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USW World Staff Conference - The Future for High Quality Wheat is Bright

Break Date: 6/6/2017 3:01:33 PM
Last Edit: 6/6/2017 3:01:33 PM

In May, U.S. Wheat Associates (USW) staff from around the world, along with state wheat commission staff and others met in Colorado for their world staff conference. The conference presents a unique opportunity to meet and share market expansion opportunities and challenges that face the U.S. wheat industry. Media headlines have been dismal in recent months - touting record world wheat supplies, lower wheat acreage, and competitive domestic and global challenges. Yet the message from the conference was clear - the future for U.S. wheat, especially high quality wheat, is bright.

Demand for quality wheat continues to grow, especially in Latin America and Southeast Asia. As population increases and incomes rise, demand grows for foods that offer greater convenience, variety and improved quality. HRS wheat is a perfect fit for the production of these products, and to blend with lower quality domestic and imported wheat of other origins. In Latin America, the U.S. has nearly a 100% market share in many markets including Guatemala, Honduras, Jamaica, Trinidad, Barbados and Belize, with each country purchasing several wheat classes from the United States. Mexico was the top U.S. wheat market in the region with sales of U.S. HRS averaging 10 million bushels in recent years.

Many countries in Southeast Asia, including the Philippines, Indonesia, Thailand and Vietnam are also experiencing population growth, a shift in diets, strong consumer demand, and subsequent demand for higher quality wheat, like U.S. HRS. The Philippines was the top HRS market globally in 2015-16 and is on pace to reach that status again in 2016-17 with 49 million bushels in sales. U.S. market share is over 90% in the Philippines. Other Southeast Asian countries collectively import an additional 25 million bushels of HRS annually.

The Asian region has been a consistent and growing market for U.S. HRS exports, with Japan, Korea, the Philippines and Taiwan being top 10 customers each year. These four customer countries have grown into consistent quality conscious buyers that are willing to pay a premium for it. USW and Commission programs began in Japan over 60 years ago and in Taiwan 50 years ago when wheat based foods were first introduced into local diets. They have become stable and growing markets that appreciate the quality U.S. HRS affords them. Over the last five years, these four countries combined have accounted for nearly half of total U.S. HRS exports. As supplies of mid to low quality wheat increase around the world, our quality markets barely waver, continuing to purchase U.S. wheat at notable price premiums. China is a more sporadic market where imports of HRS have fluctuated between two and 19 million bushels in the last five years. China too, is becoming more quality conscious as incomes rise and dietary standards change. U.S. HRS is used to blend with lower quality domestic wheat to meet the product and quality demands of the shifting consumer base.

Canada is the main competitor for U.S. HRS, and while many of our markets prefer the unique quality traits of HRS, Canadian spring wheat is often priced lower than HRS, making it an attractive option for buyers. Also, while most of the wheat production globally is not of comparable quality to HRS, buyers are reporting that quality of some competitor wheat, including from the Black Sea is improving. U.S. wheat breeders and producers must keep end-use quality as a top priority in new varieties. For durum, competition comes from cheaper sources such as Mexico, Europe, and Canada which has a much larger production base.

While population continues to rise in Latin American and Southeast Asia, some of our long-time reliable markets, including Japan, Taiwan and Korea are challenged with a maturing population and declining birth rates. As a result, population growth has slowed, potentially affecting overall demand in the future. These countries will likely remain at the top of the list as quality wheat customers, but may not grow at the same pace of past years. Another concern with the Japanese market is the U.S. withdrawal from the Trans Pacific Partnership. If the agreement moves forward without the U.S., our wheat would automatically be at a $70 per ton higher cost as a result of import duties compared to wheat from those countries that remain in the
agreement. Fast growing economies in Indonesia and Vietnam are very promising growth markets.

Non-tariff trade barriers are not a new issue for U.S. wheat exports and they tend to come and go over the years. One of the biggest right now for both HRS and durum is the issue of pesticide residue levels, specifically, glyphosate. While current residue levels consistently fall well below maximum residue levels set by regulating bodies, some customers are demanding tighter maximum residue level (MRL's), with some pushing for zero. While the U.S. wheat industry remains sensitive to these concerns, many of these demands have no scientific basis. These residue issues are becoming a more serious issue for durum due to consumer pressure in Italy to reduce the glyphosate residue level in pasta products to zero. USW and the NDWC continue to address these concerns with customers and assure them of the safety of U.S. wheat, whether in domestic or export markets.