thumbnail

On March 31, the United States Department of Agriculture (USDA) released its yearly Prospective Plantings Report, and Quarterly Grains Stocks reports. The reports provide valuable insights for U.S. wheat importing customers as we enter the final two months of the 2022/23 marketing year and look ahead to the 2023 harvest. In this article, we will analyze USDA’s recent reports and their implications while also looking at the broader market conditions not encapsulated in USDA’s data.

Prospective Plantings Reaction

USDA estimates the total wheat area for the marketing year 2023/24 at 20.1 million hectares (mha) (49.9 million acres), up 9% from 2022 and 8% above the five-year average.

With a 9% increase in the total area year over year and the highest planted area since 2016, the numbers appear bearish at first glance. However, on Friday, March 31, Kansas City Board of Trade HRW futures closed up 6 cents, Minneapolis Grains Exchange HRS futures closed up 16 cents, and Chicago Merchants Exchange SRW futures remained unchanged. The market reaction points to more bullish influences outside the USDA report scope.

Map of U.S. states showing acre volume and % change in planted area compared to 2022.

Winter wheat planted area is up 13% at 15.2 mha (37.5 million acres). HRW seeding is up 13% at 10.5 mha (26.0 million acres), SRW area increased 18% to 3.1 mha (7.8 million acres), and white winter wheat is at 1.5 mha (3.7 million acres). Source: Prospective Plantings Agricultural Statistics Board Briefing, March 31, 2023.

Despite the increase in overall wheat area, spring wheat area dropped 2% to its lowest level since 2017, 4.3 million hectares (10.6 million acres). Likewise, even as the winter wheat seeding outlook appears positive, the assumption that increased planted area equates to increased production does not always hold, especially as drought persists in the U.S. Southern Plains.

Map of U.S. states shows planted area and % change compared to 2022 for spring wheat.

USDA report showing total spring wheat acres are projected to be down 2% from 2022 at 4.3 million hectares (10.6 million acres). USDA forecasts HRS seedings at 4.0 mha (9.9 million acres), down 3% from 2022/23. Durum plantings are up 9% at 728,000 hectares (1.8 million acres). Source: Prospective Plantings Agricultural Statistics Board Briefing, March 31, 2023.

Weather Risk Creates Uncertainty

Since the spring of 2022, conditions in the U.S. Southern Plains have steadily deteriorated. A continued lack of precipitation and above-normal temperatures has left 48% of the winter wheat-growing region in drought. The severe dryness increases the likelihood of abandonment (particularly in Hard Red Winter wheat) and has a detrimental impact on the yield of the fields that make it to harvest.

Vertical bar chart from USDA Reports showing a comparison of wheat planted and harvested area since 2017.

Winter wheat abandonment has averaged 33% the last five years, , though in 2022/23, it increased to 42%. As drought persists, the share of area abandoned may increase. Source: USDA National Agricultural Statistics Service.

Meanwhile, late-season snow and cold temperatures in the HRS planting region have delayed spring fieldwork. A late spring may affect spring wheat plans, increasing the likelihood of prevent plant as farmers run up against crop insurance deadlines. A rapid warm-up is not yet out of the question.

Map of the U.S. from USDA reports showing snow depth and winter wheat production areas.

Winter weather persists in much of the Northern Plains. As of April 1, farmers in the Dakotas, Montana, and Minnesota have had less than 1 day suitable for fieldwork. Late planting has a negative impact on yield and area. Source: USDA Weekly Weather and Crop Bulletin.

A Tight U.S. Balance Sheet

As drought persists in the U.S. Southern Plains and cold lingers in the North, the weather fuels supply concerns; thus, supporting wheat prices. In addition to weather fears, the USDA Quarterly Grains Stocks report put all wheat stocks at 25.7 MMT, down 8% from last year and hovering at their lowest level since 2008. Meanwhile, the April World Agricultural Supply and Demand Estimates forecast 2022/23 U.S. ending stocks at 16.3 MMT, up 5% from the March estimates, but still down 14% from 2021/22.

Though ending stocks rest precariously above historic lows, April’s increase may help alleviate some price pressure, especially as weather remains an unpredictable bullish factor. Nevertheless, as the end of the marketing year approaches, a tighter balance sheet and weather uncertainty will continue to influence U.S. prices until well into the 2023 harvest.

By USW Market Analyst Tyllor Ledford

thumbnail

News and Information from Around the Wheat Industry

 

Speaking of Wheat

In my view, [news that Cargill and Viterra will stop loading Russian grain] puts more questions around Russia’s ability to export. Russian state exporters claim that they’ll be able to keep grain moving out at the same pace, but major speculative funds holding large short positions may lack confidence in that currently, supporting the recent price recovery as they exit short positions. [March 29] Chicago wheat showed modest gains. All eyes will be focused on [upcoming USDA reports].” Sean Lusk, analyst with Barchart.com.

UK Establishes Scientific Plant Breeding Regulation

On March 23, a United Kingdom (UK) Genetic Technology (Precision Breeding) Bill received Royal Assent and became an Act of Parliament and law. The regulation covers precision-bred plants and animals developed through techniques such as gene editing, which is different from genetic modification, and create a new science-based and streamlined regulatory system to facilitate greater research and innovation in precision breeding while maintaining stricter regulations for genetically modified organisms (GMOs). Read the entire story here.

Cooperators Call for Increased Export Promotion Funding

In a period when inflation has raised the cost of everything in the U.S. wheat export supply chain, agricultural producers and processors have asked Congress to double the funding for the Market Access Program (MAP) and the Foreign Market Development (FMD) Program. Both have not had funding increases since 2006 and 2002 respectively. According to USDA Undersecretary for Trade and Foreign Agricultural Affairs Alexis Taylor, requests for MAP and FMD monies have far exceeded current funding. U.S. Wheat Associates (USW) is one of the organizations that cooperates with USDA’s Foreign Agricultural Service programs to conduct trade service and technical support for export customers. Read the entire story here and visit www.AgExportsCount.com.

National Ag Day Celebration

On March 21 the United States celebrated 50 years of National Ag Day. Started in 1973, National Ag Day increases public awareness about agriculture’s vital role in society. This year, events included grassroots activities across America, and strong social media coverage. Events in Washington, D.C. highlighted U.S. ag’s global impact. The day began with Secretary of Agriculture Tom Vilsack addressing a lively crowd at the USDA, saying “every day should be Ag Day.” Later in the day, a Taste of Ag reception was held at the Library of Congress. Here’s a short video tribute to U.S. farmers, ranchers, and dairy operators:

 

Cargill to Suspend Grain Export Elevations in Russia

Food and agricultural company Cargill announced March 28 it “will stop elevating Russian grain for export in July 2023 after the completion of the 2022-2023 season.” In addition, Viterra announced March 29 it will also stop loading Russian grain. Cargill owns a stake in the grain terminal in the Black Sea port of Novorossiisk but did not specify if it was selling the stake. Reuters reported that Cargill’s shipping unit will continue to carry grain from the country’s ports. Reuters added that the move stoked concerns about global grain supplies disrupted by the Russian invasion of Ukraine, lifting benchmark wheat futures prices this week from earlier losses.

India Cuts Wheat Harvest Estimate

The Indian government could reduce its wheat harvest estimate as unseasonal showers and hailstorms led to sizable damage to the wheat crop in the Indian states of Punjab, Uttar Pradesh and Madhya Pradesh, sources in the agriculture ministry told S&P Global Commodity Insights. According to government sources, the production estimates for marketing year 2022-23 (April-March) are likely to reduce by up to 2 million metric tons (MMT) from the projected output of 112.2 million mt, a record harvest. S&P Global noted however that surveyed market participants expect Indian’s wheat harvest to be lower.

 

thumbnail

Each year, on March 31, those who grow, trade or import U.S. agricultural commodities look to USDA’s annual Prospective Plantings and Quarterly Grain Stocks Report for indications of potential price movements. The consensus from analysts across the industry on how this week’s reports will affect wheat markets is generally bullish.

For reference, in its January 2023 Wheat Outlook report, USDA estimated total U.S. winter wheat planted area for 2023/24 at 37.0 million acres (14.9 million hectares), up 11% from last year to the highest level since 2015/16. The hard red winter wheat (HRW) area was up 10% to 25.3 M/ac (10.2 M/ha), while white winter wheat is up by 3% to 3.73 M/ac (1.5 M/ha). soft red winter wheat (SRW) experienced the most significant increase, jumping 20% from 2022/23 to 7.9 M/ac (3.2 M/ha). USDA’s February Grains and Oilseed Outlook projected an 8% increase in all wheat planted area to 49.5 M/ac (20.0 M/ha)

U.S. Wheat Associates (USW) compiled the following pre-report perspectives.

Analysts See Lower Planted Area

Bloomberg recently surveyed more than 30 agricultural analysts about their prospective plantings estimates for wheat, corn, soybeans and other crops. The average estimate for the total wheat area came in slightly below USDA’s January estimate at 48.9 M/ac. The average winter wheat estimate was 36.3 M/ac, also less than USDA’s 37.0 M/ac. Spring and durum wheat average among the analysts Bloomberg surveyed was 10.9 M/ac for HRS and 1.7 M/ac for durum.

Back in January, agricultural consulting firm Farmers Business Network surveyed U.S. winter wheat farmer members of the organization about their planting intentions. The results showed planted area increases for HRW and SRW, with all U.S. winter wheat planted area seen at 34.2 M/ac for 2023/24, up 900,000 ac compared to their 2022 survey. That is significantly lower than USDA’s 37.0 M/ac January estimate.

Balance Sheet Tightening?

USDA data in a pie chart showing the range of wheat crop conditions in Kansas.

Kansas wheat crop conditions in late March reflects the impact of on-going drought in the western and central areas of the state.

While both Bloomberg’s and FBN’s surveys estimate of winter wheat planted area are up compared to the 2022/23 estimates, FBN Senior commodity Analyst Rejeana Gvillo said U.S. planted is “not large enough to shift the undertone of shrinking global wheat supplies. Given the acreage outlook, the drought in the Southern Plains will need to be broken come spring or summer or the U.S. wheat balance sheet could tighten further.”

Sadly, the drought has not broken in southwest Kansas, southeast Colorado, the northern Texas Panhandle, and the western Oklahoma Panhandle. There has been some easing of drought outside that hard-hit area. Justin Gilpin, CEO of Kansas Wheat does not anticipate major adjustments to USDA’s winter wheat planted area, but he is looking to other farmer decisions ahead.

“Last year, USDA began inching Kansas winter wheat acreage lower in the March report. I expect any changes or adjustments this year to be in the other direction, with slightly higher planted winter wheat acres in Kansas,” Gilpin said, which includes SRW in eastern Kansas. “But any incremental changes at this point are overshadowed by what the harvested acres might be with expected higher abandonment due to the drought conditions and poor stands in southwest Kansas.”

Spring Wheat Planting Delay?

Drought is not the problem in the Northern Plains HRS and durum region. This has been a very wet and cold winter with persistent snow cover.

“Everybody’s pretty much thinking it is going to be a late start” to planting, said Randy Martinson of Martinson Ag Risk Management in a story posted by AgWeek, Fargo, N.D.

On the Agweek Market Wrap, March 24, Martinson said with two feet of snow or more in places in the region and a forecast for little warm up in sight, some farmers already are considering looking for earlier maturing varieties and “questioning whether they should still plan to plant spring wheat.”

Asked about the Prospective Plantings report on March 31, Martinson added that the consensus among farmers he has talked to is there will be more corn and soybeans planted and less spring wheat, though more winter wheat already has been planted. However, he said there likely will be changes depending on how the spring shapes up.

Map of the United States from the USDA Forest Service shows significant snow cover in late March 2023 in the northern plains.

Snow cover in late March is still 10 inches to almost 30 inches deep in parts of U.S. HRS growing regions of South Dakota, North Dakota and Montana. Delayed planting may shift some spring wheat area to other crops this year. Source: USDA Forest Service.

Buy Signals for Speculators

Commercial traders and futures speculators are getting the same information. Barchart analyst Sean Lusk wrote this week that the market is net short in Chicago SRW wheat futures as the plantings and stocks reports are coming on the same day as the month and quarter end. He expected managed money to take profits by buying wheat into the weekend.

In the end, USW believes Martinson is correct in saying the weather and the planting report will be the market movers this week.

thumbnail

Over the last few weeks, we have analyzed several factors that are shifting or have the potential to shift U.S. wheat value toward wheat importers. A combination of lower futures prices, a break in dry bulk freight prices, an increase in planted area, and the potential for a weaker dollar all point to a wheat market that has turned to favor buyers after two years of price risk. Though it is the most unpredictable of all the factors influencing U.S. wheat prices, the weather is arguably the most critical component in determining U.S. wheat production and price.

El Niño Southern Oscillation

In a cycle called El Niño Southern Oscillation (ENSO), meteorologists study the air and water conditions in the equatorial Pacific and the subsequent impact on global weather patterns.

This image shows a map of the world and the expected rainfall patterns in different regions in a La Nina weather pattern.

Three consecutive La Niña weather events have brought increased moisture to Australia, boosting their wheat production. Meanwhile, drought conditions have persisted in Argentina and the U.S., severely affecting production and yields. Source: International Research Institute for Climate and Society.

“Triple Dip” La Niña

Usually lasting nine to 12 months, the most recent La Niña event persisted for three cycles, marking the first “Triple Dip” La Niña since 2001.

The three consecutive La Niña events have brought above normal rains to Australia during their wheat growing season. As a result, Australia has boasted three years of record wheat production. The average production from 2020-2023 is 66% higher than the previous five-year average.

Simultaneously, the La Niña weather event brought dry conditions to the U.S. and Argentina. U.S. Hard Red Winter wheat (HRW) production, the largest class of U.S. wheat grown primarily in the U.S. Southern Plains, decreased by 29% on the year to 14.5 MMT due to severe drought in the region. Likewise, USDA estimates put Argentine wheat production at 12.9 MMT, down 41% from the year prior and 33% from the five-year average, with persistent drought also acting as the primary cause.

Chart shows Australian wheat production, domestic use and exports over the past 10 years to show the effects of La Nina.

Australia has produced three consecutive record wheat crops as increased moisture benefitted its growing regions. As a result of increased production and stocks, Australian wheat exports have also reached record highs. Source: March USDA World Agricultural Supply and Demand Estimates.

Chart shows Argentinian wheat production, domestic use and exports over the past 10 years to show the effects of La Nina.

Drought severely impacted 2022/23 wheat production in Argentina. Source: March USDA World Agricultural Supply and Demand Estimates

A Break in The Cycle

In recent weeks, climate experts have predicted the end of La Niña, with an increased likelihood of an El Niño weather event forming. As the La Niña dissipates, there is potential for increased moisture in the U.S. Southern Plains and Argentina, while Australia will likely see drier conditions.

This map of the world shows rainfall patterns in regions from an El Nino patters, relative to La Nina patterns.

An El Niño weather event could bring dryness to Australia and increased precipitation to Argentina and the U.S., potentially favoring western hemisphere wheat production regions. Source: International Research Institute for Climate and Society.

What Does This Mean?

The market has already begun to weigh the impact of the shifting weather patterns. The Australian Bureau of Agricultural and Resource Economics and Statistics has already lowered 2023/24 wheat production estimates by 28% to 28.2 MMT in response to the new weather data.

As the weather changes and the potential for moisture increases in the U.S. Southern Plains, the production outlook in the U.S. may improve. Increased production would help take pressure off the tight U.S. balance sheet with the potential to bring down relatively high U.S. wheat export prices. Nevertheless, given the unpredictability of the weather, the actual impacts will not be known until well into the 2023/24 marketing year.

By USW Market Analyst Tyllor Ledford

thumbnail

With recent breaks in U.S. and global wheat futures and lower freight rates, the wheat market seems to have turned a corner to favor buyers after two years of volatility and risk.

Despite the improved general outlook, inflationary pressures persist, influencing macroeconomic conditions both in the U.S. and for our customers overseas. For example, major runups in the U.S. dollar in the second and third quarter of 2022 impeded wheat trade. Yet even with recent strengthening, the U.S. dollar index has decreased 7% from the highs hit in September 2022, providing some relief for wheat importers.

As world wheat importers are keenly aware, a strong dollar erodes the purchasing power of foreign currencies, making U.S. commodities more expensive to customers.

While the U.S. dollar index has decreased 7% from the highs hit in September 2022, though it remains elevated from pre-war levels, continued strength and fluctuations remain a concern for wheat importers. The U.S. dollar index measures the dollar’s strength against a basket of six major currencies, including the Euro, Pound, Yen, Canadian Dollar, Swedish Kroner, and Swiss Franc. Source: DTN ProphetX

The factors driving currency markets are often complex, but the recent dollar strength can be primarily attributed to the U.S. Federal Reserve’s reaction to the rising inflation triggered by Russia’s unprovoked invasion of Ukraine and the lingering impacts of the COVID-19 pandemic.

Federal Reserve Policy

The U.S. has faced inflation not seen since the 1980s, at an annualized inflation rate of 8.0% for 2022. To combat the inflationary pressures, the U.S. Federal Reserve (Fed) began an aggressive series of interest rate increases, bringing Federal Fund Rates from 0.2% per year in March 2022 to 4.57% annually by February 2023. The hawkish policy added strength to the dollar as investors earned higher returns, making the currency more attractive.

As interest rates have risen, U.S. inflation has since slipped to 6.0%, signaling that inflation may be easing. Current market sentiment and comments from Federal Reserve leadership indicate that though interest rates may still increase, a slower pace could also ease the strength of the U.S. dollar.

Global Reaction

In uncertain times, global investors often turn to the U.S. dollar as a haven currency, generating greater demand for a currency already supported by the Federal Reserve’s hawkish policy. As fears regarding a global recession began to mount following the onset of Putin’s war, many major central banks had to weigh their economic outlook against inflation risk, generally maintaining a looser monetary policy than their U.S. counterpart. These policy decisions allowed the dollar to strengthen more quickly than other world currencies.

As recession fears have slowed and the global economy has normalized, central banks have become increasingly hawkish, moving their monetary policy in line with Federal Reserve. As interest rates rise around the world, future gains in the dollar will be curbed.

The dollar has weakened against many other currencies in the last few months, potentially signaling a more hawkish stance in other major central banks. Source: Bloomberg

Bears or Bulls, What’s Next for the Dollar?

As the global economy stabilizes, many investors are increasingly bearish for the dollar, though the path will be far from straightforward. Analysts believe the recent dollar strength is temporary, and the currency could weaken if the Federal Reserve tapers its interest rate increases. Nevertheless, the underlying geopolitical risk of Putin’s war will continue to prop up the dollar as it remains the haven currency in times of volatility. Likewise, the resilience of the U.S. economy will continue to drive dollar strength as robust jobs data, and stubborn increases in consumer and producer prices, underpin the need for hawkish policy and elevated interest rates.

By USW Market Analyst Tyllor Ledford

thumbnail

By Keith Good, Farm Policy News, Reprinted with Permission

Late last week, Bloomberg writers Aine Quinn and Megan Durisin reported that, “After a slow start to the season, Russia’s grain exports are booming as buyers load up on its attractive bumper supplies.

“The country’s shipments of wheat — its main crop — almost doubled in January and February from a year earlier, Logistic OS data show. Buyers shunned cargoes earlier in the season when prices weren’t as appealing, but are now returning as last year’s massive harvest helps Russian grain to rank among the cheapest globally.

Chart of Russian wheat prices over time demonstrating reduction in cost based on huge annual production.

Chart Source: “Russia Wheat Exports Nearly Double What They Were Before War,” by Aine Quinn and Megan Durisin. Bloomberg News (March 3, 2023).

“The recent boom shows shippers have overcome some of the financing and insurance problems fueled by sanctions on Russia. The outlook for exports from the Black Sea is also coming into sharper focus as a deal allowing Ukrainian cargoes to sail through a safe corridor comes up for renewal in about two weeks. Supplies from both nations are helping to stop global food inflation worsening.”

The Bloomberg article also noted that, “While Ukraine’s volumes remain significant, they’re below peaks set late last year. The amount carried out of the Black Sea in February totaled 3.35 million tons and the number of vessels cleared for inspection — a part of the deal — fell for a fourth month.

chart from the Black Sea Grain Initiative showing a slow down in the number of Ukrainian grain ships being inspected under the agreement.

Chart Source: “Russia Wheat Exports Nearly Double What They Were Before War,” by Aine Quinn and Megan Durisin. Bloomberg News (March 3, 2023).

Sluggish Inspectors

“Kyiv has blamed a slowdown in its exports since late last year on sluggish work by Russian ship inspectors, who are one of the parties tasked with checking all vessels sailing under the deal.”

On Monday, Bloomberg writer Keira Wright reported that, “Australia, the world’s second-largest wheat exporting country, is likely to see shipments slump 20% from record levels in the coming financial year as production tumbles because of a shift to a drier climate pattern.

“Exports will probably fall to 22.5 million tons in 2023-24 from an all-time high of 28 million tons a year earlier, while output is set to decrease to 28.2 million tons from 39.2 million tons, government forecaster Abares said. The figure for the harvest just completed is up from 36.6 million tons estimated in December. Planting for the coming crop only gets under way in April.

U.S. SRW wheat futures price chart since March 2022 showing the decline in prices since the Russian invasion of Ukraine.

Chart Source: “Australia Sees Wheat Exports Plunging 20% on Drier Climate,” by Keira Wright. Bloomberg News (March 6, 2023).

Aussie Production Price Cap

“Supplies of the food staple from Australia have helped to cap global prices in the past year after Russia’s invasion of Ukraine choked shipments and sent the grain to a record.”

More broadly on global wheat production, Bloomberg writer Aine Quinn reported late last week that, “Global wheat output is expected to drop slightly next season from a record high as the war in Ukraine and dry weather in Russia takes a toll on crops, the United Nations said.

UN Food and Agriculture Organization chart of global wheat production indicating possible decline in production for 2023/24.

Chart Source: “UN Sees Global Wheat Output Falling for First Time in Five Years,” by Aine Quinn. Bloomberg News (March 3, 2023).

“Production should fall roughly 1% to 784 million tons in the 2023-24 season, the UN’s Food and Agriculture Organization said Friday. That would be the first decline in five years and highlights the risk that global grain supplies still face from Moscow’s invasion of Ukraine.”

Black Sea Corridor Negotiations

In more detailed reporting on the renewal of the Black Sea Grain Deal, Reuters writer Michelle Nichols indicated yesterday that, “United Nations Secretary-General Antonio Guterres will meet Ukrainian President Volodymyr Zelenskiy in Kyiv on Wednesday to discuss extending a deal with Moscow that allows the Black Sea export of Ukraine grains amid Russia’s war in the country.

“‘The Secretary-General has just arrived in Poland on his way to Ukraine,’ U.N. spokesman Stephane Dujarric said on Tuesday, adding that Guterres will discuss the continuation of the deal ‘in all its aspects and other pertinent issues.’”

“The 120-day deal, initially brokered by the United Nations and Turkey in July and extended in November, will be renewed on March 18 if no party objects. Russia has signalled that obstacles to its own agricultural exports need to be removed before it lets the Ukraine’s Black Sea grain deal continue.”

The Reuters article pointed out that, “Turkish Foreign Minister Mevlut Cavusoglu said on Sunday that Ankara was ‘working hard for the smooth implementation and further extension of the Black Sea grain deal.’”

And Reuters writer Pavel Polityuk reported yesterday that, “Ukraine has started online talks with partners on extending the Black Sea Grain Initiative aimed at ensuring Kyiv can keep shipping grain to global markets, a senior Ukrainian government source said on Tuesday.

“The source said Ukraine had not held discussions with Russia, which blockaded Ukrainian Black Sea ports after its invasion last year, but that it was Kyiv’s understanding that its partners were talking to Moscow.

“‘The situation with negotiations is rather complicated. Now a lot depends not on us but on the partners,’ said the source, who spoke to Reuters on condition of anonymity.”

thumbnail

Since Russia’s unprovoked invasion of Ukraine sent them soaring one year ago, global and U.S. wheat prices have decreased significantly. Continued Black Sea Grain Corridor exports and improved production outlook in major exporters such as Russia and Australia have helped relieve the market of some supply pressure. Bulk ocean freight rates have also broken in favor of wheat and other grain importers.

Even more relief for buyers arrived with the USDA Grains and Oilseed Outlook released on Feb. 23 that projected an 8% increase in all U.S. wheat planted area. On Feb. 24, wheat futures fell as much as 30 cents overnight in response to that report.

In a classic supply and demand equation, tight global wheat stocks and the uncertainty of the Black Sea pushed prices higher and provided an economic incentive to plant more wheat and futures prices reacted to the news.

Chart showing U.S. wheat class futures price volatility over the past several years.

In response to the increased wheat acre estimates, Chicago Board of Trade (CBOT), Kansas City Board of Trade (KCBOT), and Minneapolis Grains Exchange (MGEX) wheat futures recently dropped, and have come down as much as 41% from the highs hit in March 2022 to prices not seen since September 2021. Source: Source: U.S. Wheat Associates Price Charting Tool.

Historical Perspective

Over the last two decades, competition for wheat acres has increased as profit margins have shifted to favor other crops such as corn and soybeans. Meanwhile, as market volatility persists, farmers increasingly utilize diversified crop rotations to mitigate price and input risk. The combined impact has resulted in a slow erosion of U.S. wheat annual planted area, with the most recent five-year average coming in at 46.0 million acres (18.6 million hectares), down 24% from the 2002.

In addition to supply pressures at home, enhanced production in competing exporters has highlighted the increasingly tight U.S. balance sheet. Production in Russia has increased 76% over the last decade, while Argentine production, increased 138% from 2012/13 to 2021/22, (excluding the historic drought impacting the 2022/23 crop).

Wheat planted area erosion and increased global competition, coupled with drought-inflicted production shortfalls in the U.S. over the last three marketing years have created a tight balance sheet both domestically and on a global scale, underpinning wheat prices.

Chart showing the volume of planted acres since 2013/14 for wheat, corn and soybeans to illustrate influence on wheat prices.

Wheat acres have decreased over the last decade, compared to the relative, recent stability of soybean and corn planted area. Source: USDA Economic Research Service Wheat Data, USDA National Agricultural Statistics Service.

A Break in the Trend

Breaking from the historical trend, in January 2023, the USDA Winter Wheat and Canola Seedings report projected the 2023 winter wheat seeded area at 37.0 million acres (14.9 million hectares), up 11% from 2022 and 14% above the five-year average. The Hard Red Winter wheat (HRW) area was up 10% to 25.3 million acres (10.2 million hectares), while white winter wheat is up by 3% to 3.73 million acres (1.5 million acres). Soft Red Winter wheat (SRW) experienced the most significant planting increase, jumping 20% from 2022/23 to 7.9 million acres (3.2 million hectares)

Further echoing the sentiment for increased planted area, the recent USDA Grains and Oilseed Outlook projected an 8% increase in all wheat planted area to 49.5 million acres (20.0 million hectares), driven primarily by the jump in winter wheat acres. The estimate is the highest since 2016 and 8% above the five-year average.

Bar chart shows total wheat planted area in acres from 2012 through an estimate for 2023.

The 2023 estimate of wheat planted area mark a substantial increase in wheat acres compared to the last twenty years and the largest planted area since 2016. Source: USDA National Agricultural Statistics Service Data.

Looking Ahead

As producers begin their spring wheat sowing campaigns, Jim Peterson, Policy and Marketing Director at the North Dakota Wheat Commission, notes that though there is room for increased planting, many farmers minimized price risk by locking in their crop rotations and inputs for the season early, which tempers major acre shifts. He also added that spring wheat planted area increases this year would be in part a rebound after last year’s wet spring prevented many acres from being planted.

More clarity will come on March 31, when USDA publishes its annual Prospective Plantings Report outlining the initial spring wheat area and updating winter wheat area estimates. Likewise, the May 2023 World Agricultural Supply and Demand Estimates will provide the government’s first insight into the 2023/24 marketing year.

The incentive to plant wheat remains strong, but planted acres do not necessarily equate to production, especially as drought conditions persist in the southern plains. As always, the weather will play a crucial role in crop production as spring planting begins and the winter wheat crop emerges from dormancy.

By USW Market Analyst Tyllor Ledford

thumbnail

Following a year of dramatic volatility, several factors have pressured global wheat prices back to levels last seen before Russia’s invasion of Ukraine in early 2022. There are several factors behind this trend. In this article, U.S. Wheat Associates (USW) examines the tenacity of world wheat trade even in the face of serious market uncertainty.

In February 2022, Russia’s unprovoked invasion shook world markets, launching a season of unprecedented volatility and record prices across the agricultural sector. In response to Putin’s war, nearby Chicago Board of Trade (CBOT) wheat futures soared to $14.25/bu. Combined with record global consumption, production shortfalls, and a tightening global balance sheet, the war cast a shadow of uncertainty over the grain industry.

In May 2022, the market rallied yet again when India banned wheat exports, just days after Indian government officials assured world buyers that India would lead the charge to offset the supplies from the Black Sea and help tamp global food price inflation. CBOT wheat futures once again touched record highs of $12.77/bu.

Line graph shows how U.S. HRW, HRS and SRW wheat futures prices have changed from early 2022 through early 2023.

Volatility has been apparent in CBOT Wheat futures, Kansas City Board of Trade (KCBOT) Hard Red Winter wheat futures, and Minneapolis Grains Exchange (MGEX) Hard Red Spring wheat futures since the invasion. Source: U.S. Wheat Associates Price Charting Tool

A Black Sea Breakthrough

Flash forward to July 2022, when Russia and Ukraine, with support from the United Nations and Turkey, agreed to the Black Sea grain corridor and created the Joint Coordination Center (JCC) to facilitate exports for the region. The agreement allowed supplies trapped in Russia and Ukraine to re-enter the world market, and in response, wheat futures eased 37% from the spring’s highs.

Bar chart shows Russian wheat production, export sales and other information using data from USDA.

Russian wheat production increased by 21% from 2021, and exports are expected to increase by 30% on the year. Source: U.S. Department of Agriculture (USDA) World Agricultural Supply and Demand Estimates.

Return to Pre-War Prices

In the months since the corridor was implemented, wheat futures have continued falling to pre-war levels. The downward pressure of steady, low-priced Black Sea wheat exports remains the primary driver. According to JCC data, since the corridor’s inception, 5.1 MMT of wheat have been shipped from Ukraine. As for Russian exports, the January U.S. Department of Agriculture (USDA) World Agricultural Supply and Demand Estimates pegged Russian wheat production at 91.0 MMT, though some private sector forecasts are upwards of 104.0 MMT. With record production, Russian exports are expected to reach 43.0 MMT, 17% above the five-year average.

A record crop from Australia has also helped ease some global supply concerns. The Australian wheat crop is rumored to reach nearly 42.0 MMT, though USDA estimates hover at 36.6 MMT.

On the domestic front, the USDA Winter Wheat and Canola Seedings Report increased 2023 winter wheat acres by 11% from 2022 to 14.9 million hectares. The combined impact of the ample Black Sea supplies and improved outlook in several major exporters has helped turn the wheat market back to buyers.

Bar chart of data from USDA shows global wheat production and global wheat use over the past 10 years.

For the third year in a row, world wheat consumption has outpaced production, even though global wheat production hit a record 781.3 MMT in 2022/23. Wheat is drawn from ending stocks to meet global demand. Source: U.S. Department of Agriculture (USDA) World Agricultural Supply and Demand Estimates.

What Comes Next?

Market sentiment has become increasingly bearish and prices have significantly dipped in the buyer’s favor; however, many unknowns linger in the market. The underlying uncertainty of Putin’s war will continue to support the market. As seen in October, when Russia threatened to pull out of the Black Sea Grain initiative, prices spiked in response to the threat. In more recent news, on Jan. 25 a Russian missel struck a Turkish cargo ship in the port of Kherson in Ukraine, also sending futures momentarily higher. Volatility is a concern for as long as the war continues. Global balance sheets will also remain tight into the new crop year, and global wheat consumption continues to outpace production. Another factor, though not unique to this year, the weather will continue to play a significant role in prices as markets closely monitor the drought afflicted Argentine wheat crop and HRW conditions in the U.S. Central and Southern Plains.

By USW Market Analyst Tyllor Ledford

 

thumbnail

USDA’s National Agricultural Statistics Service (NASS) will publish its first official estimate of U.S. winter wheat planted area for the 2023/24 crop on Jan. 12, 2023. Along with U.S. wheat importing customers, U.S. Wheat Associates (USW) will be watching trade estimates before the report is issued and make some comparisons to NASS estimates in 2022.

USDA’s Economic Research Service has noted that “the general downward trend in U.S. wheat plantings over the last two decades is attributable to lower relative returns for wheat, changes in Government programs that give farmers more planting flexibility, and increased competition in global wheat markets.”

The past three marketing years, however, have seen a slight change in that trend.

At planting time in 2022, the relatively high farm gate prices for hard red winter (HRW), soft red winter (SRW) and white winter wheat (including winter soft white and hard white) provided some incentive to plant more winter wheat. Looking ahead, the pre-report predictions to date for total winter wheat planted area of between 34 million acres (MA) and 36 MA are both higher than the final 2022 crop NASS estimate of 33.27 MA. A survey of traders by Bloomberg posted Jan. 9 estimated total winter wheat planted area at 34.5 MA.

More Planted Acres Expected

Wheat analyst Jeffery McPike with WASEDA Commodities and McWheat Trading Inc., recently pegged that group’s initial 2023 planted area forecast at 35.7 MA that, if realized, would be a 7.3% increase over NASS’s final 2022 estimate. The high end of estimates in Bloomberg’s survey is 36.2 MA.

The group’s forecast of 24.8 MA for HRW planted area is 7% more than the final NASS 2022 estimate based mainly on expected gains in the Central and Southern Plains. The Bloomberg trader survey estimate averaged 23.9 MA.

McPike said the group is bullish on SRW planted area with a forecast of 7.22 MA, which is 11% more than NASS’ final 2022 estimate. For example, an Arkansas Extension official recently reported that “good prices and a relatively dry fall likely encouraged farmers to plant more winter wheat for a 2023 harvest. Early estimates are that winter wheat acres in Arkansas will be up 25% to 30% from last year.” Traders surveyed by Bloomberg estimate the average at 6.9 MA.

The group sees only a slight uptick in white winter wheat planted area to 3.65 MA. The Bloomberg trader estimate average was 3.7 MA. The January 2022 NASS estimate for winter white planted area was 3.56 MA.

Bar chart depicting USDA's estimates of U.S. wheat planted area from 2013 through 2022, by wheat class.

Change in Direction. Compared to the general downward trend in U.S. wheat planted area, higher wheat prices for farmers have provided an incentive to plant more wheat the past three marketing years. Planted area for the three winter wheat classes (HRW, SRW and white winter) are all up since 2019/20. Note that “White” wheat on this chart includes spring-planted soft white wheat.

And Watch Harvested Area and Production Estimates

NASS will adjust its winter wheat planted area forecast throughout 2023. And, as McPike pointed out, the currently unknown harvested area, along with production estimates, will be  major price determinants. For example, compare the final 2022 NASS estimate of HRW planted area of 33.89 MA to final harvested area of 24.05 MA.

“After the NASS figure is published and gets digested, the market will likely quickly move to winterkill issues (again) in the U.S., Europe, and the Black Sea regions,” McPike said, “and harvested area discussions, along with the many macro issues that continue to roil the markets.”

The annual NASS Winter Wheat Seedings report will be published here: https://usda.library.cornell.edu/concern/publications/z890rt24s,

An additional source of information is the USDA Economic Research Service December 2022 Wheat Outlook published at https://downloads.usda.library.cornell.edu/usda-esmis/files/cz30ps64c/hh63v4630/zc77v192n/WHS-22l.pdf.

thumbnail

USDA released its December World Agricultural Supply and Demand Estimates (WASDE) report Dec. 9, 2022, that included no substantial changes for global and domestic wheat markets. Given the overall volatility in 2022, a somewhat calming report was probably a blessing in disguise for wheat buyers who should, however, keep an eye on declining global stocks and exportable supplies.

Each month, U.S. Wheat Associates (USW) updates a graphic summary the WASDE report that includes global wheat market factors, major country and regional export history, and U.S. wheat supply and demand summaries by class. Readers can review the report online here. Some highlights from the December report follow.

Stocks to Fall

Based on USDA’s latest global wheat production estimate of 781 million metric tons (MMT) and total use of 790 MMT, marketing year 2022/23 will be the third in a row and the fourth in the last five years in which use has exceeded production.

The WASDE report included a 500,000 metric ton drop in estimated global ending wheat stocks to 267.3 MMT. If realized, those supplies will be the lowest since 2013/14. Of that total, an estimated 54.5 MMT will be found in “Exporter” countries, 68.4 MMT will be in “Importer” countries and 144 MMT will be in China. That means 54% of global ending stocks are locked out of world trade, an amount that is up from USDA’s estimate of about 51% in December 2021.

Bar chart showing the global wheat Ending Stocks to Use ratios since 13/14.

Locked in China. Global wheat stocks-to-use ratios are much lower when China’s 144 MMT of wheat stocks are removed from the equation. The down-trend is clear and has accelerated since 2019/20. The current stocks-to-use ratio of 19% without China, which does not export wheat, is the  lowest level in more than 10 years. Source: USDA, U.S. Wheat Associates.

Given the poor condition of the Argentina wheat crop, USDA lowered ending stocks there by 500,000 metric tons, but increased European and Australian ending stocks. Analysts were somewhat surprised USDA did not change its 91 MMT estimate of Russian wheat production.

While USDA did not change its U.S. ending stocks estimate of 15.54 MMT in the latest WASDE report, it is the lowest U.S. ending stocks since marketing year 2007/08. Buyers that were in the market that year will remember the stunning run up in wheat prices fueled by extremely low global stocks. At one point that year, only a few weeks of world wheat supplies were available.

Low Exportable Supplies

In a video presentation on World Wheat Supply and Demand recorded for 2022 USW Crop Quality Seminars, USW Vice President and West Coast Office Director Steve Wirsching showed that ending stocks among exporting countries have declined significantly over the past five years.

“When exporters hold so few stocks, this increases market volatility and leads to higher wheat prices,” Wirsching said. A condition made even more uncertain by Russia’s on-going incursion into Ukraine.

Data from USDA's December WASDE report show wheat stocks are down, trade is up and use is up in 2022.

Wheat’s Balance Sheet. Data from USDA reflects the trend behind higher global wheat prices: falling supplies, increased trade and record demand year-over-year.

Trade Volume to Increase

The world wheat trade estimate increased in December by 2.2 MMT to 210.9 MMT. December’s report suggests higher exports from Ukraine, Russia and the EU. While expecting Australia’s exports to reach 27.5 MMT, almost a record volume, USDA also noted that a significant portion of Australia’s exports will be for animal feed following harvest rain and lower quality in New South Wales. The world total estimated exports and imports for the year now stands at 211 MMT

USDA did not change its U.S. wheat export volume estimate of 21.1 MMT, with slightly lower soft red winter (SRW) offsetting slightly higher hard red spring (HRW) and soft white (SW) exports.