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Proposed EU changes in levies spell disaster for U.S. wheat exports (Tuesday, Sept. 10, 2002 -- CropChoice news) -- This information comes courtesty of U.S. Wheat Associates
U.S. WHEAT ASSOCIATES,
Wheat Letter,
September 6, 2002:
PROPOSED EU CHANGES IN LEVIES SPELL DISASTER FOR U.S. WHEAT EXPORTS
In a relatively rare show of unity on agricultural trade policy, this week
the U.S., Canada and Australia, among others, blasted proposed EU rule
changes for importing cereals. The proposed system, which would fix import
tariffs based on quotas, with duties rising as volume increases, would be
disastrous for U.S. wheat exports to the EU. They currently use a more
"free market based" variable import levy system.
"The timing couldn't be worse. We believe this is the wrong message, the
wrong direction, at the wrong time," said Allen Johnson, who heads the U.S.
delegation to the WTO negotiations.
The EU was the fourth largest overall export destination for U.S. wheat in
the past marketing year, reports Vince Peterson, USW vice president for
Europe. "Their recent proposals to change import levies, if enacted, would
have a disastrous effect on U.S. wheat exports," he declares.
Western Europe is the second largest worldwide importer of U.S. hard red
spring wheat and the single largest importer of U.S. durum wheat. In
addition, half a million tons of soft red winter wheat went to Italy and
Spain last year, making the EU the third largest single global market for
U.S. SRW. Overall, the U.S. exported 2.2 MMT of wheat to the EU in
2001/02, the largest volume since the mid-1980's. All of the progress,
Peterson says, is now in jeopardy.
The wheat exporters are joined by EU wheat importers who want continued
access to quality wheats. Antonio Costato, CEO of the Italian mill Grandi
Molini Italiani and president of Euroflour, calls the proposal "unfair and
protectionist," and tells USW that Italians "will lobby and fight against a
reform that may kill the free market."
While the EU may disengage unilaterally from their current system, it must
negotiate with its WTO trading partners to set their TRQs, or they will be
faced with a formal trade dispute and claim for compensation. That
compensation could get expensive, as U.S. durum exports might disappear
under this proposal, and it is conceivable that U.S. HRS could lose nearly
its entire sales position as well. The damage will go well beyond market
losses to U.S. wheat producers, since U.S. railroads, which profitably move
1.7 MMT of HRS and durum from the northern plains to Duluth for export,
would lose their business. Additionally, the grain export handling
facilities and port authorities on the Great Lakes and St. Lawrence Seaway
see the direct benefits from last year's exports to the EU, which represent
70% of all U.S. wheat exports through those ports.
The background, the technical aspects, and the politics of this issue are
extensive. USW's trade policy briefing paper on the subject is available on
the web at www.uswheat.org, or send an email in response to this Wheat
Letter.
WHEAT GROWERS HAVE A GOLDEN OPPORTUNITY FOR INCREASING MARKET SHARE IN ASIA
The USDA's imminent release of regulations for the farm bill's Hard White
Incentive Program, anticipated any day, cannot happen too soon. The drought
situation in Australia, as dreadful as it is for the farmers there, is
providing a market opportunity for U.S. hard white wheat because of
concerns among world millers about whether the amount of Australia's
"quality" wheat will be limited.
It's likely that the Australian Wheat Board Ltd will have adequate export
stocks at the beginning of their year. "As in the past, they will try to
maximize their sales early in the coming calendar year, from January to
June," reports Mark Samson, USW vice president for South Asia. "However,
their ability to provide the required levels of mid- to high protein HW
from June until their next harvest may be challenged."
"In South Asia particularly, the U.S. has the golden opportunity to capture
the demand for white bran mid- to high protein wheat during this time
frame," Samson advises. "It is an opportunity waiting to be seized."
Australia's crop estimates have gone through several downgrades, falling
from AWB's initial forecast of 24 MMT to 15.5-17.5 MMT last month. This
week, Australia's Agriculture Minister Warren Truss said estimates of the
nation's crops were likely to be downgraded even more as further signs
emerged that conditions were deteriorating.
USW has long urged American wheat farmers to produce more hard white wheat
in order to re-capture markets where the AWB is providing their white
wheat. The farm bill enacted an incentive program for farmers who want to
meet this growing demand, but the USDA has not yet released the program
regulations.
"We're now far enough along in seeding that the program won't be as
helpful to 2002 plantings as it could have been, unless people are betting
on the come," observed Daren Coppock, chief executive officer of the
National Association of Wheat Growers. For those growers who are now making
their winter wheat planting decisions, or may decide to plant the more
limited spring variety, immediate USDA action is urgent.
Hard white wheat is grown in the U.S., but domestic millers who seek the
high qualities of the class "lock in" much of the supply by forward
contracting. As more domestic mills discover the values of American HW,
production will increase, but the immediate opportunities in export markets
can only be met by a faster adoption of HW wheat varieties that have
greatest potential for demand by importers.
STOPPAGES IN CANADIAN GRAIN HANDLING
The USDA Foreign Agricultural Service Attache in Canada reports that a
labor lockout has stopped grain handling in British Columbia. According to
the Globe and Mail, FAS reports, "a labor dispute has halted grain
shipments through the port of Vancouver, raising fears that a long-term
shutdown would batter Canadian farmers already reeling from severe drought
and plunging crop receipts. The dispute between the union representing 630
grain handlers and an association of five terminal operators is not yet
affecting shipments of other commodities through Canada's largest port. The
lockout, which began Sunday at midnight, is also expected to affect
longshoremen, truck drivers and other logistical support services at a port
that handles about 70% of Canada's grain production. Company and union
officials said they see no quick end to the dispute, which has occurred
after months of negotiations did not produce a settlement. The grain
handlers were locked out after they failed to vote on an offer that was
delivered by their employers last week."
The FAS report continues: "The Grain Workers Union contends that the offer
was delivered without enough time for the union to hold a membership
meeting. While a vote was subsequently held on August 29, results of the
vote are still unknown, but sources say that it will most likely be
rejected. The terminal association, which represents terminal operators
Agricore United, Cascadia, James Richardson International, Pacific
Elevators, and the Saskatchewan Wheat Pool, said it is "mystified" by the
union's position in not being able to find a solution, given that it has
been without a contract since Dec., 31, 2000. In the meantime, the Canadian
Wheat Board may consider alternatives such as moving grain through other
ports such as Prince Rupert, B.C."
USW ASSEMBLES FOOD AID WORKING GROUP
USW chairman Jim McDonald recently appointed members of a task force to
aggressively address wheat issues in U.S. food aid programs. The group is
co-chaired by David Frey, administrator of the Kansas Wheat Commission, and
Tom Mick, chief executive officer of the Washington Wheat Commission. The
liaison to the USW Board of Directors is Judy Rea, chairman of the Oregon
Wheat Commission. Members are: David Torgerson, Minnesota Wheat Research
and Promotion Council executive director; Carolyn Logue, Nebraska Wheat
Board assistant director; Bonnie Fernandez, California Wheat Board
executive director; Chris Holdgreve, Wheat Export Trade Education Committee
assistant director; and Dawn Forsythe, USW's public affairs director.
"The challenges confronting the wheat industry demand quick action,"
McDonald said, referring to food aid issues, including the virtual
elimination of programs by the Bush administration. "This group of
knowledgeable people can immediately contribute to a working strategy."
TWO-TIERED WORLD WHEAT MARKET
U.S. wheat prices are at the highest levels in five years, and are
currently supported by the tight supply of quality milling wheat expected
to be available during 2002/03. Some fuel for prices is coming from quality
concerns over the remaining third of the U.S. spring wheat crop yet to be
harvested, reports of further downward revisions in the Australian crop,
and quality problems with the already drought-stricken and now partially
rain-soaked Canadian crop.
In the U.S., December futures prices are up 81c, 64c and 46c at the
Minneapolis Grain Exchange, the Kansas City Board of Trade, and the Chicago
Board of Trade, respectively, since early August. October FOB Gulf values
for HRS 14% protein, HRW 11.5% protein and SRW are around $202, $187, and
$155 per MT, respectively.
At the same time that prices are up in the U.S., Canada and Australia,
cheap wheat is offered by nontraditional suppliers, including Eastern
Europe and the former Soviet Union. For instance, Russian wheat is at $105
and Kazakh wheat is around $120 to $125.
Weather reports indicate that rain will be moving into the U.S. hard red
spring wheat region this Sunday and Monday, slowing harvest progress and
adding to concerns about the quality of this year's U.S. crop. As of
September 1, USDA reports that 66 percent of the spring wheat is harvested,
lower than the 87 percent that was harvested by this time last year, and
lower than the 5-year average pace of 80 percent. USDA pegs HRS production
at 11.1 MMT, down 14% from last year to the lowest level in 14 years.
Canada's short crop and recent wet weather are also factoring into the
recent price rallies. Since Statistics Canada released its production
estimate of a mere 15.4 MMT two weeks ago, Canada's wheat situation has
deteriorated even further. On Thursday, the CWB announced that it has
"withdrawn from the market while we evaluate our harvest and thus our
supply." Saskatchewan Agriculture, Food and Rural Revitalization's latest
Crop Report indicates that its spring wheat crop is only six percent
harvested compared to the 5-year average pace of 38 percent harvested by
this time last year. "Recent wet weather and insects have resulted in a
further downgrading of yields and quality which were already significantly
impacted by drought and frost," the report goes on. "Many areas report
sprouting, bleaching, molding, discoloration, lodging and disease from the
recent wet, humid weather."
Another bullish factor is Australia. The Australian Bureau of Agricultural
and Resource Economics (ABARE) will release its revised production
forecasts on Tuesday. Many observers expect ABARE to cut production
forecasts again as most of the wheat growing areas in Australia have
received little or no rain since their August 1 forecast of 17.1 MMT, which
was much lower than its June forecast of 20.5 MMT, and well below its
original forecast of just under 24 MMT. The AWB currently pegs Australia's
wheat production at 15.5-17.5 MMT, down from its June estimate of 18-20 MMT
and its initial forecast of 24 MMT.
How will the nontraditional suppliers react to the two-tiered situation?
Can they continue to keep the price low? Will their infrastructures clog at
inopportune moments? Can their ports handle the exports? And will the
quality begin to affect end use products? Or maybe everything will come
together...
If you are interested in the weekly price reports, or to view this Wheat
Letter on our web site, please visit http://www.uswheat.org
Dawn Forsythe, Director, Public Affairs, dforsyth@uswheat.org | |
