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By Stephanie Bryant-Erdmann, USW Market Analyst

U.S. farmers made critical decisions last fall while they had bins full of wheat from record-breaking yields with prices near ten-year lows. Therefore, it is no surprise that many farmers chose to decrease their winter wheat planted area. USDA’s 2017/18 winter wheat seeding report released Jan. 12 reported U.S. farmers planted the second lowest number of winter whea­­t acres on record and 10 percent fewer acres than 2016/17. USDA estimated U.S. farmers planted 32.4 million acres (13.1 million hectares) of winter wheat with reductions for all three classes of winter wheat — HRW, soft red winter (SRW) and white winter wheat.

USDA assessed HRW planted area at 23.3 million acres (9.43 million hectares), down 12 percent from 2016. Planted area in Kansas, the number one U.S. HRW-producing state at 7.40 million acres (3.00 million hectares), is down 13 percent from 2016 and 20 percent below the 5-year average. Nebraska farmers planted a new record low area to winter ­­wheat of just 1.09 million acres (441,000 hectares), 25 percent below the 5-year average.

Total SRW planted area of 5.68 million acres (2.30 million hectares) fell 6 percent from 2016. Increases in Delaware, Georgia, Kentucky, Maryland, North Carolina and South Carolina were not enough to offset decreases in most of the other SRW-producing states, including a 16 percent decline in Ohio, the number one producer of U.S. SRW in 2016/17. USDA believes Ohio farmers planted 490,000 acres (198,000 hectares) of SRW, 15 percent below the 5-year average.

White winter wheat planted area decreased to 3.37 million acres (1.36 million hectares), down 4 percent from 2016/17. Exportable soft white wheat supplies are concentrated in Idaho, Oregon and Washington. Planted area in Idaho and Oregon fell 4 percent and 3 percent, respectively. Idaho farmers planted 730,000 acres (295,000 hectares) compared to 760,000 acres (308,000 hectares) in 2015/16 and 2016/17. Planted area in Oregon dropped 20,000 acres (8,000 hectares) from 2016/17 to 700,000 acres (283,000 hectares), while planted area in Washington remained stable year over year at 1.70 million acres (688,000 hectares).

Durum planting in the Southwestern United States is estimated at 140,000 acres (56,700 hectares), down 8 percent from 2016/17 and 38 percent below 2015/16. According to USDA, planting is well underway in Arizona at 22 percent complete, up 8 percentage points from the same date last year. Delays from wet conditions are slowing progress in California. Arizona and California plant durum from December through January for harvest in May through July.

With the decrease in planted area in the United States, customers should pay close attention to weather maps and consider purchasing farther out to protect themselves from supply shocks.

Harvest Report

By Stephanie Bryant-Erdmann, USW Market Analyst

2016 ended on a high note for U.S. wheat exports, which posted the largest volume of sales in the fourth quarter since 2010. From October through December, the United States exported 6.5 million metric tons (MMT) of wheat, 48 percent above last year’s sales and 28 percent greater than the 5-year average. The strong export sales pace pushed total U.S. wheat exports to 20.9 MMT through Dec. 29, 7 percent ahead of the 5-year average and greater than total 2015/16 sales of 20.7 MMT.

Hard red winter (HRW) and hard red spring (HRS) are leading the charge. Year-to-date, HRW sales of 8.43 MMT are 24 percent ahead of the 5-year average and already greater than both 2015/16 and 2014/15 total sales. U.S. HRS sales are also 31 percent ahead of the 5-year average at 6.78 MMT and just shy of last year’s total 2015/16 sales of 6.91 MMT. These sales allowed the United States to regain the title of the largest single-country exporter in volume and value in a calendar year from Canada. According to USDA export sales data, U.S. wheat exports totaled 25.9 MMT, up 27 percent from CY 2015.

In CY 2015, Canada exported roughly 2.3 MMT more wheat than the United States and Russia, which nearly tied with a difference of less than 30,000 MT between them, based on Global Trade Atlas (GTA) data. The extra tonnage boosted the value of Canadian wheat exports to $6.23 billion compared to the U.S. wheat export value of $5.62 billion and the Russian value of $3.95 billion. In other words, despite the United States and Russia being virtually tied for the number two spot by tonnage in CY 2015, U.S. wheat exports earned 42 percent more dollars.

This year, the value comparison is even more interesting. GTA data shows U.S. wheat exports back on top from January to November with a value of $4.88 billion. For the same time period, GTA estimates Canadian wheat export value at $4.13 billion and Russian wheat export value at $3.32 billion.

While industry reports tend to focus on tonnage for grains, reports concerning other crops often refer to value of exports. While volume of exports reflects the drawdown of available stocks and infrastructure utilization, the value of exports reflects the relative financial return to the various exporting country economies as well as to producers and grain handlers.  International Grains Council (IGC) data shows the export price of Canadian 13.5 percent protein (on a 13.5 percent moisture basis) spring wheat at Vancouver averaged $218/MT ($5.93/bu) in 2016, and Russian milling wheat averaged $179/MT ($4.87/bu). By comparison, U.S. hard red spring (HRS) 13.0 percent protein (on a 12.0 percent moisture basis) at the Pacific Northwest averaged $232/MT ($6.31/bu) in 2016.

With many of the world’s largest exporters producing record-large crops with lower than normal protein content this year, buyers around the world are looking for high-quality, higher protein wheat. As the fourth quarter sales show, the U.S. wheat store continues to supply customers with the wheat they need. Customers around the world see the value of U.S. wheat versus its competitors and rely on it to provide consistent high quality flour to their own customer demand.

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By Stephanie Bryant-Erdmann, USW Market Analyst

As the Dec. 9 World Agricultural Supply and Demand Estimate (WASDE) confirms, global wheat supplies are at a record high this year. USDA increased its estimate for 2016/17 global wheat production to 751 million metric tons (MMT), up 2 percent from 2015/16 and 6 percent above the 5-year average. USDA now forecasts Australian wheat production to reach a record 33.0 million metric tons (MMT), up 35 percent year over year, if realized.

Higher yields tend to be associated with lower protein. As discussed in the Nov. 3 Wheat Letter, quality test results from Stratégie Grains, UkrAgroConsult, Canadian Grain Commission and other international agricultural groups show lower-than-average protein in the supplies from wheat-exporting countries.

Lower average protein content is problematic for many end-users. According to work done by Shawn Campbell, USW Deputy Director, West Coast Office, nearly all of the world’s high protein wheat exports (13 percent protein on a 12 percent moisture basis or higher) originate from just six countries: Australia; Canada; Kazakhstan; Russia; Ukraine; and the United States. High protein wheat production in these countries accounts for an average one-fifth of their total production in a normal year.

High protein wheat supply and demand factors are driving the growing premium between the Minneapolis Grain Exchange (MGEX), which trades hard red spring (HRS), and the Chicago Board of Trade (CBOT) and Kansas City Board of Trade (KCBT), which trade soft red winter (SRW) and hard red winter (HRW), respectively. Last December the intermarket spread between MGEX and KCBT averaged 36 cents. Fast forward to this December, and the MGEX to KCBT spread averages $1.47.

If the same high-yield, lower-than-average protein correlation also plays out in Australia, there will be little help from that corner for buyers searching for high protein wheat, further supporting the MGEX to KCBT and MGEX to CBOT spreads.

The demand for higher protein wheat also supports HRW protein 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 moisture) at the Gulf has been 12 cents per bushel. This year that premium is 46 cents per bushel. The 15-year average premium for 12 percent protein HRW at the PNW is $1.05 per bushel. Since the beginning of the 2016/17 marketing year on June 1, that average premium is $1.64 per bushel.

Despite the increasing premiums for higher protein HRW and HRS, U.S. HRW exports are 25 percent ahead of the 5-year average and U.S. HRS exports are 29 percent ahead of the 5-year average. While the average protein content of HRW exports this year is down from last year due to increased demand for all HRW, 12 percent protein shipments account for 31 percent of all HRW shipments to date, up from 27 percent last year. The brisk pace of HRW and HRS exports and anecdotal reports from traders indicate buyers are breaking from the hand-to-mouth buying pattern that has been prevalent this past year to secure supplies of higher protein wheat. Forward contracting for high protein needs now makes sense.

When evaluating competing prices of high protein wheat, buyers should be sure to convert protein values quoted to a common moisture basis. Because water can be readily removed (by drying) or added (by tempering), exporters quote protein using a fixed moisture basis, but they do not all use the same basis. The United States specifies protein on a 12 percent moisture basis. The European Union and the Black Sea region typically use a dry-matter (0 percent) moisture basis. Australia uses an 11 percent moisture basis and Canada uses a 13.5 percent moisture basis. Below is an example of how moisture basis impacts actual protein received, and the conversion equation.

Please call your local USW representative if you have any questions about the U.S. wheat marketing system, U.S. wheat supply or moisture basis calculations.

Country Moisture basis used Example: 13% Protein Protein Converted to

Dry-Matter Basis

Australia 11.0 13.0 14.6
Black Sea 0.0 13.0 13.0
Canada 13.5 13.0 15.0
European Union 0.0 13.0 13.0
United States 12.0 13.0 14.8

Equation to calculate protein content based on different moisture basis:

Example: You have a sample of wheat with 10 percent protein on a 13 percent moisture basis (mb) and want to convert to 12 percent mb.

Equation:    Protein1/(100-mb1) = Protein2/(100-mb2)

10/(100-13) = Protein2/(100-12)

10/87=Protein2/88

Protein2= (88*10)/87 = 10.1%