March 9, 2017

U.S. Wheat Associates (USW) is the industry’s market development organization working in more than 100 countries. Its mission is to “develop, maintain and expand international markets to enhance the profitability of U.S. wheat producers and their customers.” USW activities are funded by producer checkoff dollars managed by 19 state wheat commissions and USDA Foreign Agricultural Service cost-share programs. For more information, visit www.uswheat.org or contact your state wheat commission. Stakeholders may reprint original articles from Wheat Letter with source attribution. Click here to subscribe or unsubscribe to Wheat Letter.

In This Issue:
1. HRW Rallies Supported by Supply and Demand Factors
2. An Aggressive Trade Policy Agenda for 2017
3. USW and USDA Partnership Reintroduce HRW to Angola’s Expanding Flour Milling Industry
4. PNW Vessel Delays Begin to Improve
5. USDA Expects U.S. Wheat Production to Fall 20 Percent Year-Over-Year
6. Promoting U.S. Wheat Around the World
7. Wheat Industry News

Online Edition:                                http://bit.ly/wheatLetter3917                                        
                               
PDF Edition:                                 (Attached)

USW Supply & Demand Report:        http://www.uswheat.org/supplyDemand
 

1. HRW Rallies Supported by Supply and Demand Factors
By Stephanie Bryant-Erdmann, USW Market Analyst

Since Jan. 1, the nearby wheat futures contract for hard red winter (HRW) on the Kansas City Board of Trade (KCBT) rallied 13 percent or 54 cents per bushel ($20 per metric ton) returning to price levels like those seen in June 2016. The rally is drawing support from both demand and supply factors. On the demand side, year to date U.S. 2016/17 HRW export sales total 10.1 million metric tons (MMT), up 95 percent from 2015/16 and 30 percent ahead of the 5-year average. Savvy buyers are also securing supplies for the next marketing season. To date, HRW export sales for marketing year 2017/18 total 182,000 metric tons (MT), up 8 percent from last year.

Robust demand for HRW is supported in part by low prices, but also by a change in the dynamic of the U.S. dollar. A strong U.S. dollar generally makes U.S. exports more expensive relative to other origins. However, while the U.S. dollar continues to strengthen against most currencies, it weakened against key competitor currencies. Year-over-year, the U.S. dollar weakened 3 percent against the Australian dollar, 11 percent against the Kazakhstani tenge and 20 percent against the Russian ruble. This shift is driving demand back to U.S. wheat in areas where the United States has a logistical advantage because it decreases the ability of buyers to offset increased shipping costs with lower priced wheat from competing origins.

The same low prices supporting HRW demand caused U.S. farmers to decrease HRW planted area by 12 percent last fall to 23.3 million acres (9.43 million hectares), which will likely result in smaller 2017/18 HRW production. Last year, record high yields offset lower planted area, but U.S. HRW planted area for 2017/18 is 20 percent less than five years ago. As discussed in the Feb. 23 Wheat Letter, farmers across the U.S. plains expect yields to return to the trend line this year given the current soil moisture and crop conditions.

Reduced HRW supplies are expected to be part of a smaller total world wheat crop in 2017/18 following last year’s record-large production. Production is expected to return to more normal trend lines around the world resulting in smaller crops for most of the world’s wheat exporting countries. The notable exception is the European Union (EU), where wheat production is expected to rebound after excessive rain cut yields last year. The European Commission forecast 2017/18 EU common wheat production at 143 MMT, up 7 percent from 2016/17 with better yields offsetting a slight reduction in planted area. EU 2017/18 durum production is expected to fall 2 percent from last year to 8.8 MMT, due to a reduction in planted area.

On Mar. 6, the Australian Bureau of Agricultural Research and Sciences (ABARES) projected Australian wheat planted area will decrease 1 percent to 31.6 million acres (12.8 million hectares) citing increased competition for area from canola, pulses and sheep. With the assumption of average growing season conditions and a return to trend line yields, ABARES forecast Australian 2017/18 wheat production at 24.0 MMT, down 11 MMT from 2016/17 and 5 percent below the 5-year average, if realized.

In February, Agriculture and Agri-Food Canada (AAFC) estimated 2017/18 Canadian wheat planted area will fall by 3 percent to 22.6 million acres (9.15 million hectares). A projected 29 percent decrease in durum acres and 12 percent decrease in winter wheat acres more than offset the expected 5 percent increase in spring wheat acres. Excessive rains last fall hurt quality and delayed harvest and subsequent fall planting across Canada. With decreased planted area and an expected return to trend line yields, AAFC expects Canadian wheat production to decrease in 2017/18 to 28.6 MMT. If realized, that would be a 10 percent decline from the prior year and 3 percent below the 5-year average.

Last fall, Russian farmers planted winter wheat on 36.5 million acres (14.8 million hectares), up 4 percent from the prior year. The Russian Ministry of Agriculture expects spring wheat planted area will decline slightly to 33.6 million acres (13.6 million hectares) due to increased competition for area from corn. Strategie Grains (SG) expects Russian 2017/18 wheat production to total 67.2 MMT, down 14 percent from last year’s record production due to a return to trend line yields that more than offset the increase in planted area.

SG expects Kazakhstan 2017/18 wheat production to fall 18 percent year-over-year to 13.8 MMT due to reductions in planted area and yield. Ukrainian farmers are also expected to produce less wheat in 2017/18. SG projects Ukraine wheat production will total 23.9 MMT. If realized that would be down 8 percent from 2016/17, but 7 percent above the 5-year average of 22.5 MMT.

The world is poised to produce a smaller wheat crop for the first time in four years, and the recent wheat futures rally indicate farmers, traders and customers alike are all taking notice, especially in light of record consumption. Before spring fully arrives with its typically volatile weather, customers should consider joining those who are securing supplies of high-quality U.S. wheat at what remain very attractive prices.

2. USW and USDA Partnership Reintroduce HRW to Angola’s Expanding Flour Milling Industry

The West African nation of Angola is making good progress in its desire to improve food security for a rapidly growing population, currently estimated at 24.5 million people. The Angolan government believes that building its own food processing capacity is a crucial part of that effort to help reduce the cost of importing processed wheat flour, maize meal and cooking oils, while creating jobs for the Angolan people, lowering consumer food expenses and preserving foreign exchange.

Angola currently imports an estimated 800,000 MT of processed wheat flour from various origins to produce popular baguettes and Portuguese style bread, but the country was not always dependent on flour imports.

“U.S. Wheat Associates (USW) introduced HRW wheat to Angolan milling companies in 1993 through the USDA PL 480 Title 1 monetization program,” said Ed Wiese, USW Regional Vice President for Sub-Saharan Africa. “The industry processed many thousands of MT of HRW every year until 2001 when the Title 1 program ended. And Angolan bakers told me they very much liked the quality of the HRW flour to make baguettes and Portuguese-style bread.”

When monetized U.S. HRW was no longer available, the Angolan government turned to subsidizing imported flour. Recently improved economic prospects and the government’s new focus created an opportunity to begin increasing flour milling capacity. To build on its legacy of success, USW hired a part-time consultant to provide timely and accurate information about U.S. HRW to Angolan flour millers, bakers, grain traders and government officials. Funding for this trade service comes from USW’s partnership with USDA’s Foreign Agricultural Service export market development programs.

In 2016, Wiese met with representatives of an Angolan flour mill that plans to expand its capacity beginning in 2017. Wiese proposed a way to demonstrate the value and utility of U.S. HRW to that mill’s staff and customers. Under the USDA/FAS Quality Samples Program (QSP), USW arranged for 100 MT of HRW from the state of Kansas to be shipped to the Perdue export terminal in Norfolk, VA, loaded into five shipping containers and ultimately delivered to the mill in late January 2017.

A separate QSP shipment of U.S. HRW flour recently arrived at an Angola food processing company, intended to demonstrate the usefulness of HRW in pasta production. The current U.S. Ambassador to Angola, Helena M. La Lime, and representatives from USW and the North American Millers’ Association celebrated the arrival of this shipment in a ceremony at the processing company on Feb. 28. Africa Today reported that Amb. La Lime highlighted the great potential U.S. wheat has in supporting Angola’s milling and food industries and said the United States “supports Angola’s efforts to diversify the economy through industrialization and increased local production of consumer goods.”

“I believe U.S. wheat farmers would be proud to know that their wheat has the potential to help improve economic conditions in Angola,” said Wiese. “Through trade service, technical support and training, our organization tries to build lasting relationships with our valued customers around the world. And, assuming prices remain competitive in the changing world wheat trade, we hope that our support will lead to increased demand for HRW to produce great bread, pasta and other wheat food products for the Angolan people.”

3. PNW Vessel Delays Begin to Improve
By Steve Wirsching, USW Vice President and West Coast Office Director

This winter the Pacific Northwest (PNW) has seen snowstorms and record rainfall that reduced vessel loading and inbound rail service. A slowing of rail service for just a few weeks manifested itself into long vessel lineups and loading delays of up to three to four weeks. Normally there are 12 to 15 vessels in the Columbia River waiting to load. However, the Daily Grain Bulletin, published by the Portland Grain Exchange, reported 38 grain vessels waiting to load a few days ago.

Almost every sort of natural disaster imaginable has interrupted rail service to the PNW. The Burlington Northern Santa Fe (BNSF) railroad applied additional resources to restore full service as soon as humanly possible. Last week there was a break in the weather, which allowed the rail service to partially recuperate. This marginal improvement raised train velocities and increased the number of unit-trains arriving in Portland daily.

Export elevators are also struggling with the weather because they cannot load when it is raining. Reports are that vessel loading efficiency is down 25 percent due to the heavy rainfall. Portland set a record in the month of February when over 10 inches of rain fell in 28 days, the most precipitation since 1996. When it rains this hard, exporters must close the hatches to protect the grain from excess moisture. Some facilities have special hatch covers where some grain can be blown through a small hole, but the loading speed is dramatically reduced.

Further complicating the weather delays are the planned repairs of the Columbia Snake River System. The U.S. Army Corp of Engineers closed the river system on Dec. 12 for necessary long-term maintenance, putting additional pressure on the rail system, now the sole mode of transportation to move grain to market. An ice storm in the Columbia River gorge stopped construction for several days, delaying repairs with possible impact on the planned reopening date of March 20. The Army Corp of Engineers is doing everything in its power which includes working on the weekends and adding labor to complete the repairs on time, but there is only so much they can do when fighting mother nature.

The grain trade is working its way out of this backlog and all expectations are that by April the Columbia River will be back to normal. Currently vessels entering the river are waiting two to three weeks to load. Loading delays and higher basis levels will potentially crowd out spot market demand limiting sales for the next year. However, most wheat buyers heeded the advice of USW early last year, when told to purchase wheat ahead of the river closure. Wheat sales and shipments are ahead of last year’s pace, a clear indication that buyers responded to USW’s recommendations. Grain (wheat, corn and soybean) exports are as much as 21 percent higher this year, the best year in the last 10 on a calendar year basis.

With a healthy dose of perseverance, the grain trade, railroads, barge lines, growers and overseas buyers will work through these logistical challenges and overcome the delays. Traditional U.S. folk lore says March weather “comes in like a lion and out like a lamb.” There are hundreds of people here in the PNW, and among many of our customers, we are waiting anxiously for the lamb to arrive!

4. USDA Expects U.S. Wheat Production to Fall 20 Percent Year-Over-Year
By Stephanie Bryant-Erdmann, USW Market Analyst

The USDA held its annual Agricultural Outlook Forum Feb. 23 to 24 where the 2017 Grain and Oilseeds outlook was presented. USDA currently estimates 2016/17 (June to May) wheat acreage at 46.0 million acres (18.6 million hectares), a nine percent decrease from last year.

USDA reported that winter wheat plantings are down 10 percent with the HRW crop having the largest decrease. HRW plantings fell by 12 percent to 23.3 million acres (9.43 million hectares). Soft red winter (SRW) plantings decreased by 300,000 acres (121,000 hectares) to 5.7 million acres (2.3 million hectares). USDA anticipates a 3 percent reduction in spring wheat plantings due to more favorable returns for other commodities. Currently, USDA’s spring wheat and durum acreage projection stands at 13.6 million acres (5.51 million hectares).

Due to the expected reductions in planted area and a return to trend line yields, production will decrease to a projected 50.0 MMT. If realized, that would be down 20 percent year-over-year. Based on trend yields, USDA expects the national average yield to fall to 47.1 bushels per acre (31.6 MT per hectare). USDA projects the wheat harvested-to-planted ratio will be 0.85, on par with 2016/17 and the 5-year average.

Though winter wheat planted area is at its lowest level in 108 years, growing conditions can greatly impact production levels as demonstrated in 2016/17. In February, winter wheat ratings declined in Illinois, Kansas, Montana, Nebraska, North Dakota and South Dakota, according to the monthly USDA Crop Progress report. The biggest change was noted in Montana, where USDA rated 5 percent of winter wheat in good to excellent condition compared to 70 percent in January. The percentage of Oklahoma wheat rated good to excellent increased to 43 percent, up from 33 percent in January. USDA reported 15 percent of Oklahoma wheat in poor or very poor condition, down from 17 percent in January, but significantly higher than the 1 percent poor or very poor on the same date last year. USDA resumes weekly crop progress reporting on April 3.

Large carryover stocks will partially offset the projected lower production, yet the forecast expects total U.S. supplies to decrease in 2017/18. USDA forecasts 2017/18 U.S. supplies at 84.3 MMT, down 9 percent from 2016/17, still 1 percent more than the 5-year average, if realized. Demand in the United States will decline in 2017/18, due to decreased feed usage. USDA anticipates a 2 percent decrease in domestic use, from 33.9 MMT to 33.1 MMT.

Smaller U.S. supplies and competition from other origins are expected to constrain U.S. wheat exports. USDA expects U.S. exports to decline slightly to 26.5 MMT, down 5 percent from the forecasted 2016/17 U.S. wheat export level of 27.9 MMT. U.S. ending stocks are forecast to decrease to 24.6 MMT, down 21 percent year-over-year but still 8 percent above the 5-year average.

To read more from the USDA Outlook Forum or to download presentations, please visit http://www.usda.gov/oce/forum/.

5. An Aggressive Trade Policy Agenda for 2017
By Ben Conner, USW Director of Policy

On March 1, the U.S. Trade Representative’s office released the President’s Trade Policy Agenda for 2017. This document lays out the key trade policy principles and objectives of the Trump Administration.

Probably the best word to describe this agenda is aggressive. Some might have expected a word like transformative or even cataclysmic, but for those worried about the future of U.S. trade policy, this document is somewhat reassuring.

That could come as a surprise. The U.S. wheat industry supported the Trans-Pacific Partnership (TPP), is a major beneficiary of the North American Free Trade Agreement (NAFTA), and hopes China remains a member of the World Trade Organization (WTO). These positions seem to be at odds with some of President Trump’s trade rhetoric, but this trade policy agenda demonstrates that there may be substantial common ground.

An aggressive trade policy agenda does not necessarily mean aggression towards supply chains, and likely means further opening of trade opportunities. The agenda’s guiding principle is that trade should be expanded “in a way that is freer and fairer for all Americans,” with four major priorities:

  • Defending national sovereignty over trade policy;
  • Strictly enforcing U.S. trade laws;
  • Using leverage to open foreign markets;
  • Negotiating new and better trade deals.

There is certainly a sharper edge to this than we have come to expect in the past, but it seems to be more of a difference in tone and priorities rather than a total break from past trade agendas. In fact, following through on this trade agenda could be good for U.S. wheat customers. Barriers to U.S. exports make imported wheat more expensive and sometimes cost-prohibitive. If the United States takes a more energetic approach to eliminating these barriers, wheat importers and exporters alike could benefit.

One special point of emphasis in this trade policy agenda is sovereignty. It discusses at length that the WTO has no jurisdiction in the United States. This is emphatically true, and an important reminder about what the WTO is. WTO agreements are not international law in the sense that they supersede the law of domestic courts. The WTO commits nations to lower import barriers as agreed and formalizes processes for countries to retaliate when other countries act unfairly. The document also points out that WTO agreements are not meant to be “living agreements” that can be interpreted to mean something not originally intended by the signatories. While lawyers likely disagree on this point, it is certainly not outside the mainstream of trade policy thinking and seems to be consistent with the Obama Administration’s approach.

The point of this is not to suggest that there is no cause for concern. The concern of some in the Administration about trade in goods deficits and the inefficient emphasis on bilateral negotiations do not our preferred approach to a more open and transparent international marketplace (and could be detrimental to U.S. agricultural exporters). However, if this policy statement represents the Administration’s trade agenda going forward, there may be cause for optimism.

6. Promoting U.S. Wheat Around the World

As USW Vice President of Overseas Operations 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 January and February to promote all six classes of U.S. wheat in an ever more complex world grain market.

Egypt. USW Regional Vice President for Middle East and North Africa Ian Flagg attended a meeting with officials from the General Authority for Supply Commodities (GASC) in Cairo, Egypt, to introduce USW and discuss the advantages of U.S. wheat in the government’s food procurement activities.

Haiti. USW Consultant Dr. Rebecca Regan and USW Mexico City Office Technical Specialist Marcelo Mitre traveled to Haiti to conduct laboratory equipment training for staff at a local flour mill. The training included helping the mill staff consider how to match rheological and baking tests to specifications for their flour and semolina production.

Taiwan. USW cooperated with the Department of Health of Taipei City Government and Taipei Bakery Association (TBA) to conduct a promotional activity providing healthy bakery products prepared by 20 bakeries to more than 5,000 school children from 46 primary schools. The holiday bakery products focus on healthy ingredients to introduce school children to better dietary choices and to promote healthy bakery products using U.S. wheat.

Mexico. In February, USW Mexico City regional office staff had a series of meetings with the Mexican National Bakers’ Association (CANAINPA) to discuss how USW can collaborate with the Mexican baking industry in the future. CANAINPA recently modernized its baking school, with equipment provided by the Mexican baking industry.

Israel. Regional Vice President Ian Flagg and Regional Marketing Director Rutger Koekoek traveled to Israel to conduct a Crop Quality Seminar for the Israeli milling industry, grain trade and officials. They provided information about HRW crop quality and the most recent supply and demand estimates and other market insights. The event was organized together with the Manufacturers Association of Israel, which hosted the event including the meeting room and coffee break. The twenty participants included employees of five different milling companies representing eighty percent of the total annual Israeli milling volume.

7. Wheat Industry News

  • Quote of the Week: “We appreciate that the wheat we monetize comes from farmers in the U.S. What you create in another part of the world is creating serious impact here.” ‐ Simon Muli, Deputy Chief of Party for the Global Communities project in Kenya, Tanzania and Malawi, speaking to the USW Food Aid Learning Journey delegation.
  • NAWG Elects New President, Officers. David Schemm, from Wallace County, KS, was elected president of the National Association of Wheat Growers (NAWG) March 2, at a board meeting held in conjunction with the Commodity Classic in San Antonio, TX. Jimmie Musick, a farmer from Southwest Oklahoma was elected Vice President. Texan Ben Scholz moved up the ranks of leadership to Treasurer. Gordon Stoner from Outlook, Montana, will continue to serve on the executive committee in the role of Past President. Dave Milligan from Cass City, Michigan, becomes the newest face in NAWG leadership with his election as Secretary. Read the full announcement here.
  • New Online Home for Ag Export Education. A new website, www.AgExportsCount.org provides information about U.S. agricultural export market development and is the foundation of a unified public presence for the multiple coalitions and individual organizations that support USDA’s Market Access Program (MAP) and Foreign Market Development (FMD) program.
  • Summer Internship. Kansas Wheat is currently seeking applications for the full-time, temporary position of Communications Summer Intern. The paid internship with last from May 15 to Aug. 18, 2017. More information is available here.
  • Congratulations to Alvaro de la Fuente on 40 Years of Service. Alvaro is the Regional Vice President in the USW Santiago Office. We are so fortunate to have such devoted, loyal colleagues at USW. Thank you, Alvaro, for your years of service to our organization, to U.S. wheat farmers and to our customers around the world.
  • Congratulations to Tarik Gahi and his wife Sabrine on their newest addition. A baby boy, Ali Jamal, was born Friday, Feb. 10, 2017. Tarik is the Milling and Baking Technologist in the USW Casablanca Office.
  • USW Sends Sympathy to Wataru “Charlie” Utsunomiya and his family on the passing of his mother, Ayano Utsunomiya. She passed away Feb. 28 in Matsuyama City, Ehime Prefecture, Japan, Utsunomiya-san’s home town. Charlie is the Country Director in the USW Tokyo Office.

Source: U.S. Wheat Associates

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