ISSUES IN WHEAT MARKETING

R. Karina Gallardo Tree Fruit Research and Extension Center

School of Economic SciencesPresentation at the Wheat Production Growers Meeting

Wednesday March 2, 2011 NCW Fairgrounds - Waterville

Wheat Production Over Time

Slide provided by Mykel Taylor, School of Economic Sciences, WSU

Prices Received by Class

Slide provided by Mykel Taylor, School of Economic Sciences, WSU

Market Fundamentals

• Supply

• Demand

Supply

Slide provided by Mykel Taylor, School of Economic Sciences, WSU

Supply

Slide provided by Mykel Taylor, School of Economic Sciences, WSU

Wheat Accounting

• Ending stocks = production + imports - consumption - exports

• Gives a good idea of the overall supply that will be carried over into the next marketing year

Slide provided by Mykel Taylor, School of Economic Sciences, WSU

US Ending Stocks

Slide provided by Mykel Taylor, School of Economic Sciences, WSU

Market Fundamentals

• Supply

• Demand

Demand

• Food consumption Steady to increasing over past few decades

• Livestock feed High corn and soybean prices cause substitution among feed grains

• Biofuels Renewable fuels mandate: 30 billion gallons by 2022

Slide provided by Mykel Taylor, School of Economic Sciences, WSU

Wheat Marketing

• Some strategies for managing risk Cross-hedge in futures market (SRW) Forward contracting Hedge-to-arrive (open basis) Cash sales Crop insurance (yield and revenue)

Slide provided by Mykel Taylor, School of Economic Sciences, WSU

Mexican Millers’ Demand for Quality and

Consistency in Hard Red Winter Wheat

Study done in the Spring 2007

by R. Karina Gallardo

Background

• Increased hard wheat imports • Importance for U.S. Southern plains wheat producers

• Concerns among Mexican buyers regarding quality issues consistency

Mexico

Background (cont.)

• Wheat quality characteristics• Physical and end-use• Increasing interest for end-use quality characteristics• Not measure or not made publicly available

• U.S. wheat marketing system• Premiums and discounts in wheat prices are based mainly on physical characteristics

Background (cont.)

• Evolution of international wheat markets• Less participation of State Trading Enterprises• Sophistication of milling and baking processes

• More attention is given to quality issues in the buying decision making• Uncertainty in wheat quality is negatively impacting U.S. wheat exports

Objective

• To identify the value that Mexican millers place on the level and variability in selected hard red winter wheat attributes

Methodology

• Personal interviews with wheat milling companies in Mexico • 70% of the total Mexican wheat milling capacity

• 80% of all the wheat imported into Mexico from U.S.

CANIMOLTMexican milling industry association

Methodology (cont.)

• Wheat attributes included in the survey• Test weight• Protein content• Falling number• Kernel diameter• Farinograph stability• P/L ratio

Example of Survey QuestionFeatures Option A Option B

Option C

1. Test weight minimum (kg/hl) 78 78

I wouldNOT chooseany of theAlternativespresented

Test weight values within the range: 77.5-78.5 76.5-79.5

2. Wheat protein 12% (%) 11 13

Wheat protein values within the range: 10.5-11.5 12.5-13.5

3. Falling number minimum 14% (sec) 400 400

Falling number values within the range: 385-415 355-445

4. Farinograph stability minimum (min) 9 9

Farinograph stability values within the range: 8-10 6-12

5. Alveograph P/L ratio 1.1 0.85

Alveograph P/L ratio values within the range: 1.05-1.15 0.8-0.9

6. Kernel diameter (mm) 2.3 2.3

Kernel diameter values within the range: 2.0-2.6 2.25-2.35

Price ($/MT) 170 180

I would choose*

WTP Results Mean-Variance

Willingness-to-Pay for … WTP($/MT)

Willingness-to-Pay for … WTP($/MT)

Test weight: 78 kg/hl VS 80 kg/hl

30.30 Test weight standard deviation: 0.29 VS 0.87

8.382

Protein 12% moisture base: 11% VS 13% 46.428

Protein standard deviation 12% moisture base: 0.29 VS 0.87

-1.974

Falling number 12% moisture base: 300 sec VS 400 sec 21.297

Falling number st. dev. 12% moisture base: 8.66 VS 25.98

-7.033

Farinograph stability: 9 min VS 13 min

42.481 Farinograph stability standard deviation: 0.58 VS 1.73

-10.508

P/L ratio: 0.85 VS 1.1 18.140 P/L ratio standard deviation: 0.03 VS 0.12

-4.749

Kernel diameter: 2 mm VS 2.3 mm

14.261 Kernel diameter standard deviation: 0.03 VS 0.17

-3.249

Market Share Estimation

Percentage Imported from the

U.S.

Percentage Imported from

Canada

Forecasted Mexican wheat imports predicted by the mean-variance specification

66.978% 33.022%

Actual Mexican wheat imports in 2006 63.670% 36.330%

Conclusions

• Mexican millers’ concerns centered on quality attribute level rather than variability

• Greatest WTP: Test weight, protein, and farinograph stability

Implications

• Wheat farmers• Listen to what your final customers have to say

• Policy • To reduce variability direct contracting between farmers and overseas buyers

Thank You

R. Karina Gallardo

Washington State University Tree Fruit Research and Extension Center,

School of Economic Sciences

1100 N. Western Ave. Wenatchee, WA

E-mail: karina_gallardo@wsu.eduPhone: (509) 663–8181 x 261