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U.S. Wheat Prices Competitive with Corn for Domestic Feed Use

By Claire Hutchins, USW Market Analyst

According to USDA’s June WASDE (World Agricultural Supply and Demand Estimates) report, U.S. feed wheat consumption will increase 64% in marketing year (MY) 2019/20 to 3.81 million metric tons (MMT), compared to 1.36 MMT in MY 2018/19. U.S. Wheat Associates (USW) believes the current price relationship between domestic wheat and corn and the nutritional value of U.S. hard red winter (HRW) wheat and soft red winter (SRW) wheat support USDA’s estimates.

When the cash price gap between U.S. wheat and corn shrinks, wheat becomes an attractive feed ingredient for the cattle, swine and poultry industries. Per bushel, wheat is typically more expensive than corn, making it economically less practical as a staple ingredient in U.S. feedlots. However, recent market conditions are changing wheat and corn feeding ratios across the United States. The spot price gaps between U.S. winter wheat and corn have diminished, and even inverted, over the past several months as the potential for a bountiful wheat harvest offsets the potential for lower corn production due to late spring planting in the Midwest.

HRW can be substituted for corn as cattle feed in the High and Southern Plains where much of the country’s HRW wheat is grown. The cattle industry, predominant in Kansas and Texas, favors wheat as a feed ingredient when HRW is less than $1.00/bu more expensive than corn. Between early May and late June, the average cash price for wheat and corn increased steadily in both states, but the price gap narrowed and eventually inverted by early July.

In early May, the cash price for HRW in Kansas, the third largest cattle-producing state in the country, was $0.49/bu higher than corn. By early June, the price gap dropped to $0.29/bu. On July 1, the average cash price for both commodities settled around $4.06/bu and by July 5, HRW was $.06/bu cheaper than corn at $4.20/bu. According to Aaron Harries, Kansas Wheat Commission Vice President of Research and Operations, Kansas feedlots are already feeding more wheat than usual as managers respond to market incentives. Importantly, the decision to feed more wheat is made based on months of efficient market conditions as the ideal cattle diet consists of at least six months of a consistent ingredient blend.

Source: Reuters Eikon

In Texas, the largest cattle-producing state in the country, the recent spot price relationship between HRW and corn has been much tighter. In the first half of May, the cash prices for HRW and corn were nearly tied around an average of $3.92/bu. By early June, the average cash price for HRW dropped $0.24 below corn’s $4.50/bu. The cash-price relationship between wheat and corn is still inverted as of early July and HRW is, on average, $0.37/bu cheaper than corn.

“We are seeing a trend of feedlots purchasing more wheat directly from producers and elevators,” says Darby Campsey, Texas Wheat Producers Board, Director of Communications and Producer Relations. “Market conditions and wheat quality are increasing the value of wheat compared to corn in some cases.”

Campsey explains that in addition to market conditions, Texas livestock producers make grain purchasing decisions based on nutritional needs and local supplies. When wheat protein is lower than average, producers may be more likely to sell to feedlots, where quality requirements are slightly easier to meet than milling standards.

In the Midwest and South, where much of the country’s SRW is grown, swine producers are willing to pay more for wheat than corn because of wheat’s high nutritional value, according to Joel DeRouchey, Kansas State University professor in swine nutrition and management. Corn is used as a feed ingredient for swine because it is cheaper and a higher source of energy than wheat, but wheat brings a higher concentration of amino acids and phosphorous to the animal’s diet. The same market conditions affecting Kansas and Texas can be seen in Illinois and North Carolina, making wheat an even more attractive feed ingredient for swine producers.

In Illinois, the fourth largest swine-producing state in the country, the average spot price gap between SRW and corn decreased significantly between early May and early July. In early May, SRW was, on average, $.90 more expensive than corn. By July 8, the difference collapsed to $.50 as SRW prices continued their decline to $4.92/bu and corn prices continued their incline to $4.42/bu.

Source: Reuters Eikon

At an elevator in North Carolina, the second largest swine-producing state in the country, the spot price for corn surpassed the spot price for SRW between early June and early July. Between June 24 and July 5, the spot price for SRW sank from $4.82/bu to $4.38/bu while the price of corn hovered around an average $4.81/bu.

Wheat is also used as a corn feed substitute in the poultry industry due to its high protein content. Wheat becomes attractive to broiler producers when the price gap between SRW and corn narrows to $.50/bu. The average cash price for SRW in Kentucky, the seventh largest broiler producer in the country, decreased significantly between June 26 at $5.39/bu and July 5 at $4.91/bu, while the average price of corn increased from $4.36/bu to $4.60/bu. In early June, the average spread between SRW and corn was $.81/bu. As of July 5, the spread narrowed to just $.31/bu.

Source: Reuters Eikon

“I wouldn’t be surprised if more chicken producers are feeding wheat. Corn is preferred for chickens, because of its high energy levels, until corn prices rise too high, and right now cash prices for wheat and corn in Maryland are pretty close,” says Jason Scott, Maryland wheat farmer and USW past chairman. As of July 8, the average SRW spot price in Maryland, a top ten broiler producing state, was only $.10/bu higher than corn.

If the narrow or inverted price gaps between wheat and corn persist across the country, producers could continue to increase the amount of wheat used in feed blends for cattle, swine and poultry, potentially surpassing USDA’s estimate of 3.81 MMT.

Every month, USW publishes a graphic summary of the latest data from USDA’s WASDE report, including global wheat market factors, major country and regional export history and U.S. wheat supply and demand summaries by class. View the monthly summary here.

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U.S. Wheat Exports End Year Close to USDA Estimate

By Claire Hutchins, USW Market Analyst

Despite challenging market factors, U.S. wheat exports for marketing year (MY) 2018/19, which ended May 31, totaled 25.8 million metric tons (MMT) (948 million bushels), in line with USDA’s adjusted export volume estimate. That is 9% ahead of MY 2017/18 and 1% ahead of the 5-year average of 25.5 MMT (937 million bushels). Commercial sales of all classes of wheat in MY 2018/19 exceeded 2017/18 levels due to abundant exportable supplies, excellent harvest qualities, competitive export prices and sustained service from U.S. Wheat Associates (USW) representatives supported by its state commissions and USDA’s Foreign Agricultural Service programs. This offset the bearish factors including a strong U.S. dollar, competitor’s advantages, uncertainty about U.S. trade policies and difficult inland transportation logistics.

Hard Red Winter. USDA reported hard red winter (HRW) 2018/19 sales totaled 9.40 MMT (345 million bushels), 1% above 2017/18 and 1% above the 5-year average of 9.30 MMT (342 million bushels). Customers took advantage of the highest quality HRW crop in several years at attractive export prices compared to 2017/18. Out of the Gulf, between Jan. 1 and May 31, 2019, the average export price of U.S. HRW 12.0 protein (12% moisture basis) cost $227/metric ton (MT) compared to $257/MT over the same period in 2018. Sales to Mexico and Nigeria were up 6% and 36% respectively, while sales to Japan were down 6%. Sales to Mexico totaled 2.15 MMT (79.0 million bushels), 44% above the 5-year average of 1.49 MMT (55.0 million bushels), once again making Mexico the top HRW buyer. Commercial sales to Iraq, now the fourth-largest consumer of U.S. HRW, were in line with 2017/18 levels at 674,000 metric tons (MT) (24.7 million bushels).

Soft Red Winter. 2018/19 soft red winter (SRW) sales increased 33% year-over-year to 3.33 MMT (123 million bushels), still 14% below the 5-year average of 3.92 MMT (144 million bushels) despite difficult inland transportation logistical issues due to major flooding on the Mississippi River and its tributaries. The 2018/19 SRW crop boasted higher protein levels and good extensibility, making it a valuable blending ingredient for cookies and cakes. A steady decline in SRW futures prices between mid-December 2018 and mid-May 2019 encouraged strong commercial sales to top SRW-importing regions. Export sales to three of the top five SRW purchasers increased or remained steady compared to 2017/18. Sales to Mexico, the top importer of U.S. SRW, increased 25% over last year to 917,000 MT (33.6 million bushels) and sales to Peru, the fifth-largest importer of U.S. SRW, increased 13% over last year to 175,000 MT (6.46 million bushels). Export sales to Nigeria held strong at 272,000 MT (9.96 million bushels).

Hard Red Spring. By the end of MY 2018/19, hard red spring (HRS) export sales totaled 7.15 MMT (263 million bushels), 16% ahead of last year’s pace, despite a 94% decrease in commercial sales to China, formerly the fourth-largest importer of U.S. HRS. A 60% year-over-year increase in HRS production, at 16.0 MMT (588 million bushels), higher ending stocks, high protein content and competitive export prices all supported export sales. Gulf exports of HRS 14.0 protein between Jan. 1 and May 31, 2019, cost, on average, $263/MT compared to $305/MT over the same period in 2018. Seven of the country’s top ten HRS-importing partners increased commercial sales year over year. Commercial sales to the Philippines, the top importer of U.S. HRS, jumped to 1.85 MMT (68.0 million bushels) in 2018/19, 39% ahead of last year and 38% ahead of the 5-year average of 1.34 MMT (49.2 million bushels).

White wheat. Total commercial sales of soft white (SW) and hard white (HW) wheat climbed to 5.45 MMT (200 million bushels) in 2018/19, which includes about 165,000 MT of HW sales to Nigeria. That is slightly ahead of last year’s pace and 21% ahead of the 5-year average of 4.51 MMT (166 million bushels) due to increased production, increased exportable supplies and below-average protein levels compared to years prior. Sales to the Philippines and Japan, the top two importers of U.S. SW, respectively, increased 13% and 7% over 2017/18 levels. The Philippines purchased 1.32 MMT (48.9 million bushels) of SW compared to 1.17 MMT (43.0 million bushels) in 2017/18. White wheat sales to Japan increased to 889,000 MT (32.7 million bushels) compared to 829,000 MT (30.4 million bushels) in 2017/18.

Durum. USDA reported 2018/19 durum sales at 504,000 MT (19.8 million bushels), up 24% from the year prior, but 12% below the 5-year average of 573,000 MT (21.0 million bushels). Increased production, high protein content, excellent kernel characteristics and competitive prices throughout the marketing year all supported northern durum export levels. Increased sales to four of the five top markets for U.S. durum boosted export figures. The European Union (EU) purchased 290,000 MT (10.7 million bushels) of U.S. durum in 2018/19, up 71% year-over-year following a drought that cut production in many EU countries.

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Blockchain in Agricultural Commodity Trading: Dream or Reality?

By Tanner Ehmke, Manager, Knowledge Exchange, CoBank; Reprinted with permission;
View the original report here.

Key Points:

  • Blockchain innovations in agriculture are numerous but have been slow to gain industry-wide acceptance, particularly in global agriculture commodity trading.
  • Previous attempts to digitize trade finance with tools like bank payment obligation (BPO) have been slow to take hold, raising doubts among market participants of new digitalization efforts like blockchain.
  • Commodity agricultural trade faces unique challenges, including the blending of grain along the supply route, and the lack of digital documentation within sections of the supply chain.
  • Digital solutions are quickly evolving, creating an environment where blockchain technologies may be more viable in ag commodity trading in the near future.
  • Investment in storage, transportation, and sensors to segregate and track commodities through the supply chain is necessary to give buyers visibility, with high-value or value-added commodities like non-GMO and organic grain where provenance and tracking are desired.

Introduction

Blockchain, the distributed ledger technology behind cryptocurrencies like Bitcoin where identical records of transactions are stored on multiple computers, is still in its infancy but has seen a flood of pilot programs and proof-of-concepts from companies around the world as they race to harness its power of transparency. The agriculture and finance industries in particular have captured the spotlight as ripe for disruption by blockchain technologies. Adoption of most blockchain technologies across agriculture, however, has been limited to date. Banks and agribusinesses nonetheless remain keen on finding distributed ledger solutions to deploy industry-wide and potentially achieve efficiencies from faster transaction speeds, less cumbersome documentation, and simpler and faster payments between buyers and sellers around the world.

EXHIBIT 1: Process of Domestic Supply Chain for U.S. Soybean Export via Barge; Graphic Source: CoBank

Other digital solutions that promised to transform the commodity trading sector, such as bank payment obligation (BPO), are recent reminders that change can be hard work without industry-wide acceptance. Until numerous roadblocks to blockchain solutions are resolved, such as a lack of a digital ecosystem for paperwork like bills of lading and letters of credit for parts of the supply chain; improvement in global industry protocols in quality; standards in language; investment in storage and transportation for segregation; and technological advancements in sensors to monitor movement of commodities along complex trade routes, industry-wide adoption of blockchain in agricultural commodity trading will struggle to grow beyond proof of-concept. But, if successful, blockchain could be transformative across the sector, bringing value across the supply chain from producers to consumers.

Complex Supply Chains

Blockchain applications for agriculture abound. Ripe.io, GrainChain, AgriDigital, OriginTrail, and IBM Food Trust are just a few of the blockchain-based technologies created for commerce in agriculture. Yet in the complex global agricultural commodity space where crops like corn, soybeans, and wheat are blended from numerous farms and pass through multiple hands before reaching the final destination, a blockchain solution that links the supply chain and creates transparency of transactions from beginning to end remains in idea phase. The biggest challenge for the widespread adoption of blockchain technologies in agricultural commodity trading is the complexity within the chain of custody (Exhibit 1). Grain leaving the farm is often comingled at a country elevator, then blended again at a rail or barge loading facility, then comingled again at the export facility where it is loaded on an ocean vessel for export. At the receiving port overseas, grain will likely be blended even more after off-loading the vessel.

EXHIBIT 2: Grain Ocean Vessels Loaded, by Port Region; Graphic Source: CoBank

Digitizing even portions of the supply chain could create huge cost savings for grain handlers. The physical delivery of documents like bills of lading, letters of credit, contracts, letters of intent, and invoices is cumbersome. While costs of shipping documents are negligible and could be eliminated with a blockchain platform, the cost and risk of important documentation arriving late could be far greater. If documents to the receiver of the grain do not arrive on time, the shipper must pay the cost of demurrage for every day the barge, rail car, or vessel sits idle. Cost of demurrage per barge, for instance, can run about $300/day. Demurrage is a charge for failure to load or unload barges, rail cars, or ocean vessels within the time allowed.

A non-blockchain based digital solution currently is being evaluated by a consortium of agribusinesses for barge freight on the Mississippi River for the purpose of reducing paperwork and creating seamlessness in transactions between companies. Paperwork such as bills of lading and letters of credit have digital forms for ocean vessels, but are in paper form for barge traffic on the Mississippi River, which is an important logistical leg of the global agricultural commodity supply chain. Digitizing paperwork on the Mississippi River export route offers the greatest potential for blockchain solutions in global agricultural commodity trading. The majority of U.S. ocean-going vessels loaded with grain depart from the New Orleans region (Exhibit 2).Barge traffic for grain on the Mississippi River regularly exceeds 15,000 barges/year (Exhibit 3). The plethora of documents in the grain trade that must be digitized for seamlessness across the supply chain includes but is not limited to:

  • Letters of credit
  • Bills of lading
  • Trading slips
  • Certificates on weights, grades, phytosanitary
    specifications, fumigation, and origin.

Additionally, the industry would need agreement on where in the supply chain the data would be committed to the blockchain, such as at the barge or rail car loading facility, or at the farmer’s field. The data on a blockchain for grain traded on the inland river system would then also have to be integrated with systems for ocean-going vessels heading to international markets, thereby requiring international standards for data and governance.

EXHIBIT 3: Grain Barges Unloaded in New Orleans; Graphic Source: CoBank

Disillusionment

Previous attempts to digitalize trade finance were heralded as transformative but have yet to change the status quo in global trade. In recent years, the bank payment obligation (BPO) was created with significant investment and promised faster handling of goods, payment at due date, and faster receipt of trade documents. The lack of wide-spread adoption of BPO has raised doubts among market participants of new digitalization efforts like blockchain. A blockchain platform may not be adopted industry-wide despite significant investment and coordination, particularly in emerging markets where there is frequently a lack of consistency in technology. Or, if successfully adopted, a blockchain platform could itself be disrupted by yet another new technology. Questions about ownership of data on a distributed ledger have also raised concerns. Trading firms want information to be private. If chain of custody information is visible for anyone on the supply chain to see on a distributed ledger where each market participant or node would have access to all documentation, merchandisers will be reluctant to use
a blockchain platform. Who will gain access as a node in the blockchain will require governance and rules, thereby requiring a governing body trusted by all parties of the supply chain to host nodes and validate transactions. Blockchain would not reduce or eliminate the need for regulators. Maintaining the quality of information that is inputted into the blockchain would require a licensed inspector who might need access to the blockchain to see documents and integrate their certification information on grading. A regulator or third party would also still be needed to define responsibilities, rules, and regulations of supply chain participants despite blockchain widely thought of as a technology that would replace trusted intermediaries. With the huge volume of shipments moving outside of the U.S., cooperation from international buyers is required to create the protocols necessary for blockchain in agricultural commodity trading to flourish. However, the current geo-political climate – especially with the U.S. and important trading partners like China – raises doubts about achieving a globalized trading system on a blockchain.

Blockchain’s application in the ag commodity trade may also be limited to only portions of the supply chain. If farmers and country elevators are not incentivized either through cost savings or gain in value, adoption of blockchain will be limited to segments further down the supply chain.

Evolution

Despite major challenges impeding blockchain’s use in the global grain trade, the potential opportunities achieved through a distributed ledger system could be significant. Blockchain could potentially expedite borderless clearing, help facilitate digitally validated chains of custody through choke points like barge and train loading facilities, allow buyers and sellers to follow a shipment through various chains of custody, lower the cost for clearance of goods, eliminate duplicated inspections at ports, lower risk of demurrage, assist with payment, mitigate counter-party risk, and greatly reduce the risk of errors and fraud. Corn, which has the simplest trade specifications under the Federal Grain Inspections Service (FGIS) would be the easiest commodity to adopt into a distributed ledger platform, followed by soybeans and wheat. If provenance is important, sharing knowledge of the entire chain of custody will be necessary for commodities like non-GMO and certified organic. Through investment in grain storage and transportation for segregation, greater transparency in the supply chain to segregate other attributes, including but not limited to:

a. High-oleic oil content for soybeans
b. Protein content
c. Foreign matter
d. Moisture levels

Further investment in electronic sensors to trace, validate, and verify quality attributes, though, would be required to make transparency possible along the complex commodity trading route. With sensors in place, a blockchain platform could evolve to include payment systems within “smart contracts” that automatically execute transactions without human intervention as the product moves through the supply chain. However, a distributed ledger system that shares this information would also need to protect proprietary information held only between buyers and sellers.

Conclusion

The challenges of industry-wide adoption of blockchain technologies for agricultural commodity trading are ample, but so are the potential benefits. Greater visibility in the supply chain will create value for many, but standards will change. The winners in a hypertransparent environment will be those who have the ability to segregate and capture higher value in the commodity chain. Those who struggle to adapt will be those with limited ability to segregate. Experiences with prior efforts to digitize trade have raised the level of caution for blockchain. High investment into blockchain may not result in industry-wide adoption. If successfully adopted, a blockchain platform could crowd out small players. It could also be disrupted by yet another new technology.

To be successful, a blockchain platform bringing transparency to an entire supply chain would need to be private and secure from outside parties. Only invited parties or nodes would be allowed to view the data on transactions for traders to be confident that proprietary information is not made public. This would require a governing body to determine who is allowed to participate on the blockchain.

Global standards and protocols will also need to be established. Given the current geo-political and global trade environments, such an evolution in international cooperation will likely be years in the making.

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Increasing U.S. Rail Costs Hurt the World’s Wheat Buyers

By Claire Hutchins, USW Market Analyst

Railroad rates and charges paid by customers who ship wheat and other grains make up a large portion of basis and have a direct effect on the price overseas buyers pay for U.S. wheat. Unfortunately, the cost of shipping wheat by domestic rail has been increasing at a rapid pace.

U.S. Wheat Associates (USW) and many of its state wheat commission members are spending more time investigating and commenting on the potentially adverse effects of increasing rail rates and separate charges on our overseas customers, shippers and even local farmers.

U.S. railroads are a crucial part of the most efficient grain supply system in the world. The rail system fulfills an essential logistical function that neither grain handlers nor farmers can perform on their own. Wheat must compete for limited rail capacity with other grains as well.

USW, however, has learned that since June 2014, the cost of wheat shipments has increased substantially, due at times to higher basic rates for shipping wheat and to added “demurrage” and “accessorial” (D&A) charges by Class 1 railroads (those with the largest systems). Demurrage charges occur when shippers do not receive, load or unload freight within a certain time period determined by the railroads. Accessorial charges are added to base transportation charges and can include demurrage, as well as costs to weigh rail cars, diversions from normal routes and other costs.

Recently, USW observed how agriculture is not the only industry negatively affected by these additional charges. USW joined more than 100 representatives across many sectors May 22 to 23, 2019, at a hearing held by the U.S. Surface Transportation Board (STB) to assess the fairness, reciprocity and efficiency of railroad D&A charges. The STB is a federal regulatory board that has broad economic oversight of U.S. railroads, trucking companies, water carriers and other transportation groups.

At the hearing, diverse stakeholder voices united under two common themes: D&A charges heavily favor Class 1 railroads and do little to improve overall service provided by railroad companies to shippers, receivers and intermediaries. Many shippers at the hearing said circumstances often prevent them from meeting what they consider strict railroad loading and unloading schedules, thus incurring the D&A charges. In some cases, stakeholders said they had to invest tens of millions of dollars in new infrastructure to accommodate railroad scheduling to avoid further demurrage costs.

In the case of wheat, as rail costs increase, the grain handlers may try to recover these costs by offering higher grain prices to terminal or export elevators and, some in the industry believe, by offering lower prices to farmers. As basis increases, overseas buyers must pay more for all classes of wheat out of the Gulf and the Pacific Northwest and that affects demand.

As rail costs increase, the grain handlers may try to recover these costs by offering higher grain prices to terminal or export elevators and, some in the industry believe, by offering lower prices to farmers.

Representatives from Class 1 railroads also attended the STB hearing and made the point that efficiency is good for all parties in the supply chain. They unilaterally agreed that D&A charges incentivize shippers to make more efficient loading and unloading decisions, which improves overall efficiency.

USW hopes the STB will carefully consider industry perspectives when assessing the fairness and efficiency of D&A charges because wheat producers and customers alike are adversely affected by increasingly high rail costs. USW believes lower rail costs could help U.S. wheat be even more competitive in a global marketing environment where only a small change in cost can make a big difference for farmers and their customers.

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New Crop HRW Demand is Up Significantly

By Claire Hutchins, USW Market Analyst

As of May 16, total U.S. hard red winter (HRW) commercial sales for delivery in new marketing year 2019/20 reached a record 1.08 million metric tons (MMT). Weekly commercial sales of HRW for delivery in 2019/20 since early March 2019 are, on average, more than four times higher than new marketing year sales in 2017/18 for delivery in 2018/19 and are double each week’s 5-year average. Significant increases in new marketing year HRW exports to Algeria, Iraq, Nigeria, Saudi Arabia and Thailand contribute to the boost in 2019/20 sales.

Analysts attribute higher demand volume to ample exportable supplies and competitive global pricing.

U.S. Wheat Associates (USW) publishes a weekly commercial sales report every Thursday on Facebook, Twitter and here on its website.

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First Look at 2019/20 by USDA Sees Another Record World Wheat Crop

By Claire Hutchins, USW Market Analyst

On May 10, USDA issued its first set of forecasts for 2019/20 in its World Agricultural Supply and Demand Estimates report. USDA expects global wheat production at a new record of 777 million metric tons (MMT) and exceeding expected use again as major global suppliers rebound from last year’s unfavorable growing conditions.

Droughts in the European Union (EU) and Australia last year cut production in both regions to 5-year and 10-year lows, respectively. Growing conditions in both regions are more favorable now and USDA expects total EU wheat production to rebound 12% from last year to 154 MMT.

Australian wheat production is expected to reach 22.5 MMT, up 23% year-over-year but still 3% below the 5-year average of 23.3 MMT.

USDA’s initial forecast for Russian production shows a 6% increase over last year’s 72.0 MMT to 77.0 MMT in 2019/20 and a small decline in export volume. Notably, SovEcon, a Russian consultancy pegs 2019/20 Russian wheat production closer to 83.0 MMT, 7% higher than USDA’s official estimate and 15% higher than last year’s total production, if realized.

World beginning stocks of 275 MMT paired with the forecast for increased production bring total supply in the new marketing year to a record 1,052 MMT. USDA says large supplies in 2019/20 will be met by increased global demand for feed wheat and food consumption. USDA forecasts total global domestic consumption will reach a record 759 MMT in 2019/20, compared to 738 MMT the year prior. Global trade, at 285 MMT, is 4% higher than last year and 5% higher than the 5-year average of 176 MMT.

USDA predicts U.S. wheat production in 2019/20 will total 51.6 MMT. Though down somewhat from last year, that volume and increased beginning stocks push U.S. exportable supplies up to 52.0 MMT, the largest in the world. As global trade and consumption continue to rise, the abundance and end-use versatility of U.S. wheat classes reaffirm the United States remains the world’s most reliable supplier of wheat.

Each month, U.S. Wheat Associates (USW) updates a graphic summary of USDA’s WASDE (World Agricultural Supply and Demand Estimates) report. View the May summary here.

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Wet, Cold HRW Wheat Tour Predicts Good Yield Potential

By Claire Hutchins, USW Market Analyst

This week, two U.S. Wheat Associates (USW) colleagues and I joined the Wheat Quality Council (WQC) on its 62nd annual “Hard Winter Wheat” Tour for an early survey of the 2019/20 hard red winter (HRW) crop in Kansas and parts of surrounding states. Just a few hours before USW published this issue of “Wheat Letter,” the tour estimated a final average yield potential of 47.2 bushels per acre (bu/ac) or about 3.18 metric tons (MT) per hectare for the 2019/20 Kansas HRW crop. This year, tour participants made 469 stops to scout fields. Combining seeded area with per-acre yield potential, the total production potential estimate for Kansas was 307 million bushels or about 8.36 million metric tons (MMT). Last year’s total production estimate was 243 million bushels (6.61 MMT).

USW Market Analyst Claire Hutchins on her first Wheat Quality Council Hard Winter Wheat Tour.

Each year, industry participants from across the United States and several countries gather in Manhattan, Kan., and spend the next two and a half days in small scout teams, randomly stopping at 9 to 17 fields in a full day. Each team follows a colored route established decades ago by WQC to ensure most of Kansas and parts of southern Nebraska and Northern Oklahoma are scouted by tour participants. Teams measure yield potential, determine an average for the route and estimate a cumulative, daily tour average when all scouts come together again in the evening.

Muddy Boots. Another purpose of the tour is to help educate a broad range of stakeholders about wheat production challenges. Scouts are asked to look for disease, week and insect pressure, as well as soil conditions. Last year, tour participants enjoyed dryer, warmer weather. This year, rain and colder temperatures gave first-time scouts, like me, a true look at variable spring weather in Kansas. Our muddy boots proved that last year’s severe drought, which covered most of the state as of late April, is a distant memory. The April 23, 2019, Drought Monitor shows zero drought or abnormal dryness across the state of Kansas.

Muddy boots were common on the wet 2019 tour.

On the first day, the tour traveled from Manhattan along several routes covering most northern Kansas counties. The cumulative Day 1 average yield potential was 46.9 bu/ac, the equivalent of 3.15 MT per hectare, compared to 38.2 bu/ac (2.57 MT/hectare) in 2018. To reach that average, participants surveyed 240 fields recording a range from a low of 16 bu/ ac to a high of 96 bu/ac. We saw very short and sparse wheat that was two to four weeks behind developmentally. Fields were adequately moist to slightly dry with no standing water. Temperatures were in the mid-40s Fahrenheit (a little more than 4 degrees Celsius) which prevents disease establishment and helps yield potential. Below-average temperatures in the next few weeks could help yield potential for winter wheat, a cool-season grass.

Participants also received a report on the Nebraska and Colorado wheat crops. Nebraska estimated an average 44.0 bu/ac (2.95MT/hectare), up slightly from last year’s tour estimate. Nebraska’s 2019 production forecast is currently 47.4 million bushels (1.29 MMT), up 8% from the 2018 estimate. Colorado predicted an average of 46.5 bu/ac (3.12 MT/hectare) with total production predicted to reach 97.2 million bushels (2.64 MMT), up 39% year-over-year, if realized.

Late Planting Impact. On the second day, the tour scouts traveled on routes from Colby in northwest Kansas to south-central Wichita, making 200 stops. The number of observations was down significantly from last year due to cold, rainy weather. Scouts reported most wheat was two to four weeks behind normal development due to late planting in the fall but continued to see nearly no disease pressure due to April and early May’s cooler than average temperatures. That could push the region’s peak harvest well into June, especially if the cool temperatures persist. This year, the tour estimated Day 2 average yield at 47.6 bu/ac (3.20 MT/hectare), for a combined two-day average yield of 47.2 bu/ac (3.17 MT/hectare) across 440 stops. Last year, the combined two-day average was 36.8 bu/ac (2.47 MT/hectare) on 601 stops.

Each scout calculates their observed yield potential, then the scout car’s average is determined.

Participants also received a crop report from Oklahoma, where adequate rainfall through the growing season helped increase the 2019 average yield projection compared projections in last year’s drought. The estimated average yield in Oklahoma is 37.4 bu/ac (2.51 MT/hectare), for a total production estimate of 119 million bushels (3.24 MMT). If realized, this would be up 50% over last year’s estimate on cool, moist weather and minimal disease pressure. However, marketing conditions are difficult for farmers. Low cash prices for winter wheat are causing many Oklahoma farmers to turn their fields to pasture or replace acres planted to HRW with cotton. Abandoned HRW acres are expected to reach 8% to 10% in 2019.

USW Director of Programs Erica Oakley was among nearly 100 scouts on the 2019 tour.

The final day of the tour was shorter, with each car making 3 to 4 field stops from Wichita to Manhattan where all the data were compiled in the final report. The Day 3 estimated average yield was 46.2 bu/ac (3.11 MT/ hectare), across 29 stops.

USW Director of Programs Erica Oakley and Assistant Director of Policy Elizabeth Westendorf and I will use what we learned on the tour to help educate overseas customers about the new crop and how development delays may affect their purchase decisions. I was raised on an irrigated farm in western Colorado, so this experience helps me understand the volatility of growing conditions with dryland wheat. I want to learn more to work with traders, and I look forward to participating in WQC’s Spring Wheat Tour in July. For more information, visit the Council’s website at https://www.wheatqualitycouncil.org.

Highlights and photos from the tour are posted on Facebook and Twitter using #wheattour19.

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USDA Confirms Delay in Spring Wheat Planting and Good Potential for Winter Wheat

This week, the USDA’s National Agricultural Statistics Service (NASS) reported that as of April 28, U.S. spring wheat planting progress is significantly behind average as farmers wait for their fields to dry out.  Over the past 5 years, an average of 33% of spring wheat was in the ground by now but this year only 13% has been seeded.

What effect will that have on the 2019/20 U.S. hard red spring (HRS) crop? Experts say late planting typically hurts yield potential. Jonathan Kleinjan, an Extension agronomist with South Dakota State University, recently explained that HRS should be planted as early as possible since cooler weather from emergence to the early reproductive stages generally benefits tiller formation and the development of larger heads. Increased growth during the early season typically results in higher yields.

He noted a study in North Dakota that showed spring wheat planted May 1 had 6 fewer days of growth from emergence to 6-leaf stage when compared to wheat planted on April 15. He said the number of days was further reduced to 11 when planting was delayed until May 15. Yield data related to this research, he said, suggests that wheat loses 1.5% of its yield potential every day after the optimum planting date. His conclusion: the extended weather forecast shows unfavorable planting conditions extending well into May, so farmers may switch from small grains to later-planted row crops such as soybeans.

Progress is less than 10% in the major production area of the Northern Plains. The Pacific Northwest is a bit farther along, although Idaho’s Nez Perce County Extension agent Doug Finkelnburg said that “we’re a little delayed with spring planting this season — sort of like last spring.” He said the last date farmers there can purchase spring wheat crop insurance is in mid-May and suggested that planted area will be reduced if they delay goes beyond that time.

NASS also reported that U.S. winter wheat heading progress at 19% is 10 points less than the 5-year average, but crop condition is improving. NASS estimated 64% of total winter wheat was in good-to-excellent condition as of April 28, up 2 percentage points from the previous week. We will learn more about conditions and yield potential of the hard red winter (HRW) crop in Kansas, southern Nebraska, eastern Colorado and northern Oklahoma this week from the Wheat Quality Council Hard Winter Wheat tour. U.S. Wheat Associates (USW) colleagues will join more than 70 other participants and will report during the tour on Twitter using #wheattour19.

* Photo Credit: Aaron Harries, Kansas Wheat V.P. of Research and Operations, on the 2019 Winter Wheat Quality Tour in Kansas

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Good Quality, Competitive Prices Spark U.S. Winter Wheat Demand

By Claire Hutchins, USW Market Analyst

As marketing year (MY) 2018/19 draws to a close, customers of U.S. winter wheat are taking advantage of excellent buying opportunities on competitive pricing and high-quality, consistent supplies. Since the first week in January, the 2018/19 export sales pace for hard red winter (HRW) and soft red winter (SRW) surpassed last year’s pace for deliveries in the current marketing year (CMY) and the new marketing year (NMY).

According to USDA commercial sales data as of April 4, 2019, HRW sales for 2018/19 delivery total 8.70 million metric tons (MMT). That is down 4% from this time last year but up 4% from the 5-year average of 8.33 MMT. Between February 14 and April 4, weekly sales of HRW for CMY delivery were significantly higher than the same six weeks in 2017/18 on low prices and high crop quality attributes. In the April 12 U.S. Wheat Associates (USW) Price Report, estimated FOB export price for 12% protein HRW (12% moisture basis) out of the Gulf at $222/MT for May 2019 delivery compared to $258/MT for delivery in May 2018. HRW export basis for the same delivery month, at $1.70/bu, is significantly lower than last year’s $1.95/bu. In addition to lower FOB export prices, the 2018/19 HRW crop features excellent milling and baking qualities.

These market factors also support a significant uptick in HRW commercial sales into the NMY compared to NMY sales booked by the same time in 2017/18. HRW export sales for the 2019/20 marketing year total 396,000 metric tons (MT), up 64% from this time last year and 17% from the 5-year average. This represents the highest volume of HRW NMY sales to date since 2014/15. The most recent USW Price Report estimates 12% HRW FOB price for June 2019 delivery at $224/MT, compared to last year’s estimate of $259/MT for delivery in June 2018.

Members of the grain trade expect HRW FOB prices and export basis out of the Gulf to decrease steadily into the new marketing year on somewhat larger ending stocks, reduced inland logistical challenges, and favorable new crop conditions.

Turning to SRW, commercial sales to date for 2018/19 delivery total 3.30 MMT, up 36% year-over-year and 10% more than the 5-year average. This represents the highest volume of SRW commercial sales for CMY delivery since 2014/15. Competitive prices, higher than average protein levels and lower than average DON levels continue to elevate SRW export business through the second half of MY 2018/19. More information about the 2018/19 SRW crop is available at https://bit.ly/2ZdnMwi.

The latest USW Price Report valued the SRW export FOB price out of the Gulf at $204/MT for May 2019 delivery compared to $208/MT last year. SRW export basis for May 2019 delivery out of the Gulf at $0.90/bu is 5 cents less than last year’s estimate for May 2018 delivery.

Grain traders expect SRW FOB export prices and export basis to decline steadily into the first few months of MY 2019/20 despite tightening 2018/19 U.S. SRW ending stocks, which are forecast to fall to 4.57 MMT, 18% below 2017/18 and 7% below the 5-year average.

As with HRW sales, total SRW commercial sales for 2019/20 delivery are significantly higher than NMY sales booked this time last year. SRW commercial sales for NMY delivery total 302,000 MT, up 23% year-over-year and 15% from the 5-year average. This represents the highest volume SRW NMY sales to date since 2014/15 as customers look to lock in high quality supplies at globally competitive prices. The April 12 Price Report estimates SRW FOB price out of the Gulf for June 2019 delivery at $202/MT compared to last year’s estimate of $213/MT for the same delivery month in 2018.

 

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Upcoming Tour Offers First Look at U.S. HRW Yield Potential

More than 90 U.S. wheat industry stakeholders will soon get a close-up view of the new wheat crop in Kansas, southern Nebraska, eastern Colorado and northern Oklahoma on the annual Wheat Quality Council (WQC) Hard Winter Wheat Tour April 29 to May 2. This tour and a second one in July focused on U.S. spring wheat are educational for the participants and news worthy as a first snapshot of each year’s new crops.

Tour participants come from as far away as Australia and represent all facets of the wheat industry, including millers, traders, media, farmers, researchers and government officials. By traveling across the region in scout teams that stop at random fields to evaluate crop progress and yield potential, they learn more what it takes for farmers to grow, manage, harvest and market the crop. U.S. Wheat Associates (USW) is sending two colleagues on the tour this year: Director of Programs Erica Oakley and Market Analyst Claire Hutchins.

Domestic and overseas buyers and end-produce processors pay close attention to personal observations and photos during the tour by following #wheattour19 on Twitter and Facebook, through summarized daily reports on Tuesday and Wednesday evenings and in the final report with an estimate of average yield per acre across the region.

The tour provides a statistically significant, early idea of what buyers can expect in new crop yields from the surveyed area. In 2018, for example, 24 WQC scout teams made evaluations at 644 fields and estimated average regional yield at 37 bushels per acre (49.2 kilograms per hectoliter). Official data from USDA’s National Agricultural Statistics Service estimated the average Kansas wheat yield in 2018 at 38 bushels per acre (50.5 kilograms per hectoliter). High Plains Journal posted more about the 2018 Hard Winter Wheat Tour by WQC Executive Vice President Dave Green at https://bit.ly/2XbAmu5.

Watch for observations from Anderson and Hutchins during this year’s tour on USW’s Facebook and Twitter pages and a full report of the 2019 tour May 2 in USW’s Wheat Letter blog.

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