Customer


	Issue 105 Prairie Grains


	Prairie Grains is the official publication of the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, Montana Grain Growers Association and South Dakota Wheat, Inc.


	Getting to Know Your Spring Wheat Customer

Knowing your customer is one of the keys to a successful business. Who is your customer? What do they want? Why are they purchasing your product? What product attributes make the customer purchase your product, and not the competitors? How is your customer service? And more importantly, how can you make them buy even more of your product?As consumers, we are accustomed to answering questions about our purchasing habits. At the checkout, we are asked for our ZIP code. We have signed up for rewards club points and offers, which allows the seller can track what, when and where we buy their products. Companies use this information to try and make us buy more of their products.

Unfortunately, wheat farmers do not have the luxury of providing “frequent buyer cards” to customers. On average, 57 percent of hard red spring wheat is exported each year, and there are more than 150 buyers in 30 countries that purchase hard red spring wheat in a typical year, according to John Oades, Vice President for U.S. Wheat Associates. “These [buyers] are anywhere from large government agencies like Japan to gigantic milling companies or groups of milling companies that will buy together so they can buy in vessel size quantities,” says Oades. Vessel sizes range from about 22,000 tons on the small end to about 60,000 tons for the largest one. To put it in perspective, a 60,0000 ton vessel will take about 5 shuttle trains.

Backing all this up to the farm level, a semi-truck hauls 35 tons. A shuttle train hauls 11,000 tons. And a large vessel hauls 60,000 tons of wheat. That means there are over 1700 truckloads of wheat on each large vessel and buyers expect a uniform quality. Think back to each of the truckloads you delivered to the elevator, and the variations in protein, moisture and test weight from field to field and variety to variety. Buyers are demanding, but since they are the customer, the customer is always right.

Virtually all export demand for spring wheat is for 14% protein. “The key in thinking about what customers are looking for is the notion that spring wheat is using primarily as a blending wheat, to blend up the functional qualities, such as gluten and dough mixing, of poorer quality wheats,” says Oades. “It stays very focused on maximum potential to blend up the quality of other wheats, and it’s not much interested in proteins under 14%, unless the price is severely discounted, as spring wheat farmers are seeing this year.”

FGIS, the Federal Grain Inspection Service, is charged with the task of ensuring all wheat that leaves U.S. export ports is the quality specified in the contract. Customers control their wheat quality through seven major demands; U.S. grade, wheat class/subclass, protein, moisture, dockage, falling number and vomitoxin. These seven factors should be familiar to farmers and every country elevator has the capability to test individual loads for these specific attributes.

Most export customers buy U.S. #2 or better, and a few do buy exclusively #1. Many customers also contract for “above grade” quality on individual test factors such as test weight above the #2 limit of 57 lbs/bu, or damaged kernels below the #2 grade limit of four percent. Many Asian customers request exclusively Dark Northern Spring, with a minimum of 75% dark, hard and vitreous, and many define a DHV minimum. Dockage specifications vary greatly based on the customer view of value, and the wheat cleaning capability at the export elevator. Taiwan frequently has a maximum of .3% dockage, with discounts applied beginning at .01%. Review that last sentence, and see where those decimal points fall. Taiwan is a very sophisticated buyer, and does not want to purchase dockage.

Of course there is an additional customer demand that is currently classified as “other”. “When I came to work for U.S. Wheat Associates twenty seven years ago the “other” category did not exist,” says Oades. “Today it gets ever longer as these customers seek more and more.” Other factors may include limits on pesticide residues, mycotoxins, plant diseases, weed seeds, insects, and thousand kernel minimum weights.

Oades did offer a glimpse into the future of spring wheat marketing: “Ten years from now you’re going to be selling wheat into the market place based on gluten functionality; what the dough mixing characteristics are. The technology is evolving to be able to do that and measure it at country elevators. Hopefully this will make issues like protein much less sensitive in the marketplace. Instead of using [protein] as the proxy, buyers will directly measure some factors of functional quality.” Two examples of functional quality tests include alveograph values, and the gluten index. Instead of making assumptions about spring wheat quality based on protein alone, the protein level will be combined with the alveograph value and gluten index to determine a baking quality grade. You may be able to deliver a 12% protein wheat with a high gluten index, and avoid the discounts currently taken on low protein wheat.

World markets are extremely competitive and price is first in importance. “As we get more and more of these sophisticated and demanding customers, quality creeps up there closer to price,” concluded Oades. “We are very typically price challenged especially when it comes to Russia and the Ukraine. They’ll be $20-$40 per metric ton under us on the world market, and $37 per metric ton is a dollar per bushel. We really need to focus on providing quality and service to the customers,” he emphasized.

Since individual U.S. farmers do not have the capacity to meet with buyers, and do not have a monopoly board like the Canadian Wheat Board to dictate what varieties are grown and provide a one-stop shop, U.S. farmers rely on U.S. Wheat Associates to market wheat to foreign buyers. There are nineteen states, including MN, ND, SD and MT, that contribute $4.35 million to U.S. Wheat Associates, and the USDA Foreign Agricultural Service contributes $12.7 million, providing a 3:1 leverage on producer funds. There are seventeen offices around the world, including Seoul, Lagos, Moscow, Casablanca, and Mexico City, to name a few. There are around 85 people worldwide employed by U.S. Wheat Associates, and at any time, there are around 120 countries being serviced by market development programs. The cost per bushel to wheat producers is around one-quarter of one cent.

“We are a producer group. You own us. You run the operation through the board members from the 19 member states,” stated Oades. “There is a very heavy emphasis on market analysis, because the resources are finite and the board members have insisted that market analysis be a priority.” Another area of focus is trade servicing efforts and building relationships. “We aren’t selling wheat. What we’re selling is service; information, problem solving, coaching, coaxing, keeping the process moving and identifying value in your product.”

Technical assistance, such as the activities at the Northern Crops Institute in Fargo, is also an important aspect of U.S. Wheat Associates. Bringing trade teams to the U.S. to understand our system, or sending technical experts out to the buyers’ countries, explaining how to buy wheat better, how to mill it better, how to make better products and market them into their local markets. “We spend a good bit of your resources on helping people understand our grading system because it has a myriad of methods that are very specific and prescribed and tolerances in it depending on the word selections in the contract specifications. Once they come to understand that, there are very, very few complaints,” says Oades.

Dr. Mohamed Mergoum, NDSU Wheat Breeding and Genetics, recently participated on trade team mission to the United Kingdom, Italy, Spain and Morocco. “We go to those countries that are importing our wheat and see what specific quality, or trait they are requesting so we can bring that to our breeders, producer and market industry so we can accommodate those specific requests,” says Mergoum. Each country has unique requests for wheat traits. “In the U.K., they prefer wheat that is not very strong. Meanwhile, if you go to Spain or Italy, they would like to have a very strong gluten wheat.” Mergoum feels we have enough unique spring wheat varieties to satisfy the requests from all buyers.

Mergoum also traveled to Europe on a trade mission in 2005, and although the buyers remained mostly unchanged, he was surprised by the increase in competition, especially from the Black Sea. “If we produce very high quality wheat, I think we should not worry very much. However, when our wheat quality goes lower, such as what happened this year, then we have to compete with wheat coming from Europe itself as well as the Black Sea. There is a lot of wheat in the world market. The only difference is quality. If we don’t have quality, we don’t have a market. Bottom line,” he concluded. Sending a wheat breeder overseas to visit with buyers helps the buyers and sellers to better understand each other’s needs.

A branding seal that reads “American Quality Wheat” is placed on products with more than 70% U.S. products, and that is a major selling point in many foreign countries, especially in the Middle East. An activity that is requiring more and more time is policy development, looking at trade agreements, and trying to protect wheat’s position. “Export credits, trade agreements, and food aid, but at the end of the day it’s all about value” stated Oades.

Oades did have one request for U.S. farmers. ”Here’s what I’d like to ask of farmers as their employee: When selecting your wheat varieties, make your agronomic decisions first based on yield and protein. You figure out which of these varieties are going to put you in the money in those two categories first, then look at the baking quality column. Avoid those that are rated low or medium low. What we’re trying to do is just float the boat higher a bit on value. If you can optimize your yield and protein, while avoiding those with marginal baking quality, we’ve not decreased your income, but we have floated the boat a little higher on value.” A request from someone who works with the customers, and knows what products will be desired and purchased. If Oades is right, and in ten years farmers will get paid for wheat milling quality, and not just protein, selecting quality baking varieties is going to be a financial necessity very soon.

Knowing your customers is something that commodity farmers cannot tackle on their own. There are too many buyers, too many regional differences in quality and farmers just do not have the time. Although it is difficult to calculate the return farmers receive on the one quarter cent per bushel investment in U.S. Wheat Associates, having a knowledgeable and efficient staff to market 57% of the wheat production is certainly a strong investment.




		Dr. Mohamed Mergoum, spring wheat breeder from North Dakota State University, reviews whole grain bread in a London store.