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By Stephanie Bryant-Erdmann, USW Market Analyst

According to the March 29 USDA Prospective Plantings report, U.S. total spring-planted area will jump to an estimated 14.1 million acres (5.71 million hectares), 12 percent above 2017/18, if realized. The estimate includes 12.1 million acres (4.90 million hectares) of hard red spring (HRS), up 17 percent from 2017, if realized. It is important to note that this is an estimate, as farmers in the top four HRS producing states of Minnesota, Montana, North Dakota and South Dakota have not started planting due to extremely cold, snowy weather across the region.

USDA expects a 1.05 million acre (425,000 hectare) increase in North Dakota spring wheat area, which is forecast at 6.40 million acres (2.59 million hectares). If realized, that would be up 20 percent year over year. Spring wheat acres in Minnesota are also expected to increase 38 percent from 2017/18 levels to 1.6 million acres (648,000 hectares). South Dakota 2018/19 HRS planted area is forecast at 1.05 million acres (425,000 hectares), up 80,000 acres (32,000 hectares). However, the planting window for spring wheat in North Dakota and Minnesota is no more than three weeks; after that the yield potential starts to decrease and farmers choose to plant alternative crops.

“This cold, wet spring could work against spring wheat planting in eastern North Dakota and western Minnesota,” said Mike Krueger, an independent market analyst based in North Dakota. “Farmers in these areas are reluctant to plant spring wheat after late April and right now the forecast is calling for another two weeks of cold weather and snow. If planting is delayed until May, we will probably see a switch to soybeans or other crops.”

USDA forecast Montana HRS planted area at 2.50 million acres (1.00 million hectares), in line with 2017/18 planted area. But, in contrast to eastern North Dakota and western Minnesota, the late spring may increase HRS planted acres in parts of Montana according to Cassidy Marn, marketing program manager with the Montana Wheat & Barley Committee.

“Farmers in Montana have fewer alternatives and, since we can only grow limited quantities of corn and soybeans here, wheat tends to be the last alternative,” said Marn. “Planting peas and lentils is possible, but given the amount of snow we still have on frozen ground, some farmers could miss the window for those crops. Planting spring wheat in June is not ideal, but it is preferable to planting nothing.”

USDA expects U.S. durum planted area to total 2.00 million acres (809,000 hectares), down 13 percent from 2017/18, if realized. The predicted decline is driven in large part by USDA’s expectation that North Dakota farmers will switch from durum to HRS or oilseed crops due to lower returns on durum in recent years. In addition, growers near the border are frustrated by a large volume of durum freely crossing the border from Canada that increases pressure on durum prices. Weather conditions will also affect durum planting decisions.

USDA also updated the winter wheat planted area from its January 2018 estimate, increasing winter wheat planted area by 50,000 acres (20,000 hectares) to 32.7 million acres (13.2 million hectares). The new estimate is still 2 percent below the 2017/18 planted area. The increase came from hard red winter (HRW) area, estimated at 23.2 million acres (9.39 million hectares), up slightly from the previous projection, but still 2 percent below the year prior and 17 percent below the 5-year average.

The decreased HRW planted area makes crop conditions even more crucial. The April 2 USDA Crop Progress report rated 10 percent of Kansas HRW, 9 percent of Oklahoma HRW and 17 percent of South Dakota winter wheat as good, with virtually none of the crop rated as excellent in those states.

Soft red winter (SRW) planted area decreased from the previous estimate to 5.85 million acres (2.37 million hectares), but is still 4 percent above 2017/18 planted area. Overall, conditions for SRW are similar to what growers faced at the same time last year with a majority of the crop rated in good to excellent condition.

USDA expects white wheat acres — planted in both winter and spring — to reach 4.15 million acres (1.68 million hectares) for 2018/19, up 3 percent from 2017/18, but in line with the 5-year average. The U.S. Drought Monitor shows adequate moisture for Washington, but southern Idaho and Oregon are experiencing abnormally dry to moderate drought conditions. Still, USDA reported that the majority of the white wheat crop in those states are in good to excellent condition.

The expected increase in spring wheat area would increase total U.S. wheat planted area to 47.3 million acres (19.1 million hectares) in 2018/19, up 3 percent year over year. The increase was unexpected, but if realized it would still be the second lowest planted wheat area since 1919 when USDA records began.

As always, spring brings the waiting game — all we can do is watch how the crops respond to conditions going forward.

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By Stephanie Bryant-Erdmann, USW Market Analyst

The end of March heralds not only the beginning of spring — a crucial time for both winter and spring wheat production — but also the first round of winter wheat condition reports.

Black Sea — Snow across Russia and Ukraine is providing much needed protection from the recent cold snap in the region, but is delaying spring planting, according to Ukrainian consultancy UkrAgroConsult and the Russian Meteorological Service. As of Feb. 26, the Russian Meteorological Service reported 95 percent of Russian winter grains were rated in fair to good condition, unchanged from the last crop condition report on Nov. 30, 2017. UkrAgroConsult rated 49 percent of Ukrainian winter wheat in good to excellent condition, compared to 40 percent the year prior. Stratégie Grains forecast 2018/19 Russian wheat production at 77.0 million metric tons (MMT), down sharply from 2017/18 due to an anticipated return to trendline yields and smaller planted area. Ukrainian 2018/19 wheat production is estimated at 26.5 MMT, compared to 26.1 MMT in 2017/18.

European Union (EU) — According to the March EU crop monitoring service (MARS) report, EU winter conditions were adequate for winter wheat development despite unusual temperature fluctuations. Temperatures in December, January and the first half of February were generally 1°C to 6°C warmer than normal across Europe before plunging the last half of February to as low as -15°C and -20°C across Poland, Denmark and Sweden. Precipitation in excess of 20 cm (8 inches) in France, the EU’s top wheat producing country, flooded some fields. On March 16, FranceAgriMer rated 80 percent of French common wheat as good to excellent, compared to 81 percent the week prior and 92 percent last year. Stratégie Grains expects 2018/19 EU wheat production to total 141 MMT, down an estimated 900,000 metric tons (MT) from 2017/18 due to expected increases in winterkill and smaller planted area in France and Germany.

India — Wheat harvest is currently underway in India, the world’s second largest wheat producing country behind China. While crop condition ratings there are not available, Stratégie Grains anticipates 2018/19 Indian wheat production will fall to 91.4 MMT, down 7 percent year over year due to a 5 percent reduction in planted area and unfavorable weather and disease pressure.

United States — On March 19, USDA released weekly crop progress reports for top hard red winter (HRW) producing states of Kansas, Oklahoma and Texas that showed continued deterioration of topsoil and subsoil moisture and winter wheat crop conditions in Kansas and Texas, but an improvement in Oklahoma. USDA rated 55 percent of Kansas, 66 percent of Oklahoma, and 60 percent of Texas winter wheat in poor or very poor condition, compared to ratings of 53 percent, 72 percent and 53 percent, respectively, the week prior. USDA will resume weekly U.S. crop progress reports on April 4.

Subsoil moisture in Kansas was rated 71 percent short or very short, 28 percent adequate and 1 percent surplus, while 68 percent of Oklahoma and 63 percent of Texas subsoil moisture was rated short or very short. USDA’s evaluation took place before this week’s rain event, so its effects will appear on next week’s report. However, additional precipitation will be needed to make up the shortfall. According U.S. National Oceanic and Atmospheric Administration (NOAA) data, accumulated precipitation across the majority of the HRW-growing area in Kansas, Oklahoma and Texas is 3 to 6 inches (8 to 15 cm) below normal.

We are months away from knowing what the 2018/19 world wheat crop will look like and, as always, the weather will have the final say on yields and production. Buyers can be sure the U.S. wheat store will continue to supply high-quality wheat, regardless of what happens in 2018/19.

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By Stephanie Bryant-Erdmann, USW Market Analyst

Total U.S. planted wheat area will rise 500,000 acres (202,000 hectares) in 2018/19 due to an expected increase in spring wheat area (including durum) according to Joanna Hitchner of the USDA World Agricultural Outlook Board. The USDA held its annual Agricultural Outlook Forum on Feb. 22 to 23, where Hitchner presented the 2018/19 Grain and Oilseeds Outlook.

USDA forecasts 2018/19 combined spring wheat and durum planted area at 13.9 million acres (5.63 million hectares). If realized, that would be up 2 percent from 2017/18 and the largest spring and durum planted area since 2015/16. Increased spring wheat and durum planted area is expected to more than offset the lowest U.S. winter wheat planted area since 1909. USDA currently estimates 2018/19 (June to May) wheat acreage at 46.5 million acres (18.8 million hectares), a one percent increase from last year, if realized.

Wheat buyers should note that factors affecting planting decisions can change before seed is sown. Long-term dry conditions in top hard red spring (HRS) and durum producing states of Montana, North Dakota and South Dakota may significantly alter farmers’ plans.

In January, USDA reported U.S. farmers planted 32.6 million acres (13.2 million hectares) of winter wheat last fall, down slightly from 2017/18, but 15 percent below the 5-year average. Increases for soft red winter (SRW) and white wheat offset a decrease in hard red winter (HRW). USDA assessed 2018/19 HRW planted area at 23.1 million acres (9.35 million hectares), down 2 percent from 2017/18 with planted acreage down year over year in nearly every HRW-producing state. However, 2018/19 total SRW planted area of 5.98 million acres (2.42 million hectares) increased 4 percent from last year, and white winter wheat planted area increased to an estimated 3.56 million acres (1.44 million hectares), up 1 percent from the prior year. Winter durum planting in the Southwestern United States was estimated at 74,000 acres (30,000 hectares), down 41 percent from 2017/18 and 51 percent below 2016/17.

Based on trend yields, USDA expects the national average yield to grow to 47.4 bushels per acre, up from 46.3 in 2017/18 due to expected increases in spring and durum wheat yields which were hard hit by last year’s drought. USDA projects the wheat harvested-to-planted ratio will increase to 0.83, up slightly from last year’s 0.82 due to a small decrease in expected abandonment rates. Total U.S. 2018/19 wheat production is forecast to rise by 6 percent year over year to 50.0 million metric tons (MMT).

In addition to lower planted area for winter wheat, crop conditions for many HRW-producing states are deteriorating due to sustained drought conditions. On Feb. 26, USDA rated 12 percent of Kansas winter wheat in good to excellent condition, down from 14 percent at the end of December. Winter wheat condition remained unchanged in Oklahoma with just 4 percent rated good to excellent, but declined in Colorado, Montana, Nebraska, North Dakota and South Dakota. SRW conditions improved in Illinois, where 45 percent of the winter wheat crop was rated in good to excellent condition compared to 38 percent last month. USDA will resume weekly U.S. crop progress reports in April.

A decrease in carryover stocks is expected to offset increased production, and the total U.S. wheat supply is expected to fall in 2018/19. USDA forecasts 2018/19 U.S. supplies at 77.5 MMT, down 2 percent from 2017/18, if realized, in part because USDA anticipates a slight increase in domestic use, from 30.4 to 30.7 MMT.

Price competition and large supplies in other wheat exporting countries will continue to pressure demand for U.S. wheat. USDA expects U.S. exports to fall to 25.2 MMT, down 3 percent from the forecasted 2017/18 U.S. wheat export level of 25.9 MMT.

To read more from the USDA Outlook Forum or to download presentations, please visit https://www.usda.gov/oce/forum/.

To see the latest Drought Monitor, please visit https://droughtmonitor.unl.edu/

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By Stephanie Bryant-Erdmann, USW Market Analyst

Farmers will tell you that winter wheat is a hardy plant; but for the current U.S. winter wheat crop, one of its most important inputs, water, is increasingly in short supply. The Feb. 1 U.S. Drought Monitor showed that drought ranging from abnormally dry to extreme, affects most of the winter wheat production area across the country. Specifically, 81 percent of Oklahoma is in a severe to extreme drought, while 65 percent of Kansas is in a moderate to extreme drought. In South Dakota and Colorado, 64 percent and 59 percent of the topsoil moisture was rated as short to very short, respectively.

USDA noted the drought’s impact on winter wheat crop conditions in its monthly winter wheat crop condition report* on Jan. 29, which showed 29 percent of the area assessed by the survey is in good to excellent condition, down from 41 percent good to excellent at the end of December. USDA rated 35 percent in fair condition and 37 percent in poor or very poor condition, up from 22 percent last month. The assessment covered 69 percent of the estimated 32.6 million acres (13.2 million hectares) planted for 2018/19.

Deteriorating crop conditions could multiply the effect of low planted area to decrease 2018/19 U.S. winter wheat production. USDA noted the 2018/19 winter wheat planted area is 15 percent below the 5-year average in its Jan. 12 Winter Wheat and Canola Seedings report, which is the second lowest number of planted winter wheat acres on record.

Of the winter wheat classes, hard red winter (HRW) is the most severely affected by drought. USDA reported 23 percent of HRW assessed acres are in good to excellent condition, compared to 35 percent in December. Forty-two percent of HRW acres were rated in poor or very poor condition, up from 25 percent one month prior. The only major HRW state not assessed last week was Texas, where 5 million acres (2.02 million hectares) of winter wheat were planted for 2018/19. However, precipitation maps show it has not rained in 110 days in Northern Texas (accounting for about 60 percent of Texas wheat production). In response to these reports, the Kansas City Board of Trade (KCBT) March wheat contract rallied 20 cents last week to $4.63/bu ($170/MT), the highest point since July 2017.

Soft red winter conditions are variable. USDA rated 58 percent of soft red winter (SRW) wheat assessed acres in good to excellent condition compared to 68 percent four weeks prior, and just 7 percent were rated in poor or very poor condition. However, SRW crop conditions were not uniformly positive. Better crop conditions in Ohio and Tennessee mask worsening moisture conditions in the Southeast and Mid-Atlantic regions. Ninety-five percent of Virginia, 61 percent of North Carolina and most of Maryland are abnormally dry or in moderate drought. Ratings were not available for several southern SRW states where drought conditions are more severe. Deteriorating crop conditions also helped push Chicago Board of Trade (CBOT) March wheat futures price to its highest point in five months at $4.47/bu ($164/MT).

Winter wheat crop conditions were not reported this month for Idaho, Oregon or Washington where exportable soft white wheat supplies are concentrated. However, the Feb. 1 Drought Monitor shows southern Idaho and nearly all of Oregon are abnormally dry. However, precipitation is expected in the next 5 to 10 days that should be beneficial for most of the estimated 3.56 million acres (1.44 million hectares) of white wheat.

Some rain this week pressured wheat prices, showing that the futures markets will likely be volatile until the spring green up tells the final story. It is a long way until harvest, but customers should closely watch weather conditions across the United States and be ready to take advantage of price moves in their favor.

If you have any questions about the current crop conditions or the U.S. marketing system, please contact your local USW representative.

To track U.S. wheat prices, drought conditions and more, subscribe to the USW Weekly Price Report, here.

*From December through March, USDA assesses winter wheat crop conditions in select states on a monthly basis. Weekly crop progress reporting will resume in April.

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By Stephanie Bryant-Erdmann, USW Market Analyst

Six months into marketing year 2017/18 (June to May), total U.S. export sales of 19.5 million metric tons (MMT) are 8 percent behind last year’s pace according to USDA Export Sales data through Jan. 4. However, the estimated total value of U.S. wheat export sales is 4 percent greater than last year on the same date at $4.72 billion, due to slightly higher export prices according to USDA Export Sales data and USW Price Report data.

A deeper analysis of USDA data shows total sales to six of the top 10 U.S. export markets in 2016/17 are ahead of last year’s pace, demonstrating strong demand for U.S. wheat. Sales of soft red winter (SRW) and soft white (SW) are both ahead of last year’s pace. USDA projects total 2017/18 exports will fall slightly to 26.5 MMT, which, if realized, would be 8 percent below 2016/17 but 1 percent above the 5-year average pace.

USDA reported hard red winter (HRW) year-to-date exports at 7.79 MMT, down 10 percent from the prior year. Still, 2017/18 export sales are 10 percent ahead of the 5-year average due to competitive prices for medium protein HRW and the good, overall quality of this year’s crop. The estimated value of year-to-date HRW export sales is 6 percent above 2016/17 due to a 14 percent increase in the average U.S. HRW free-on-board (FOB) price that is supported by the increased premiums for HRW with higher protein. Mexico is currently the number one HRW purchaser. As of Jan. 4, HRW sales to Mexico totaled 1.58 MMT, up 28 percent from last year’s pace. Sales to Indonesia are also up 28 percent year over year at 430,000 metric tons (MT). HRW purchases by Algeria total 456,000 MT, more than double last year’s sales on this date. To date, HRW sales to Venezuela totaling 120,000 MT are nearly four times great than the 2016/17 pace.

Both export sales volume and value of SRW for 2017/18 are up due to the excellent quality of this year’s crop and relatively competitive pricing. Export sales are up 7 percent year over year at 2.02 MMT, boosting estimated export sales value to $400 million, or 12 percent more so far this year. As of Jan. 4, total sales to 11 of the top 20 U.S. SRW export markets from 2016/17 are higher than last year. Sales to Colombia are 12 percent ahead of 2016/17 at 198,000 MT. Nigerian SRW purchases total 234,000 MT, up 12 percent from last year. Sales to other Central and South American countries, including Brazil, Peru, Panama, Venezuela and El Salvador, are also ahead of the 2016/17 pace.

Hard red spring (HRS) sales of 5.15 MMT are down 25 percent year over year and 7 percent below the 5-year average. Higher prices due to smaller 2017/18 production have slowed HRS exports thus far in 2017/18, but global demand for HRS is strong. Year-to-date in 2017/18, the average FOB price of HRS is $293 per metric ton ($7.97 per bushel), compared to $241 per metric ton ($6.55/bu) in 2016/17, according to USW Price Report data. As of Jan. 4, buyers in Japan purchased 878,000 MT, up 20 percent from 2016/17. Sales to Taiwan of 518,000 MT are up 17 percent from last year’s sales on the same date. The Philippines continues to import the largest volume of HRS, though at a 6 percent slower pace so far.

As of Jan. 4, exports of soft white (SW) wheat are up 22 percent year over year at 4.30 MMT. That is 28 percent greater than the 5-year average. Sales to the top 10 SW customers are ahead of last year’s pace, supporting an estimated export value of $896 million, up 25 percent from the prior year. Philippine millers purchased 946,000 MT, up 16 percent compared to last year’s sales on the same date. South Korean sales are up 43 percent at 674,000 MT. U.S. SW sales to China, Thailand and Indonesia are also up. Year-to-date, Indonesia has purchased 515,000 MT, compared to total 2016/17 purchases of 270,000 MT. Thailand sales are up 18 percent year over year at 217,000 MT. Chinese purchases of 306,000 MT are already greater than 2016/17 total SW sales.

Year to date durum exports total 272,000 MT, down 32 percent from the same time last year, and below the 5-year average, with tighter supplies and resulting higher prices. The average export price for U.S. durum is up 5 percent over last year at this time according to USW Price Report data. To date, Nigeria, the European Union (EU), Algeria and Guatemala are the top durum buyers. A significant portion of the first quarter 2017/18 sales is designated as “sales to unknown designations.

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Last week in the United States, the potential effects of severe cold over most of the U.S. hard red winter (HRW) and soft red winter (SRW) crops got the lion’s share of attention in media covering wheat production and markets.

To be sure, bitterly cold temperatures across the United States may have hurt some wheat in parts of the Plains, southern Midwest and Southeast without snow cover. A senior agricultural meteorologist was quoted saying “damage occurred in about a quarter of the hard red winter wheat belt in the Central Plains, with about 5 percent of the soft red wheat belt in the Midwest seeing impacts.”

Agronomists with Kansas State University confirmed that winter kill may be an issue in north central Kansas, where soil temperatures were sustained at potentially damaging levels for the longest time.

“It is difficult to truly assess the extent of the damage at this point,” they reported. “Provided that the crown is not damaged, the wheat will recover from this foliar damage in the spring with possibly little yield loss.”

Winter kill potential and the logistical problems with such cold did spark a brief uptick in KCBT and CBOT futures prices last week. Yet of all the threats to wheat, winter kill is not making the top of the list for farmers. What is keeping more of them up at night now is the lack of moisture.

“I think if we lose wheat, it will be from dry conditions rather than winter kill,” said Don Schieber, a Ponca City wheat farmer and a past chairman of U.S. Wheat Associates (USW). “Some of the wheat that was planted early is big, but some is hurting and turning blue. It is so dry that some farmers have stopped grazing their fields because the cattle are pulling whole wheat plants out of the ground.”

The National Agricultural Statistics Service indicates that drought conditions in Oklahoma, the Texas Panhandle and much of southwestern and central Kansas are very dry, noting that for the month of December 2017, topsoil moisture in Kansas was rated 28 percent very short, 49 short, 23 adequate, with no surplus in the state. In northeastern Colorado, dry conditions increased concerns that cold snaps without the benefit of snow cover may have hurt fall-seeded HRW wheat.

Wheat is a hearty crop and Kansas State agronomists made the point that we will only be able to assess the true extent of any damage at spring green-up. But this continues to be a challenging season for HRW in the Plains.

On Jan. 9, Kansas Wheat Marketing Director Aaron Harries shared photos of a field of stunted wheat in south-central Kansas on Twitter that, he suggested, was “one of the better-looking fields in the area.” It was 65° F when he took the photo and wrote that “48 hours from now: 50 mph north wind and single digit temps with no snow cover – #sad, #drought, #prayforrain, @KansasWheat.

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By Stephanie Bryant-Erdmann, USW Market Analyst

As the Dec. 12 World Agricultural Supply and Demand Estimate (WASDE) confirms, global wheat supplies are at a record high this year. USDA increased its estimate for 2017/18 global wheat production to 755 million metric tons (MMT), up slightly from 2016/17 and a new record high. If realized, it would be the fifth consecutive year of increased global wheat production.

The record large global wheat production has pressured U.S. wheat futures to six and twelve-month lows. Since the beginning of the 2017/18 marketing year, the Chicago Board of Trade (CBOT) soft red winter (SRW) wheat futures and the Kansas City Board of Trade (KCBT) hard red winter (HRW) wheat futures have fallen 37 cents and 32 cents, respectively to levels not seen since last December. The Minneapolis Grain Exchange (MGEX) hard red spring (HRS) wheat futures climbed in July, supported by concerns over severe drought in the U.S. Northern Plains, but has since fallen to within 14 cents of the June 2 price. This decline in wheat futures prices represents a significant opportunity for customers to lock in low futures values to hedge the risk of growing protein premiums due to the tight global supply of high protein wheat.

The USDA report also noted that lower year over year wheat production for 2017/18 was reported in Canada, Kazakhstan, Ukraine and the United States, and is also expected in Australia. This is important for customers needing high protein wheat, because nearly all the world’s high protein wheat exports (13 percent protein on a 12 percent moisture basis (mb) or higher) originate from those five countries plus Russia.

While Russian wheat yields exceeded expectations and boosted total production, high protein wheat supplies are very limited according to the Federal Centre of Grain Quality and Safety Assurance for Grain and Grain Products (Centre) preliminary data for winter wheat. According to Centre data, 25 percent of samples graded as Russian 3rd class wheat (10.5 to 11.9 percent protein on a 12 percent mb); 44 percent of the samples graded as Russian 4th class wheat (8.8 to 10.5 percent protein on a 12 percent mb); and 31 percent as 5th class wheat (feed wheat). Less than 1 percent of samples graded as Russian 2nd class wheat (11.9 to 12.8 percent protein on a 12 percent mb).

With global high protein wheat supplies shrinking for the second consecutive year and demand continuing to be strong, the premium between MGEX and KCBT wheat futures has continued to widen. In 2016/17, the inter-market spread between MGEX and KCBT averaged $1.05 compared to just 40 cents the prior marketing year. Year to date in 2017/18, the MGEX to KCBT spread averages $2.09.

The demand for higher protein wheat also supports HRW protein export basis spreads, which have widened significantly this year at both Gulf and Pacific Northwest (PNW) ports. Over the past 15 years, the average premium for 12 percent protein (12 percent mb) at the Gulf has been 14 cents per bushel. This year that premium is $1.96 per bushel. The 15-year average premium for 12 percent protein HRW at the PNW is $1.09 per bushel. Since the beginning of the 2016/17 marketing year on June 1, that average premium is $1.94 per bushel.

Despite the increased premiums for high protein HRW and HRS, a review of USDA Federal Grain Inspection Service (FGIS) data reveals an increased percentage of high protein exports. Seventy-seven percent of 2017/18 HRS exports have at least 14 percent protein (12 percent mb), compared to the 5-year average of 70 percent. The percentage of HRW exports of 13 percent protein and above (12 percent mb) is double the 5-year average.

With six months left in the marketing year, many customers are securing their high protein wheat demands for the year. While premiums for high protein continue to grow, U.S. wheat futures markets have fallen for four straight weeks, which offers a good opportunity for customers to lock in the lowest HRS futures prices seen since June and the lowest SRW and HRW futures prices since last December.

Please call your local U.S. Wheat Associates (USW) representative if you have any questions about the U.S. wheat marketing system or U.S. wheat supply.

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From USDA and Media Reports

Hours of work will come to fruition this week for market analysts at USDA and the farmers and buyers they serve. The results of some new reports provide an early look at the next U.S. winter wheat crop, which includes hard red winter (HRW), soft red winter (SRW) and fall-planted soft white (SW) classes.

Starting with a brief look back, we do know that U.S. farmers harvested the smallest area of wheat in 2017 since detailed records started in 1919. That was not a surprise because USDA had estimated planted area for all wheat classes, including spring wheat, for 2017/18 at a similar record low. Winter wheat planted area was down 9 percent from 2016/17.

New estimates suggest the base will be even lower for 2018/19. Reuters reported Nov. 28 that USDA estimates U.S. farmers are likely to expand corn and soybean plantings while reducing wheat seedings to 45.0 million acres for 2018/19, down from the record low of 46.0 million for 2017/18. Reuters noted that the forecasts are developed by consensus within the USDA on a long-term scenario for the agricultural sector for the next decade. USDA will release its complete report on projections for the next 10 years in February.

Arlan Suderman, chief commodities economist for INTL FCStone, expects U.S. wheat farmers will continue plant less wheat because of the price pressure from the record global wheat stocks. He estimates seeded area will be down another 4 percent to 6 percent in 2018. Suderman said the strong U.S. dollar pressures demand for U.S. wheat while encouraging wheat expansion overseas, such as in the Black Sea region. He believes markets that value high quality wheat and strong protein offer stronger opportunity for U.S. wheat.

As a counterpoint, a poll by a national agricultural publication fielded last July suggests farmers may slightly increase wheat seedings. The Farm Futures magazine survey found growers wanting to boost wheat seedings by 2.5 million acres to 48.1 million, a 5.4 percent increase over 2017. The survey suggested that winter wheat would make up nearly 90 percent of that increase.

The first official estimate of winter wheat planted area from USDA will be released in its Prospective Plantings report in March 2018.

USDA’s latest conditions report released on Nov. 26 suggests the new HRW wheat crop seeded in the Central and Southern Plains is stressed by dry weather. Oklahoma farm broadcaster Ron Hays reported that “winter wheat crop ratings continue to slide as Oklahoma, Kansas and Texas wheat conditions all fell in the latest reporting week. Oklahoma has seen its good to excellent score on the 2018 wheat crop drop from 41 percent two weeks ago to 30 percent this week; Kansas dropped five points from two weeks ago to 51 percent good to excellent and Texas dropped ten percentage points to 36 percent good with no score for excellent in this week’s final weekly score of the season.”

On Nov. 30, USDA will issue a quarterly update to its forecast of U.S. farm exports for fiscal year 2018 (Oct. 2017 to Sept. 2018). In a previous report, USDA said the total of $140.5 billion for FY2017 ended a two-year decline and was the third-highest on record. USDA currently forecasts U.S. wheat exports for marketing year 2017/18 at 27.2 million metric tons (MMT), down slightly from 28.7 MMT in 2016/17.

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By Steve Mercer, USW Vice President of Communications

USDA market analysts cited Iraq’s major purchase of hard red winter (HRW) wheat as the specific basis for a significant drop in U.S. ending stocks in the November World Agricultural Supply and Demand Estimates (WASDE) report. The report correspondingly put its total U.S. export forecast for 2017/18 up 0.7 million metric tons (MMT) to reach 27.2 MMT. This would be down 5 percent from 2016/17 but 2 percent above the 5-year average, if realized.

The ending stocks forecast continues to be the primary plot of the 2017/18 global wheat market story. The WASDE report noted that even with slightly lower supplies and higher use, ending stocks are still expected to hit a record level.

USW Market Analyst Stephanie Bryant-Erdmann, who is currently on an international assignment, shows in USW’s latest Supply and Demand Report that global ending stocks are projected to reach a record level: 268 MMT, or 5 percent higher than 2016/17, if realized. Estimated Chinese ending stocks of 127 MMT account for 48 percent of global ending stocks, which is 58 percent greater than the 5-year average.

Bryant-Erdmann provides a more nuanced analysis of global stocks by charting the current global stocks-to-use ratio with and without China’s stocks, which are not likely to move to export. She shows that the 2017/18 ratio drops about 64 percent from 36 percent to 22 percent without Chinese stocks. More significant, though, is the historical look, showing that exportable stocks are on a three-year downward trend. In fact, Bryant-Erdmann shows that exporter ending stocks are expected to fall 5 percent year over year to 74.3 MMT, and ending stocks in importing countries are forecast to fall to 66.0 MMT, 5 percent below the 5-year average of 70.5 MMT.

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By Stephanie Bryant-Erdmann, USW Market Analyst

The common refrain right now is “the world is awash with wheat.” While that is true in the aggregate, in terms of milling wheat and, more specifically, high-protein milling wheat, supply is very tight. The impact of the small supply of high-protein milling wheat can be seen in the protein premiums for both U.S. hard red spring (HRS) and hard red winter (HRW) wheat. The following is a breakdown of pricing and availability of the U.S. high-protein wheat supply by class and port of export. Please note that U.S. wheat protein is expressed on a 12 percent moisture basis, not on a dry matter basis, thus U.S. 11.5 percent protein is equal to 13.1 percent protein on a dry matter basis.

Hard Red Winter

According to USDA, HRW production fell 32 percent from 2016/17 to 20.4 million metric tons (MMT), putting total HRW supply at 36.5 MMT. According to USW Crop Quality data, the average protein of this year’s HRW crop is 11.4 percent. That is similar to last year, but below the 5-year average. Overall, 55 percent of HRW samples were less than 11.5 percent protein; 26 percent had 11.5 to 12.5 percent protein and 19 percent had protein levels above 12.5 percent. Extrapolating that to HRW production, there is roughly:

  • 9 MMT of HRW with protein greater than 12.5 percent;
  • 3 MMT with protein between 11.5 and 12.5 percent; and
  • 2 MMT with less than 11.5 percent protein available.

The smaller crop and lower protein support both the Kansas City Board of Trade HRW futures market and protein premiums; however, that support varies by export tributary.

Gulf. The 2017/18 marketing year (beginning June 1) average protein premium for Gulf HRW 12.0 percent protein on a 12 percent moisture basis (mb) is 51 percent above the 2016/17 marketing average at $69 per metric ton (MT) and $20 dollars per MT above the 5-year average. The HRW Gulf export tributary region experienced its second consecutive year of higher yields and very limited heat stress during the growing season, resulting in lower than normal protein. According to USW Crop Quality data, the average protein for Gulf export tributary HRW is 11.2 percent, compared to the 5-year average of 12.8 percent protein. This means that while protein premiums for high-protein HRW are climbing, ordinary HRW from the Gulf represents a significant bargain for customers with export basis levels 31 percent below the 5-year average at $28/MT.

Pacific Northwest (PNW). Unlike the Gulf export tributary states, HRW in the PNW tributary states was stressed by high temperatures and little rainfall in 2017/18, boosting protein content but cutting yields. According to USW Crop Quality data, the average protein for PNW export tributary HRW is 12.0 percent, similar to the five-year average but higher than the average of 11.7 percent protein in 2016/17. USDA estimates the PNW HRW tributary states sampled by USW produced 3.5 MMT, or just 17 percent of the total U.S. HRW supply. With the PNW supply limited, albeit a supply with higher protein than the Gulf, the average price for 12.0 percent protein HRW is 9 percent higher than the 2016/17 value at $238/MT, but still well below the 5-year average of $277/MT. This represents an excellent opportunity for customers to lock in prices before supplies dwindle in the second half of the marketing year.

Hard Red Spring

According to USDA, HRS production fell 22 percent to 10.5 MMT in 2017/18. Total HRS supply declined 18 percent from 2016/17 to 20.8 MMT on smaller production and beginning stocks. According to USW Crop Quality data, the average protein of this year’s HRS crop is 14.6 percent. That is above both last year and the 5-year average of 14.0 percent. Overall, 22 percent of HRS samples tested had less than 13.5 percent protein; 23 percent of samples had 13.5 to 14.5 percent protein and 55 percent of samples had greater than 14.5 percent protein. If that is extrapolated out to HRS production, then roughly:

  • 8 MMT of HRS was produced with protein greater than 14.5 percent;
  • 4 MMT having protein between 13.5 and 14.5 percent; and
  • 3 MMT with less than 11.5 percent protein available.

This distribution caused protein premiums for HRS to fall below the 5-year average, but supported HRS MGEX futures, which spiked in July and remain an average $49/MT above last year’s futures prices due to the smaller supply. Like HRW, price impacts of the smaller supply vary by export tributary region but were more evenly distributed due to a nearly even production split between regions.

Eastern Region. The average cash price for Gulf HRS 14.0 percent protein is 16 percent above the 2016/17 marketing average at $298/MT. The higher price is supported by the extreme drought across the U.S. Northern Plains which cut production but boosted protein content. USW Crop Quality data showed the average protein for Gulf export tributary HRS was 14.4 percent, compared to the 5-year average of 14.0 percent protein.

Western Region. The drought had devastating effects on yields in the Western Region, specifically in Montana and western North Dakota and South Dakota, but did boost protein levels. According to USW Crop Quality data, the average protein for the PNW export tributary is 14.9 percent, compared to the 5-year average of 14.2 percent protein. With the increased availability of high-protein HRS, the average protein premium for 14.0 protein HRS fell 10 percent year over year to $53/MT, well below the 5-year average of $67/MT.

With Canadian wheat production falling an estimated 5.5 MMT year over year and the sharp drop in U.S. high-protein wheat production, the global supply of high-protein wheat has tightened. Depending on what protein specifications customers need, this may be the best time to lock in lower HRS protein premiums. Low-protein HRW also represents an excellent buying opportunity for specific customers.