ISSUES IN WHEAT MARKETING

1. ISSUES IN WHEAT MARKETING R. Karina Gallardo Tree Fruit Research and Extension Center School of Economic Sciences Presentation at the Wheat Production Growers Meeting Wednesday March 2, 2011 NCW Fairgrounds - Waterville

2. Wheat Production Over Time Slide provided by Mykel Taylor, School of Economic Sciences, WSU

3. Prices Received by Class Slide provided by Mykel Taylor, School of Economic Sciences, WSU

4. Market Fundamentals • Supply • Demand

5. Supply Slide provided by Mykel Taylor, School of Economic Sciences, WSU

6. Supply Slide provided by Mykel Taylor, School of Economic Sciences, WSU

7. 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

8. US Ending Stocks Slide provided by Mykel Taylor, School of Economic Sciences, WSU

9. Market Fundamentals • Supply • Demand

10. 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

11. 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

12. Mexican Millers’ Demand for Quality and Consistency in Hard Red Winter WheatStudy done in the Spring 2007by R. Karina Gallardo

13. Background Mexico • Increased hard wheat imports • Importance for U.S. Southern plains wheat producers • Concerns among Mexican buyers regarding quality issues consistency

14. 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

15. 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

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

17. 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. CANIMOLT Mexican milling industry association

18. Methodology (cont.) • Wheat attributes included in the survey • Test weight • Protein content • Falling number • Kernel diameter • Farinograph stability • P/L ratio

19. Example of Survey Question

20. WTP Results Mean-Variance

21. Market Share Estimation

22. Conclusions • Mexican millers’ concerns centered on quality attribute level rather than variability • Greatest WTP: Test weight, protein, and farinograph stability

23. Implications • Wheat farmers • Listen to what your final customers have to say • Policy • To reduce variability direct contracting between farmers and overseas buyers

24. Thank You R. Karina Gallardo Washington State UniversityTree Fruit Research and Extension Center, School of Economic Sciences 1100 N. Western Ave. Wenatchee, WA E-mail:karina_gallardo@wsu.edu Phone: (509) 663–8181 x 261