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Harvest Report
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Central and Southern Plains HRW is Generally Dry and Vulnerable to Frost Damage

By Stephanie Bryant-Erdmann, USW Market Analyst

USDA reported state planted area statistics for hard red winter (HRW), soft red winter (SRW) and soft white (SW) winter wheat in its Jan. 12 Winter Wheat and Canola Seeding Report. At this week’s Wheat Quality Council and Plains Grains Inc. board meetings in Kansas City, MO, however, HRW producers shared state updates of crop conditions, soil moisture conditions and planted area. A summary of what we learned from the producers supplemented with current USDA data by state follows.

Colorado. Colorado farmers planted 891,000 hectares (2.20 million acres) of wheat in the fall of 2016, down 6 percent from 2015. Farmers reported that southeast Colorado planting conditions were very dry, but the rest of the state had ample moisture. According to USDA data, topsoil moisture is short or very short for 35 percent of the state, compared to just 22 percent short or very short at the same time last year. Subsoil moisture is 42 percent short or very short across the state compared to 23 percent last year. Farmers noted warm weather has pushed the crop 7 to 10 days ahead of normal across the state, which makes it more vulnerable to late frost damage. On Jan. 30, USDA rated 36 percent of Colorado winter wheat in good to excellent condition compared to 47 percent good to excellent when the wheat went into dormancy last fall.Kansas. Farmers reported western Kansas is very dry. Subsoil moisture is rated at 41 percent short or very short, compared to 22 percent last year. USDA rated 37 percent of topsoil moisture as short or very short, compared to 19 percent in 2016. Early planted wheat established good stands last fall, but later planted wheat condition is more uncertain. On Jan. 30, USDA rated 45 percent of winter wheat as good to excellent compared to 52 percent good to excellent reported on Nov. 28. Last fall, Kansas planted 3.00 million hectares (7.40 million acres), down 13 percent year over year and the lowest planted area in 60 years.

Montana. Last fall, wet field conditions prevented some wheat planting in Montana. With a poor outlook for winter wheat prices, strong competition from peas and lentils shifted more acres in Montana. They planted 770,000 hectares (1.90 million acres) of wheat in 2016, down 16 percent from 2015. Farmers noted normal crop development and sufficient soil moisture, though some areas had below normal snow cover that increased the risk of winterkill. USDA rated topsoil moisture supplies at 13 percent short or very short, 77 percent adequate and 10 percent surplus, compared to 17 percent short or very short, 79 percent adequate and 4 percent surplus last year on the same date. On Jan. 30, USDA rated 70 percent of Montana winter wheat in good to excellent condition compared to 77 percent good to excellent when the wheat went into dormancy last fall.

Nebraska. Farmers reported good stands last fall, but western Nebraska is dry. The last measurable precipitation for that region occurred on Christmas day. USDA rated subsoil moisture supplies at 31 percent short or very short, compared to 19 percent on the same date last year. Topsoil moisture supplies are 23 percent short or very short, compared to 14 percent last year. With wheat now 5 to 7 days ahead of normal, the Nebraska crop is also more vulnerable to late frost damage. USDA rated 47 percent of Nebraska winter wheat in good to excellent condition on Jan. 30, compared to 53 percent good to excellent last November prior to dormancy. Nebraska farmers planted 441,000 hectares (1.09 million acres) of wheat in 2016, down 20 percent from 2015 and the lowest planted area on record for Nebraska.

Oklahoma. Most of Oklahoma received precipitation over the last few weeks that prevented further depletion of soil moisture, but it was insufficient to alleviate drought conditions. USDA rated topsoil moisture supplies at 38 percent short or very short compared to 60 percent short or very short last year. Subsoil moisture supplies are 56 percent short or very short, compared to 70 percent one year prior. Farmers noted wheat development is 12 days ahead of normal making it more vulnerable to late frost damage. Oklahoma farmers planted 1.82 million hectares (4.50 million acres) of wheat in 2016, down 10 percent from the prior year because late-season rain prevented some wheat planting. USDA rated 33 percent of Oklahoma winter wheat in good to excellent condition on Jan. 30, compared to 53 percent good to excellent when the wheat went into dormancy last fall.

South Dakota. Beneficial moisture last fall allowed for good stand establishment in South Dakota. Abundant snow cover is protecting the wheat and limiting winterkill risk. Topsoil moisture supplies rated 84 percent adequate, compared to 79 percent adequate last year. Subsoil moisture supplies rated 23 percent short to very short, 76 percent adequate and 1 percent surplus compared to 26 percent short or very short, 72 percent adequate and 2 percent surplus in 2016. USDA rated 62 percent of South Dakota winter wheat in good to excellent condition compared to 51 percent good to excellent when the wheat went into dormancy last fall. South Dakota farmers planted 364,000 hectares (900,000 acres) of winter wheat, down 24 percent year over year.

Texas. Last fall, Texas farmers planted 1.82 million hectares (4.50 million acres) of wheat, down 10 percent from the prior year in very dry field conditions. In the past two years, Texas planted wheat area has dropped by 20 percent. Early planted wheat emerged last fall, but the later planted wheat did not emerge until after beneficial precipitation fell in December. Farmers estimate the earlier planted wheat is 7 days ahead of normal development, while the later planted wheat is still emerging. USDA reported 93 percent of winter wheat had emerged by Jan. 30. On Jan. 30, USDA rated 29 percent of Texas winter wheat in good to excellent condition compared to 41 percent good to excellent when the wheat went into dormancy last fall.

USDA will release its next crop progress update Feb. 28 and will resume weekly crop condition reporting April 3.

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Harvest Report
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Winter Weather and Strong U.S. Grain Demand Add Up to Unusual Port Delays

By Stephanie Bryant-Erdmann, USW Market Analyst

The sharp inverse in export basis between March delivery and April delivery for U.S. wheat at both Gulf and Pacific Northwest (PNW) ports indicates that exporters have faced logistical challenges during a brutally cold and snowy winter. It also provides a savings opportunity for those customers who can wait for delivery until April or May.

USDA data shows that in January, U.S. grain export inspections increased 18 percent year over year and are on par with the 5-year average. The bad winter weather began slowing rail and barge arrivals at both Gulf and PNW ports in December. Those delays worsened as January brought frigid temperatures and snow to the U.S. Northern Plains, Midwest and, unusually so, to PNW ports. This year’s snowfall is the largest in Portland, OR, since 1995.

Railcar supply tightened in December and January, as the bad weather slowed train movement across the Northern Plains. In severe cold, railroads must decrease the number of cars pulled by each locomotive for safety reasons. During January, the U.S. rail system round trip rate slowed according to Surface Transportation Board data. In turn, the higher demand for rail freight pushed secondary rail freight rates dramatically higher.

In calendar 2016, barges delivered 43.2 million metric tone (MMT) of grain to U.S. Gulf ports, the largest volume recorded since USDA began tracking in 2003. This year, demand for barge space continued into January rather than tapering off after fall harvest. Year to date in 2017, barges moved 2.81 MMT of grain on the Mississippi River, up 18 percent year over year and 21 percent above the 5-year average.

While U.S. export facilities have some storage on-site, a consistent flow of grain from the interior is needed to keep up with vessel loading. Since 2010, PNW export terminal storage capacity has increased 27 percent to 1.08 MMT, yet PNW export terminals turn their inventory about every 12 days. Gulf export terminals have roughly 2.2 MMT of capacity and on average turn over their inventory about every 10 days.

With the delays in grain delivery, vessels waiting to load have increased significantly. In its Feb. 2 Grain Transportation Report, USDA said 65 vessels were at port in the U.S. Gulf, compared to the 2016 weekly average of 43 vessels. Throughout January, the U.S. Gulf had an average 58 vessels either loading or waiting, up 14 percent from January 2016 and 25 percent above the 5-year average. As of Feb. 2, there were 37 vessels at port in the PNW, up 85 percent from the same time last year.

Looking ahead, exporters believe they can work through the backlog by the end of March barring any additional severe weather events. In January, an average 43 vessels per week loaded in the Gulf, compared to an average 40 vessels per week in 2016. Though PNW vessel loading slowed to an average 10 vessels per week for the first three weeks of 2017, Federal Grain Inspection data showed 31 vessels were loaded between Jan. 26 and Feb. 2.

As exporters continue to load vessels, U.S. wheat customers are likely very aware of demurrage and dispatch clauses in their contracts. All types of export contracts include incentives for exporters to load as quickly as possible to avoid incurring demurrage. U.S. law ensures customers’ contracts will be fulfilled as soon as physically possible because it is in the exporter’s financial interest to do so. According to traders, demurrage on current charters in the PNW and Gulf are averaging $12,000 per vessel per day.

This year’s weather has certainly been worse than normal, but the issues that come with such challenges are well-known. That is partly why U.S. railroads, ports and waterway associations continually invest in infrastructure to improve the flow of grain from U.S. farmers to overseas customers.

Customers who have adequate supplies can save between $6 to $20 per metric ton at current export basis levels depending on the class and port of origin by pushing new wheat business deliveries out to April or May. As always, the U.S. wheat store remains open and transparent. And, as always, U.S. Wheat Associates (USW) representatives are available to answer any questions customers may have about U.S. export logistics and how they can continue to get the best value possible from U.S. wheat.

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International Grains Council Sees a Smaller 2017/18 Wheat Harvest

By Stephanie Bryant-Erdmann, USW Market Analyst

USDA will issue its first 2017/18 world wheat supply and demand estimates in May, but on Jan. 19 the International Grains Council (IGC) provided an early look ahead at the next marketing year. IGC pegged 2017/18 world wheat production at 735 million metric tons (MMT), down 2 percent from the estimated 752 MMT produced in 2016/17. If realized, it would still be the third largest wheat crop ever, but would be the first year over year decline in 5 years. For comparison, USDA estimates 2016/17 global wheat production at 753 MMT.

IGC expects just two of the major exporting countries, Russia and Ukraine, to harvest more wheat in 2017/18, even though their estimates are up only 1 percent and 2 percent, respectively. IGC predicts European Union harvested area will remain stable in 2017/18. Harvested area is forecasted to fall 3 percent in Argentina, Australia and Canada, while IGC expects farmers in the United States and Kazakhstan to harvest 8 percent and 10 percent less wheat, respectively.

Harvested area in Morocco is expected to rebound to a more normal level after widespread rain eased drought conditions that cut its 2016/17 harvested area by 26 percent in 2016/17 to just 5.19 million acres (2.1 million hectares). Projected increases in India, North Africa, Turkey, Iran and Egypt will offset the expected decreases in harvested area among the major exporters according to IGC data.

2017/18 carry-in stocks are estimated at a record large 235 MMT, up 6 percent year over year, if realized. However, the larger carry-in stocks are not anticipated to offset the forecasted decrease in production, and total world supply would decline 3 MMT to a projected 970 MMT.

For the first time since 2012/13, IGC expects total consumption to be greater than total production. Total consumption is forecast at 737 MMT, down an estimated 1 MMT from 2016/17. Food use will climb over 500 MMT for the first time ever, partially offsetting an expected decrease in feed and residual use due to smaller production in Canada and the United States.

IGC believes 2016/17 world wheat trade will shrink to 164 MMT, down 4 percent from the prior year, if realized. With consumption outpacing production, IGC expects carryout stocks to decrease marginally year over year to 234 MMT.

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World Wheat Supply and Demand Situation and Outlook

By Stephanie Bryant-Erdmann, USW Market Analyst

The USDA pegged 2016/17 world wheat production at 753 MMT (27.6 billion bushels), up 2 percent from 735 MMT (27.0 billion bushels) in 2015/16 and 6 percent above the 5-year average. If realized, it would be the fourth consecutive year of record wheat world production. USDA projects production will increase in seven of the eight major exporting countries. The only exporter with decreased production is the European Union.

Record-large world carry-in stocks add to the global surplus, resulting in the largest estimated world wheat supply on record. USDA estimates 2016/17 world carry-in stocks at 240 MMT (8.84 billion bushels), up 11 percent from last year and greater than the 5-year average of 197 MMT (7.25 billion bushels). Total world supply will reach a projected 993 MMT (36.5 billion bushels), up 40.4 MMT from the record set in 2015/16. The ample world supply will help meet strong global wheat demand.

USDA expects total consumption will increase for the fourth consecutive year and reach a record 740 MMT (27.2 billion bushels), compared to 712 MMT (26.2 billion bushels) in 2015/16. Feed wheat use is predicted to grow an estimated 6 percent to a record high 147 MMT (5.42 billion bushels) due to increased global supplies of feed wheat after rain increased yield in nearly every producing region (with western Europe a notable exception) but hurt quality.

USDA expects 2016/17 world wheat trade to grow to a record large 178 MMT (6.54 billion bushels). If realized, it would be 11 percent greater than the 5-year average of 160 MMT (5.86 billion bushels).  USDA expects world carry-out stocks to increase 12.8 MMT (470 million bushels) year over year to 253 MMT (9.31 billion bushels), 23 percent greater than the 5-year average of 206 MMT (7.56 billion bushels).

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Outlook for 2017/18 U.S. Winter Wheat Plantings

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.

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Harvest Report
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Wheat Exports Rebounding: Even More Impressive on Value

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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Premiums Rise as Supplies of High Protein Wheat Fall

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%

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