansas City, Mo., collected and analyzed 270 samples from 18 reporting areas in the 11 states that account for 77 percent of total SRW 2017 production. USW and the USDA FAS fund the annual SRW survey.

Economic conditions kept 2017 SRW seedings down and USDA estimates production at 8.3 MMT. That is down from 9.4 MMT in 2016 and well below the 5-year average. However, USDA estimates that the total SRW supply (excluding imports) for the 2017/18 marketing year is 4 percent higher than 2016/17 because of higher 2017/18 beginning stocks.

The overall average 2017 SRW grade is U.S. No. 2. The overall weighted average test weight is 59.1 pounds per bushel, which is above the 5-year and 2016 averages. The Gulf Port average is similar to 2016, while the East Coast average is well-above its 2016 average. The Gulf Port dockage value of 0.3 percent is lower than any recorded in the previous five years. Other grade factors, including moisture and dockage for both areas are similar to or better than the 5-year averages.

The survey indicates almost no significant quality issues with the crop in any area. Average wheat protein content of 9.5 percent (12 percent moisture basis) is similar to last year and only slightly below the 5-year average of 9.8 percent. The 2017 East Coast and Gulf Port protein averages are similar. However, the East Coast average protein of 9.4 percent is below the region’s 2016 and 5-year averages, while the Gulf Port average of 9.5 percent is above the region’s 2016 average of 9.1 percent and slightly below its 5-year average. The composite average falling number of 319 seconds is below 2016, but above the 5-year average. The composite DON average of 0.4 ppm is below the 2016 value of 0.6 ppm and well-below the 5-year average of 1.3 ppm, indicating that the crop sampled is relatively free of DON. The East Coast DON value of 0.8 ppm and the Gulf Port value of 0.3 ppm are both below last year’s values and 5-year averages.

A summary of flour and baking data shows Buhler laboratory mill flour extraction averages overall are below the 2016 and 5-year averages. The composite farinograph peak and absorption values are similar to 5-year averages, but the stability value of 2.2 minutes is slightly shorter than last year and the 5-year average. The Gulf Port peak and stability averages of 1.3 min and 2.4 min, respectively, are similar to last year and the 5-year averages, while the East Coast peak and stability values of 1.2 min and 1.7 min are both shorter than last year and the 5-year averages. The composite and Gulf Port alveograph W values of 91 and 93, respectively, are higher than the 5-year averages. The East Coast alveograph W values and the remaining L and P values for the composite and both regions are all similar to the 5-year averages, given the variability of alveograph analysis. The composite and Gulf Port cookie spread ratios are lower than last year and the 5-year average while the average loaf volumes are all similar to last year and the 5-year averages.

Buyers are encouraged to construct specifications carefully to be sure they receive qualities that meet their needs either for traditional soft wheat products or for blending with higher protein wheat.

USW will share complete data for all classes of U.S. wheat with hundreds of overseas customers at USW’s annual Crop Quality Seminars, and in its annual Crop Quality Report.

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Opportunities Abound for Customers to Lock-in Competitive Prices

By Stephanie Bryant-Erdmann, USW Market Analyst

Sharply lower U.S. wheat production pushed futures prices to 2-and 3-year highs earlier this summer. However, bearish factors have recently pushed prices down. And when wheat futures are under pressure, wheat importers have the opportunity to lock in competitive prices and maybe even find some bargains.

Chicago Board of Trade (CBOT) soft red winter (SRW) wheat futures and export basis are both under pressure from a growing 2017/18 (June to May) supply, which USDA estimated at 14.2 million metric tons (MMT). The year-to-date average SRW Gulf FOB value of $196 per metric ton (MT) is $50 below the 5-year average, and this is a very good quality new crop (for more information on 2017/18 SRW quality, read “Millers and Processors Should Like the 2017/18 Soft Red Winter Crop” below).

Though U.S. hard red winter (HRW) production is forecast to shrink 30 percent in 2017/18, year-to-date Kansas City Board of Trade (KCBT) HRW wheat futures average $58 per MT below the 5-year average. This is due mainly to KCBT contract specifications and lower average protein levels in the 2016/17 and 2017/18 crops. While HRW futures trickle lower, protein premiums continue to widen. Historically, Gulf HRW protein premiums ranged between $1.50 to $4.40 per MT for each additional 0.5 percent of protein. Pacific Northwest (PNW) HRW protein premiums normally average $2.95 to $7.35 per MT. In 2017/18, that range is now $11 to $32 per MT for the Gulf and $8 to $18 per MT for the PNW.

The widening protein premiums represent the tightening global supply of higher protein wheat. Yet FOB prices for 12 percent Gulf and PNW HRW are $40 and $41 per MT below the 5-year averages, respectively (all U.S. wheat protein is based on 12% moisture). Customers who can use lower protein HRW can take advantage of FOB prices for ordinary/unspecified protein HRW, which are $73 per MT below historic levels at the Gulf and $57 per MT below the 5-year average in the PNW.  Preliminary data shows 2017/18 HRW average protein is 11.5 percent, slightly above last year’s final of 11.2 percent, but below the 5-year average of 12.6 percent.

The Minneapolis Grain Exchange (MGEX) hard red spring (HRS) wheat futures have retreated from the 3-year highs reached earlier this summer. However, U.S. and Canadian spring wheat production estimates are supportive of current price levels. StatsCan expects Canadian wheat production (excluding durum) to fall 7 percent to 22.3 MMT. MGEX HRS futures are hovering near the August 5-year average of $6.79 per bushel ($249 per MT), but HRS export basis levels are $15 to $25 per MT below normal at both PNW and Gulf export locations. With harvest still underway in the U.S. Northern Plains and Canada, customers can mitigate some of their risk by locking in these competitive basis levels.

Export pricing for soft white (SW) wheat is not tied to a wheat futures market, but as noted in the July 27 Wheat Letter, protein premiums are shrinking for SW due to the excellent quality and more normal protein distributions in recent crops. PNW FOB export prices for 10.5 max protein SW are $62 per MT below the 5-year average, while FOB prices for 9.5 max protein SW are $70 per MT lower.

Well-informed customers can take advantage of these buying opportunities and lock in lower prices for high-quality U.S. wheat in the next few weeks. Your local USW representative is ready to help answer any questions about U.S. wheat pricing or the U.S. wheat marketing system. To track U.S. wheat nearby prices, review and/or subscribe to the USW Price Report here.

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Historic NAFTA Renegotiation Underway

By Ben Conner, USW Director of Policy

On Aug. 16, 2017, the United States, Mexico and Canada began negotiations to modernize the North American Free Trade Agreement (NAFTA). The first round concluded on Aug. 20. It was historic, in the sense that this is the first time the United States has attempted to renegotiate all parts of an existing trade agreement.

The Mexican market is extremely important to U.S. wheat farmers, and duty-free access under NAFTA to U.S. wheat is extremely important to Mexican flour millers. As the top export destination in marketing year 2016/17, Mexico accounted for 12 percent of all U.S. wheat exports. This growth stems without doubt from a successful trade agreement that has provided positive economic opportunity for a growing Mexican middle class that is able to spend more money on products made from U.S. wheat.

It is too early to say what kind of outcome to expect, but U.S. agriculture has been emphatic in its message to “do no harm” in these negotiations to the agricultural industry and its customers. That was reflected in the opening remarks of Ambassador Lighthizer, the U.S. Trade Representative, when he acknowledged the importance of NAFTA to U.S. farmers.

However, he also said the agreement had fundamentally failed many parts of the U.S. economy and required major changes. As the negotiations move forward, we will find out what changes will be proposed and acceptable to all three parties — and what tradeoffs will be required.

One change that would benefit wheat farmers and the wheat trade, particularly in northern border states, is a commitment from Canada to treat U.S. wheat farmers equitably when delivering across the border to a Canadian elevator. The current system is a legacy of the old Canadian Wheat Board monopoly, and there is broad recognition that it should be updated to allow reciprocal treatment for U.S. and Canadian farmers.

As these negotiations continue, USW, the National Association of Wheat Growers (NAWG) and other agricultural organizations will be vigilant in pursuing the interests of the North American food and agriculture supply chains.

 

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Promoting U.S. 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 just 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.

Thailand. USW Baking Consultant Roy Chung, from the USW Singapore Office, conducted the annual 3-week Cookie and Cracker short course for 24 participants from across the South Asia region. As usual, there were more applicants than available spots. Participants noted that the course helps in applying new technology in their operations, developing new snack foods and other products and improving production processes, formulations and end product quality by using U.S. SW and SRW wheat classes instead competing origin wheat.

Morocco. The USW Casablanca Office continues to use the Quality Sample Program (QSP) for the Moroccan Milling Training Center (IFIM) in Casablanca. The milling school tests all classes of U.S. wheat and conducts blending activities. Through the USP program, USW arranged for procurement and shipping of three containers of HRS and SRW wheat for the milling school. Over the next few months, USW will lead many promotional and training seminars to showcase U.S. wheat quality and functionality to millers and end-product manufacturers from Morocco and neighboring countries.

Philippines. USW Baking Consultant Gerry Mendoza, from the USW Manila Office, conducted a short course on Bakery Operations Management at the Filipino Chinese Bakery Association Training Center in cooperation with the Philippine Society of Baking. Mendoza focused on increasing knowledge of four key elements that every bakery owner or manager must fully understand to help increase operational efficiency and profitability: ingredients, equipment, recipes and process.

Mexico. USW Technical Specialist Marcelo Mitre, from the USW Mexico City Office, worked with USW Baking Consultant Didier Rosada to conduct a series of baking seminars in Mexico City and Toluca. USW designed the seminars to help bakeries adapt to growing demand and requirements for tastier and healthier bread products, which supports consumption growth. Management for both bakeries confirmed their interest in launching some variations of these products in selected stores, as they realize there is a market for the quality end-products demonstrated in the seminars.

Jamaica. Technical Specialist Mitre worked with USW Baking Consultant Bernard Bruinsma to conduct two baking seminars in Kingston. The seminars focused on the entire baking process and allowed participants to test how their practices affect the quality of the end-product.

Ecuador. The USW Santiago Office and USW Baking Consultant Didier Rosada worked with bakery personnel in Quito, Ecuador. Rosada demonstrated using U.S. wheat flour blends to make par-baked bread that can be frozen and distributed. He also helped formulate new baked goods that will appeal to consumers and identify appropriate U.S. wheat flour blends for existing and newly formulated products.

Indonesia. USW Regional Vice President Matt Weimar, and Assistant Regional Vice President Joe Sowers, both from the South Asia region, traveled to Jakarta to meet with key members of the wheat foods industry, including procurement managers and decision makers at key flour mills. Discussions focused on world and U.S. market analysis and quality information and learning more about the Indonesian market and its wheat quality needs.

China. USW and the Wuxi Buhler Company conducted a week-long milling seminar at the Wuxi Buhler Milling Training Center for millers. Together, USW Technical Director Peter Lloyd, from the USW Casablanca Office, and Buhler Milling Technician Vincent Shao focused on flour milling technology, wheat cleaning and tempering equipment, mill maintenance and management, laboratory testing and the solvent retention capacity (SRC) method of flour performance testing. The participants have the opportunity to further practice milling HRW wheat at Buhler’s test flour mill.

Taiwan. USW cooperated with the De Lin Institute of Technology to host a noodle cooking seminar for nutritionists and cooks from school lunch centers and catering companies in New Taipei City. The seminar participants designed 12 noodle meal packages, two kinds of steamed breads and one Chinese pastry for school lunch programs. This experience demonstrated different flour performance for making healthy Chinese foods.

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