A World Where the U.S. and Russia Can Play

Vince Peterson may be the organization’s president and Mark Fowler, it’s vice president of overseas operations, but when it comes to the voice of U.S. Wheat Associates, that would be Steve Jon Mercer, a veteran of agricultural fields that have nothing to with farming.

Although Mercer grew up in a small northern Illinois town and worked on farms as a youth, he understood early on that farming was not in his future. Luckily, for folks like Mercer, many state colleges have agriculture journalism degrees, one of which Mercer received from the University of Illinois. He has worked for several firms associated with agriculture over his career, since 2006 for USW.

Mercer and I are part of the old guard who came into agriculture’s backdoor as young men—and survived—no small matter in an industry that has consolidated enormously during our nearly 40 year association with it. I always enjoy running into Mercer at the meetings we both attend. At the  2018 Tri State Grain Growers Convention in Portland, he recorded a podcast with me.

For those who are unaware of the Wheat All About It! podcast sponsored by the Washington Grain Commission, a brief aside. The podcast entered its third year in January with more than 100 podcasts recorded. You can find all the podcasts on the WGC website at wagrains.org, go to “Summaries”. You can also subscribe on numerous podcast platforms including iTunes and Stitcher. Mercer’s podcast, episode 107, entitled “U.S. Wheat Spokesman Speaks of Wheat and Wheat’s Future”, was posted on January 8.

What follows is a partial transcript of our podcast conversation, partly as a way for Mercer’s message to get a wider audience, but also to help steer those who have yet to listen to the Wheat All About It! podcast, to follow-up by listening to our complete conversation.

YATES: If you stay in an industry long enough, you can see market forces work in real time. U.S. Wheat Associates closing their Cairo Egypt office several years ago and their Moscow office in 2018 are obvious casualties of resurgent Russian wheat production and exports. But you’ll hear Mercer express frustration with the world media, not to mention the world grain industry’s focus on Russia, the country called, The Bear. I began my conversation with Mercer by asking him whether it matters which country exports the most wheat?

MERCER: The frank answer is that production is shifting. New countries, particularly Russia, have done extremely well the last few years. When you think about the fact that Russia went 30 years ago from a 15 million metric ton importer of wheat, to last year exporting 40 million metric tons, that is a huge change, so they’ve certainly had an influence. The media generally plays that up so we hear a lot about it. But as we look ahead to opportunities in the world, we think that we’re going to have a place where U.S. wheat can play and Russia and other countries are going to have a place where they can play too.

YATES:  You just said that Russia exported 40 million metric tons of wheat. I believe the U.S. exported  24 million tons of wheat during the same time period. What does that mean in terms of revenue coming to the farmers?

MERCER: Well, that’s really interesting. I mean the U.S. has a reputation for being a high quality supplier of wheat. It doesn’t matter whether you’re talking about soft white wheat or hard red spring or hard red winter, durum, etc., it’s all excellent quality and that quality actually brings a premium in the marketplace. So you mentioned Russia exported almost twice as much wheat as the U.S. last year and  yet in terms of value, the U.S. is still generating greater value for the 24 million metric tons compared to Russia’s 40. I think that’s a two edged sword because that means Russians are selling their wheat for a much lower price generally. I think unfortunately right now in the world, Russia is really setting the floor for wheat prices in general in the world.

YATES: Are we talking too much about Russia? And by that I mean are we missing the forest for the trees and if we are, what’s the forest?

MERCER: I’m tired of Russia. I am, I am tired of them winning in many ways—Russia doubling exports, Russia doubling production, Russia, Russia, Russia. It’s just constant. But when we look ahead, and Vince Peterson, our president has taken a pretty hard look at this, 81 percent of what Russia sells is now sold into Africa and North Africa and the Middle East. When we look out 20 – 30 years, there’s a dramatic need for wheat increasing in those areas because that’s where the population is growing the fastest and they’re always going to be looking for lower cost wheat. These countries don’t necessarily need the kind of quality that we provide, the spring wheat, soft white and other classes. But somebody is going to have to meet that need because they’re not going to be able to grow all the wheat they need. So it’s a huge market that’s going to grow fast and Russia is going to be pretty busy filling that need. Now, on the other hand, look at our markets. We have two major port areas, the Pacific Northwest here, of course, and out of the Gulf. We look at Latin America as another market that’s growing for us, a high quality market. A lot of different different classes of wheat are needed there. And South Asia as well. We’re in a good position in the area where we feel we can compete best. Fortunately it’s also areas where folks like the quality and they’re willing to pay more for it.

YATES: I’m going to push back a little bit here on you, Steve. Of that 40 million metric tons that Russia exported,  12 million metric tons went to Asia in the 2017/2018 marketing year. Could we look at that and say, this is just the beginning?

MERCER: I think you have to look at it as a kind of a snapshot of the current economic situation. There are many factors at work here. An interesting one and a lot of folks probably don’t realize this, but Indonesia is actually closer in sailing miles from the Russian ports than it is from the Pacific Northwest, so it actually is a shorter route from Russia to Indonesia, so that’s always going to be a battle ground. You also have Australia competing there as well and they’re vertically integrated there. They own a lot of mills. The other factor that’s happening is low freight rates. There was a huge over building of a large bulk vessels that took place back when we were selling a lot and everybody said we needed more when the economy was good. So they built a lot of ships. Well, that’s starting to change now. The freight rates have started to come up. It’s gonna be harder for Russia to compete in those farther away markets compared to those markets that we can serve. And again, that demand locally is going to keep them pretty busy.

YATES: You mentioned the word quality, Steve, and in the Northwest of course, we talk a lot about quality, but I’ve also heard miller’s say that they can make almost any wheat perform. Obviously the wheat that Russia exports was milled and made into products. Is quality really being hyped?

MERCER: I don’t think so. I think when we look at what’s happening in South Asia for example, the economic difference there in incomes for these people—all of a sudden they’re starting to eat on-the-go-food. They’re starting to eat cookies and crackers and even having pastries. Euro monitor for example, just recently came out with a report that showed that the greatest increase in pastry consumption is in South Asia and China. Their tastes are changing. Their desire for higher quality is changing. I actually was just in Nigeria. Now, Nigeria is a market where the Russians are doing really well because price is a big factor, but it’s not the only factor. The millers there said the consumers, even though they’re only living on two or three dollars a day, their tastes are changing. They know the difference between quality, so they understand that difference. We’re going to see the desire for higher quality increase.

Mercer is a wealth of knowledge and there’s more where this came from. The preceding transcript is about one-third the length of the episode 107 podcast entitled: “U.S. Wheat Spokesman Speaks of Wheat and Wheat’s Future”. Join the 21st Century and access the rest of my conversation with Mercer by going to the WGC webpage at wagrains.org and downloading the entire episode.

Picture of By Scott A. Yates

By Scott A. Yates

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