Dan Baase, founder of AgResource, discusses the global wheat market at the 28th Annual IAOM Mideast & Africa Conference in Dubai.
Photos by Chris Lyddon. 
Flour millers operate in a changed and changing world, a gathering of delegates from the industry heard recently in Dubai, United Arab Emirates (UAE). The 28th annual International Association of Operative Millers Mideast & Africa Conference featured a series of experts speaking about how new origins, particularly in the Black Sea, have transformed the supply of their raw material: wheat.

Essa Al Ghurair, chairman of Essa Al-Ghurair Investment and conference chairman, opened the event with a reminder of how new technology is coming fast.

“Recently the UAE government has announced a new ministry, and a minister of artificial intelligence,” he said. “He’s a 27-year-old man.”

The industry must take note of the new technology.

“Can artificial intelligence help us in the milling industry in any way?” he asked.

Ali Habaj, IAOM regional director and director of Sohar Flour Mills (Oman), celebrated the success of the conference.

“We started in Jordan in 1989 with 20 delegates,” he said. “Today we have 850 delegates. This is a record number for IAOM. That shows you a very good indication of the industry’s growth.”

“You are in the right industry,” he said, citing a major privatization initiative in Saudi Arabia, one example of how the milling sector was changing. “We have people from 50 countries.”

Vasi Thembekwayo, managing director of Motiv8 Advisory of South Africa, looked at how the world’s economy is changing, while explaining that the shape of the world’s economy has been very different in the past.

“Things are better than they ever have been,” he said.

This year’s IAOM MEA Conference drew a record of 850 delegates.

Wheat trade flat

Dan Basse, president and founder of AgResource Co., Chicago, Illinois, U.S., explained that the central banks had been pumping money into the world economy, but the situation is now changing.

“World agricultural production is growing faster than it ever has before,” he said. “We end up with this oversupply. This year’s Black Swan event was about Russia. As you look at world wheat trade, globally it’s flat.”

Greater maize exports mean less feed wheat trade.

“As you look at world wheat supplies, they are massive,” he said, but analysis of where the stocks are made the picture look different. “When I take China out you can see world wheat stocks aren’t quite as burdensome.”

This year the Russian wheat yield will explode higher, he said.

“The Russians have really arrived,” he said. “The Russians are running out of storage. The Black Sea or Russia does have its problems. Russia does need investment in infrastructure in grain.

“Oversupply is the nemesis of agriculture, supply dislocations that do give the grain market some vitality. If you are looking for a bull market you are looking for a policy change or a weather event.”

He explained that increased production was “all about better yield,” but responding to questions rejected the idea that area could not increase.

“The world has plenty of land,” he said.

Milling changes

Dr. Lutz Popper, head of R&D at Muehlenchemie GmbH Co & KG, told delegates that millers should work in partnership with bakers.

“You can accompany the baker when he is trying to innovate,” he said.

There are new challenges, like producing gluten-free flour.

“It is very difficult for the standard flour mill to address this,” he said.

“Availability of quality wheat and the quality of the available wheat is important,” he said, advising getting pre-shipment samples. “You may blend two wheats of different quality and get flour that is a better quality than you expected. You can influence the flour qualities in the milling process.”

He stressed the importance of testing.

“You have to run a lot of trials,” he said.

Low planted area in U.S.

Ian Flagg, regional vice-president of U.S. Wheat Associates, based in the Netherlands, described a less positive outlook for the United States.

“This year, unfortunately, we had a lower area planted,” he said. That was followed by poor weather.

“There’s a lot of competition in that area,” he said. “Corn and soybean returns are significantly higher for the farmer. All the different classes of U.S. wheat saw declines in plantings this year. The most dramatic was for hard red winter. This is the lowest harvested wheat area for over a century in the U.S.”

The forecast crop, at 47 million tonnes, was the smallest since 2002-03. Hard red winter wheat also has a quality problem.

“Overall the quality is quite variable,” he said. “We did carryover a lot of hard red winter wheat, so the supply is still high.”

Hard red spring and durum were hit by bad weather.

“In August it was extremely dry,” he said. “This really cut output, especially for durum. The quality is excellent. The drought conditions pushed up protein.”

A 1.4-million-tonne U.S. durum crop will mean increased imports from Canada.

“The bright spot of our harvest this year is the two soft varieties we produce,” he said. “We have a pretty good supply of soft white as usual. The quality is excellent.”

For soft red winter, “the quality is probably the best it’s been in 20 or 30 years,” he said. “We’re very happy with the harvest.”

Next, he looked at winter wheat plantings for 2017-18, focusing on Kansas and Oklahoma.

“They are well behind,” he said. “They just had an enormous amount of rainfall. Hopefully it will get caught up. It’s going to take some time, though.”

Australian crop

Michael Aikman, senior wheat trader at Graincorp Australia, made the point that weather plays a big role for production.

“Last year the entire grain production area of Australia had decile nine rain,” he said. “That led to a record crop. Then the situation changed quite dramatically. April-July was pretty much opposite.”

The level of rainfall was very low.

“At this point the market had changed from one of a large crop and having to export as much as it could to cautious,” he said.

While the crop is a long way from being a large crop, it has stabilized, he said.

“Most of the trade thinks that the crop is in the vicinity of 20 million to 22 million tonnes,” he said.

The crop will be affected by some farmers’ decision to limit fertilizer applications.

“The Australian crop profile will be mixed,” he said.

European outlook

Indrek Aigro, broker for grains, Copenhagen Merchants, based in Estonia, discussed the market in the Baltic region.

“July, at least half, was still good,” he said. “It started to germinate. Then it started raining in the Baltics. We had a slower harvest.”

That harvest also was delayed by three or four weeks.

“In the northern part of the Baltics the harvest is still going,” he said. “Barley is not a very attractive product for the farmer. The E.U. is reducing and maybe disappearing as a major barley exporter. This year we’re at around 13 million tonnes of exportable surplus.”

That is despite a lack of German supply.

“I believe that the Baltic Sea, if I’m here in five years, will be closer to 30 million than 20 million tonnes,” he said.

The growth is coming from Poland.

“They were behind on consolidation,” he said. “It’s happening now.”

Germany is now 75% to 80% sold, he said. Farmers with a bad crop were holding back. What’s left is good quality; lower quality grain has gone for feed.

“In the Baltics we have a real mixed bag,” he said. “The Baltic states this year are replacing Germany as a supplier to the U.K. The trend if you look at the Baltics is positive.”

The picture in Poland is mixed.

“We expect that Polish production and especially exports will accelerate in the future,” he said.

He also discussed Russian exports through the Baltic.

“What’s important for the millers is the Baltic corridor is hard IP,” he said. “It is identity preserved.”

Sebastien Thilmany, trader at Ameropa in Switzerland, talked about the Black Sea region. He stressed export pace.

“We are breaking all records again,” he said. “Black Sea wheat is mostly competitive in the first four months of the crop.”

It becomes competitive again near the end of the season, something that is reflected in the phasing of exports. It goes to a wide variety of destinations.

He pointed out that the increase in production has all been in yield. By 2030 he forecast that Russian and Ukrainian wheat production would grow by about 6%. For Romania and Bulgaria, “we are talking 40% increased export potential,” Aigro said. “There are no constraints on the logistics.”