Changing World Wheat Production Patterns
Drive Dramatic Shifts in Trade

US WHEAT ASSOCIATES / Wheat Letter 17jan03

It's an amazing world when Russia and Ukraine replace Canada and Australia in the top five wheat exporting countries, but that appears to be just what is happening.

According to a recent USDA report, the ranking of world wheat exporters is undergoing a seismic shift. The United States is forecasted to lead wheat exports by a huge margin, exporting about 25 million tons. The European Union is forecasted to come in second, about 10 million tons behind the U.S., but they will also likely be the world's top wheat importer, so they'll really have net exports of just 5.5 million metric tons.

Russia and Ukraine will come in with about 9.5 MMT and 9 MMT, respectively, with Argentina taking fifth place with 8.3 MMT. Following these five leaders are Canada, Australia and India, with export forecasts of 8 MMT, 7 MMT and 5 MMT, respectively.

One way to put a handle on the shift: market share by the five traditional exporters (U.S., Australia, Canada, EU and Argentina) has fallen from 84% to 63% in just three years. Why? The major reason, of course, is that since 1999/2000, wheat production by the five traditional exporters has fallen by 40 MMT, or about 18%, while nontraditional exporting countries have increased production by 35 MMT, or 19%.

U.S. wheat production decreased 30% from 1999/2000 to 2002/03, with a resulting 15% decrease in exports as ending stocks drop a precipitous 56%.

"While witnessing increased wheat production in many parts of the world, we have limited our own potential to compete, as farmers took wheat out of production for conservation programs and farm programs that encouraged the production of other crops," observes Paul Dickerson, vice president of U.S. Wheat Associates. "Sadly, we pursued policies that reduced our own wheat production while other parts of the world were doing the opposite."

No one dismisses the devastating impacts of droughts in Australia, Canada and the U.S., but production has been declining since before the droughts did their damage. For instance, U.S. wheat production has dropped steadily since 1998, resulting in a 36% decrease. (U.S. wheat export commercial sales dropped only 12% in the corresponding years.)

"Black Sea suppliers are here to stay," Dickerson predicts. To compete, "U.S. producers will need to increase production, which should occur as a result of price incentives," since more of America's high quality wheat is needed in the world wheat market.

CHEAP WHEAT NOT MEETING CUSTOMER NEEDS

Customers using the right specifications in their U.S. wheat purchases are continuing to meet the quality needs of their customers. Even in food aid shipments, the right specifications are absolutely critical. As one humanitarian group recently wrote USW about their latest food aid shipment: "Congratulations! All customers are super happy with the supplied quality which was achieved by updating the purchase specs." The representative goes on to explain that if customers had had USW recommendations previously, flour milling costs would have been lower for a considerable time since the quality received was much more appropriate for the end products -- without increasing the cost.

But as recent export numbers show, a lot of wheat is now coming out of Russia, Ukraine and India, and millers and bakers around the world are frantically trying to adjust in order to meet end product specifications, without a great deal of success. Reports from several regions indicate that wheat coming from the Black Sea have flour characteristics that do not correspond to market needs. For instance, the Black Sea wheats do not make particularly good French style bread or pastries, and are totally unsuited to cookie and cracker manufacture. There are similar situations with Indian wheat.

The major problem is that the majority of the wheats are too strong (P value) and not extensible enough (L value). Handling much of the Ukrainian wheat is even more difficult, as results are showing that it is neither strong enough, nor extensible enough. (It is the cheapest wheat in many regions, however).

Customers are quickly learning that the U.S. "strength wheats" (hard red winter and hard red spring) and "extensibility wheats" (soft red winter, soft white, and hard red spring) are valuable improver wheats, as experience is proving that using wheat improver classes in blends is significantly cheaper than using chemical improvers.

Customers who are receiving cheap wheats and who need more information on the necessary steps to improve their end products should contact their regional USW office or send a message to info@uswheat.org. We'll work with you to find the answers to your problems.

TRADE NEWS IN BRIEF...

The United States Trade Representative is formally preparing its negotiating position for the first round of talks on a free trade agreement between Australia and the United States. The initial round will start in Canberra on March 17, with two subsequent rounds in May and July expected to take place in the United States. As USTR prepares, U.S. Wheat Associates continues to press on the need to eliminate the AWB monopoly...

U.S. Senator Grassley told reporters that the White House should not delay any longer a case against the EU for its continued ban on U.S. products containing genetically modified organisms (GMOs). Despite an earlier WTO ruling in the US' favor, the EU has had an effective moratorium on new GM products for five years, costing U.S. farmers some $300 million annually in lost sales to Europe...

The first round of talks between Morocco and the United States over a free trade agreement is expected to start at the end of the month in Washington. Morocco would be the second Arab country after Jordan to have an FTA with the U.S. That evidently concerns the EU since, during talks to prepare for a gradual dismantling of trade barriers between the EU and Morocco by 2012, a French government minister reportedly cautioned Morocco against negotiating an FTA with the U.S. "You cannot say you want a closer partnership with the EU and at the same time sign a free trade agreement with the U.S.," the minister [mistakenly] said. (USW editor's note: What is it about "FREE trade" that the minister doesn't understand?)...

U.S. Trade Representative Robert B. Zoellick and ministers from Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua recently announced the launch of negotiations to eliminate tariffs and other trade barriers between the U.S. and Central America. Negotiations on the U.S.-Central American Free Trade Agreement, or CAFTA, will begin in Costa Rica this month, hopefully completing negotiations by December 2003...

The United States and five southern African nations (Botswana, Lesotho, Namibia, South Africa and Swaziland) recently agreed on a roadmap for negotiating a free trade agreement. This will be the United States' first FTA in Subsahara Africa. Discussions regarding the FTA will occur in February, with officials meeting to plan the negotiating process and develop an effective negotiating framework.

"PHARMA-PLANTS" NEXT ON THE HORIZON?

Acting proactively to anticipate any potential problems, solutions and opportunities with the biotechnology industry's latest innovation, U.S. Wheat Associates staff met with agriculture and industry representatives yesterday to discuss ongoing developments of pharma-plants.

Pharma-plants are produced by genetically engineering certain pharmaceutical traits into plants like corn or tobacco. The biotechnology and pharmaceutical industries point out that these plant-made pharmaceuticals (PMPs), can make important contributions to human health, including the production of proteins for new drugs to treat and fight life-threatening diseases. By using living plants instead of traditional manufacturing methods, PMPs can increase the safety, number and quantity of drugs. Companies say they can also produce drugs faster, and make them more widely available to those who need them.

On the other hand, the food industry is concerned about the use of food crops for the development of PMPs, fearing an episode where the pharma-plant would mistakenly enter the food supply. After a company violated regulations in a field trial last fall (which was caught and corrected by USDA), the Grocery Manufacturers of America and others called for a halt to the process.

"The food industry requires complete assurance from regulators and the biotech industry that the safety and integrity of the U.S. food supply remains intact," said GMA Director of New Technologies and Environment Karil Kochenderfer. "However, until the science and federal regulations can guarantee the separation of PMPs from the food and feed supply, we strongly urge the biotech industry to direct its substantial research capabilities into investigating the use of non-food crops for the development of pharmaceuticals."

USW staff is consulting with the food industry, the biotech industry, federal regulators, and the grain trade regarding the development of PMPs so that no question ever arises about the integrity of the U.S. wheat supply.

WINTER WHEAT SEEDED AREA UP, BUT STILL BELOW LONG-RUN AVERAGE

Winter wheat seeded area is up six percent from last year, making it the highest since 1998. Although the seedings are estimated at a 5-year high of 44.246 million acres (17.9 million hectares), plantings still lag behind the 10-year average of 46.479 million acres. While the increase in planted area this year should buoy production above 2002's 44 MMT crop -- the lowest in 30 years -- dry weather continues to plague the U.S. great plains, causing mounting concerns.

According to USDA's "Winter Wheat Seedings" report released last Friday, hard red winter (HRW) seeded area is approximately 32.1 million acres (13.0 million hectares), up 2.3 million acres (0.9 million hectares), or 8% from last year. In the major HRW growing states of Kansas, Oklahoma and Texas, winter wheat plantings are up 7, 8, and 3%, respectively. Strong wheat prices during the September and October planting season, in addition to the severe drought conditions last year, appeared to have contributed to the higher plantings. Producers may have increased wheat plantings because it requires less moisture than other alternative crops in the major HRW growing region, and in some areas, provides much needed forage for livestock.

Soft red winter wheat (SRW) seeded area is estimated at 8.2 million acres (3.3 million hectares), down 1% from last year. Planted area is down in the Delta and southeast states, as well as along the mid-Atlantic coast where wet conditions limited planting this fall. Winter wheat seedings in Ohio, Illinois, Indiana and Michigan are up 16, 18, 29 and 36%, respectively.

White winter wheat area is estimated at 3.9 million acres (1.6 million hectares), up 8% from last year. Dry conditions across Idaho, Oregon and Washington resulted in faster than average plantings and, in addition, higher wheat prices at planting time encouraged expanded seedings. Winter wheat seedings in Idaho, Oregon and Washington are up 4, 19 and 3%, respectively.

Durum wheat seedings in Arizona and California are estimated at 178,000 acres, down 6,000 acres from last year.

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Dawn Forsythe, Director, Public Affairs, dforsyth@uswheat.org
Kathleen Mullen, Market Analyst, kmullen@uswheat.org
U.S. Wheat Associates
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