Talks with Japan start

He spoke at the annual meeting for Wasco and Sherman County wheat growers.

The United States pulled out of the Trans-Pacific Partnership in 2017, but six of the 11 remaining countries ratified a similar agreement, putting it into force last December. That agreement has begun giving participating countries tariff breaks from Japan that the United States does not receive since it is a non-member, Rowe said.

Member countries include wheat exporters Australia and Canada. The tariffs for them will drop incrementally, and in nine years, those countries will have a $1.35 per bushel price advantage over the United States, said Darren Padget, a Sherman County grower and the secretary/treasurer of U.S. Wheat Associates, which markets American wheat to the world.

Japan would rather the U.S. sign the TPP, Rowe said.

In North America, the new trade deal signed last November by the leaders of the U.S., Mexico and Canada faces strong challenges. Congress has to ratify the agreement and there are concerns that the Democrat-controlled House of Representatives won’t want to give President Donald Trump a “win,” Rowe said.

The deal also still includes American tariffs on steel and aluminum that could pose a challenge for Canadian and Mexican ratification. This agreement is a little less directly important for Oregon wheat growers, Rowe said.

A possible wrinkle, though, is that Trump has pledged to end the current agreement, called NAFTA, and if NAFTA is ended but a new agreement is not ratified, that leaves no trade deal in place between the U.S. and Mexico.

That would cause a return of old, much lower limits on American wheat exports to Mexico.

China stopped importing American wheat last March as a U.S.-China trade war heated up, but talks are underway, with widely varying reports on how they are doing, Rowe said. “This one is a little bit troubling.”

The deadline for the talks to finish is March 30, with Trump saying he won’t extend them.

The U.S. is also reviewing whether to consider damage to the auto parts and auto industry as possibly affecting national security. If tariffs are imposed for reasons of national security, it could lead to retaliations, Rowe said.

Paget said U.S. trade negotiations with China are focusing on intellectual property issues. “Until that’s solved we’re all going to be a casualty. That’s just the way it is.”

Padget described trade patterns for wheat, saying, “There’s some good news out there.”

Japan is still Oregon’s top market, a steady customer that is willing to pay for soft white wheat, but Mexico and the Philippines are inching closer all the time, mostly due to their growing populations, Padget said. Japan’s population is stagnant.

Challenges exporting to Mexico are high rail shipping prices, and it inexplicably costs more to ship wheat than it does corn, Padget said.

The wheat rail-shipping price is steep enough that it’s almost cheaper to get wheat from Europe via ocean liner, he said.

Wheat from the mid-Columbia also finds its way to Yemen in the Middle East. But distribution is a challenge, and sometimes even involves donkeys, Padget said.

Referring to the Middle East, he said, “the one bright spot in this part of the world, believe it or not, is Iraq.” It is a potential customer for soft white wheat, and Iraq could be in the market for 30-50 million bushels a year.

Oregon produces 50 million bushels a year.

China and India are the biggest grain producers in the world, but they consume it all themselves, and only sometimes do they need to import any, Padget said.

Oregon has always been a leader in the overseas market, he said. Oregon’s delegation in 1949 to Japan led the way to what is now a national wheat marketing entity U.S. Wheat Associates.

But Russia has become a dominant player, exporting more than the U.S., in hard red wheat, and its product is getting better, he said.

But even in a situation where things go badly, soft white wheat will be the last one affected, Padget said, because there is no substitute for that type of wheat and the U.S. produces consistent quality.

The U.S. produces two billion bushels of wheat a year, half of which is exported, he said.

But in the Pacific Northwest, 80-90 percent is exported.

In current markets, 43 percent of American wheat goes to Asia, 37 percent to Latin America, and 19 percent to Europe, Africa and the Middle East.

That is a sea change from 20 years ago. U.S. grain shipments are down 54 percent since then, shipments to Latin America are up a whopping 265 percent, and shipments to Asia are up by 13 percent.

Padget expects the Latin America market to keep growing and the Europe/Africa/Middle East market to continue shrinking.

The “jewel” of American market share is the Philippines, where U.S. wheat accounts for 93 percent of imports, Padget said. In Japan, for instance, American wheat is about 50-55 percent of the market.

In the Philippines, the population is increasing, the middle class is growing, and younger people are shunning rice—“their thinking is it’s for old people,” Padget said—and showing a preference for wheat-based foods.

“They go out, they want to buy a muffin or a treat or something or just a good loaf of bread. Of course, noodle usage is huge there and they demand more quality than in the instant noodle market,” he said.

Demand worldwide for wheat grows at about 2 percent a year, and yields have kept up with that, more or less, he said.

Russia and the Baltic Sea states have grown as wheat exporters in the last 20 years, and are continuing to grow.

“The biggest thing you’ve got to fight over in that area is the political system,” Padget said. “They get that figured out and wow, look out.”

“Russia puts out a lesser quality product than the U.S. but they also sell it cheaper, so they own the Iraq/Iran market and Europe because they’re right there. It’s freight,” Padget said.

Back in the late 1970s and early 1980s the U.S. dominated a lot of the Middle East market, “but then the shah of Iran went out of power and political issues went on,” Padget said.

America’s embargo of Russian grain also played a role. “A lot of things led to a shift on where the grain was produced in the world,” he said.