Merchandisers Talk Wheat, Flour Use Trends

There’s a grab bag of factors affecting both sides of the demand equation for hard red spring and durum wheat, according to merchandisers who spoke at the North Dakota Wheat Commission’s wheat outlook forum,  held recently in Minot, N.D.

Norm Davis, senior merchant with Cargill, Minneapolis, says that flour consumption continues to drop, at the same time that milling capacity is also dropping.  “Our mills (all flour business) are operating at less than 90% and the trend is continuing to drop. We will be looking at 2003 operating at an estimated 85.6% of capacity.”

Why the decline in flour use? One reason is health concerns. “The industry needs to be very active and vigilant to be sure that grain-based foods are not totally blamed for the lack of proper exercise and our sedentary life style,” Davis says.

Extended shelf life of bread and better product quality has also had an impact.  Many bread labels now list longer expiration dates. “This has had a big impact on the flour milling business.  Bakeries are buying less flour to make their product,” he says.

On the plus side, population growth is a positive for the industry, and grain-based foods continue to offer excellent on-the-run convenience. Bakeries and flour customers are placing more focus on developing and marketing grain products that are healthier.

While domestic wheat milling demand is soft, world demand is “on the upsweep, and pulling spring wheat up with it,” says Davis.  

A lot of spring wheat is exported into Europe; Italy and Spain are big buyers of wheat, and Central America is an important market as well.  Kurt Haarmann, senior merchant with Columbia Grain of Portland, adds that as the Chinese economy moves forward, they will continue to outstrip their own domestic grain production, presenting market opportunities there.

Of course, American wheat exports will need to fight for market share. “Canadian wheat is the biggest competitor in spring wheat; they are targeting the same countries that we are,” Davis says.

Tom DeSmet, vice president of marketing and senior merchandiser for Cenex Harvest States, Inver Grove Heights, Minn., says that more private wheat buyers and fewer government buyers has meant a change in the way of doing export business.

“Changes that have occurred in marketing durum started really changing about five years ago. We no longer have the big 200-300,000 tons tenders with the grain buyers. They have all gone on a privatized basis. That makes for a very difficult market because we are working with (prospective buyers) that don’t have a lot of money.”

There are more buyers in the world who want to do their own grain buying, outside of government channels.  “They just don’t have the funds to do it. We spend a lot of our time sorting out who is for real and who is not. You can put all the trade on the books, but if they don’t have the money to pay for it, we will have an awful time with it,” says DeSmet.

He says the U.S. needs to promote the fact that it raised an excellent quality durum (and hard red spring) wheat crop this year. Domestically, DeSmet says a durum loan rate that is higher than spring wheat on one hand may help secure durum acres needed to supply the U.S. market, but also has a downside, in that it establishes a price ceiling that discourages buyers from bidding up the price.

Tom DeSmet, vice president of marketing and senior merchandiser for Cenex Harvest States, Inver Grove Heights, Minn., says that more private wheat buyers and fewer government buyers has meant a change in the way of doing export business. (Photo: Ellen Huber, NDWC)