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U.S. Wheat Associates (USW) continued a tradition of promoting the value of U.S. agricultural products together with other USDA Foreign Agricultural Service cooperator organizations by co-hosting the annual U.S. Agricultural Cooperators Conference Sept. 12 to 14, 2023, in Da Nang, Vietnam. This conference is designed as a value-added service for Southeast Asian buyers served by USW, and co-hosts U.S. Grains Council (USGC) and U.S. Soybean Export Council (USSEC).

USW Regional Vice President Joe Sowers on a panel at the 2023 U.S. Agricultural Cooperators Conference

USW Regional Vice President Joe Sowers participated in a panel discussion of U.S. cooperator leaders at the 2023 U.S. Agricultural Cooperators Conference.

“Our collaboration with these organizations on conferences in South and Southeast Asia not only increases opportunities to connect with our milling customers in the region, but also with grain trade and other industry representatives,” said Regional Vice President Joe Sowers who represented USW and the conference. “Many flour millers in the region also have feed milling operations, so this conference leverages the investments of all three host organizations to educate and increase positive contact with regional stakeholders.”

Building Bridges, Sharing Knowledge

Titled “Globalization 2.0: Building Bridges for Food Security, Sustainability, and Innovation,” the conference in Da Nang covered the global challenges identified in its name and, according to USGC, emphasized “the need to build bridges that facilitate collaboration, sharing knowledge, and acting on common issues.”

“It is very important that customers hear the message that U.S. farmers are producing safe, reliable and abundant supplies of wheat, feed grains and oilseeds,” Sowers said. “Vietnam, for example, is a quickly growing market with an exploding middle class eager to consume more and better-quality wheat-based foods.”

Vietnam’s annual milling wheat imports are more than 2 million metric tons and growing at a similar rate in the South and Southeast region.

Visit the USGC website for more information about the 2023 Southeast Asia U.S. Agricultural Cooperators Conference.

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As we continue a series of articles on U.S. supply chain logistics, rail is arguably the most important mode of transporting wheat for export.

According to a recent USDA Modal Share Analysis Study, rail accounted for an average of 59% of inland transportation for wheat exports between 2016 and 2020, or an average annual total of 17.0 million metric tons. This article will focus on the importance of rail freight in wheat exports and address current trends in rail performance.

Two vertical bar charts showing the volume of U.S. wheat shipped domestically and to export locations by truck, rail and barge between 2004 and 2020.

Rail and barging are the main modes of transportation for wheat exports, as they can handle large volumes of grain over long distances. Together, they transport 89% of the total wheat export shipments. Source: USDA Modal Share Analysis Study.

An Interesting Year

In 2022, increased demand for railcars and performance issues sent U.S. rail rates soaring, with Secondary Railcar Auction Market Bids hitting their highest since 2014. Since then, rail rates have eased drastically. From March 2023 to July 2023 secondary bids for railcars have been negative, indicating that the current supply of railcars is sufficient for meeting the needs of shippers.

Decreased volumes and the subsequent decrease in rail tariff rates and Secondary Railcar Market Auction Bids have added additional pressure to already low basis levels, helping boost the competitiveness of U.S. wheat to importers. However, as the 2023 soy and corn harvest progresses, we can expect rail rates to rise due to increased demand and a higher volume of grain moving via rail.

This vertical bar and line chart show a comparison of grain carloads average from previous years to the current 4 week period up to 8/25/23.

According to the latest Grain Transportation Report, grain carloads (corn, soybeans, and wheat) moved by Class I railroads were down 3% from the previous week and are sitting 22% below the three-year average. The current decreased volume alleviates pressure on basis as rail companies have a sufficient supply of cars to meet the current demand. Source: September 3, 2023 USDA Grain Transportation Report.

Even so, the outlook for fall logistics appears positive. In a recent interview with “Freightwaves,” transportation export Jay O’Neil indicated that “Weather is always a question mark that makes it [performance] impossible to predict. But overall, I think the railroads… have some excess capacity because of [reduced grain export volumes]. I think [railroads] are very much looking forward to the harvest season … So, I don’t see any particular influences right now that should get in their way and prevent them from providing a decent service for harvest.”

Part of a Reliable System

U.S. Wheat Associates (USW) is committed to sharing transparent and pertinent information to customers about inland logistics issues. It is beneficial for U.S. wheat importers to be aware of transportation trends, as seasonal shifts and potential issues have a direct influence on export basis and the Free-on-Board export price.

Encompassing the largest share of inland logistics, the railroads are a critical component for moving U.S. wheat to export. After last years’ service disruptions, steps have been taken to help address the root issues such as hiring additional crew and investing in infrastructure. U.S. railroads are committed to moving U.S.-grown commodities. With diverse origination options and numerous modes of transportation, regardless of the class or export point, rail helps U.S. wheat remain the most reliable choice for world importers.

This article is part of a series outlining the inland logistics for U.S. wheat, highlighting barge freight, the railroads, infrastructure investments, and maritime transportation trends.

By USW Market Analyst Tyllor Ledford

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Drought conditions have grown progressively worse in the PNW over the last few months as temperatures increased rapidly and measurable precipitation remained scarce, depleting soil moisture and stressing the planted wheat crop.Source: NOAA Climate Prediction Center

Drought conditions have grown progressively worse in the PNW over the last few months as temperatures increased rapidly and measurable precipitation remained scarce, depleting soil moisture and stressing the planted wheat crop.
Source: NOAA Climate Prediction Center

Amid this year’s volatile markets and relatively slow demand, U.S. soft white wheat (SW) has provided many customers with buying opportunities, positioning itself as one of the most competitive classes of U.S. wheat.

In recent months, dryness in the Pacific Northwest (PNW) this spring dominated market news and discussions about quality. As harvest ramps up across the SW growing region, more information is expected to become available regarding SW production, yield, and quality. In the meantime, this article will recap the current soft white wheat situation and provide background on supply factors as harvest progresses in the PNW.

Production Outlook: A Tri-State Effort

White wheat is typically one of the classes with the most stable planted area. The June 30 USDA acreage estimates showed a slight increase in white wheat acres to 4.28 million acres, up from 4.24 million acres in 2022/23, with a specific increase in the SW producing state of Oregon. Despite the increased area, dry conditions have lingered, and have had a potentially detrimental impact on yield potential and quality. The USDA Crop Production Report released on July 12 forecasts SW production at 6.7 MMT, down from 7.4 MMT the year prior and 600,000 MT below the five-year average of 7.2 MMT. However, the forecast is still above the 2021/22 production levels of 5.47 MMT after severe drought diminished yield potential and increased protein levels.

On a per state basis, production potential differs throughout the growing region. Wheat production is forecast to be down in Washington and Oregon by 15% and 16%, respectively. Meanwhile, in Idaho, all wheat production is forecast at 2.45 MMT, down 2% from the year prior. Though the Idaho crop is behind on development, some growing regions have benefitted from cool weather and scattered showers.

2023/23 SW production is forecast at 6.7 MMT, down 9% from last year and 7% below the five-year average.Source: USDA ERS Wheat Data

2023/23 SW production is forecast at 6.7 MMT, down 9% from last year and 7% below the five-year average.
Source: USDA ERS Wheat Data

The Current Balance Sheet

Throughout the latter part of the 2022/23 marketing year, industry sources reported slow selling by farmers and increased stocks held on the farm. Due to the increased stocks held by farmers, beginning stocks for the 2023/24 marketing year increased by 500,000 MT to 2 MMT, the first stocks increase since 2020/21. Though protein levels of the 2023 crop are not yet known, the increased old crop wheat stocks can be blended with new crop to help meet customer specifications.

Moreover, SW prices have softened substantially over the past year, weighed down by recovered production in the 2022/23 crop year, decreased export demand, competition from other origins, and seasonal pressures as exporters more aggressively price SW into the global market. Over the last six months, SW prices have decreased from $321/MT in January 2023, to $263/MT in July 2023, their lowest level since November 2020. Furthermore, there has been little to no premium for max 9.5% protein versus max 10.5% protein throughout a majority of the 2022/23 crop year.

Despite the 9% decrease in SW production for 2023/24, total supply is down only 2% due to increased carryover stocks from the year prior. Source: USDA World Agricultural Supply and Demand Estimates

Despite the 9% decrease in SW production for 2023/24, total supply is down only 2% due to increased carryover stocks from the year prior.
Source: USDA World Agricultural Supply and Demand Estimates

Looking Ahead

As of July 17, the USDA crop progress report put winter wheat in Washington, Oregon, and Idaho at 6%, 15%, and 5% harvested, respectively. With little harvest progress and no quality data collected, no definitive information is yet available regarding SW production yield, and quality characteristics. Keep in mind that anecdotal evidence generally indicates that dryland areas and regions with shallow soil are harvested first. Thus, higher protein is expected to be registered early in the season.

U.S. Wheat Associates recommends closely monitoring the SW harvest and maintaining regular communication with your supplier regarding protein availability and premiums. For weekly updates to harvest and price information subscribe to the U.S. Wheat Associates Harvest Report and Price Report.

SW prices have softened substantially over the last six months, decreasing from $321/MT in January 2023, to $263/MT in July 2023. SW prices hover at their lowest level since November 2020, pressured by low demand, competition from other origins, and seasonal pressures.Source: U.S. Wheat Associates Price Report

SW prices have softened substantially over the last six months, decreasing from $321/MT in January 2023, to $263/MT in July 2023. SW prices hover at their lowest level since November 2020, pressured by low demand, competition from other origins, and seasonal pressures.
Source: U.S. Wheat Associates Price Report

 

 

 

 

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The news that U.S. flour milling companies have imported European wheat has raised concerns and frustrations for U.S. wheat stakeholders. To an organization like U.S. Wheat Associates (USW) that with our state wheat commission members promotes exports on behalf of U.S. wheat farmers, such news is particularly disappointing. After all, U.S. farmers produce enough wheat each year to meet domestic demand and still offer about half the crop to export markets.

The concern is not about imported wheat per se. Flour millers do import varying amounts of Canadian spring wheat every year. And conditions have in the past made it possible for feed-grade wheat to be imported into coastal pork and poultry production markets. It is important to state that there is more than enough high-quality U.S. wheat available to produce all the flour we need in this country, and the 2023 harvest is already underway.

However, imported European wheat to produce domestic flour is a highly unusual situation. USW wanted to share what is behind these imports and perhaps answer the questions from stakeholders.

Dynamic market factors have created a large price spread between similar classes of European and U.S. wheat. In May 2023, according to AgriCensus data, the published FOB export price for Polish wheat was more than $107 per metric ton less than the U.S. hard red winter (HRW) Gulf FOB export price. German wheat export price in May showed a similar discount to Gulf HRW FOB.

In looking at this difference between the bargain purchase price in Europe versus the current U.S. domestic market replacement values, USW President Vince Peterson recently said that “this may be the biggest trade margin that I’ve ever heard of” in all his years in the grain trade.

Supply Shock

This remarkable difference in prices happened mainly because the relative volume of exportable wheat supplies in Eastern Europe has exploded this year. Putin’s invasion of Ukraine drastically curtailed Ukraine’s ability to export by vessel from its Black Sea ports, in turn sending war-distressed Ukrainian wheat and other commodities pouring across their land borders into Eastern European countries. That movement severely depressed local wheat prices, harming EU farmers and causing five EU countries to implement bans on imported Ukrainian grain staying within their countries. Russia’s record 2023 wheat crop and unfettered exports (now projected at 45 million metric tons (MMT), also a record) created more regional price pressure.

Even though the EU-27 is the world’s second largest wheat producer after China and second largest exporter after Russia, EU wheat imports increased by 6 MMT in the 2022/23 marketing year. Combined with the unprecedented disruption of regional grain movement, USDA estimates the EU’s ending wheat stocks will rise from 10.1 MMT in 2020/21 to 16.2 MMT in 2022/23. And USDA expects European wheat production to increase this year over 2022 even though there is dryness in western Europe.

Yet over the same 3 years, U.S. wheat supplies have gone in the opposite direction, especially supplies of HRW wheat. Drought has hurt total U.S. supplies for three years in a row, first reducing hard red spring and soft white crops. Then drought cut HRW production in 2021/22 and intensified in 2022/23, resulting in a high number of abandoned wheat fields and short overall production. U.S. exportable wheat supply concerns, combined with the disruptive news constantly flowing from the Black Sea conflict, are supply shocks that continue to support the surprisingly high gap between U.S. and EU wheat prices.

Ocean v. Rail Rates

Considering imported European wheat, the question must be asked about the difference in cost between bulk ocean freight rates from Europe to the United States and U.S. rail rates to move wheat to its flour mills. Comparing those rates today, U.S. rail tariffs and fuel charges to transport wheat are close to twice the ocean freight cost on a per-metric-ton basis.

Unfortunately, this transportation cost spread indicates that rail rates have been and continue to be a burden on the value of delivered wheat for domestic and export markets.

A 2020 study by USDA found that rail rates increased by 30% for wheat, 32% for corn, and 30% for soybeans from 2000 to 2014, and wheat rail tariff rates have increased by an additional 18% since 2014. Rising and unfair rail rates for wheat erode its competitiveness for domestic as well as overseas buyers.

That is why USW’s Transportation Working Group is focused on addressing uncompetitive wheat rail tariff rates to make sure that when global market conditions readjust – and they will – domestic rail rates for wheat do not diminish U.S. wheat’s value at home and abroad.

Image shows grain rail cars by a country elevator to illustrate USW comments to the Surface Transportation Board.

Rail rates have been and continue to be a burden on the value of delivered wheat for domestic and export markets.

An Unwanted Hit

Without doubt, the import of European wheat and the market factors that encouraged it are most unfortunate. As Kansas Wheat Vice President of Research and Operations Aaron Harries said, this situation is “another hit against our domestic farmers” who are battling drought, increased operating costs and other headwinds to produce high quality wheat that is more than sufficient to supply all U.S. flour mills and export demand.

USW and others in the industry believe the imported European wheat will likely move to coastal U.S. flour mills – in part because of the high rail rates milling companies would have to pay to transport it to interior mills.

The supply challenges in today’s global wheat market are likely to continue at least through the 2023 harvest. USW sincerely believes that absent the illegal and highly disruptive invasion of Ukraine, the price spread incentivizing U.S. imports would be much closer. Sadly, the conflict rages on.

Domestically, higher wheat prices also encourage increased production, seen in the significant increase in U.S. HRW planted area for the 2023 crop. Unfortunately, the devastating drought undercut that positive trend this year, but prices remain an incentive for U.S. farmers.

If there is a grace note to this situation, USW President Peterson points out that the price spread between EU wheat and U.S. HRW wheat has recently narrowed. The potential for recent rainfall in Northern Plains HRW and hard red spring production regions to push 2022/23 production higher than expected would help fill the price gap – and offers hope for a better outcome in 2023/24.

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Eight executives from top Japanese flour mills arrived in the U.S. this week, bringing with them an astute observation about the global wheat market: Supply and demand have had an odd relationship over the past three years.

Through it all, Toshiaki Yokoyama emphasized, “the relationship between U.S. wheat and Japan has not wavered.”

During a meeting between U.S. Wheat Associates (USW) and the Japan Flour Millers Association (JFMA) on Monday, Yokoyama, JFMA Chair and Director of Nisshin Flour Milling Inc., expressed JFMA’s appreciation for the ability of U.S. farmers to produce a stable and consistent supply of high-quality wheat – even amid challenging times and conditions.

Members of the Japan Flour Millers Association pose for a photo with USW President Vince Peterson and USW Japan Country DIrector Rick Nakano following a meeting at USW headquarters.

Members of the Japan Flour Millers Association pose for a photo with USW President Vince Peterson (center) and USW Japan Country Director Rick Nakano (front row, far left) following a meeting at USW headquarters.

“Over the past three years, the spread of COVID-19 and Russia’s invasion of Ukraine have had a great impact on the relationship between wheat supply and demand, but the strong ties established over the years between Japan and the United States have remained solid,” Yokoyama said. “We are very happy to get back to the U.S. It is quite important to maintain and develop this good relationship under all circumstances, and we value continued cooperation by the U.S. wheat industry.”

JFMA, which also visited USDA and the Japanese Embassy during its time in Washington, D.C., was seeking updates on U.S. wheat production and exploring U.S. attitudes and opinions on biotechnology, including gene-edited wheat and drought-resistant wheat. International trade, disruption in the Black Sea region and the climate were other discussion topics.

It was JFMA’s first visit to the U.S. since 2019.

“These are our primary customers in Japan, which is regularly our second or third largest wheat market in the world, so we were very happy to have them here again and to be able to discuss things with them face to face,” said USW President Vince Peterson. “U.S. wheat has a long-term investment in Japan, and I believe they have a long-term investment in us, as well. It’s a great partnership and we are looking forward to continuing that partnership.”

Peterson and USW Vice President of Trade Policy Dalton Henry met with the JFMA team, which was led by Rick Nakano, USW Country Director in Japan. After its stop in D.C., the team moved on to Portland, Oregon, where it visited USW West Coast staff, state wheat associations in the Pacific Northwest, the Wheat Marketing Center and United Grain’s export facility.

See a brief video of JFMA’s visit to USW below.

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News and Information from Around the Wheat Industry

 

Speaking of Wheat

Until some of these geopolitical conflicts are resolved — it’s difficult to envision a return to the level of free trade we enjoyed through the late 20th and early 21st centuries. Difficult as it may be, governments must resist the urge to limit or ban grain exports unless the food security situation in their countries is truly dire. The fate of a growing number of food insecure people on this planet — estimated at nearly 350 million people (more than the population of the United States) in 2023 by the World Food Programme — depends on it.” – Arvin Donley, Editor, World Grain. Read more here.

SW Kansas: “One of the Worst Wheat Crops in 50 Years”

That is how wheat farmer and agricultural journalist Vance Ehmke described the situation in the southwestern corner of Kansas. Ehmke said there will be “no dryland [winter] wheat at all” this year there and extending about 160 kilometers into the Texas and Oklahoma Panhandles and southeastern Colorado. “I looked at 30 to 35 years of Kansas wheat crops and abandonment runs about 10%. I could see 25% abandoned here this year with very low yields on the rest,” he wrote in The Hutchinson News. See also Bloomberg News’ video summary here.

Winter Wheat Conditions Still Lower

Farm broadcaster Ron Hays’ Oklahoma Farm Report notes the April 10 USDA NASS Crop Progress Report shows U.S. winter wheat conditions are tied with 1996 for the lowest rating in 40 years. Nationwide, winter wheat is 27% good to excellent. That is down one point from the previous week and compares to 32% good to excellent at the same time in 2022. Read more here.

The Passing of Joe Kejr

U.S. Wheat Associates (USW) joins so many others in our industry in expressing our condolences to the family of Ottawa County, Kan., farmer Joe Kejr, who passed away suddenly April 8, 2023. “Joe loved being a wheat farmer — thoughtfully growing, observing and discussing the crop throughout each unique season,” said Justin Knopf, immediate past president of the Kansas Association of Wheat Growers and close family friend. “We will miss his focus and efforts on building relationships, trust and unity throughout the industry. His example, steady presence, leadership and friendship will be sorely missed by so many of us here in his community and across the country.” Learn more about the Kejr’s farm operation here.

China to Lead 2022/23 Wheat Import Volume

USDA reports that Chinese wheat imports are forecast up to 12.0 million tons in 2022/23—the country’s highest level of imports since 1995/96 when imports reached 12.5 million. Domestic grain prices have remained high given the country’s minimum support price policy and reduced auction activity amidst uncertainty surrounding the government’s COVID-19 policies. Competitive pricing has prompted China to import large volumes of both milling and feed quality wheat. Australian wheat is especially competitive following 3 consecutive years of record crops. China continues to aggressively purchase Australian wheat supplies, with July-February imports up 66% compared to the previous year. Read more.

2023 Hard Winter Wheat Quality Tour Registration Ends May 1

The tour, sponsored by the Wheat Quality Council, will be May 15 to 18. Register for the Wheat Tour at wheatqualitycouncil.org. The tour brings in participants from around the world who interact with Kansas farmers, network with their peers, learn more about wheat production while they assess the condition and yield potential of the hard winter wheat crop across the state of Kansas. USW will report on tour results in Wheat Letter.

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Farmers who spent the past year staring at charts and graphs that gauge costs and returns would certainly by now be quite familiar with the sensation of vertigo.

Up and down, down and up.

The proper term is “volatility,” and for those who make a living growing wheat and other crops, it can affect decisions made in spring – a time when farmers typically spend a lot of money on the front end of one crop while also waiting for the rear end on another.

As they arrive at that sensitive juncture in 2023, growers are finding a “mixed bag” compared to 2022. Analysis have revealed that most farmers are projecting their 2023 production costs to increase 6% to 15% compared to 2022. USDA’s most recent Farm Sector Forecast is slightly more optimistic, but still points to the expectation of higher input costs:

  • Production expenses are forecast to increase for a sixth consecutive year, growing in 2023 by 4.1%.
  • Fertilizers, lime and soil conditioners are expected to decrease 3%, from $43.42 billion to $42.17 billion. Typically, fertilizers represent about 15% of a crop farmer’s costs.
  • Fuels and oils are expected to experience the largest percent decline – 17% – from 2022.
  • These drops, however, are easily outpaced by increases in other expense categories including marketing, storage and transportation, which are forecast to increase 11%.

“Input costs are still quite elevated, but nitrogen fertilizer has decreased since its peak last year,” confirmed Jason Scott, a U.S. Wheat Associates (USW) Board of Directors member who grows soft red winter (SRW) wheat on the eastern shore of Maryland. “One of the larger issues we have been dealing with so far this year is availability of some specific inputs, as well as some parts for equipment.”

Indeed, national agriculture groups say input costs are once again the top concern among farmers in 2023, though there has been some “wiggling toward the positive” in recent months.

“Higher input costs remain the number one concern, chosen by 34% of producers in March, but concern about input costs has been falling since last summer’s peak when it was chosen by 53% of producers,” James Mintert, the Purdue University/CME Group Ag Economy Barometer principal investigator, noted in the most recent Barometer, which was released April 4. “Although producers still cite high input costs as their top concern in the upcoming year, they are becoming more worried about rising interest rates and the impact those higher rates will have on their operations.

Michael Peters, who farms in central Oklahoma, inspects an emerging hard red winter wheat crop.

USW Vice Chairman Michael Peters, who farms in central Oklahoma, inspects an emerging hard red winter wheat crop a few years ago. As was the case back then, production input costs continue to be a major concern for wheat farmers all across the country. Weather and lack of rain, of course, is another point of worry.

But First, Here’s the Weather . . .

USW Vice Chairman Michael Peters, who grows hard red winter (HRW) wheat in Oklahoma, is the farmer who put the “mixed bag” label on his current inputs situation.

He has bigger problems with moisture, or lack thereof.

His farm being located on the Southern Plains, Peters has an added challenge he and other Oklahomans share with fellow producers in northern Texas, most of western Kansas and portions of Nebraska and Colorado.

“The problem for my area is the lack of rainfall,” he said. “Our winter wheat crop is looking a little tough at this point.”

According to USDA, approximately 51% of U.S. winter wheat is produced in an area currently experiencing drought, down from 69% as the year began.

For Oklahoma, in mid-March the USDA rated 34% of the winter wheat crop in “good-to-excellent” condition. For Texas, 18% of the crop was “good-to-excellent.” Roughly 22% of Nebraska’s winter wheat crop was “good-to-excellent.”

Equipment Inputs Rise

While fertilizer and chemical prices have mostly decreased heading into the 2023 spring planting season, sticker shock on parts and machinery have stepped in to replace them as causes for consternation.

“The prices for parts to fix our equipment have really spiked, as have prices for equipment that we would need to purchase new,” said Scott. “The supply chain has still not caught up on some key things.”

Part of the problem being recognized this spring is that there is a transition of sorts in the farming equipment arena. Fixing a broken-down combine or tractor used to take wrenches and a steady hand. Now repairs might require a mobile-device interface, online diagnostic tools and secure software updates. Those “parts” aren’t just hanging on someone’s wall.

As a result, breakdowns that might have been repaired in hours can now take days or weeks. During busy times such as spring planting and harvest, that can mean losing time and money.

“You really think about what you need to get you through the season and what you can do without,” said Peters. “There’s a lot of deferred maintenance on farms right now. When you see elevator prices seep down, you erase projects off your list. If prices start to spike, you add things to the list.”

Jason Scott, who grows soft red winter wheat in Maryland, stands in one of his fields during a spring tour of his farm.

Jason Scott, a member of the USW Board of Directors who grows soft red winter wheat in Maryland, stands in one of his wheat fields during a spring tour of his farm.

Chemicals Leveling Off

“It’s this and that, up and down,” said Peters. “Some fertilizer prices have fallen. Chemicals are mixed, with prices on products like Roundup falling substantially. Other chemicals seem steady.”

Farmers Business Network (FBN) recently released its 2023 Ag Chemical Price Transparency Report, which highlights the extreme price variation facing farmers from coast to coast.

“The last two years have seen extreme fluctuations in chemical pricing for farmers,” said Kevin McNew, chief economist for FBN. “We know, this season in particular, a lot of farmers have postponed or waited a little longer than normal to make purchases because prices have been declining. We’re close to the point of needing those pre-emergents and I don’t think prices are going to slide much more.”

McNew also acknowledges higher interest rates make some farmers hesitant to borrow against an operating loan for chemical purchases.

“The takeaway is a lot of the inputs we’ve come to rely on like fertilizer, ag chem, and energy are going to remain high priced for the foreseeable future,” he said. “For years to come, in some sense. It is really important for farmers to think strategically about investing in new technologies that improve or reduce those inputs.”

The Bottom Line

Enduring volatility is what farmers do, so those preparing to harvest winter wheat and those getting ready to plant spring wheat will adjust to conditions.

It won’t be long until fall arrives and the process repeats itself.

As far as profits, every farm is different. USDA expects inflation-adjusted net farm income to drop 18%. But it notes last year’s net farm income was well above the 20-year average.

The decline will be felt a little differently in each sector of agriculture, said Seth Meyer, the USDA’s chief economist, who spoke at the 2023 Agricultural Outlook Forum in Arlington, Virginia.

Wheat acreage is expected to be its largest since the 2016-17 season, thanks to high prices and tight supply.

“After a period of trending lower (U.S.) wheat acres, this represents a sharp rebound, but is not likely to be a trend reversal for the long term,” Meyer said.

As always the biggest question about 2023 is grain prices, especially wheat prices, which are expected to remain strong, though lower than in 2022.

From a wheat farmer’s perspective, Peters summed it up in a simple manner.

“No matter who you listen to, everything is up and down, up and down,” he said.

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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.

 

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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.

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The 2022 U.S. wheat harvest is complete and this week, USDA estimated farmers have seeded 79% of the 2023 winter wheat crop. As winter approaches and the planted crop goes dormant, a supply and demand update across all U.S. wheat classes is warranted. The annual U.S. Wheat Crop Quality Report can be found here.

Last year’s hard red spring (HRS) wheat, durum, and white wheat crops were challenged by dry growing conditions. That is not the case for those classes this year, but hard red winter (HRW) was significantly impacted by adverse growing conditions. Below is an update across the wheat classes.

USDA estimates 2022/23 U.S. wheat production will total 44.9 MMT, 100,000 MT more than 2021/22 but 9% less than the 5-year average and the second lowest level in 20 years. According to USDA, the average yield for all U.S. wheat is forecast at 3.13 MT/HA, or 46.5 bu/acre, 5% higher than last year. The higher yields are due to a rebound in HRS, durum and white wheat yields. The yield for HRW is down significantly. The latest Small Grains Summary placed all wheat planted acres at 45.73 million acres, down 2% compared to 2021/22.

The latest USDA World Agricultural Supply and Demand Estimates (WASDE) report forecast U.S. wheat exports to total 21.09 MMT, down 3% from 2021/22 if realized. Through the week of October 13, USDA reported total wheat sales of 11.2 MMT, down 8% compared to the same time last year. The latest USDA Wheat Outlook suggested that tight supplies and historically high wheat prices have made U.S. wheat less competitive in the international market.

HRW

Hard White Wheat Harvest Narjes NebraskaAccording to USDA, the total HRW planted area fell slightly to 23.08 million acres. The area harvested fell more steeply at 15.24 million acres, 1.95 million acres less than in 2021/22. Overall U.S. HRW production is 14.5 MMT, 29 percent less than last year. Kansas, the largest HRW producing state, saw production drop 119,000 bushels compared to 2021/22. Oklahoma’s production dropped 40%, at 68,600 bushels, according to the Small Grains Report. Exports of HRW are forecast at 6 MMT, 30% less than in 2021/22. Year-to-date HRW sales of 3.1 MMT are 30% less than the pace last year. The top markets for HRW are Mexico, Japan, Nigeria, Brazil, and Colombia.

HRS

HRS wheat harvest 2022USDA estimates total HRS planted area in 2022 was 10.20 million acres, 390,000 fewer acres than 2021. The area harvest was up 5%, at 9.82 million acres. Heavy rain and cool temperatures early in the planting season slowed down spring wheat planting in parts of North Dakota and Minnesota. North Dakota HRS yield rebounded 49% from last year to 50 bushels per acre. USDA estimates total HRS production will rebound from last season and reach 12.1 MMT, 49% higher than in 2021. HRS exports are expected to reach 6.1 MMT, 400,000 MT higher than last season. Total HRS sales in 2022/23 were 2% higher than last year at 3.3 MMT. The top markets for HRS are the Philippines, Mexico, Japan, Taiwan, and South Korea.

SRW

 

Harvest scene to illustrate 2021 soft red winter wheat crop story

The total planted area for SRW is 6.57 million acres, 78,000 acres less than last season. The area harvested was 4.79 million acres, down slightly from last season. USDA estimates total SRW production in 2022 fell 600,000 MT to 9.2 MMT. However, exports are expected to increase year-over-year to 3.7 MMT. Total SRW sales in 2022/23 are 16% higher than the year prior at 2.0 MMT. The top markets for SRW were Mexico, Colombia, Ecuador, and China.

White

Image of wheat harvest with four harvesters in the distance combining soft white wheat in Idaho.White wheat planted area, which includes more than 99% soft white (SW), totaled 4.24 million acres in 2022. The area harvested is 4.02 million acres, nearly identical to 2021/22. Improved growing conditions in Washington and Oregon increased yields significantly. Washington yields are 61% higher than last year, while Oregon’s yields are 51% higher, according to the Small Grains Report. White wheat production is estimated at 7.4 MMT, 1.9 MMT more than in 2021/22. Exports are expected to reach 4.6 MMT. Total white wheat (soft and hard) sales in 2022/23 are 17% higher than last year at 2.5 MMT. The top markets for white wheat were the Philippines, Japan, China, and South Korea.

Durum

 

Photo of durum kernels to illustrate durum production story

Total U.S. durum planted area in 2022 was 1.63 million acres, 10,000 acres less than last season. The area harvested was 1.58 million acres, 4% higher than last year. Improved weather conditions increased total durum yields by 64% to 40.5 bu/acre. USDA expects total U.S. durum production will be 1.7 MMT, rebounding 70% from last year’s drought-stricken crop. Exports are expected to total 700,000 MT. Total durum sales in 2022/23 are up 14% compared to the year prior at 139,300 MT. The top markets for durum were Italy, Algeria, Guatemala, and Japan.Conclusion

In the latest Wheat Outlook published by the USDA ERS division, the authors note the challenge posed by U.S. wheat competitors. The smaller U.S. wheat crop, higher barge (and rail) rates, continued logistical challenges, and the strong U.S. dollar will cut into the competitiveness of U.S. wheat exports. Putin’s war with Ukraine compounds these challenges.

U.S. wheat farmers continue to produce sufficient supplies of high-quality wheat to meet both domestic and international needs for literally hundreds of unique baked goods. And the U.S. wheat export system remains open for business.

In marketing year 2022/23 to date, Mexico is the top U.S. wheat buyer, despite purchasing 4% less than at the same time last year. The Philippines is the second largest U.S. wheat buyer, 20% behind its pace last year. Japan is the third largest U.S. wheat customer but remains 8% behind its purchase pace of last year.

*All sales data is through the week of October 13, 2022.

By USW Market Analyst Michael Anderson