Wheat Letter

April 20, 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 18 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. Importer Ending Stocks Shrink to 6-Year Low
2. USTR Report Highlights Need for Rules-Based Trading System
3. Wheat Quality Improvement Team Travels to Asia to Discuss Quality Control
4. Visiting Farmers Learn Quality is Very Important to Latin American Customers
5. No Difference Between Modern and Heritage Hard Red Spring Wheat for Celiac Incidence
6. Wheat Industry News

Online Edition: Wheat Letter – April 20, 2017 (http://bit.ly/WheatLetter04202017)                                                                                
PDF Edition:
USW Supply & Demand Report: http://www.uswheat.org/supplyDemand
 

1. Importer Ending Stocks Shrink to 6-Year Low
By Stephanie Bryant-Erdmann, USW Market Analyst

On April 11, USDA released its latest World Agricultural Supply and Demand Estimates (WASDE) report. With six weeks left in marketing year 2016/17, USDA expects wheat world ending stocks to reach a record high 252 million metric tons (MMT), up 4 percent year over year and 22 percent ahead of the 5-year average, if realized. The current marketing year factors in this report are well defined and the record large ending stocks are neither surprising nor new to those who follow the wheat industry. However, the position of those stocks has been quietly changing.

Historically, global wheat exporters — Argentina, Australia, Canada, the European Union (EU), Kazakhstan, Russia, Ukraine and the United States — have held roughly 30 percent of global ending stocks. China has historically held one third of global endings stocks and the mostly net importers that remain have held about 37 percent. The 5-year average breaks out with exporter stocks at 61 MMT, China holding roughly 70 MMT and the world’s importers carrying out about 75 MMT.

However, USDA expects that ratio to shift at the end of 2016/17. Chinese ending stocks are expected to reach a record high 111 MMT, or 44 percent of global ending stocks. In global wheat exporting countries, ending stocks are also expected to grow slightly to 74.0 MMT, but the ratio will fall to about 29 percent of global ending stocks. Carryout stocks in the world’s wheat importing countries are expected to fall 16 percent year over year to 67.1 MMT. If realized, that would be 11 percent below the 5-year average and 27 percent of global ending stocks, down 10 percentage points from the 5-year average.

This decrease is due in large part to a shift in purchasing behavior. Four consecutive record production years have enticed many buyers to adopt a “just-in-time” approach to take advantage of the lower prices and reduce storage costs where possible. That is why ending stocks in the top 20 markets for U.S. wheat (excluding China) are expected to cover just over two months of consumption, 6 percent below the 5-year average.

Additionally, 28 countries (including the EU, the world’s largest wheat consumer and normally a top wheat exporter) expect to have one month or less of domestic consumption in carryout stocks at the end of 2016/17, compared to the 5-year average of 20 countries with one month or less of domestic consumption. There are also 23 countries for which USDA does not show ending stocks data. These countries import 6.09 MMT of wheat annually and, with limited storage capacity, tend to buy “just-in-time.”

With lower planted area and an expected return to trendline yields, world wheat production is poised to decrease in 2017/18. With importing country stocks drawn down to the lowest level since 2010/11, any supply shocks would increase price volatility in wheat futures markets. On paper, the world has ample wheat, but 44 percent of that supply resides in China, which rarely offers wheat or flour for export.

After four consecutive years of larger global production and lower global wheat prices, many customers have minimal stocks on hand to weather supply shocks, and as one wheat buyer noted, “wheat (export) prices take the stairs down and the elevator up.” Fortunately for our customers, the United States holds 12 percent of world wheat ending stocks, ensuring the U.S. wheat store is always open. What is still uncertain is whether the price of U.S. high-quality wheat will remain at the current low levels. As always, weather is the wildcard, both in its direct effects on world wheat production and the wheat price impacts of any production problems with other major grains, especially corn and soybeans.

Customers should be aware of changing conditions around the world, and can track USDA weekly wheat crop condition and planting progress reports, as well as the latest U.S. weather forecast on the weekly USW Price Report.

USW will begin weekly Harvest Reports in May. To subscribe to any of USW’s reports, click here.

2. USTR Report Highlights Need for Rules-Based Trading System
By Ben Conner, USW Director of Policy

Every year, the USW Wheat Letter features an article on the annual release of the National Trade Estimate (NTE) report by the Office of the U.S. Trade Representative (USTR). While the issues it quantifies do not change rapidly, the latest NTE shows the extent of the problems facing the Trump Administration, which has made trade enforcement a cornerstone of its economic policy.

The NTE is the U.S. government’s most comprehensive report on trade barriers. It covers more than 40 countries or country groupings. In just under 500 pages, it clearly shows that these barriers pose a major challenge for U.S. exporters and investors. Most of the issues are policies that violate rules of a U.S. trade agreement or the World Trade Organization (WTO).

Considering trade enforcement, the NTE may understate the challenge. For the wheat industry alone there are several barriers not listed in this massive report. If USTR decided to pursue every long-standing issue facing the United States through dispute settlement, it would stretch its resources far past the breaking point. Unfortunately, new problems seem to arise faster than it takes governments to fix old problems.

This underscores the need for countries to commit strongly to a rules-based trading system. Trade disputes are one way to address the problems, but even a country with considerable resources for trade disputes like the United States, which has sued or been sued in nearly half of all WTO disputes, can barely begin to address outstanding issues through disputes alone.

However, strategic enforcement is important to maintaining the effectiveness of international trade rules. There are economic benefits from fixing specific trade barriers, but just as vital is the deterrence effect on countries that would consider implementing new barriers. If we must litigate every issue, the system could collapse.

Last year, USTR took a big step in challenging non-compliant domestic support programs in China — a growing problem for at least a decade. The NTE mentions similar problems in India, Turkey and Brazil and the hope is that the China cases lead to serious reforms to subsidies in these countries as well. USW and USTR need to stay vigilant to help reverse the trend of increasing WTO-violating subsidies and ensure that countries consider their trade commitments before implementing new policies.

Every country, including the United States, has unique internal pressures that may divert them from trade commitments at the margins. The NTE is an important way to demonstrate how those pressures affect U.S. industries, but without effective enforcement and negotiated solutions, it is just a very long list.

As an industry stakeholder, USW provided input on its key trade barriers through comments submitted in October 2016. Read those comments here. The full 2017 NTE report is posted online here.

3. Wheat Quality Improvement Team Travels to Asia to Discuss Quality Control
By Steve Wirsching, USW Vice President and Director, West Coast Office

The USW Wheat Quality Improvement Team (WQIT) connects wheat breeders who develop new varieties with overseas customers to discuss which quality characteristics end users value the most. This is essential to the breeding process because for farmers about half of their wheat is exported and importers expect high value from those purchases.

The latest WQIT travelled to Bangkok, Thailand, and Taipei, Taiwan, where they met with quality control specialists April 3 to 12, 2017. The team included:
·        Dr. Mike Pumphrey, Washington State University;
·        Dr. Phil Bruckner, Montana State University;
·        Mr. Robert Talley, AgriPro/Syngenta;
·        Mr. Steven Wirsching, USW.

To learn more about the team members, click here.

In Bangkok, the breeders met with milling managers from Vietnam, Indonesia, Thailand and the Philippines who gathered at the UFM Baking and Cooking School to test selected U.S. wheat varieties against their own flours made from competitor wheats under the supervision of Roy Chung, USW Bakery Consultant. An annual event, this year the WQIT observed test results demonstrating that U.S. hard red spring (HRS) wheat quality is improving with longer farinograph stability times and better water absorption. This group also provided feedback on hard red winter (HRW) wheat used for Asian style noodles that require color stability. Many new HRW varieties under development in Montana have very low polyphenol oxidase (PPO) enzymatic levels that help noodles remain bright during processing. U.S. soft white (SW) wheat stands out as the best option for sponge cakes, cookies and crackers. Solvent retention capacity (SRC) values are used to distinguish U.S. wheat quality from other competitors that have similar protein values but vastly different starch and baking qualities.

In Taipei, the team met with the Taiwan Flour Millers Association (TFMA) to discuss wheat quality and supply reliability. Overall, the Taiwanese are satisfied with U.S. wheat quality, but there is always room for improvement, and the U.S. wheat industry is working to stay ahead of the competition. The WQIT also attended the Taipei International Bakery Show and met with several flour millers. Over the years, USW, in partnership with TFMA, has worked to develop this market, and the fruits of our joint efforts were in full display at this international event. The market is incredibly sophisticated with thousands of products that continue to drive wheat flour consumption higher, such that Taiwanese now consume more wheat than rice on a per capita basis. The team also met with China Grain Products Research and Development Institute (CGPRDI) staff who have trained thousands of bakers and other end users to create a wide range of products that keep consumers interested in wheat foods. Established in the 1960s with funding from USW and state wheat commissions, CGPRDI provides technical training for bakers and millers as well as wheat quality analysis.

The wheat breeders also discussed the benefits of hybrid wheat and other non-GMO plant breeding innovations. Talley, the Syngenta wheat breeder, is developing commercial hybrid wheat varieties that promise to increase drought tolerance, heat resistance and overall yield, which could bring benefits to the wheat industry within 5 to 7 years. Some of the millers asked if the new hybrid wheat would be considered a GMO. Talley explained that hybridization has been used for many crops, most notability corn, since the 1930s. Hybrid wheat will not be a GMO crop, but will benefit from the hybrid vigor of crossing two dissimilar high quality parent lines. Like all U.S. public and private breeding programs, Syngenta is committed to bringing high quality wheat to the market.

In today’s hyper-competitive market, overseas customers are not just looking for the lowest prices. More and more are seeking real value. USW is working with public and private breeders to develop high quality wheat varieties that perform not only in the flour mill, but also in the bakery or cookie/cracker line, delivering economic value to the end users and, in turn, to millers and farmers alike.

4. Visiting Farmers Learn Quality is Very Important to Latin American Customers
By Shawn Campbell, USW Deputy Director, West Coast Office

Wheat harvest is the culmination of a year’s worth of hard work and prayers. As the big day approaches, farmers contemplate many questions. What is the yield going to be? Is the quality going to be good enough to avoid discounts? Will the price go up or down? At the same time, on the other end of the supply chain, their customers are pondering many of the same questions.

Every year, USW sends a group of farmers (selected by state wheat commissions) to tour a region of the world and gain a better understanding of what customers want and need. Earlier this month, three U.S. farmers traveled to Mexico, Haiti, Ecuador and Chile, including: Rachael Vonderhaar, a wheat farmer from Camden, OH, and secretary of the Ohio Small Grains Marketing Program; Eric Spates, a wheat farmer from Poolesville, MD, and member of the Maryland Grain Producers Utilization Board; and Ken Tremain, a wheat farmer from LaGrange, WY, and member of the Wyoming Wheat Marketing Commission. Shawn Campbell, Deputy Director of USW’s West Coast Office, led the team and was joined by overseas staff based in the USW Mexico City and USW Santiago Offices.

“I wanted a better understanding of the full supply chain logistics from my farm to Latin America,” said Vonderhaar. “The trip was a big commitment of time and energy away from our farming operation, but necessary to understand the buying decisions of the millers.”

Spates added, “I hoped to learn about international wheat trade and what USW does, and I was not disappointed.”

In Mexico, the team found the largest importer of HRW and soft red winter (SRW) wheat, an advanced milling industry and a well-funded association dedicated to constant improvement of the country’s baking industry. On average the past 5 years, Mexico has imported 4.4 MMT of wheat annually, of which 70 percent is U.S. wheat. However, thanks to competitive pricing and low ocean freight rates, the United States is facing increasing competition from Canada, Europe and the Black Sea Region. The customers the team met also expressed concerned about U.S. political rhetoric on the future of the North American Free Trade Agreement (NAFTA).

“It is important to keep our legislators aware of our buyer’s needs,” said Tremain. “Trade with our partners is vitally important and necessary for good relationships.”

The visit to Haiti, the least economically developed country in the Western Hemisphere, was a major learning experience for the team. Haiti imports 134,000 metric tons (MT) annually, 57 percent of which comes from the United States, with the remainder sourced from Russia, Canada and Mexico. Haiti is an underdeveloped market, but with a population of 10 million people, it is growing. The team got a firsthand look at the challenges USW overseas staff face in their efforts to promote U.S. wheat exports there.

“I was most surprised by the poverty in Haiti,” said Spates. “The conditions are emblematic of the varied and challenging places USW works, and yet Haiti is a market with great potential to import more U.S. wheat.”

In Ecuador, the team observed the country’s democracy in action as its citizens voted for its next president. Ecuador imports 710,000 MT of wheat annually, but only 33 percent comes from the United States, a marked difference compared to neighboring countries. Ecuador is a former favorite of the now defunct Canadian Wheat Board, which aggressively defended its market share there. Now USW representatives are working diligently to demonstrate the increased value to be found in U.S. wheat. A highlight in Ecuador was the tour of a cookie plant.

“We received many compliments on U.S. wheat quality,” said Vonderhaar. “But the buyers are definitely aware of weather issues that affect that quality from year to year and are very clear about their expectations for clean wheat.”

The journey’s final leg was to Chile, a country with a highly developed milling and baking industry constantly working to guarantee they receive the highest quality wheat at the lowest price. Chile imports an average of 845,000 MT annually, of which 45 percent comes from the United States. Major competitors include Canada and a resurgent Argentina, which is rapidly becoming a major exporter again since its government removed wheat export tariffs last year. The team met with several millers in Chile who were excited to show off their mills and quality laboratories.

The team members returned home with a greater appreciation for the nuances of overseas demand and USW’s activities to foster increased demand for their wheat.

“I am impressed with, and appreciate the strong personal friendships USW people have built within the region, said Vonderharr. “I want to make sure we are growing wheat that our Latin American millers and bakers demand.”

“USW has a complicated job promoting wheat around the globe as some customers are very receptive to their efforts, and some less so,” said Spates. “Hearing the millers emphasize the need for quality certainly reinforced my commitment to producing high quality wheat.”

“We have a responsibility to share with other farmers what we learned about the kind of quality our buyers expect from the United States,” said Tremain. “USW is vital in the promotion of our product.”

The team will report to the USW Board of Directors later this year. To see pictures from this and other USW Board Team trips, please visit the USW Facebook page at www.facebook/uswheat.

5. No Difference Between Modern and Heritage Hard Red Spring Wheat for Celiac Incidence
By Dr. Senay Simsek, Bert L. D’Appolonia Cereal Science and Technology of Wheat Endowed Associate Professor, North Dakota State University, Fargo, ND

With the global demand for wheat remaining quite strong, there is a continual need to develop new varieties that have resistance to the latest disease threats, as well as improved yield, agronomic and end-use qualities. The varieties available today are improved over historic varieties, yet their basic genetic structure is essentially unchanged. In the Northern U.S. Plains during the past century, there have been many improved wheat cultivars, including many public varieties developed by breeders at North Dakota State University (NDSU).

Those of us involved in wheat research, production and processing fully accept that flour from HRS and other wheat classes as well as semolina is healthy and very nutritious for the vast majority of people. However, this has not prevented opposing points of view, and serious attacks against food products that contain gluten.

Celiac disease is a real and serious autoimmune condition that has gained a lot of attention in the past few years. Reputable medical organizations have determined that celiac disease is prevalent in about 1 of every 100 people worldwide. However, the over-simplified explanation that “gluten causes celiac disease” has likely hurt the reputation of wheat and wheat foods. There is a subtle but significant difference that demonstrates gluten alone does not cause celiac disease and, as our study showed, that new wheat varieties are not responsible for increased cases of celiac.

The gluten in wheat, which is essential for the elastic texture of dough, is composed of two separate proteins: glutenin and gliadin. Glutenin and gliadin are divided into distinct compounds, which in turn are made up of specific peptides (compounds of two or more amino acids in a chain).

A genetic predisposition to celiac must exist in individuals before the presence of certain gliadin and glutenin peptides may trigger an immune response that results in damage to the lining of the small intestine. These peptides are therefore considered “immunogenic.” Previous studies have found that α-gliadin proteins in wheat have a high number of immunogenic peptides.

In many ways, simply blaming gluten for celiac has helped spark quite a bit of unwanted attention from bloggers, authors, doctors and others making claims that modern breeding practices have changed wheat protein chemistry. This has resulted in a higher concentration of immunogenic peptides in modern wheat in comparison to historical wheat varieties, and that this is a contributing factor towards increased incidence of celiac disease.

To test this hypothesis, we studied the protein chemistry of 30 HRS wheat cultivars released in North Dakota in the last century. The presence of celiac disease-initiating-peptides was determined using untargeted mass spectrometry, and the amount of these peptides was quantified using a targeted mass spectrometric approach. We collaborated with Dr. Steven Meinhardt from the NDSU Plant Pathology Department and graduate student Maneka Malalgoda worked with us as part of her master’s thesis project. This project was funded by growers through checkoff funds from the North Dakota Wheat Commission.

In the qualitative analysis, we determined the presence of 15 immunogenic peptides. We found that the presence of these peptides is not related to the release year of cultivars and that these peptides appear randomly. In our quantitative analysis, we specifically tracked two prominent immunogenic peptides, PFPQPQLPY (DQ-α-I/ glia-α9) and RPQQPYPQ (glia-α20), and total α-gliadin. The results supported our previous findings. That is, the amount of the peptides varied randomly across the years that were analyzed, and there is no correlation between release year and the number of immunogenic peptides or total α-gliadin.

Thus, overall, our results demonstrate that modern HRS wheat is not higher in terms of celiac disease immunogenicity in comparison to historical HRS varieties.

Our team plans to submit the complete study report to a peer reviewed journal in the future.

Editor’s Note: Capital Press has reported that a researcher is working with the Kansas Wheat Commission at the Heartland Plant Innovations Center in Manhattan, KS, toward a “celiac-safe” wheat. In theory, celiac-safe wheat would still contain the gluten proteins necessary for making bread, but would have none of the immunogenic peptides which trigger an immune response in people with the genetic predisposition for celiac disease, said Chris Miller, director of wheat quality research for Heartland Plant Innovations.

“I think the problem of celiac disease is so big that it won’t be solved by a single group of researchers,” Miller said. “If we can identify the underlying cause of celiac reactivity in the process, and we have the means to reduce it, we should be working towards those types of goals.”

6. Wheat Industry News

·        Quote of the Week: “Food assistance provided by the United States — almost 10% of hard red winter wheat exports in 2016 were through food aid programs — leads to greater stability in regions of the world important to America’s strategic interests … I am committed to protecting the gains we’ve made in international food aid programs.” – U.S. Senator Jerry Moran (R-KS), from an editorial published April 1, 2017.

·        The 2nd Annual National Wheat Yield Contest (NYWC), sponsored by the National Wheat Foundation, is open for entries. “Growers are excited about the contest because it provides the opportunity to showcase their management ability for wheat production, while encouraging them to think creatively about changes to their methods to improve productivity”, said Steve Joehl, the contest Director and NAWG’s Research & Technology Director. “It is a vehicle for growers to learn new practices that can be adopted on their own farms as well.”

Wheat growers and production specialists believe they can increase yields while maintaining or improving quality when production is managed under sound practices. Wheat growers know that quality is an essential component to carry out successful farming practices, which is why the Foundation is working with all sectors within the wheat industry to identify the key quality points to base the contest on. Looking ahead, the NWYC management team is developing a quality component to add to the contest in the future, hopefully for the 2018 crop year.

The winter wheat contest deadline is May 1, and the spring wheat deadline is Aug. 1. Enter the contest at http://yieldcontest.wheatfoundation.org.

·        National Festival of Breads (NFOB) Announces 2017 Contest Finalists. After months of analyzing recipes, mixing, kneading, baking and tasting, a panel of judges has selected the final recipes for the 5th biennial NFOB, June 17, in Manhattan, KS. King Arthur Flour®, Red Star Yeast® and Kansas Wheat sponsor the festival, which is the nation’s only national amateur bread-baking competition. The panel selected eight adult finalists and one youth champion, who are from all over the United States, from Utah to Maryland. The grand prize winner will receive a cash prize of $2,000, plus a year’s supply of Red Star Yeast® and a trip to the King Arthur Flour Baking Education Center in Norwich, VT. Read the full announcement here and to learn more, follow NFOB on Facebook.

·        Wheat All About It Podcast: “Pay Attention.” The Washington Grain Commission invited Steve Mercer, USW Vice President of Communications, to be a guest on its April 11 podcast to discuss the Market Access Program (MAP) and the Foreign Market Development (FMD) program, and the benefits they stimulate for farmers and their overseas customers. Listen to the podcast here and visit http://wagrains.org to access other episodes.

·        Condolences. USW sends its condolences to the family, friends and colleagues of Dr. Diter von Wettstein, who passed away April 13, 2017. Wettstein retired in 2016 as a R.A. Nilan Distinguished Professor in the Washington State University Department of Crop and Soil Sciences. His international career focused on genetics, plant breeding and cereal chemistry, spanning seven decades during which he supervised 75 Ph.D. students, published more than 350 articles and received numerous awards.

·        Asian Noodle Technology and Ingredient Application. The Wheat Marketing Center will host this course June 6 to 8, 2017, in Portland, OR. This course is designed to provide a better understanding of noodle formation, processing technology, evaluation techniques and the functionality of food ingredients in Asian noodle applications. Click here for more information.

·        IGP Institute and Buhler, Inc. Partner for Milling Course in English. This summer the IGP Institute and Buhler, Inc. will collaboratively offer executive milling courses in both English and Spanish. Leading off is the Buhler-KSU Executive Milling English course, June 12 to 16, in Manhattan, KS. The course is an introduction to grain cleaning, flour milling, and grain quality and functionality. Registration closes May 12. Click here for more information and to register.

·        New Online Home for Ag Export Information. 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 leverage USDA’s Market Access Program (MAP) and Foreign Market Development (FMD) program to promote U.S. commodities and high-value agricultural products overseas.

·        Subscribe to USW Reports. USW has added a “Subscribe” menu at www.uswheat.org where visitors may subscribe to this newsletter, the weekly Price Report and the weekly Harvest Report (available May to October.) Click here to subscribe or unsubscribe.

·        Follow USW Online. Visit our page at www.facebook.com/uswheat for the latest updates, photos and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter at www.twitter.com/uswheatassoc and video stories at www.youtube.com/uswheatassociates.