Iraq Becomes Big Wheat Customer
by Shannon Burkdoll, editor
Ê LEWISTOWN, Mont. - Iraq has been a wheat customer for more than 20 years, but last year was the first time the country purchased wheat from the Columbia Grain in the Pacific Northwest port.
In a single year, Iraq became Columbia Grain's fourth largest customer, making up 15 percent of the company's export market, according to grain merchandiser Mike Wong of Columbia Grain International in Portland, Ore. Japan is Columbia Grain's largest customer, making up 50 percent of the market, while Korea makes up 18 percent as the second largest customer and Taiwan makes up 15 percent as the third largest customer.
"They're (Iraqis) in the market for hard red winter wheat," he said during the recent wheat transportation seminar put on by Burlington Northern Santa Fe Railroad in Lewistown, Mont. "They want 12 percent protein wheat; they like to eat bread."
Iraq had been purchasing its wheat from Australia, but experienced some political problems and trade issues with them, said Wong. Wong said he isn't sure if the political problems sent Iraq to the Pacific Northwest or if the Iraqis feel some obligation to purchase U.S. product as a result of war efforts to better their quality of life. Nevertheless, they have become a wheat customer with potential to be a large, long-term customer.
While Wong said he appreciates the Iraqis business, he admitted negotiating business deals with them is difficult. "The political situation over there is unstable," he explained. "It is hard to do business with them. There are six key people who make the decision to buy the wheat, and it is hard to get them together."
Grain delivery can also be difficult to negotiate. "The buyer determines the freight, either we deliver it or they provide a ship for pickup," Wong explained. "It is a difficult situation with the ships, as well. Sometimes they are late, and sometimes they don't come at all, which stops up the grain on the rail circuit, sometimes it backs it up to the Montana elevators. It gives us wheat indigestion."
When the American grain arrives at the Iraqi port, it is trucked to the mills where it is used to produce bread and noodles. "Their infrastructure is okay," said Wong. "They may not get it there as efficient as we do, but it is a little dangerous to drive up and down the road there."
Burlington Northern Santa Fe allows the market to determine its railcar distribution.
Elevator managers submit their bids for railcars in a closed system, in which they know the amount of cars left to be purchased, and BNSF takes the highest bids, explained Roland Bronstad of BNSF headquarters in Fort Worth, Texas. Then those whose bids have been accepted can trade railcar service on a secondary market. "We are not in the business to make money on selling freight," said Bronstad. "Freight is merchandised in the marketplace by a different buyer in the secondary market. Railcar freight is a fluid, dynamic market that changes daily."
The U.S. Department of Agriculture puts out weekly transportation reports on the agency's Web site. The agency records and publishes the prices for shuttle and 56-unit trains, as well as keeping track of the secondary freight market prices.
Shuttle cars are the cornerstone of BNSF's rail network. The shuttle trains provide more timely and efficient grain movement than the 56-unit trains, giving the company an advantage in the marketplace. "When you move grain with shuttle trains, it is just days away from being exported," said Kevin Kaufman of BNSF. "Shuttle trains are a mechanism to supply a lot of wheat for a customer like Iraq," adds Wong, "which would have been much more difficult 10 years ago. The shuttle program is high volume, efficient, flexible and effective for market response to shifts in regional demand."
There is still a market destination for 56-unit trains. However, the majority of the exported grain is transported via shuttle trains, said Matt Strong of BNSF. "We have 30,000 cars in our fleet," he said. "The majority are in non-shuttle service, nearly 18,000 cars. There will always be a domestic market for non-shuttle service because the domestic mills will not accept 110-shuttle car trains. Shuttles, by definition, are never late because the owner determines the destination and can change their minds at any time, and natural disasters that happen to the line are not something that we can control."
Shuttle trains carrying grain do not stop unless the network is stopped at the port. Otherwise, grain shuttle trains must always be moving grain. When there is a lull in grain movement, it is up to the shuttle owner to find grain to transport or they can sell the freight on the secondary market, said Strong.
As a result, local elevators are starting to work more closely with their grain growers to bring in wheat when the system needs it to avoid crowding the rail network, said Wong.
Montana has been recognized as a state which produces high quality, highly desirable wheat, but has not been able to se-cure a Montana-made market due to the limited quantity and ability to fully meet the customer's specifications. Columbia Grain blends Montana's grains with Idaho-produced grain to meet their customersÕ strict specifications. "Montana keeps our Asian customers happy by producing the quality of wheat they like," said Wong. "They will search for what they want if they donÕt get it, and they do pay premium price."
Asia is Columbia Grain's largest customer. "They are very specific and quality conscious as each type of wheat they purchase is designed for a specific purpose," said Wong. "As a result, we have rigid quality standard specifications. We have been able to supply them with the quality they like, and thatÕs what has kept them shopping at our store."
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