Local Wheat and the Fluctuating Global Market

By: Nick Robinson

 

           

            Wheat has played a major role in the development and continuing viability of the Walla Walla economy.  More than one half of the wheat produced in the United States today is sent overseas, of which twenty per cent comes directly from the soft white wheat grown in this area.  The overseas wheat trade is a flourishing and volatile market all at the same time, influencing our local economy in more ways than one.

            To start off, a little background on wheat in general seems appropriate.  There are six types of wheat grown for both domestic and export use in the United States.  Wheat is classified in terms of color, hardness (literally), and growing season.  To start off: Hard Red Winter wheat: grown in the Great Plains and California, this wheat accounts for 40% of the wheat the United States exports every year, and has a moderately high protein content (11-12%).  Hard Red Spring wheat: grown in the north-central United States, this wheat comprises just over 20% of the wheat exported every year and has the highest protein content of all wheat (13-14%).  Hard White wheat: grown in a variety of places, California, Idaho, Kansas and Montana, this wheat is mainly used on the domestic market, but there is an expected increase in export in the near future for Hard White wheat.  Soft White wheat is grown in the Pacific Northwest, i.e. Walla Walla, and represents just over 20% of the exported wheat out of the U.S. every year, it is mostly exported to Asia and the Middle East.  Soft Red Winter wheat is grown in the eastern third of the United States, and is a very low protein wheat (less than 10%).  And, finally Durum wheat: used mainly for pasta, this hard wheat (hardest of all US wheat) comprises just 5% of U.S. exports.  Those are the basic classifications of United States wheat production. From that breakdown it is obvious that Walla Walla wheat makes up a significant portion of the wheat exported by the United States every year.  The soft White wheat produced in this area is used mainly for noodles, crackers, and pastries in Asia and for flat breads in the Middle East.

            Despite high levels of mechanization in the wheat industry, most wheat farm’s continue to be family owned and operated.  The level to which machinery has been developed for the entire wheat cultivation process assists in this ability to remain local and largely small business oriented.  The personnel required to maintain a wheat farm is surprisingly low, due to the fact that nowadays all the harvesting and planting is accomplished through the use of combines and tractors.   After the harvest the wheat will be transported to a grain elevator.  These grain elevators are either privately owned – which would necessitate a farmer selling his wheat to the elevator owner at roughly standard market prices – or a community grain elevator.  A community grain elevator is for storage purposes only, until market prices or demand warrant moving it to port.  Once at port it will be sold and eventually shipped overseas.

            There are many factors that influence the global wheat market, and banking a farms economic livelihood on the international market conditions can be tricky business.  Export demand for wheat fluctuates yearly, based on crop yields in import countries.  Domestic supply of wheat also is a major factor; for example the last three years have been relatively poor years for Palouse (local, eastern Washington) wheat growers due to climate fluctuations, therefore our domestic supply has been down.  The supply of competitors wheat also plays a huge role; within the last five years Australia has really boosted its production of wheat and therefore has begun to impinge a little upon American markets.  Wheat quality: nobody wants to buy poor quality wheat, and the quality of your product is affected by, sometimes uncontrollable factors, namely weather and climate, a huge concern in any agricultural endeavor.  Logistical costs are also a concern; for example, Walla Walla has an advantageous position geographically; local wheat is taken by rail to Wallula Gap and then put on barges to go to port in Portland.  The logistical costs for that transportation cycle are much lower than they would be for wheat grown in Kansas, for instance.  Income of consumers, deeply affects the price that international buyers are willing to pay for your wheat.  And political instability also plays a part in determining the market conditions; one good example of this is that Iraq used to be one of the largest importers of Walla Walla wheat until recently when due to political disputes there was an barrier placed on all trade with Iraq by the U.S. government, cutting off that market completely.    

             While the United States exports more than one half of the wheat grown here, we also import wheat.  We import 99% of our imported wheat directly from Canada, our neighbor to the north.  Talking with a representative from the Columbia County Grain Growers Association provided some speculation on the 2000-2001 global wheat market.  Ted S. Lowe, assistant manager CCGG, said that usually Pakistan is one of the biggest purchasers of local Soft White wheat; however this year they are expected to export 400-600 thousand metric tons of their domestic wheat supply, which would indicate that they have a surplus and will not be importing as much of our wheat this year.  China, which has had some interesting roles on the global wheat trade is said to be “cutting their imports on everything from everyone”, which doesn’t sound too promising for local growers.  Egypt, which has been a buyer of local Soft White wheat, continues to look for the cheapest wheat on the market which can be found coming out of the Gulf ports and is mostly Red wheat grown in other parts of the United States.  The Japanese Food Agency seems to be the most consistent buyer of local wheat; the CCGG has weekly dealings with this agency, and hopes are that they will continue to represent a beneficial market for local wheat.

            China provides for an interesting discussion in terms of the global wheat market.  China is the largest wheat producing country in the world, yet the wheat they produce is mostly low quality Winter wheat, so they purchase wheat in order to use it in a mixing process designed to boost the nutritional integrity of their domestic wheat.  China has long had a ban on Pacific Northwest Soft wheat, due to the possibility of a contaminant known as TCK (tilletia controversa Kuhn), a smut contamination which they fear would infect their Winter wheat crops.  As recently as February 23, 2000 China announced plans to buy a load of soft white Northwest wheat and test it for this particular contamination, and have since lifted the ban on importing our local wheat.  The National Association of Wheat Growers is lobbying heavily in congress for China to be granted PNTR (permanent normal trading relations) in order that they might begin to purchase more U.S. wheat more often.  The impending admission of China into the World Trade Organization would also serve domestic wheat interests, in so far as trade would be bolstered again with China, a major market for most commodities, including wheat.

            In conclusion, the global marketplace is a volatile and shifting scenario subject to many variables, none of which lead to a stable selling and buying market for local Walla Walla wheat.  There are hopes that China’s impending ascension into the WTO will create greater wheat demand on the Pacific Rim.  It seems that Japan represents a stable and dependable market for local soft white wheat.  But beyond that there seems to be little credible evidence that would suggest that the international wheat market is anything resembling stable.  The wheat economy is subject to many fluctuations and changes, which undoubtedly keeps it interesting for local farmers who depend on wheat export to keep food on the table and their families provided for by selling wheat to overseas markets.  One thing will always remain the same through all changes, the need for food for the world’s populations; it seems that while free market expansion continues to expand as vigorously as it has in the last decade that wheat markets will also receive the benefits of the growing connectedness of markets arising out of this impending globalization.  The economy is here to stay and so are the wheat farmers.

 

 

 

Sources

 

www.grainguide.com, a great source for up to date information on worldwide grain prices and availability.

www.wheatworld.org, another great site for information regarding the fluctuating global wheat market.