Kansas Wheat CEO shares industry insights

Kansas Wheat CEO Justin Gilpin shared about the State of Wheat at the Indigo Wheat Solutions event Aug. 28 and 29 in Dodge City and Wichita, Kansas.

In the last 20 years, there has been a steady decline in the number of planted wheat acres in Kansas, and that change has led to the innovations we’re seeing in the industry, he said.

“In 1996, when we first had Freedom to Farm, Kansas planted about 12 million acres of wheat,” Gilpin said. “But then, markets and dynamics changed and yields and profitability of other crops changed and farmers moved to other row crops. Kansas farmers began to diversify. So in 2000, we were down to 10 million acres. And now, this last year, we’re down to 7.5 million acres of wheat.” Gilpin said many in the business think this is the basement of this decline because wheat is critical in so many crop rotations. And actually, in 2019, there are a few who are predicting a bounce in wheat acres in Kansas and the Southern Plains.

This upcoming “bounce” is what’s attracting industry to bringing innovation to production and marketing opportunities, Gilpin said.

“Is the tide turning for wheat?” Gilpin asked. “Is there a wall of demand coming to the U.S. that we don’t realize?” Right now there is a production shortfall in Europe and Russia, and for the first time in five years global wheat production fell, while global consumption was forecast at 4 percent above the five-year average, he said.

Consumption is rising in countries that can’t grow enough of their own wheat to meet their consumption needs. This growing hunger for wheat as a food commodity and not for feed use is the dominant story that farmers need to grasp.

“That’s the price dynamics between corn and wheat we’re seeing right now,” he said. “Less wheat as feed is pretty significant to realize on the demand side.”

Of the top 10 customers for U.S. wheat, on a five-year average, Mexico, China, Japan and the Philippines are in the top five.

“Mexico is currently at half of where we were on pace for from last year because of trade rhetoric, and we are at zero sales of wheat to China so far this year,” Gilpin said. “That’s one of the reasons it’s important for trade relationships to be rebuilt.”

The projected population growth in the world is expected in much of the non-wheat growing regions of Africa and South and Central America. Gilpin said the Egyptian market is probably out of our range simply because Russia and the Black Sea transportations costs can’t be beat.

The United States has seen a 10 to 25 million-metric-ton increase in exports to Latin America since 1990, and the U.S. market share has risen from 10 to 40 percent.

But elsewhere, Indonesia is growing to be one of the largest wheat importers because of its growing population. Iraq and Saudi Arabia also have potential for U.S. growers.

The countries to watch on the world export stage continue to be China and Russia.

China

China has quickly figured out how to feed its own people and is holding on to its wheat stocks. Over half, 53 percent, of the world’s wheat stocks are in China. If you look at the world wheat supply and demand balance sheet, Gilpin said, there will be a decline in world ending stocks this marketing year because of rising demand. But China’s wheat stocks account for 136 MMT of the global stocks (compared to the U.S. at just 25 MMT). Those Chinese wheat stocks aren’t in play and really don’t account for the Global Stocks-to-Use Ratio of 35 percent.

“Take China out of that, and the Stocks-to-Use Ratio drops to below 20 percent, and that gets traders’ attention,” Gilpin said. Back in 2007-08 when he worked at the Kansas City Board of Trade, Gilpin saw wheat prices go to astronomical heights, back when the Stocks-to-Use Ratio was below 20 percent.

Russia

Russian exports are expected to drop to 35 MMT because of weather troubles, which are 17 percent below last year and still 28 percent above the five-year average, Gilpin said. If the Russian government puts an export ban into play, to keep more of their crop home for their own consumption, the U.S. could step in in 2018-19 with increased exports to fill the gap. One signal to traders is the aggressive sales volume at the end of August to Egypt, just ahead of any government interventions, he said.

Half of our wheat is exported, but that also means half stays here to be consumed domestically, Gilpin said. “We have to figure out how to extract value and respond to the domestic market,” he said. “We need to work with the 168 flour mills in the U.S. that produce 426 million hundredweight of flour to feed 323 million people who consume on average 132 pounds of flour a year.” As those flour mills try to change to add value and survive in a market where consumption is slowly growing, they are looking more to sourcing and segregating specialty wheats that fit their industrialized baking.

The U.S. baking industry has changed and is more industrialized, producing 50,000 loaves an hour versus a home baker who bakes bread every Sunday, Gilpin said. Those larger bakers need flour that makes dough with resiliency and strength to withstand the push-button baking process.

That’s an opportunity for farmers to deliver their valuable higher quality wheat into that market, he said. And, if they can tie themselves to that quality from the field to the fork, all the better.

These companies today, he said, are looking at variety performance trials and expectations in the mill and in the bakery, he said. “Many are now not just buying wheat from farmers, but encouraging farmers to grow wheat off of their preferred variety lists,” he added.

For wheat growers, the future depends on a competitive export market for wheat that sets the stage for good prices, as well as increasing our quality of wheat grown for our domestic use, he said.

“By optimizing our management and getting our yield with higher quality, that is what will differentiate ourselves on the market here and abroad,” Gilpin said.

Jennifer M. Latzke can be reached at 620-227-1807 or [email protected].