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Wheat Goes to Feed as Foreign Demand Softens

by Matthew Weaver
Capital Press, October 6, 2011

Egypt, Yemen shift to cheaper Russian wheat; Australia production spikes

More Pacific Northwest wheat is going into feed than normal, according to industry members.

"The feed values are higher than the export values," Ty Jessup, export industry representative for the Washington Grain Commission. "It's all about the price of corn. Corn is so high it's drug the value of feed up."

Normally, about 10 million bushels of wheat go to feed in the region, he said, but this year it's more like 20 million to 30 million bushels. The majority is soft white wheat.

"The PNW market needs to see some additional demand," he said. "Whether it goes out as milling wheat or feed wheat, it just needs the demand."

There's really only three places to send soft white wheat, said Dan Steiner, grains merchant for Pendleton Grain Growers and Morrow County Grain Growers in Oregon. It can be exported, sold in the fairly small and static U.S. domestic market, or it can be sold as feed.

International demand for U.S. wheat has dropped. Egypt is not buying white wheat from the U.S., and Yemen is not buying as much as last year, instead turning to Russia and Black Sea competitors, Jessup said.

Russia is selling aggressively, dominating the export scene for so-called swing demand among customers that buy on price only, Jessup said.

Australia is also expected to have good wheat production this growing season, with projections reaching 24 million to 26 million metric tons, larger than average.

"We're not going to get bailed out by Australia having a crappy crop," Steiner said. "I can't paint a very bright picture for soft white wheat values right now."

"That's why the corn market is pretty critical to the wheat market today," Jessup said.

Steiner pointed to large exports of U.S. corn to China and large government subsidies encouraging the use of corn to make ethanol. Those subsidies end Dec. 31, and Steiner does not expect them to be extended. Once they go away, he said, the question is how much ethanol production will be lost and how much corn usage will be reduced.

"We don't know if that number is going to be 100 million bushels or 500 million bushels," he said. "It's going to be a big number."

With soft white wheat demand down, some farmers are turning to other classes of wheat.

More club wheat has been planted in recent years, and more is expected, partly due to its high resistance to stripe rust, said Kevin Whitehall, county elevators representative for the Washington Grain Commission.

Jessup said club wheat has generally high yields compared to white wheat and less rust.

Steiner doesn't expect a premium for club wheat as more of it is grown.

"But that's OK," he said. "We're improving the overall quality of the Pacific Northwest crop. There's no downside in club."

Some irrigated farms in Oregon are raising high quality red wheat instead, Steiner said.

"These guys are making protein, making yield and making very good high quality wheat," he said.

Steiner foresees further movement to hard red winter wheat or dark northern spring wheat, comparing $6 per bushel for soft white wheat to $7.24 per bushel for hard red winter wheat. Hard red wheat also has good resistance to rust.

"Dark northern spring wheat is $2.30 a bushel higher than soft white wheat -- that's worth a little bit of extra effort," he said.

Matthew Weaver
Wheat Goes to Feed as Foreign Demand Softens
Capital Press, October 6, 2011

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