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Low-income consumers in import-dependent countries will face the greatest hardships as the unprovoked Russian invasion of Ukraine and other factors push world food prices higher. That is one conclusion from a USDA Foreign Agricultural Service (FAS) analysis released in April. U.S. Wheat Associates (USW) is a cooperating partner with FAS export market development programs.

Bullish Since Late 2020

The FAS analysis looked at factors that affected world food prices in late 2020. They include increased demand led by China, drought-reduced supplies, tighter wheat, corn and soybean stocks in major exporting countries, and high energy prices that have raised farm production costs. The report said Russia’s attack on Ukraine has disrupted Black Sea agricultural exports, pushing prices even higher, and exacerbating high energy and fertilizer costs.

Chart showing world food prices near record levels

China is one of the leading countries ramping up imports, with import volume doubling in 2020/21 as State Trading Enterprises helped replace and rebuild aging government reserves. Demand for feed-quality wheat also surged.

Protecting Domestic Supplies

In addition, the report stated that world food prices were up in part because 11 countries had implemented export bans for products ranging from wheat, wheat flour, barley, rye, corn, and oilseeds, to lentils, fava beans, and pasta. That list includes Russia, which had already imposed an export tax in 2021. And in early May, the potential impact of a severe heatwave in India brought rumors its government was contemplating some export restrictions.

Interestingly, the FAS report acknowledged that global wheat production was adequate in 2020/21 and only one percent below consumption requirements in 2021/22 on an aggregate level.

Related to wheat supply, USW President Vince Peterson recently offered a more nuanced observation of the situation for the world’s wheat buyers.

“The bottom line for wheat-dependent importers in the short term is not necessarily a supply-shortage crisis, but rather an economic-financial crisis caused by having to pay much higher prices in the current market scenario,” Peterson said. “It is also a logistical challenge for the world to efficiently move the wheat supplies to places where they are most deficit.”

Lower Exportable Supplies

And yet, major exporters’ stocks in 2021/22 are forecast to be at their lowest levels in 10 years, putting upward pressure on global prices.

Chart shows U.S. wheat prices in relation to annual supplies among wheat exporting countries.

USW agrees that higher world food prices affect the poorest countries and households the most.

“It is so sad to think of more people being pushed into food insecurity around the world, but that is happening,” said Mike Schulte, executive director of the Oklahoma Wheat Commission and chair of the USW and National Association of Wheat Growers Food Aid Working Group.

Schulte’s comment came as USW and NAWG welcomed recent news that the U.S. government will provide more funding for food assistance to countries in need and help cover food aid transportation costs.

“Wheat has long been the most often donated commodity for food aid programs, and wheat growers are ready again in this crisis to help ease the hunger,” Schulte added.

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Analysis of the wheat market since February has been underscored by volatility, and no less so for the U.S. soft white (SW) wheat market.

The sudden exit of Ukraine from the export market and the uncertainty of Russia’s wheat exports are recent factors in market volatility. Dry weather is another important consideration for winter wheat markets.

The most recent USDA crop progress report rated 27% of the entire U.S. winter wheat crop as good or excellent, a 3-point drop from last week and the lowest level since 1989 for this time of year. The report encompasses all winter wheat, including SW grown in the Pacific Northwest (PNW). And with summer fast approaching, it is a good time to look at the underlying factors for the 2022 U.S. SW crop.

Conditions Improved

The PNW wheat-growing region remains in some form of drought. Yet crop conditions there are considerably better than in the Plains. Following significantly more winter moisture, spring weather has also returned to normal, with rain and mild temperatures reported in Washington’s Palouse region and north-central Oregon.

Idaho wheat conditions are rated 56% good or excellent. Oregon’s conditions rate 55% good or excellent, and Washington state, the leading SW producer, with 52% of the crop rated good or excellent.

Kernels of soft white wheat

Better moisture gave the 2022 U.S. soft white wheat crop an initial boost. If conditions hold, there will be better yields and quality compared to the 2021 crop. Soft white wheat kernel photo by U.S. Wheat Associates. 

Better Than 2021

Last year, persistent hot and dry weather hit the PNW, impacting both yield and protein content for soft white wheat. According to the U.S. Wheat Associates (USW) Crop Quality Report, the average soft white protein on a 12% moisture basis in 2021 was 11.3%, 15% higher than in 2020 and 16% above the 5-year average. Production was down 28% compared to the 5-year average. In Washington, the leading SW producer, yields were slashed 47% compared to 2020/21.

Ending stocks are especially tight, with the USDA estimating a 26% decline compared to last year. The relatively high cost of the smaller white wheat crop and week-to-week price volatility has translated to reduced SW export volume this year. USDA’s April supply and demand estimate reduced exports by 46%, and the latest USW Commercial Sales report showed soft white exports 50% lower year-to-date at 3.33 MMT.

Planted Area Up

However, USDA expects SW area planted for harvest in 2022 to be 3.56 million acres (1.44 million hectares), up 2% compared to last year. That is good news for SW wheat millers. Production potential and farmer revenue from SW is complicated by higher input costs like fertilizer, and the volatile futures market make it difficult for farmers to determine their best course of action. Even so, the improved conditions this year should benefit both SW customers and farmers.

New Crop Hope

Oregon SW wheat farmer and current USW Chairman Darren Padget is optimistic about the potential in his SW crop this year. He said this year has been much more normal than last year, with moisture being much more consistent and plentiful in the winter and spring. He said that in his area of the PNW, “we are on track for an average crop.”

Glen Squires, Chief Executive Officer for the Washington Grain Commission, said that spring conditions have been wetter and cooler than last year. He did, however, warn that subsoil moisture is about the same as last year, around 40% short or very short. Overall, Squires noted that they are optimistic that crop quality and yields will rebound from last year.

By USW Market Analyst Michael Anderson

The header photo is courtesy of the Washington Grain Commission.

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While the Russia-Ukraine conflict remains the biggest driver of wheat futures prices, U.S. winter wheat in drought conditions across the Plains is becoming an increasingly bullish factor. This latest concern is likely to overshadow USDA’s recent estimate for a slight increase in winter wheat acres with potentially serious implications for supplies heading into summer.

On Tuesday,  Chicago Board of Trade (CBOT)  soft red winter (SRW) wheat futures reached their highest level since March 23, while Kansas City Board of Trade (KCBT) were up nearly $0.21 Tuesday and up 50% since the start of the year. The Washington Post this week reported that winter wheat conditions are the poorest in more than two decades for this early in the growing season.

Drought Monitor

Dry weather is not unique in the Plains states, but some years are worse than others. The current USDA drought monitor data indicates that most hard red winter (HRW) wheat is in drought. USDA reported just 32% of winter wheat is in good or excellent condition. That is a two-point improvement compared to last week but far from the 53% good or excellent rating at this time last year. The last time crop conditions were at this level so early was in 1996. According to USDA, total wheat yields that year were 2.41 MT/HA, 24% behind 2021/22, a year that also saw substantial wheat in drought.

USDA map showing where U.S. winter wheat in drought is located

Too Much Wheat in Drought. Of the 69% of winter wheat production USDA shows growing under drought conditions, almost all the 2022/23 HRW wheat crop is struggling in dry top- and subsoil.

Tough Conditions

Growing conditions for the 2022/23 HRW crop have been tough from the start. Last fall, plantings were sown in very dry soil, and precipitation was light. Snowfall was limited, and now above average temperatures with limited rainfall have only added to the stress. Weather forecasts point to more dry weather ahead.

Kansas, the leading HRW producing state, is dry. The U.S. Drought Monitor reports severe drought in the western half of the state. However, Kansas Wheat published a recent story about varied HRW conditions, perhaps unsurprising for a state that is 400 miles (644 kilometers) long. Nevertheless, all the farmers agreed that rain is needed.

State-by-State

To the west of Kansas, conditions are also dry and windy in Colorado. High winds rob the soil of moisture, exacerbating a lack of rainfall. Topsoil moisture conditions were rated 16% very short, while subsoil moisture was rated 17% very short across the region. Both were unchanged from the week before. Nebraska’s wheat conditions are above the national average, with 32% rated good or excellent and 46% rated fair. Soil moisture is short for the state, but decent moisture in the fall has provided some relief. In South Dakota, where winter wheat planting is 4% higher than last year, conditions are rated 58% fair and 22% good to excellent. Given the overall winter wheat conditions, the crop in South Dakota looks strong.  Montana also looks good compared to the average. Wheat rated fair is 62%, while 15% is good to excellent. But like so much of the winter wheat growing area, soil moisture is poor. Most of the state is either in extreme drought or severe drought.

In Oklahoma, the second largest winter wheat producing state after Kansas, conditions improved week-over-week, with 29% of HRW rated good or excellent, up 6 points from a week ago. Texas has the most wheat in drought, with 56% of the statewide crop rated very poor. Long-term drought conditions have impacted the growth of this year’s crop. One Texas Farm Bureau member noted that some farm areas hadn’t seen measurable rainfall at all this calendar year.

April Showers Needed

April is critical for HRW development, and timely rain is needed. And while conditions are not ideal right now, farmers as ever remain optimistic.

You can follow weekly updates on the HRW crop by reading the U.S. Wheat Associates (USW) Price Report or the weekly USDA crop progress publication. In May, USW will begin publishing weekly Harvest Reports for the 2022 U.S. wheat crop.

By Michael Anderson, USW Market Analyst

 

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The USDA’s National Agricultural Statistics Service (NASS) released its latest Grain Stocks report and Prospective Plantings report March 31. The report echoed what many market analysts expected, tighter U.S. wheat stocks and higher planted winter wheat area. One significant exception was a slight decline in spring wheat planted area intentions compared to USDA’s previous prediction that planted area would be up.

The Grain Stocks report placed wheat storage at 27.2 MMT, down 22% from last year. The Prospective Plantings report estimated all wheat plantings up 1% compared to 2021 to 47.4 million acres (19.1 million hectares). Despite the increased planted acres year-over-year, if realized, the all-wheat planted area is the fifth-lowest since USDA began keeping records in 1919.

The initial market reaction reflected the relatively unchanged expectation for U.S. winter wheat and the more bullish spring wheat reports.

Grain Stocks

In the quarterly Grain Stocks report, all wheat stored as of March 1, 2022, was 1.02 billion bushels (27.7 MMT), down 22% from a year ago and the lowest in 14 years. On-farm stocks were estimated to fall 39% to 174 million bushels (4.7 MMT).

In North Dakota, the largest spring wheat producer, stocks were down 33%. In Kansas, the largest winter wheat producer, stocks were down 16%. Durum wheat, last updated on December 1, 2021, was reported to fall 30% year-over-year to 43 million bushels (1.1 MMT). Corn stocks were up 2% from last year at 7.85 billion bushels (213.6 MMT).

The latest Grain Stocks report, with reduced supplies, shows the impact drought had on the crop harvested in 2021. The March World Agricultural Supply and Demand Estimates (WASDE) reported U.S. ending stocks for all wheat classes at 17.8 MMT, 23% lower than last year. The next report will be published Friday, April 8.

Photo of three grain bins.

U.S. Wheat Stocks Down. Following severe drought, U.S. wheat stocks are down significantly, according to the USDA 2022 Grain Stocks report.

Prospective Plantings

The 2022 Prospective Plantings report confirmed a predicted 2% increase in U.S. winter wheat planted area while indicating a similar percentage decline in U.S. spring wheat and durum planted area. This report is based on a farmer survey taken earlier in March.

In February, USDA expected U.S. winter wheat planted area of 34.4 million acres would be up 2% overall compared to the 2021 crop. Projections now are slightly less at 34.2 million acres, including 23.7 million acres of HRW, 6.89 million acres of SRW, and 3.62 million acres of white wheat (99% soft white).

However, the hard red spring (HRS) and durum prediction are down 2% from USDA’s February estimate to 13.2 million acres and 2% down from planted area in 2021. The report indicates that farmers intend to plant 11.2 million acres of HRS, down from 11.5 million acres in 2021. But durum intentions are pegged up 17% at just under 2.0 million acres.

USDA will update these farmer intentions at the end of June 2022 and provide a final planted area in its annual production report in January 2023.

Alternative Crops Expected Up

Farmers are now considering the profit potential of crops other than spring wheat. In fact, USDA’s survey shows farmers in the Northern Plains spring wheat and durum production area intend to plant 584,000 more acres of barley, dry peas, sunflowers, lentils and flax this year compared to 2021. That is what USDA expected based on the favorable prices of those alternative crops.

Field of barley to illustrate alternative crops

Alternative Spring Crop Planting Predicted Up. USDA’s 2022 Planting Intentions report suggests that U.S. farmers will plant more alternative crops like barley (above) in the spring wheat and durum production area.

There can be significant differences between the March Prospective Plantings, June Acreage, and final planted area of crops like spring wheat and durum. In addition to decisions about alternative crops, total planted area of spring wheat and durum will also be affected by the weather. DTN Contributing Analyst Joel Karlin provided perspective on these potential differences in a Progressive Farmer column published March 30.

The report suggests another crossover of U.S. corn and soybean planting intentions. Farmers told USDA/NASS they expect to plant 4% less corn and 4% more soybeans in 2022. If realized, soybean planted area of 91 million acres would be a record amount.

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An increase in planted area, production and lower prices are among the U.S. wheat highlights USDA shared Feb. 24, at its 2022 Agricultural Outlook Forum.

These U.S. wheat highlights and USDA’s outlook for all U.S. agricultural products represent the first predictions for marketing year 2022/23. The new year for U.S. wheat starts June 1, 2022, and changes are to be expected. In addition, it is important to note that USDA’s outlook does not account for unknown potential effects of the conflict in Ukraine.

In the “Grains and Oilseeds Outlook for 2022,” USDA cited high current wheat prices and tight stocks to predict U.S. farmers will plant 48.0 million acres (19.43 hectares) to wheat for harvest in 2022. That is about 3% more than was planted for 2021. Using an assumption of normal spring planting and summer crop development conditions, USDA expects U.S. wheat prices will come down in 2022 with higher U.S. wheat production and ending stocks.

Winter Wheat Up; Competition for Spring Area

U.S. wheat highlights included the National Agricultural Statistics Service (NASS) estimate of 34.4 million acres of winter wheat planted for harvest in 2022. That is the largest area since 2016/17. The report noted that “combined spring and durum wheat plantings for 2022/23 are also projected higher,” but could be constrained by higher potential return from other crops that farmers in the Northern Plains can grow.

Image shows a large farm planter and tractor to illustrate planted area among U.S. wheat highlights for 2022

USDA’s initial outlook for U.S. wheat highlights in 2022 includes a significant increase in planted wheat area as farmers try to take advantage of higher farm gate prices.

Again, assuming normal conditions through harvest and the long-term trend, USDA initially expects average yield (production per acre) for all U.S. wheat in 2022 to increase 11% from the drought-affected 2021 yield. If farmers achieve this increase, USDA expects the larger crop will help increase total U.S. 2022/23 supplies by 5% to 2.708 billion bushels or 73.71 million metric tons (MMT).

Total U.S. Wheat Use Up a Bit

Annual use for food, seed and feed is one U.S. wheat highlight that stays relatively flat. And USDA expects 2022 to be no exception. Total domestic wheat use in 2022 is predicted at 30.68 MMT.

USDA does expect U.S. wheat exports to rebound slightly from 2021/22 to 23.14 MMT. “U.S. wheat export prices have continued to rise amid tight supplies, making the United States less competitive globally,” USDA reported.

Illustrates export demand among U.S. wheat highlights in USDA's 2022 outlook.

One U.S. wheat highlight from USDA’s Global Grains and Oilseeds Outlook for 2022 is for increased exports.

Given these predicted market factors, USDA expects the United States will end the marketing year with 19.9 MMT of wheat stocks. That is up 13% from USDA’s current prediction for 2021/22, but still less than the 5-year average.

Follow USW’s Supply and Demand Report

As USDA adjusts its U.S. wheat highlights and global estimates each month, U.S. Wheat Associates (USW) updates its comprehensive Supply and Demand Report. It is available online at the USW website. For additional U.S. wheat highlights, free subscriptions to USW Price Report, Harvest Report, and the Wheat Letter blog are available here.

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In a market-moving report in February, USDA cut its 2021/22 global wheat production estimate by more than 2 million metric tons (MMT) from its January estimate. USDA also increased its world wheat consumption estimate.

What is behind this change so late in the marketing year?

This year, high wheat prices remain a fixture as drought in major exporting countries cut trade supplies. However, coming into better focus is the hard-hitting drought in Middle Eastern countries that usually grow more wheat for domestic use.

Chart shows significant run up in wheat prices reflecting lower global wheat production.

Supply Restrained

Iran, Syria, Iraq, Turkey, and Egypt have all seen crop reductions during the 2021/22 growing season, contributing to lower global wheat production. That suggests higher wheat import volumes will be needed to meet domestic demand. This is significant because, taken as a whole, the region is expected to import 35.5 MMT of wheat in 2021/22. That is 17% of USDA’s global import forecast of 204.8 MMT. In 2020/21, these five countries imported 25.9 MMT or 13% of the global wheat trade.

USDA’s Foreign Agricultural Service (FAS) report on Iran estimates wheat production to be down 3 MMT to 12 MMT total. Syrian wheat production is estimated at 2 MMT, and in Iraq, production is estimated at 3.5 MMT. Much of the production shortfall is being made up by imports from Russia, which enjoys a transportation advantage, FAS reported.

A look into the situation in these countries is helpful.

Iran

In October 2021, Reuters reported that Iran, which has imported around 1.0 MMT of wheat annually over the last five years, would need to import 8 MMT in 2021/22 to ensure a steady bread supply. The Foreign Agricultural Service forecast wheat imports at 7 MMT this year, up nearly 5 MMT compared to other years. Iran suffered its worst drought in half a century during the 2021 growing season, cutting the wheat crop by 30%, said industry sources.

Syria

In Syria, the “Year of Wheat” campaign has been challenged by low rainfall, leaving an import gap of 1.5 MMT. The United Nations (UN) Food and Agriculture Organization (FAO) said that Syria would need to import at least 1.5 MMT of wheat. The organization said the government’s target of 1.2 MMT of local wheat, purchased through forced sales of wheat from Syrian farmers to the government, “looked unrealistic.”

Iraq

Iraq’s state-grain buyer said it procured around 3.36 MMT of local wheat in 2021, down from 5.02 MMT in 2020. The Grain Board said in December it plans to import 2 MMT of wheat in 2022. Unlike the other countries discussed here, Iraq is less price-sensitive and buys high-quality wheat from U.S., Australian and Canadian origins. When Iraq’s Ministry of trade was actively tendering for wheat between 2017 and 2019, more than half its imports came from the United States. Before this year, two exceptionally large Iraqi wheat crops have met domestic demand.

The Chart shows decline in production in Iran, Syria and Iraq that affects global wheat production

Smaller Crops. Drought has hit several Middle Eastern countries, contributing to lower global wheat production and increased trade. Source: USDA/Foreign Agricultural Service Global Market Analysis.

Turkey

This month, the USDA/FAS agricultural attaché in Turkey reduced the estimate for wheat imports in 2021/22 by 5 MMT to 10.8 MMT. Even so, the revised estimate is 33% higher than imports from previous marketing years. The FAS office also said wheat production in 2021/22 had fallen 2 MMT to 16.25 MMT. The Attaché’s report is lower than the recent WASDE report, which put Turkey’s wheat imports at 11 MMT. The Turkish Statistic Institute showed that wheat imports during the first six months of the 2021/22 trade year (June-November 2021) grew by 20% year-on-year.

Egypt

Egypt is the largest importer of wheat in the world. It produces less than half the wheat it consumes annually. According to the Egyptian Supply Minister, the government is working hard to diversify its suppliers. The recent tension between Russia and Ukraine could disrupt 80% of Egypt’s grain flow. Despite an increased harvest forecast of 9 MMT for domestic wheat, 100,000 MT more than 2020/21, domestic consumption is expected to increase 400,000 MT. Egypt’s imports are expected to increase 7% compared to the 5-year average.

The chart shows a big increase in wheat imports by Middle East countries and effect on global wheat production

More Wheat Needed. With lower production, import demand for wheat is expected to be up this year in Iran, Iraq, Syria and other wheat-producing countries. Source: USDA/Foreign Agricultural Service Global Market Analysis.

Drought, Supply and Prices

Global wheat production challenges fueled by drought have certainly driven this market in the past. And this month, USDA summarized its report this way: “the global wheat outlook for 2021/22 is for lower supplies, higher consumption, increased trade, and reduced ending stocks.”

The price incentive for farmers to produce more wheat for 2022/23 is real. The world will be watching to see if Mother Nature supports that effort.

By Michael Anderson, USW Market Analyst

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The U.S. durum market remains supported by tight supplies, leading to a reduction in consumption that may, or may not, hold until the 2022 harvest. That is an observation by North Dakota Wheat Commission Policy and Marketing Director Jim Peterson in a Feb. 2, 2022, webinar sponsored by the Northern Crops Institute (NCI).

Following a run up fueled by supply issues, durum prices have “softened in values since mid-January,” Peterson said. That is reflected in what the International Grains Council estimates as a 20-year low in total durum use.

For example, USDA currently expects U.S. durum exports in 2021/22 at 410,000 metric tons (MT). U.S. Wheat Associates (USW) reports commercial U.S. durum sales at about 168,000 MT to date in marketing year 2021/22. That is down from about 658,000 MT at the same time last year. Canadian durum exports from August through December 2021 are also about half their total sales compared to the year before.

This bar chart of U.S. durum market supply and demand for the past six years shows lower production and demand in 2021/22.

U.S. Durum Market Supply and Demand. Drought cut U.S. durum production in 2021, and in Canada. Higher prices have rationed demand, reflected in USDA’s lower export estimate as of February 2022.

Buying Hand-to-Mouth

Peterson said durum buyers are only purchasing when the market gives them a chance to save some money. In addition, end-users are, when possible, increasing the amount of non-durum wheat flour for pasta production.

“We will see how long that rationing can continue,” Peterson said. He said buyers will have to replenish supplies before the 2022 harvest starts in June.

European durum prices are lower than Canadian and U.S. durum market prices. However, we sense more tightness in the European market and hopefully, that will translate into some export sales over the next few months,” Peterson said.

What is Ahead?

Phone of Jim Peterson

Jim Peterson, Policy and Marketing Director, North Dakota Wheat Commission.

North American farmers are now making spring planting plans. In the U.S durum market, farmers will consider the difference in federal crop insurance prices for hard red spring (HRS) and durum crops, Peterson explained.

“There is no question that the durum crop insurance price will be at a premium to spring wheat,” he said. Farmers will know what the difference is after February. In addition, Peterson said U.S. farmers will compare the potential income from durum and spring wheat before making their planting decisions.

Still, the Canadian and U.S. durum markets could see a 10% increase in durum planted area in 2022.

Tight Supplies

Of course, until the 2022 durum crop gets in market position, Peterson noted, “we could have some very tight months coming up depending on what happens with demand.”

Readers can watch a recording of NCI’s one-hour webinar on the world and U.S. durum market online here.

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Since late December, U.S. wheat futures prices moved down through mid-January and have bounced up and down since then. For example, prices surged early the week of January 24 but lost steam by the end of the week. And the March ’22 hard red winter future price lost 4% as of Wednesday’s close. Such wheat market volatility is a challenge for importers. And there are many elements adding volatility that deserve a closer look.

Chart shows weekly wheat futures closing prices from November 2021 through late January 2022 demonstrating wheat market volatility

There is Wheat Market Volatility in the weekly closing futures prices for soft red winter (CBOT), hard red winter (KCBT) and hard red spring (MGEX) between November 2021 and late January 2022. Source: USW Price Charting Tool.

Russia and Ukraine

The ongoing tension between Russia and Ukraine has certainly added wheat market volatility. Both countries are major grain exporters, and the market seems to accept that any disruption there could have an immediate effect on supply. One grain trader quoted in AgriCensus said, “you cannot ignore [the topic], and [it] makes any trade decision very difficult to make … until things get clearer.”

But not everybody is so skittish. SoveEcon, a Russian agriculture consultancy, raised its forecast for 2021/22 Russian wheat exports by 200,000 metric tons to 34.4 million metric tons. The consultancy pointed out that the last time Russia invaded Ukraine, it did not disrupt grain exports. However, it did spark wheat market volatility as Black Sea wheat prices rose 25% in just two months.

Persistent Drought

Commercial futures trading also plays a role in wheat market volatility. The managed money takes quick profits that pressure the markets. But speculators also appear to be bullish in their wheat outlook primarily because of ongoing weather challenges to the old and new Northern Hemisphere wheat crops.

And yet a forecast for rain and snow in those areas this week prompted that significant drop in HRW futures prices. It is too early to say what the rest of 2022 has in store, but moisture is needed to put new crop winter wheat on a good footing. So, wheat importers can expect the market to continue moving with weather news.

The illustration of the 02022022 NOAA US Drought Monitor map shows persistent drought in key US wheat production areas contributing to wheat market volatility

Drought Persists in much of the U.S. Plains and Pacific Northwest wheat production regions. To help prepare for ongoing wheat market volatility, importers should monitor how this evaluation changes. Source: NOAA.

Logistic Challenges

Grain traders have had a lot to say recently about rail performance and its impact on export basis the last few months. Since December, a slowdown in rail logistics has supported wheat export basis. Fortunately, traders say those issues improved in January, but rail service for the trade is still behind where it was the year before.

According to the Association of American Railroads, U.S. weekly rail traffic for the week ending January 15 was down 7% compared to the same week last year. All grain shipments, including wheat, were down 11% the same week. In the USDA’s weekly Transportation Report, bids for shuttle service in the secondary railcar market have been high, although down significantly from where they were at the beginning of January.

New Pandemic Normal?

Lastly, we look at the persistent presence of COVID-19. This is the third winter of pandemic-induced challenges. Though lockdowns are increasingly rare, pandemic disruptions continue to rattle parts of the marketplace. It continues to be a significant challenge for logistics. That includes worker shortages and increased absences. Supply chain bottle necks will likely continue to be part of the wheat market volatility equation in 2022.

Help is Available

As these forces continue to affect wheat market volatility, importers can be assured that the U.S. wheat store will remain open for efficient delivery of high-quality milling wheat. Our local U.S. Wheat Associates (USW) representatives are available to help buyers navigate the market’s challenges – and opportunities – no matter how much volatility it throws at them.

By Michael Anderson, USW Market Analyst

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Last week, USDA released three reports giving some indication of what may be ahead for the 2022 global wheat market. Those USDA reports were the monthly World Agricultural Supply and Demand Estimates (WASDE) report, the quarterly Grain Stocks report, and the annual Winter Wheat Seedings report.

Considering all three reports, U.S. Wheat Associates (USW) notes that the latest WASDE report showed few unexpected changes to the worldwide balance sheet of wheat. Some upward revisions were made in Argentina and the EU. Still, the reports forecast global consumption far higher than production. The Grain Stocks report reflected the significant drop in total 2021/22 U.S. wheat production. Predictably, U.S. farmers seeded more winter wheat for a second year in a row.

In fact, after winter wheat plantings fell to their lowest level in more than a century in 2020/21, U.S. winter wheat seeded area for marketing year 2022/23 has increased for the second year in a row, up 2% from 2021 and 13% compared to 2020 reported the National Agricultural Statistics Service (NASS) in their annual Winter Wheat Seedings report released Jan. 12, 2022. Winter wheat seeded acres are the most they have been since 2016/17.

Bar graph showing annual U.S. winter wheat seeded area indicates an increase over the past two years to illustrate USDA Reports story.

According to recent USDA reports, U.S. farmers are responding to increased global demand and lower U.S. stocks by seeding more winter wheat in 2022.

The Winter Wheat Seedings report showed farmers planted 23.8 million acres (9.6 million hectares) of hard red winter (HRW). This report is up 1% from 2021, led by Kansas, up 3%, and Texas, up 2%. Notable drops in seeded area came in Colorado, down 2%, and New Mexico down 11%.

The quarterly USDA Grain Stocks report confirmed all U.S. wheat in storage, both on and off farm, was down 18% compared to a year ago, while disappearance was down 16% compared to the year before. Analysts expect ending stocks for the 2021/22 marketing year to be the smallest since 2013/14 at 628 million bushels (17.09/MMT).

Price Signals

Increased cash price this year has no doubt played a role in farmer decisions to seed more HRW acres. Kansas Wheat Commission CEO Justin Gilpin noted higher HRW prices as one reason for a second consecutive year of higher wheat plantings. Year-over-year prices for HRW at 12% protein (12% moisture basis) are up 24%.

Soft red winter (SRW) farmers have also taken advantage of strong pricing and increased export demand to plant more SRW acres. Estimates of SRW for the 2022/23 marketing year are 7.07 million acres (2.86 million hectares), 6% higher than last year. Increased acres are largest in Missouri, up 38%, North Carolina is up 31% and Ohio up 21%. USDA reported decreases in Maryland, down 16%, and Michigan, down 23%. The 2021/22 SRW export pace is 50% ahead of last year’s pace year-to-date.

Estimated white winter wheat (soft white and hard white) are 3.56 million acres (1.44 million hectares). This estimate is up 2% from 2021.

Desert Durum® seeded area in California and Arizona of 90,000 acres (36,421 hectares) is up 15% compared to last year and 20% compared to 2020.

Drought Lingers in the Plains

In the monthly “Wheat Outlook” report published by the Economic Research Service (ERS) of the USDA, analysts reported that major HRW producing states, mostly concentrated in the Plains states, saw conditions for winter wheat degrade since November but noted that spring conditions are more influential on production numbers. Kansas’s Gilpin noted “attention has turned to expanding drought ratings across HRW regions and potentially yield and production impacts. Dry conditions and higher input costs both are concerns.”

NOAA map shows where U.S. wheat production areas overlap with drought conditions to supplement USDA reports article.

By Michael Anderson, USW Market Analyst

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By Michael Anderson, USW Market Analyst

U.S. Wheat Associates (USW) represents the interests of wheat farmers in export markets. Each time the USW Board of Directors meet, we report on the latest market information that affects the U.S. wheat marketing environment. At their meeting the week of Jan. 10, 2022, our directors will see continued fundamental support for wheat prices from greater demand worldwide and lower production in major exporting countries.

The next USDA World Agriculture Supply and Demand Report will be released on Jan. 12. Ahead of that report, USDA pegs 2021/22 world wheat production at a record 777.89 million metric tons (MMT), 3% above the 5-year average of 757.4 MMT. Total global supplies are forecast to reach 1,068 MMT, slightly lower than last year. USDA noted lower wheat production in Canada, Russia, and the United States, which all experienced drought in the 2021 growing season.

USDA expects wheat production to be higher in Ukraine, the European Union (EU), Australia and Argentina. Specifically, in Ukraine, production is forecast up 30% this year due to increased planting and favorable weather conditions. In Australia, production is up 700,000 MT to 34 MMT. Argentina may also produce a record wheat crop this year. The Buenos Aires Grains Exchange (BAGE) estimates wheat production at 21 MMT, 1 MMT more than USDA’s December production estimate. USDA estimates 2021/22 world wheat ending stocks will drop 2% from the 5-year average and be 278 MMT, a 12 MMT drop compared to last year and the lowest level since 2016/17.

Global Consumption Outpaces Production

Fundamental support for wheat prices is also seen in global consumption that is expected to increase 7 MMT to 789 MMT, up 1% compared to 2020/21. Both global human wheat consumption and feed wheat use are forecast higher. Feed wheat use is expected to increase 2% to 161 MMT. Lower beginning stocks, drops in production for major exporters, and increased use have supported higher wheat prices overall. In the USDA’s December supply and demand report, the estimated average farm gate price for U.S. wheat is $7.05/bu, a 54% increase year-over-year.

USDA expects global wheat trade to reach 205 MMT, up 1% from last year and 6% more than the 5-year average.

Price Effect on Export Sales

Through Dec. 23, 2021, total U.S. wheat export sales of 15.8 MMT are 23% behind last year’s pace according to USDA commercial export sales data. Soft red winter (SRW) sales are significantly ahead of last year’s pace. USDA projects total 2021/22 exports will hit 22.8 MMT which, if realized, would be 16% less than last year and 13% less than the 5-year average.

Wheat Exports by Country

One year ago, USDA saw winter wheat seeded area was up 5% from 2020 at 32 million acres. USDA’s annual Small Grains Summary, released in September 2021, had U.S. wheat production at 1.65 billion bushels, down 10% from 2020 despite harvested area being up 1% at 37.2 million acres. Winter wheat production was up 9% but spring wheat production was down 44%, soft white production (both winter and spring) was down 16% and durum wheat production was down 46%.

USDA assessed that winter wheat production was 1.28 billion bushels, up 1.1 million bushels with an average yield of 50.2 bu/acre, down 0.7% compared to 2020. The area harvested for winter wheat was 25.5 million acres, up 11% compared to 2020. Hard red winter (HRW) harvested acres were up 10% and production totaled 749 million bushels, 14% more than in 2020. Soft red winter (SRW) production totaled 361 million bushels, up 35% compared to 2020. Spring wheat production was estimated at 331 million bushels, down 44% from 2020. The harvested area totaled 10.2 million acres, down 16% from 2020 with an estimated yield of 48.6 bu/acre. Hard red spring (HRS) accounted for 297 million bushels, down 44% from 2020.

Winter Wheat Planted area from 2021 to 2022

Ten years of winter wheat seeded area data from USDA illustrates another fundamental support for wheat prices.

Start 2022 With USW Market Information Reports

USW monitors USDA’s assessments of the fundamentals supporting wheat prices each month in our Global Wheat Supply and Demand Report. In addition to the January WASDE report, USDA’s Winter Wheat Seeding Report will also be released Jan. 12. Export prices are updated weekly. Visit the Market Information page on our website or subscribe to USW market reports here.