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Wheat Letter
May 4, 2009
U.S. Wheat Associates 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. CFTC Names Peterson to Cash/Futures Convergence Panel 2. Buying Foreign Farmland Will Not Provide Food Security 3. Crop Conditions, Plans Affecting Interclass Wheat Prices 4. Tracy Discusses Value of Changing Cuban Trade Policy 5. Fritz to Leave Kansas Wheat; New CEO Sought 6. USW Hires New Market Analyst 7. Wheat Industry News PDF Version: Online Version:
1. CFTC Names Peterson to Cash/Futures Convergence Panel The U.S. Commodity Futures Trading Commission (CFTC) recently selected Vince Peterson, Vice President of Overseas Operations with U.S. Wheat Associates (USW) to serve on a Subcommittee of the CFTC’s Agricultural Advisory Committee on Convergence in Agricultural Commodity Markets. The Subcommittee will "bring together all relevant information on the potential causes of these problems and help investigate possible solutions that will restore the markets’ effectiveness as a risk management tool for the agricultural sector,” said CFTC’s Acting Chairman Michael V. Dunn. Peterson is among 18 Subcommittee members representing a range of agricultural markets and interests with stakes in commodity futures trading. The National Association of Wheat Growers (NAWG) actively supported his nomination. NAWG CEO Daren Coppock serves on the CFTC committee that directs this subcommittee. The CFTC formed the Subcommittee after noteing continuing problems with lack of convergence and weak basis. It is very difficult for commodity producers or buyers to hedge or make other price risk management trades efficiently when futures contracts and the cash price of the physical commodity they represent fail to reach the same value, or converge, on contract settlement day at designated delivery points. For example, soft red winter (SRW) futures on the Chicago Board of Trade (CBOT) have settled more than 20 cents apart on settlement day and more than $1.00 apart between settlement days. “SRW cash prices are driven by several factors,” Peterson noted in his initial contribution to the Subcommittee. “These include production relative to other wheat classes and competing crops; domestic consumption; and, to a great degree, export market competition – all applying pressure to SRW cash prices. At present, the CBOT wheat futures may not be adequately able to reflect all of these fundamental
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factors and that compromises its use as a viable hedging tool.” For more information, click here: http://bitly.com/fJJqk
2. Buying Foreign Farmland Will Not Provide Food Security by Alan Tracy, USW President There have been numerous press stories about food importing countries planning to buy land abroad to secure their food supplies. While that is perhaps a natural reaction to the shockingly high prices that basic food commodities reached briefly early last year, it will not work. It sounds plausible and will make some politicians feel good about themselves, but it will not provide any genuine food security and can distract countries from other steps than really can make their peoples' stomachs more secure. Saudi Arabia, the United Arab Emirates and Qatar have reportedly been seeking farmland in Africa and Asia. China, India, and most recently Japan have expressed interest, with China already invested in Mozambique and elsewhere in Africa. A South Korean company has bought a majority interest in a large farm in eastern Russia. Pakistan is said to be welcoming investors. In my view, there is nothing wrong with foreign investment in agriculture, as long as it makes improvements and introduces new technology to enhance production as a commercial enterprise. But don't pretend that it extends a nation's sovereignty and control into another nation's territory. That is a desert mirage, not a fertile field. Some have already labeled these efforts as "land grabs" or "second generation colonialism." Any such investment large enough to provide a meaningful amount of production is bound to generate resentment by local farmers who do not have the capital to compete with the foreigners. That resentment will provide a ready excuse for the host country to reassert its control if it ever decides it needs that food or the land itself. Logistics also martial against real or lasting control. Let us imagine that a Saudi company buys 25,000 hectares in Kazakhstan or Ukraine, enough for one good shipload of wheat. Or ten times that much, if the local authorities will let them. Where do they store the harvest? Whose inland transport do they use? Whose roads, railroad tracks or waterways? Whose export facilities? You cannot build such facilities for one shipload, or for ten or twenty, for a seasonal product; you need vastly dispersed local storage and a steady process flow from the countryside through to export. The country of origin can still forbid the movement or export, tax it, or even take back the product or the land. The importing country will have absolutely no more control over their supply lines than they do now. The only real food security for importing countries comes from open markets and strengthening the global institutions of free trade. Local production makes sense, too, as long as it is economically feasible. But Japan imports half of its caloric intake; China has nearly 20 percent of the worlds' population and only nine percent of the world's arable land. Egypt has some wonderful farmland but is mostly desert; India and China, with their huge populations and growing economies, will increasingly rely on imports in the future. These countries, above all others, should be clamoring for a stronger World Trade Organization with rules against export restrictions, trade distorting subsidies, export State Trading Enterprises, and other trade disruptions. Rather than the reluctant participants many of them have been, they should be working hard to make the Doha round succeed. Food importing countries should also remember which suppliers closed their doors when food supplies grew short last year, and which countries kept their markets open, and they should reward the latter with their continuing business. The U.S. Constitution forbids export taxes, and our laws and practices give foreign buyers the same access to our food markets as domestic buyers. Having first come to Washington myself in 1980 to protest the Carter grain embargo against the Soviet Union, I am confident that we will never make that mistake again. Our farmers need and appreciate our foreign customers, and our country will never shut them out. The fact that the U.S. is one of the world's largest agricultural exporters provides genuine food security to our customers. Buying farmland abroad seems logical, but it will not guarantee food security. Open markets will.
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3. Crop Conditions, Plans Affecting Interclass Wheat Prices by Ian Flagg, USW Market Analyst As the June 1 start of the 2009/10 marketing year approaches, market attention is shifting to crop developments in the U.S. and other major exporting countries. Global wheat conditions are mostly positive but developments in the U.S. and Argentina will greatly affect the direction of prices over the next few months. Continued drought in Oklahoma and Texas, the second and third largest hard red winter (HRW) states respectively, could result in sharply lower yields. The National Agricultural Statistics Service (NASS) reports 70 percent of the Oklahoma crop and 75 percent of the Texas crop are in “poor” to “very poor” condition. Texas AgriLife Extension Economist Mark Welch reported that current Texas crop conditions are similar to 2006, when yields were only 24 bushels per acre, the lowest level since the late 1970’s.
U.S. hard red spring (HRS) wheat planting is well behind schedule, with only 15 percent of the crop planted compared to 32 percent this time last year and the five-year average of 36 percent. The problem is concentrated in North Dakota (the largest HRS producing state), where only three percent of the crop is planted compared to 54 percent last year and the five-year average of 51 percent. A late planting date often means fewer planted HRS acres and can leave the crop that is planted more vulnerable to weather damage later in the season. Argentina’s farmers have been hit by the worst drought in 70 years, which has devastated their 2008/09 corn and soybean harvest and likely will severely impede 2009 wheat plantings. The Buenos Aires Grain Exchange estimated that planting might fall to 3.7 million hectares (9.1 million acres), which would be the lowest level since the exchange began recording data in 1910. History indicates such a situation could prompt Argentina’s government to restrict exports to protect domestic supply, leaving significant demand – mainly in Brazil – to be filled by alternative origin wheat. According to Jeff McPike, Commodity Consultant with McWheat Associates, Inc., Rehoboth Beach, DE, the delay in HRS plantings creates the "potential for some acreage switches to other commodities on both sides of the U.S.-Canadian border" and "when combined with lower production prospects in Argentina should add some additional price premium into the market for higher protein wheat. This uncertainty could be reflected in a widening premium for Minneapolis wheat futures versus ordinary soft milling wheat types represented by Chicago futures," McPike added. In fact, the Minneapolis/Chicago May contract spread has widened from 31 cents per bushel in January to a current level of $1.38 per bushel. For more information about McWheat Associates, Inc., write to Jeff McPike at mcwheat@msn.com.
4. Tracy Discusses Value of Changing Cuban Trade Policy USW President Alan Tracy described how U.S. agriculture is helping to drive changes in both Cuban and U.S. policy as part of a panel discussion April 29 at the “Conference on Improving Agricultural Trade with Cuba” sponsored by the Center for International Policy (http://www.ciponline.org/) in Washington, DC. “I expressed hope that the recent relaxation of travel and other restrictions on Cuban-Americans is just a first step,” Tracy said. “I also shared the U.S. wheat industry’s call to fix problems with payment terms and end the business travel ban in the near term.” While U.S. industries may export food, agricultural commodities, and medical supplies to Cuba, unusual restrictions on such trade represent lost potential for U.S. farmers. "Compared to wheat imports by countries in the rest of the Caribbean region,” Tracy added, “we estimate that in the absence of the embargo, U.S. wheat exports to Cuba would average $100 million more per
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year than they are currently.” That estimate is in line with one Jonathan Coleman, an economist with the International Trade Commission, released at the same conference, showing that all U.S. agricultural exports to Cuba would likely grow by 30 percent if the embargo were lifted. Click here (http://www.uswheat.org/wheatLetter) to see additional information Tracy presented at the conference.
5. Fritz to Leave Kansas Wheat; New CEO Sought After nine years working for the Kansas wheat industry, including four as the Chief Executive Officer of Kansas Wheat (http://www.kswheat.com/), Ms. Dusti Fritz will leave her post and take a part-time position as Director of Western States Field Services with the United Sorghum Checkoff Program. Fritz will remain in a half-time role as interim CEO until June 30. Kansas Wheat is the cooperative agreement between the Kansas Wheat Commission (KWC) and the Kansas Association of Wheat Growers (KAWG). KWC is a member of U.S. Wheat Associates. “This was a very difficult decision,” Fritz said. “As the first CEO of Kansas Wheat, I am proud of the progress and efficiencies both organizations have achieved to give producers a unified and more effective voice." Under Fritz’s leadership, KWC and KAWG developed a strategic plan that resulted in greater efficiencies and communications. She led the effort to increase the wheat assessment, paid by producers, resulting in greater investment in wheat research, education, and promotion. Fritz also laid the foundation for a Small Grains Innovation Center, which, if funded by the Kansas Bioscience Authority, will generate even greater potential for improved wheat varieties and end-uses for Kansas wheat. “Dusti has been an exemplary leader in her tenure as CEO of Kansas Wheat,” says Doug Keesling, KWC Chairman and a farmer from Chase. “She has worked diligently to improve the livelihoods of wheat farmers in Kansas by raising the awareness of Kansas wheat around the world. We wish her the very best as she seeks this new opportunity.” Both KWC and KAWG are now seeking a highly experienced professional to serve as Kansas Wheat CEO to help coordinate the goals of both entities while maintaining the distinct and separate mission of each organization. Both organizations are grower-funded, grower-governed and share a common vision as “leaders in the adoption of profitable innovations for wheat.” For a complete description of the position and directions for how to apply, please email jwinsor@kswheat.com with your request. You may also call Julie Winsor at 1-785-539-0255 Monday through Friday 8 a.m. to 5 p.m. U.S. Central Time, or 1-785-456-4275 outside of business hours.
6. USW Hires New Market Analyst Chad Weigand joined USW on May 4, 2009, as Market Analyst in its headquarters in Arlington, VA. USW’s current Market Analyst Ian Flagg has accepted a transfer to Cairo, Egypt, as Assistant Regional Director for the Middle Eastern, East and North Africa Region. Flagg will work with Weigand at the headquarters office until he relocates to Cairo in June. “Chad has charted a strong career course in international relations and economic analysis,” says USW Vice President of Planning Jim Frahm. “This includes participating in the ‘Semester at Sea’ program during his undergraduate years, gaining agricultural exposure in the Peace Corps, and on to earning his graduate degree in International Affairs. We are very pleased he will be putting that experience to work for U.S. wheat producers.” The USW Market Analyst monitors and reports on wheat market trends and activity, produces weekly Price Reports, and provides contract, quality specification, and price assistance to U.S. wheat exporters and importers.
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Weigand studied international relations and business administration at the University of San Diego in California and earned a master’s degree in International Affairs from Columbia University in New York, NY, in 2008. He has worked at the Brookings Institution as a communications specialist and as an economic consultant for the Financial Superintendent of Colombia. Among several internships, Weigand worked in the Office of Trade Programs for the U.S. Department of Agriculture’s Foreign Agricultural Service in 2007 following a two-year assignment as an Agribusiness Specialist in Ecuador with the Peace Corps. He speaks advanced Spanish and beginning Portuguese.
7. Wheat Industry News
Washington Grain Commission to Form. The Washington Wheat Commission and the Washington Barley Commission recently announced the two organizations would merge and officially become the Washington Grain Commission (WGC) on July 29, 2009. Tom Mick will be Chief Executive Officer of WGC. Before the merger, effective May 7, 2009, all staff will move to a new office at 2702 W. Sunset Boulevard, Spokane, WA, 99224-1112, USA. All telephone and fax numbers, as well as staff email addresses, will not change. All correspondence may be addressed to the WGC effective July 1, 2009. For more information, contact Mick at tmick@wagrains.com. The Handbook of Cereals, Flour, Dough & Product Testing is now available for purchase. It is a comprehensive introduction to techniques and information required to test and analyze cereals throughout the entire grain chain, showing how test data are acquired, interpreted, and linked to a range of global testing standards. Click here for more information: http://bitly.com/Qb3zC. Annual HRW Tour Underway. Industry stakeholders are crisscrossing Kansas this week on the annual Hard Winter Wheat Tour sponsored by the Wheat Quality Council. These tours, including a Hard Spring Wheat and Eastern Soft Winter Wheat tours, offer first-hand experience and understanding of the quality of this year's wheat crop even before harvest. Participants check random fields across the state to estimate yield potential and crop conditions. For more information, visit http://www.wheatqualitycouncil.org/.
Nondiscrimination and Alternate Means of Communications U.S. Wheat Associates prohibits discrimination in all its programs and activities on the basis of race , color, religion, national origin, gender, marital or family status, age, disability, political beliefs or sexual orientation. Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotape, etc.) should contact U.S. Wheat Associates at (202) 463-0999 (voice and TDD). To file a complaint of discrimination, write to Vice President of Finance, U.S. Wheat Associates, 3103 10th Street, North, Arlington, VA 22201, or call (202) 463-0999 (voice). U.S. Wheat Associates is an equal opportunity provider and employer.
Prepared by Steve Mercer
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