By Stephanie Bryant-Erdmann, USW Market Analyst

Sharply lower U.S. wheat production pushed futures prices to 2-and 3-year highs earlier this summer. However, bearish factors have recently pushed prices down. And when wheat futures are under pressure, wheat importers have the opportunity to lock in competitive prices and maybe even find some bargains.

Chicago Board of Trade (CBOT) soft red winter (SRW) wheat futures and export basis are both under pressure from a growing 2017/18 (June to May) supply, which USDA estimated at 14.2 million metric tons (MMT). The year-to-date average SRW Gulf FOB value of $196 per metric ton (MT) is $50 below the 5-year average, and this is a very good quality new crop (for more information on 2017/18 SRW quality, read “Millers and Processors Should Like the 2017/18 Soft Red Winter Crop” below).

Though U.S. hard red winter (HRW) production is forecast to shrink 30 percent in 2017/18, year-to-date Kansas City Board of Trade (KCBT) HRW wheat futures average $58 per MT below the 5-year average. This is due mainly to KCBT contract specifications and lower average protein levels in the 2016/17 and 2017/18 crops. While HRW futures trickle lower, protein premiums continue to widen. Historically, Gulf HRW protein premiums ranged between $1.50 to $4.40 per MT for each additional 0.5 percent of protein. Pacific Northwest (PNW) HRW protein premiums normally average $2.95 to $7.35 per MT. In 2017/18, that range is now $11 to $32 per MT for the Gulf and $8 to $18 per MT for the PNW.

The widening protein premiums represent the tightening global supply of higher protein wheat. Yet FOB prices for 12 percent Gulf and PNW HRW are $40 and $41 per MT below the 5-year averages, respectively (all U.S. wheat protein is based on 12% moisture). Customers who can use lower protein HRW can take advantage of FOB prices for ordinary/unspecified protein HRW, which are $73 per MT below historic levels at the Gulf and $57 per MT below the 5-year average in the PNW.  Preliminary data shows 2017/18 HRW average protein is 11.5 percent, slightly above last year’s final of 11.2 percent, but below the 5-year average of 12.6 percent.

The Minneapolis Grain Exchange (MGEX) hard red spring (HRS) wheat futures have retreated from the 3-year highs reached earlier this summer. However, U.S. and Canadian spring wheat production estimates are supportive of current price levels. StatsCan expects Canadian wheat production (excluding durum) to fall 7 percent to 22.3 MMT. MGEX HRS futures are hovering near the August 5-year average of $6.79 per bushel ($249 per MT), but HRS export basis levels are $15 to $25 per MT below normal at both PNW and Gulf export locations. With harvest still underway in the U.S. Northern Plains and Canada, customers can mitigate some of their risk by locking in these competitive basis levels.

Export pricing for soft white (SW) wheat is not tied to a wheat futures market, but as noted in the July 27 Wheat Letter, protein premiums are shrinking for SW due to the excellent quality and more normal protein distributions in recent crops. PNW FOB export prices for 10.5 max protein SW are $62 per MT below the 5-year average, while FOB prices for 9.5 max protein SW are $70 per MT lower.

Well-informed customers can take advantage of these buying opportunities and lock in lower prices for high-quality U.S. wheat in the next few weeks. Your local USW representative is ready to help answer any questions about U.S. wheat pricing or the U.S. wheat marketing system. To track U.S. wheat nearby prices, review and/or subscribe to the USW Price Report here.

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By Stephanie Bryant-Erdmann, USW Market Analyst

Four consecutive years of drought, which shrunk soft white (SW) production and increased average protein levels, had the market rationing demand through low protein premiums. Now, after two years of more normal weather patterns, low protein premiums are quickly disappearing providing an excellent buying opportunity for U.S. wheat customers.

In marketing year 2016/17 (June to May), the protein premium for 10.5 percent maximum protein SW shrunk to an average 60 cents per metric ton (MT), compared to the 5-year average of $10 per MT (U.S. protein is calculated on a 12 percent moisture basis). The protein premium for 9.5 maximum protein SW fell to $14 per MT. So far in 2017/18, the 10.5 maximum protein premium has increased slightly to 71 cents per MT due to the uncertainty of harvest; however, the 9.5 maximum protein premium has continued to shrink to an average $6 per MT due to expectations of “normal” protein distributions and an ample supply of SW.

According to USW Crop Quality data, the 5-year average protein for SW is 10.4 percent, which includes two higher protein years (2014/15 and 2015/16). Prior to 2014/15, the 5-year average was 9.9 percent. The expectation of “normal” protein distributions is a direct result of more normal growing conditions. Idaho, Oregon and Washington received timely and ample moisture throughout the growing season, resulting in good stands and grain-fill.

In USDA’s latest winter wheat condition report for 2017/18, winter wheat conditions across the three states averaged 78 percent good to excellent. On July 24, spring wheat conditions in Idaho and Washington were rated 63 percent and 40 percent good to excellent, respectively. Roughly 87 percent of SW is winter wheat and 13 percent is spring wheat.

In addition to good crop conditions, USDA also expects average yield to reach 65.9 bushels per acre (4.43 MT per hectare) or 3 percent above the 5-year average. If realized, that would still be 7 percent below 2016/17 yields. USDA expects large 2017/18 SW beginning stocks to offset an anticipated 11 percent decline in production. Total 2017/18 SW supply is projected to remain stable year over year at 9.77 million metric tons (MMT).

It is important to note that the decline in low protein premiums are currently being driven not by actual data, but by the expectation of normal protein distributions and decent yields at this point because the 2017 SW harvest is only just underway. As always, nothing is guaranteed until the wheat is safely in the bins, but customers can take advantage of the decline in low protein premiums to secure high quality, low-protein SW at reasonable prices.

Customers are encouraged to keep abreast of harvest conditions and to contact their local USW representative with any questions about U.S. wheat supplies and production.

To read the latest USW Weekly Harvest Report, click here.

To subscribe to USW Reports, click here.

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USDA forecast U.S. 2017/18 wheat production at 47.9 million metric tons (MMT), down 24 percent year over year and 18 percent below the 5-year average. The reason: an anticipated 12 percent decline in average yield and the lowest planted acres since USDA records began in 1919. However, USDA expects 2017/18 U.S. beginning stocks to total 32.2 MMT, up 21 percent year over year and the most since 1988/89. As a result, total 2017/18 U.S. wheat supply is forecast at 80.1 MMT, down 10 percent from 2016/17 but still 1 percent above the 5-year average of 79.3 MMT. USDA expects average yield to be 46.2 bu/acre (3.10 MT/ha), which is close to the 5-year average of 46.6 bu/acre (3.13 MT/ha).

On June 30, USDA estimated total planted wheat area would fall 9 percent year over year to 45.7 million acres (18.5 million hectares). If realized, that would be 17 percent lower than the 5-year average. USDA expects 2017/18 harvested area to drop 13 percent from last year and 18 percent below the 5-year average to 38.1 million acres (15.4 million hectares).

USDA forecast 2017/18 hard red winter (HRW) production to total 20.6 MMT, down 30 percent from 2016/17 and 14 percent below the 5-year average. A smaller planted area and sharply lower harvested area led to the decline. U.S. farmers planted 23.8 million acres (9.63 million hectares) of HRW for 2017/18, down 10 percent from 2016. Due to weather and wheat streak mosaic virus, harvested area in top HRW-producers Texas, Oklahoma and Kansas is projected to fall 16 percent year over year. USDA forecast 2017/18 HRW beginning stocks at 16.1 MMT, up 33 percent year over year and 81 percent above the 5-year average. Total 2017/18 HRW supply is expected to total 36.8 MMT, down 12 percent from 2016/17.

Soft red winter (SRW) production is also expected to decline 11 percent to 8.33 MMT in 2017/18 due to fewer planted acres. USDA estimated total 2017/18 SRW area at 5.61 million acres (2.27 million hectares), 15 percent lower than 2016/17 and 30 percent below the 5-year average. In contrast to recent years, SRW harvest in the U.S. Southern Plains is progressing rapidly with good harvest conditions. On July 7, the USW Weekly Harvest report showed the average grade on 199 samples was U.S. #2 in a generally sound crop with DON levels that are significantly below the 5-year average. USDA estimates that SRW 2017/18 beginning stocks totaled 5.85 MMT, up 37 percent from 2016/17 and 47 percent above the 5-year average. The larger beginning stocks will offset reduced production, and total 2017/18 SRW supply is expected to increase by 500,000 MT year over year to 14.2 MMT.

USDA reported white wheat production will decrease 11 percent from 2016/17 to 6.91 MMT, but still 1 percent above the 5-year average, if realized. The decline is due to 3 percent fewer planted acres and slightly lower forecast yields. Idaho, Oregon and Washington have received ample moisture and winter wheat conditions there average 78 percent good to excellent. USDA estimates soft white (SW) beginning stocks increased 42 percent year over year to 2.86 MMT. The larger beginning stocks are expected to offset the lower production, leaving the 2017/18 SW supply unchanged year over year at 9.77 MMT.

Hard red spring (HRS) production is expected to plummet in 2017/18 to 10.5 MMT, down 22 percent from the prior year and the lowest since 2002/03, if realized. The average spring wheat yield is forecast at 40.3 bu/acre (2.73 MT/ha), down 15 percent from 2016/17. USDA also estimates farmers planted 10.3 million acres (4.17 million hectares) to HRS, 10 percent below 2016/17 levels. As of July 11, 55 percent of North Dakota is in a severe or extreme drought and the remainder of the state is abnormally dry or in a moderate drought. Similarly, 72 percent of South Dakota and 45 percent of Montana are in a moderate to extreme drought. As of July 10, just 35 percent of the spring crop was rated good or excellent and 39 percent was poor or very poor. In North Dakota, the largest HRS producing state, 36 percent of the crop is in good or excellent condition. USDA anticipates 2017/18 HRS beginning stocks of 6.39 MMT are 14 percent less than last year. Estimated 2017/18 HRS supply will total 16.9 MMT, down 19 percent year over year. USDA expects the HRS stocks-to-use ratio to fall to 22 percent in 2017/18, compared to 41 percent one year prior.

Smaller planted area and 30 percent lower yields are expected to reduce durum production to 1.55 MMT in 2017/18, down an estimated 45 percent from 2016/17 and 26 percent below the 5-year average. USDA expects average durum yields to sink to 30.9 bu/acre (2.08 MT/ha), compared to 44.0 bu/acre (2.96 bu/acre) in 2016/17. Durum planted area decreased this year as farmers responded to lower prices and large carry-out stocks. Spring-planted northern durum is grown primarily in North Dakota and Montana, and the Desert Durum® harvest in Arizona and California is nearly complete. USDA estimates 2017/18 durum beginning stocks at 980,000 MT, up 29 percent from the prior year and 45 percent greater than the 5-year average. Increased beginning stocks will not offset the drastically reduced 2017/18 production so USDA expects the U.S. durum supply will fall to 2.53 MMT, 29 percent below 2016/17 levels and 9 percent below the 5-year average. The U.S. durum stocks-to-use ratio will fall to 24 percent, on par with the 5-year average.

Even with reduced production for 2017/18, U.S. farmers stored significant amounts of grain last year, ensuring that customers can continue purchasing reliable, high-quality wheat. Customers are encouraged to contact their local USW representative to discuss purchasing strategies in this volatile global wheat market.

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By Emily McGarry, USW Policy Intern

Bob Johns farms in northeast Oregon, and he would tell you that he’s been farming since the day he was born. Johns’ 5,000-acre farm has been in the family since 1873, but he is ready to retire soon. Since there is no family to take over, he is handing the reins to his business partner, Chris Williams, a long-time family friend who began working summers for Johns when he was in high school.

“I have been around agricultural stuff my whole life,” said Williams. “I am fascinated with starting with a bare piece of ground, seeing what you can grow and watching it progress through the season.”

Together, Johns and Williams grow wheat, green peas and alfalfa. They make sustainability a priority on the farm through no-till practices, clean water programs and new farming technology.

“Farming is my life and it’s what I’ve always wanted to do — I never thought of doing anything else,” said Johns. “My father’s life was farming and he passed that on to me. I hope to pass it on to my business partner, Chris.”

Johns is the fifth of six U.S. wheat farmers featured in USW’s series on wheat sustainability. He manages regional agricultural nuances by adapting his practices to be sustainable for his region’s soil and environmental conditions. Part of that also includes planning for the future and a non-traditional transition so that his farm business is still successful for years to come.

“Chris loves the land,” said Johns. “He keeps me on the cutting edge and pushes me to look at the latest technology. We are a good team.”

Northeast Oregon is known for its extremely steep farmland, which often requires special equipment and makes soil erosion a challenge. Johns sees wide variation in his soil quality and the amount of rainfall on his farm, so individual fields often require different levels of attention and inputs. In the past, steep slopes on his farm caused erosion. However, in 2011, Johns switched to no-till practices, which has cut his erosion to nearly zero and greatly improved soil health.

In order to protect the region’s natural resources, Johns and Williams also had their farm certified as “salmon-safe,” which means they restrict the products they use on their land that is near water sources. They also grow plants in those areas that increase the biodiversity on their farm and promote beneficial insects and wildlife.

“We value the environment and we value what we’re doing on the ground,” said Johns. “It’s important to us; we don’t just go out without thinking about those things.”

For Johns, this means finding ways to improve practices through new technology and innovation. Last year, Johns and Williams started experimenting with a drone on their farm to see if aerial photos of their fields could give them insight on crop health and stress levels, soil fertility and input requirements.

Johns and Williams are constantly finding new ways to improve the sustainability of their farm, whether through certification opportunities, government programs, or new technology and practices. But the piece that is most important is the plan for transition. Because Johns partnered with Williams, he knows that his farm will be in good hands when he retires — with someone who loves the land as much as he does.

Learn more about John’s and Williams’ farming partnership at www.uswheat.org/factsheets. U.S. farmers, ranchers, fishermen and foresters also share their values, sustainability experiences and conservation practices at the U.S. Sustainability Alliance.

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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.