3103 10th Street, North ● Suite 300 ● Arlington, VA 22201 Tel: (202) 463-0999 ● Fax: (703) 524-4399 Wheat Letter January 23, 2014 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.” The activities of USW are made possible by producer checkoff dollars managed by 19 state wheat commissions and through cost-share funding provided by USDA’s Foreign Agricultural Service. For more information, visit www.uswheat.org or contact your state wheat commission. Original articles from Wheat Letter may be reprinted without permission; source attribution is requested. Click here to subscribe or unsubscribe to Wheat Letter. In This Issue: 1. GASC Tenders Reflect U.S. Wheat Buying Opportunity 2. Too Much of a Good Thing 3. India’s Massive Crop Grown from Poor Government Policies 4. Wheat Growers Welcome Introduction of Trade Promotion Authority Legislation 5. Practical Voices in the GMO Food Discussion 6. Wheat Industry News Online Edition: Wheat Letter – January 23, 2014 (http://bit.ly/19QTrHW) PDF Edition: USW Price Report: www.uswheat.org/prices 1. GASC Tenders Reflect U.S. Wheat Buying Opportunity By Casey Chumrau, USW Market Analyst This month, Egypt’s General Authority for Supply Commodities (GASC) accepted its first and second bids for U.S. wheat in marketing year 2013/14 (June to May). Considering the significant freight advantage enjoyed by Black Sea and European suppliers, the latest GASC tender results indicate that U.S. wheat is once again competitive even in more price sensitive markets. The Chicago Board of Trade soft red winter (SRW) March futures contract lost 21 percent of its value between Oct. 24, 2013, and Jan. 17, 2014. The FOB price for February delivery fell 9 percent in that same period. That translated to a drop of $26 per metric ton (MT) that helped put SRW in a very competitive range compared to every other supplier. Between the two tenders, GASC purchased 115,000 MT of SRW at $265 per MT on a FOB basis for February delivery. Freight costs of $38 per MT from the Gulf put the total price at $303 per MT. In the 1 first tender, U.S. wheat was the least expensive of all the bids by $7 per MT or more. GASC purchased an additional 55,000 MT of SRW in the second tender. It also purchased wheat from Ukraine, France and Russia for $301 per MT cost and freight. GASC’s recent tender results also appear to reflect a buying pattern. The January tenders mark the third consecutive year in which the Egyptian government’s wheat importer made its first U.S. purchase around the beginning of the calendar year. USDA expects Egypt, the world’s top wheat buyer, to import 10.5 million metric tons (MMT) this year, which would tie for the third highest on record for the country. On average the last five years, Russia and Ukraine accounted for 54 percent of the Egyptian market while the United States captured 17 percent. However, the availability of Black Sea wheat has been extremely variable in that time. As the prices of depleted Russian grain supplies increased in 2012/13, for example, GASC turned to U.S. wheat for the first time on Feb. 11, 2012. By the end of the marketing year (May 2012), GASC and other private Egyptian buyers had imported 948,000 MT of U.S. wheat. Faced with even lower Black Sea supplies in 2012/13, GASC completed its first U.S. wheat purchase of the year on Dec. 1, 2013. Total U.S. sales to Egypt reached 1.71 MMT in 2012/13, accounting for 20 percent of total wheat imports. With the recent downward price trend, current U.S. wheat export commitments do not extend much past the end of February. USDA reported that total known outstanding sales and accumulated exports of all U.S. wheat classes for 2013/14 through Jan. 9 are 24.9 MMT. That is 25 percent more than the 19.8 MMT total last year at this date. USDA expects 2013/14 U.S. wheat exports to reach 30.6 MMT or nearly 12 percent more than in 2012/13. Clearly, buyers like GASC recognize the value of U.S. wheat and are taking advantage of excellent price competitiveness. 2. Too Much of a Good Thing By Shawn Campbell, USW Assistant Director, West Coast Office Canadian farmers enjoyed the blessing of near perfect growing conditions this year, leading to a record wheat crop of 37.5 MMT that was 38 percent larger than last year’s crop. Combined with a record canola crop and good production for other crops, the year held great promise for Canadian agriculture. Sadly, the bumper crops have overwhelmed the Canadian logistical system and proven to be too much of a good thing. Farmers report that country elevators are only offering low or even no bids on wheat for nearby delivery. Some farmers who signed forward contracts say elevators are pushing back their delivery dates and the CWB is not posting wheat basis prices for delivery before next October. As a result, farmers are stuck with crops losing value every day they stay in their bins. Reuters reported that some farmers have resorted to selling wheat into feed channels or trucking it south into the United States, but at very small volumes that cannot really improve the situation. Canadian grain exporters also expected a great year but now face similar challenges, especially those moving grain through the Pacific ports of Vancouver and Prince Rupert. USDA currently projects that Canada will export 23.0 MMT of wheat this year, the most since 1991/92. As of late December, Canada had exported 8.2 MMT of wheat in 2013/14, up 8 percent compared to the same time last year. However, its December exports only totaled 1.5 MMT. That is down 18 percent compared to November and down 14 percent compared to December 2012. It is also the first time this marketing year that the month’s wheat exports were less than the same month last year. 2 The Port of Vancouver is especially hard hit. Analysts reported an average processing time of 17 days per grain ship compared to a normal processing time of nine to 10 days. There are also reports that rail shipments arrive at export terminals with the wrong grain at the wrong time or just don’t arrive at all. The result is a growing backlog of ships, more than the available anchorage at Vancouver, ringing up more than $10 million (USD) in demurrage fees so far. Canadian Pacific exporters now indicate they will be unable to take on any new business until after May. Railroads and rail car shortages may have contributed to the logistical problems. Local analysts indicated that major rail carriers Canadian National and Canadian Pacific accumulated a backlog of 40,000 cars from August to December. That is eight times more than last year with grain capacity of 4.0 MMT. However, Canadian National reported it moved 12 percent more grain than its five-year average for the same period while Canadian Pacific moved 16 percent more than its five-year average. The railroads claim their challenge is not a backlog, but rather the inability to get cars to the right place at the right time. Many analysts cited archaic rail regulations, such as a rail revenue cap, the lack of a secondary rail car market and a lack of rail demurrage fees for creating major inefficiencies in the grain handling system. The Canadian grain trade, which is still adapting to an open market, may have tried to push too much grain through the system too quickly. Given the huge crop, some analysts suggest Canadian grain traders put out discounted bids after harvest. Buyers responded quickly. In fact, the Pacific Canadian grain terminals have exported 9 percent more than last year, including 670,000 MT going to countries normally serviced by the eastern terminals that could not compete with west coast prices. Eventually, though, the bottlenecks formed in the west because the system could not keep pace with demand. The Canadian grain market is facing a difficult lesson in open grain marketing this year. Debate over the reasons behind the logistical issues will continue as the Canadian government initiates a review of the grain transportation system. Questions remain as to whether or not Canada will achieve USDA’s wheat export projection of 23.0 MMT. If not, Canada will likely end this marketing year with its highest wheat ending stocks since the early 1990s, and that will challenge the Canadian and U.S. wheat markets well into 2014/15 and maybe beyond. 3. India’s Massive Crop Grown from Poor Government Policies By Alan Tracy, USW President Recent estimates indicate that the wheat crop now in India’s fields could top 100 MMT. Only China has ever exceeded that level of production in a single year. Hidden from the story about this remarkable production is how the Indian government's minimum price guarantee policy helped to create the bumper crops. Indian officials have steadily increased wheat support prices since 2005/06, most recently to 13,500 rupees or $228 per MT (see chart). That is a clear signal to farmers — from the government, not the market — to plant more wheat. Now, with most of India’s storage capacity already full of an estimated 20.0 MMT in carryover stocks, it is not surprising that India is aggressively promoting exports.