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November 13, 2008

U.S. Wheat Associates (USW) is the industry’s market development organization working in 90 countries on behalf of America's wheat producers. The activities of U.S. Wheat Associates are made possible by producer checkoff dollars managed by 18 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.

In This Issue: 1. Asian Board Team Discusses 2008/09 Crop with Millers, Bakers 2. USW Promotion Links Producers and Reliable U.S. Supply 3. U.S. Credit Guarantee Program Opportunities 4. Freight Risks Grow While Rates Decline 5. Biotech Trait Can Improve Crop Efficiency 6. Wheat Industry News

Online Version: Wheat Letter - November 13, 2008

1. Asian Board Team Discusses 2008/09 Crop with Millers, Bakers

Three U.S. wheat producers and a U. S. Wheat Associates (USW) staff member are on a two-week Board Team visit to Asia. In its visits to Portland, OR, the Republic of Korea, and Taiwan the Team has seen keen interest in the U.S. wheat crop quality and supply – and the outlook for wheat prices. The Team is currently in Indonesia to attend a USW Crop Quality Seminar and to meet with millers there and in Vietnam before returning to the U.S.

USW Board Teams are intense, regional visits arranged per the organization’s bylaws to give Board members the chance to review the work of local USW offices, to learn about local milling wheat needs and to thank milling and baking customers for their business. The wheat producers on this Board Team are: David Clough, representing the North Dakota Wheat Commission; Chris Cullan, representing the Nebraska Wheat Board; and Tom Duyck, representing the Oregon Wheat Commission. They are joined by Steve Mercer, USW Director of Communications.

In Portland, the Team started with an overview of the U.S. wheat supply chain for Asian buyers by USW Vice President/Director West Coast Office John Oades and Assistant West Coast Office Director Steve Wirsching. Walter Rust, Manager of the Federal Grain Inspection Service Field Office in Portland explained the unique inspection system that gives buyers strong assurance that specified wheat qualities will be delivered. The Team saw that system at work at the CLD Irving export elevator where a vessel bound for Korea was being loaded with U.S. soft white (SW), hard red winter (HRW) and hard red spring (HRS). James Wu, President, Pacific Grain Exporters Association and HRS Merchant with United Harvest, discussed customer interests, and the excellent Wheat Marketing Center staff helped the Team understand the products Asian customers are producing with flour made from U.S. wheat.

In Busan, Korea, USW Senior Technical Marketing Manager Dr. Woojoon Park arranged meetings with three of Korea’s top flour mills. These millers separately but consistently asked the producers to talk about availability of specific qualities they desire to make Korea’s unique noodle flours and, of course, prices. The big concern: will prices go up again? David Clough, who grows HRS and a number of other crops in north-central North Dakota, said even though global supply is way up this year and wheat prices have fallen back dramatically from their early 2008 highs, “we are really just one or two bad weather situations from seeing prices go back up again.” While the best estimate is for U.S. wheat FOB to “settle” in the $250 to $270 per metric ton range, there are significant supply and demand factors yet to be seen.

For example, Randy Schepf, an agricultural policy specialist in the U.S. Congressional Research Service, recently said the U.S. Renewable Fuels Standard (RFS) minimum usage requirement and import tariffs on foreign ethanol have combined to create huge demand for domestic ethanol and biodiesel. By 2022, the RFS will require some 36 billion gallons of renewable fuels, including 15 billion gallons of corn ethanol and about two billion gallons of biodiesel. Schepf said the demand will help expand the Corn and Soybean Belt to an area that includes nearly all of Kansas, Oklahoma and Nebraska – what is now predominantly wheat country.

“Without some incentive like biotechnology to grow wheat,” Clough told these customers, “farmers like me will definitely switch to more profitable alternatives.” The result, he added, will be fundamental support for higher wheat prices.

Tom Duyck described the SW situation from his perspective in western Oregon. “I’m sure you know that a lot of the soft white has unusually high protein this year,” he told millers in Korea and Taiwan. “Prices are pretty low but you probably can get the qualities you need. I would recommend specifying for what you need as soon as possible. You never know what might happen between now and next summer.”

Chris Cullan raises HRW and hard white (HW) in the Nebraska Panhandle. HW is much desired in North Asia for use in noodle flour and the buyers were anxious to know if more U.S. HW might be available.

“Almost all the hard white grown in the U.S. is purchased for the domestic market,” Cullan said. “That will probably stay true unless we can reach a critical mass where the incentive to segregate and supply hard white reaches through the supply chain.” He was happy to report he and other producers in his area harvested a normal HRW crop – good news to the Korean buyers who purchase HRW to blend with SW for noodle flour and to buyers in Taiwan who are working to serve a growing bread market.

Cullan spoke for his fellow producers when he said “My family thanks you for buying our wheat. You can count on us to do everything we can to supply the wheat you want. We appreciate your business.”

2. USW Promotion Links Producers and Reliable U.S. Supply

USW is introducing a new promotional campaign reinforcing the image of U.S. wheat producers as the world’s most reliable suppliers of high-quality wheat to buyers, millers and wheat food processors worldwide. The new campaign theme is: “The world’s most reliable choice. The wheat you want, from producers you can depend on.”

This campaign is designed to more closely link high-quality U.S. wheat and wheat producers, according to Steve Mercer, USW Director of Communications.

“USW has done a good job using producer checkoff dollars to demonstrate that U.S. wheat can compete effectively in the competitive global market. Now, we want to tie the reliability and quality image of what is grown to the people who grow it,” Mercer says.

The new campaign features wheat producers Larry Flohr, of Chappell, NE.; Dan Hughes, of Venango, NE.; Harlan Klein, of Elgin, ND; and Randy Suess, of Colfax, WA. USW worked with state wheat commission staff to select the producers.

As part of the campaign, USW overseas representatives will distribute high-quality posters, suitable for framing, for display in the offices of public and private wheat buyers, millers and wheat food processors. The posters promote the high quality and diversity of U.S. milling wheat by featuring the producers amid the natural beauty of their wheat at harvest time. The campaign theme and images extend to the USW annual report to producers, a Crop Quality report, and a range of educational materials.

The U.S. is the world’s largest wheat exporter, with about half the country’s crop exported annually. As part of the effort to foster export sales, USW and state wheat commission staff host several teams of overseas buyers or grain officials every year. “Our customers routinely get information about our crop quality, supply and our grain transportation and inspection system,” Mercer says, ”but what they remember most is the time they spend on our farms. Our customers tell us they want closer ties with producers, so making personal connections to the entire supply chain are increasingly important.”

Click here to see the U.S. producer images from the campaign.

3. U.S. Credit Guarantee Program Opportunities

Credit guarantees are now available from the U.S. Department of Agriculture (USDA). USDA’s Commodity Credit Corporation (CCC) administers export credit guarantees for commercial financing of U.S. agricultural exports. The guarantees encourage exports to buyers in countries where credit is necessary to maintain or increase U.S. sales but where financing may not be available without CCC guarantees. The agency recently announced that $3.5 billion in credit guarantees are available for the 2009 fiscal year. GSM-102 mandates the overseas buyers to purchase the needed commodities from the United States.

4. Freight Risks Grow While Rates Decline

Even though bulk freight rates did not decline last week for the first time in 35 days, there is much concern in the market about the financial health of shipping lines with the steep drop in demand from the global economic slowdown. Even though container grain shipment rates are also down, they are still higher than bulk freight rates. That’s a big change from the past year of two.

Transportation consultant and International Grains Program Senior Agricultural Economist Jay O’Neil reported recently that new orders for containerized shipments of bulk grain have almost come to a halt. He said container rates, and other cost considerations, will have to decline further to be competitive with Panamax vessel costs.

O’Neil suggests it is critically important now that buyers conduct due diligence on vessel charters because while rates are low, these are risky times.

5. Biotech Trait Can Improve Crop Efficiency By Bill Spiegel, Kansas Wheat; excerpts reprinted from a Kansas Wheat release

Vic Knauf believes there is great potential in solving some of the agronomic problems that plague wheat producers.

Knauf is the chief scientific officer at Arcadia Biosciences, Davis, California. The company develops plants that improve the environment and are beneficial to human health. And Arcadia is developing Nitrogen Use Efficiency technology in wheat.

“It varies by crop and location, but generally, 50 percent of the nitrogen farmers apply to the ground, the plant will never use,” Knauf told wheat producers at this week’s fall board meeting of the U.S. Wheat Associates and National Association of Wheat Growers. So Knauf’s company has fine-tuned technology developed by the University of Alberta, Canada, to develop and test NUE in cereal crops.

Researchers have eight seasons of data in North Dakota, Minnesota and California, indicating farmers can achieve the same yield of canola with the NUE trait using one-third the nitrogen that conventional canola requires. Early research in rice shows that, with NUE technology, a half-rate of nitrogen still results in higher tiller count and increased panicle numbers.

Arcadia has developed and licensed NUE technology to a number of companies in several crops, including Monsanto for canola and Pioneer for corn. For wheat, the challenge of adopting biotech is greater. Not only is the grain readily consumed by humans – a sticky wicket when it comes to biotech adoption – but the bulk of the nation’s wheat research occurs at land-grant universities and USDA Agricultural Research Service facilities. Therefore, biotech research companies like Arcadia must develop licensing agreements with each institution in order to recoup their research investment.

Wheat leaders are working to develop a less cumbersome means of creating licensing agreements.

That’s a good thing, as biotechnology investment in wheat can bring about a host of traits that make wheat a much more sustainable crop. These include traits such as drought tolerance, which allows more bushels to be grown with less water; Fusarium tolerance…and of course, Arcadia’s nitrogen use efficiency.

5. Wheat Industry News

• Issues with PNW HRS Data . Samples from the state of Montana are missing from the HRW quality results presented in the USW 2008 Crop Quality Report. The absence of the Montana samples limits the usefulness of the PNW Exportable HRW values in the booklet. The problem was not noted until after the 2008 Crop Quality Report had gone to print. Revised results with updated HRW Composite and PNW values should be available around Dec. 1. USW regrets the oversight and will provide the data to customers as soon as it is available.

• USW Service Anniversaries . Two USW colleagues have marked career milestones serving U.S. wheat producers and their customers. Kevin McGarry, Vice President of Finance, Arlington, VA, and Mohamed Hegazy in the Middle Eastern/North and East Africa office in Cairo each celebrated 25 years with the organization since Oct. 31. Congratulations to both.

• Sympathies Extended . Ms. Chris Durbin, who worked in the U.S. FAS Office of Trade Programs, passed away recently from a congenital heart condition. She worked most recently in the Grants Management Branch of the Marketing Development and Grants Management Division overseeing the Emerging Markets Program. Ms. Durbin was the daughter of U.S. Senator Dick Durbin of Illinois.

• McFall Out . Dr. Dirk Maier, Dean of the College of Grain Science & Industry at Kansas State University (KSU), recently announced that Professor Kendall McFall, Associate Director of the International Grains Program and Buhler Instructor of Milling at KSU has resigned to take an executive position in a private, start-up company. Dr. McFall is a long-time associate with USW and its customers. We wish him the best of luck in his new venture.

• Next Wheat Letter . Due to extended staff travel and the upcoming U.S. Thanksgiving holiday, the next issue of Wheat Letter will be published Dec. 4, 2008.

Prepared by Steve Mercer