September/
October 1998
By Alan Tracy, President, US Wheat Associates
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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.
This is a frustrating time in the wheat industry, with little new export demand, plentiful supplies and prices at the bottom of their trading range, which I know is not news to anyone in wheat country.
There are, however, some bright spots in the export market.
We should thank the heavens for Egypt, which increased its wheat imports from the U.S. in the 1997/98 marketing year by 67%, to just under five million metric tons (MMT), moving it well ahead of Japan as our top wheat customer. Without the substantial increase in Egypt's buying, we would have suffered a significant drop in exports versus last year. As it is we will about hold our own, despite drops in some key markets like the Philippines.
Following the recent International Grains Conference in London, USDA Undersecretary Gus Schumacher and I hosted Mr. Samir Shakankiri of Egypt, who is the leading buyer of wheat, at a dinner to get acquainted and to thank him for his steady purchases from the U.S. It seems that nothing is more important to him than the assurance of a steady, timely supply, and he recognizes that the U.S. is the only supplier that gives him that assurance. In Egypt itself, U.S. Wheat Associates' office there is conducting an "American Quality Wheat Seal" promotional campaign to create consumer-driven demand for wheat flour products utilizing U.S. wheat.
Keeping customers important
As many of you know, the U.S. depends upon the export market for about 50% of the wheat grown in this country each year. In the world of market development, sometimes it's not only about increasing sales, but also maintaining sales and not losing important customers or markets.
A recent case in point is Pakistan, which was the third leading importer of U.S. wheat in the 1997/98 marketing year. When sanctions recently issued against Pakistan following their testing of nuclear weapons threatened continued U.S. wheat export sales to this important market, U.S. Wheat Associates immediately took action to ensure continued sales. As the U.S. Congress worked to exempt government farm guarantees of commercial sales from the sanctions, U.S. Wheat Associates provided information to members of Congress and worked directly with Pakistani Embassy officials.
We were successful in persuading the officials to move a planned July 10th wheat import tender to July 15, allowing Congress more time to do its work. Following unusually speedy approval by both the Senate and the House to pass a bill exempting certain sales from the sanctions, U.S. wheat exporters participated in the July 15th tender, where they were rewarded 300,000 metric tons of sales. Pakistani officials told us that the U.S. was rewarded a larger than originally intended amount as a gesture of appreciation for U.S. wheat farmers' efforts to remain a reliable supplier to Pakistan.
Sales to EU increasing
There are other examples of instances where U.S. Wheat Associates has been instrumental in ensuring continued purchases of U.S. wheat in other markets, some large, some small. It is easy to overlook some of the smaller markets, which when grouped together within the context of a world region, represent significant markets. For example, U.S. wheat sales to the European Union (EU) , traditionally thought of as a large wheat producer and exporter, totaled 1.3 MMT in 1997/98. This amount makes the region the sixth leading market for U.S. wheat. The U.S. also exported 561,100 MT of wheat to non-EU countries, including Eastern Europe.
Sales to EU countries are increasing, from 683,600 MT in 1995/96, to 834,700 MT in 1996/97, to 1.3 MMT in 1997/98. The EU was the number one buyer of U.S. durum in 1997/98, buying 505,400 MT, representing nearly 40% of total U.S. durum sales. The EU also was an important buyer of U.S. spring wheat, buying 834,00 MT, making the region the third leading buyer of hard red spring. What is behind market demand for these two classes in Europe? One reason is that durum and high protein blending wheats, such as hard red spring, as in short supply in the EU.
Much of the work conducted by U.S. Wheat Associates involves long-term market development and the continued success we have in finding a home for about half of the wheat grown in this country each year. However, sometimes results of activities are more immediately and directly apparent, as in the case of our recent trade servicing with Pakistani officials resulting in the sale of 300,000 MT of wheat, as well as an even more recent sale of 235,000 MT to Indonesia. Such trade servicing along with other activities, including the participation of foreign buyers in trade teams and crop quality and other seminars, results in decisions by wheat buyers around the world to begin or continue purchasing U.S. wheat.
Reasons for optimism
Despite the current market slump, US wheat farmers should take heart in the fact that the future for US wheat exports is bright. USDA's most recent supply and demand report pegged 1998/99 wheat exports at 1.125 billion bushels, up from a July prediction of 1.05 billion and also up from 1997/98 exports of one billion bushels.
As for the long-term future, there will be many mouths to feed and stomachs to fill as the world population is expected to grow by 50% to nearly nine billion by the year 2030. Nearly all of this growth is expected to occur in countries that are not currently grain markets of any significance. In addition, with the end of the cold war and the increasing global acceptance of market economies, the world economy will grow, and more of those people will have an increasing ability to purchase the quantity and quality of food they desire. All of these factors will no doubt translate into additional market opportunities for U.S. wheat.
Alan Tracy is president of US Wheat Associates, the export market development organization which works in 130 countries to increase wheat consumption and US marketshare for all classes of US wheat. There are 18 wheat-producing states (including Minnesota and the Dakotas) representing about 90% of the wheat grown in the US, which fund USW through wheat checkoff contributions. USW maintains its headquarters in Washington, DC, with an office in Portland, Oregon, and 15 overseas offices to implement its market development programs throughout the world. n
World wheat market: some diamonds in the rough
World grain output in 1998 looks to be the second highest on record, and assuming no sudden deterioration in current weather patterns, supplies of wheat should cover consumption in 1998/99, according to the London-based International Grains Council.
Still, there's a few reasons for price optimism. The IGC says supplies of higher quality wheat could be tight in some areas, and US hard red winter wheat protein was lower this year, which may spur premiums for US hard red spring wheat later in the marketing year. Dry conditions and poor prices are expected to result in US winter wheat planted acreage this fall that could be even lower than plantings last year, which were a 25-year low.
Low prices are going to force fewer acres to be planted in other areas of the globe as well, which should help prices move closer to the upward curve in the price cycle. Some diamonds in the rough:
The Brazilian winter wheat crop this year is projected to be down 18% from acreage planted last year.
Smaller harvests mean that stocks are likely to be drawn down in China, India, and Russia.
Europe is implementing a 10% set aside for 1999 and most of it will come from wheat and barley acres
Planted wheat area in Argentina, a US export competitor, is expected to fall by more than 10% from last year due to a bigger shift of acreage to sunflowers. Farmers there are also expected to cut fertilizer use to minimize costs after poor wheat returns in 1997/98.
Canadian durum acreage and production increased substantially over last year. Spring wheat acreage was the lowest since 1972, however, and overall, Canada's wheat supplies are expected to be at their lowest in ten years and a harvest comparable to last year will limit recovery of its wheat stocks.