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By Stephanie Bryant-Erdmann, USW Market Analyst

On April 11, USDA released its latest World Agricultural Supply and Demand Estimates (WASDE) report. With six weeks left in marketing year 2016/17, USDA expects wheat world ending stocks to reach a record high 252 million metric tons (MMT), up 4 percent year over year and 22 percent ahead of the 5-year average, if realized. The current marketing year factors in this report are well defined and the record large ending stocks are neither surprising nor new to those who follow the wheat industry. However, the position of those stocks has been quietly changing.

Historically, global wheat exporters — Argentina, Australia, Canada, the European Union (EU), Kazakhstan, Russia, Ukraine and the United States — have held roughly 30 percent of global ending stocks. China has historically held one third of global endings stocks and the mostly net importers that remain have held about 37 percent. The 5-year average breaks out with exporter stocks at 61 MMT, China holding roughly 70 MMT and the world’s importers carrying out about 75 MMT

However, USDA expects that ratio to shift at the end of 2016/17. Chinese ending stocks are expected to reach a record high 111 MMT, or 44 percent of global ending stocks. In global wheat exporting countries, ending stocks are also expected to grow slightly to 74.0 MMT, but the ratio will fall to about 29 percent of global ending stocks. Carryout stocks in the world’s wheat importing countries are expected to fall 16 percent year over year to 67.1 MMT. If realized, that would be 11 percent below the 5-year average and 27 percent of global ending stocks, down 10 percentage points from the 5-year average.

This decrease is due in large part to a shift in purchasing behavior. Four consecutive record production years have enticed many buyers to adopt a “just-in-time” approach to take advantage of the lower prices and reduce storage costs where possible. That is why ending stocks in the top 20 markets for U.S. wheat (excluding China) are expected to cover just over two months of consumption, 6 percent below the 5-year average.

Additionally, 28 countries (including the EU, the world’s largest wheat consumer and normally a top wheat exporter) expect to have one month or less of domestic consumption in carryout stocks at the end of 2016/17, compared to the 5-year average of 20 countries with one month or less of domestic consumption. There are also 23 countries for which USDA does not show ending stocks data. These countries import 6.09 MMT of wheat annually and, with limited storage capacity, tend to buy “just-in-time.”

With lower planted area and an expected return to trendline yields, world wheat production is poised to decrease in 2017/18. With importing country stocks drawn down to the lowest level since 2010/11, any supply shocks would increase price volatility in wheat futures markets. On paper, the world has ample wheat, but 44 percent of that supply resides in China, which rarely offers wheat or flour for export.

After four consecutive years of larger global production and lower global wheat prices, many customers have minimal stocks on hand to weather supply shocks, and as one wheat buyer noted, “wheat (export) prices take the stairs down and the elevator up.” Fortunately for our customers, the United States holds 12 percent of world wheat ending stocks, ensuring the U.S. wheat store is always open. What is still uncertain is whether the price of U.S. high-quality wheat will remain at the current low levels. As always, weather is the wildcard, both in its direct effects on world wheat production and the wheat price impacts of any production problems with other major grains, especially corn and soybeans.

Customers should be aware of changing conditions around the world, and can track USDA weekly wheat crop condition and planting progress reports, as well as the latest U.S. weather forecast on the weekly USW Price Report.

USW will begin weekly Harvest Reports in May. To subscribe to any of USW’s reports, click here.

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By Stephanie Bryant-Erdmann, USW Market Analyst

Over the past decade, U.S. wheat planted area peaked in 2008/09 at 63.2 million acres (25.6 million hectares). Since then, U.S. wheat planted area has fallen 27 percent to a projected 46.1 million acres (18.7 million hectares) in 2017/18 according to the March 31 USDA Prospective Plantings report. If realized, it will be 16 percent below the 5-year average of 55.0 million acres (22.3 million hectares) — making it the lowest planted wheat area since 1919 when USDA records began.

This report actually increased winter wheat planted area by 360,000 acres (146,000 hectares) from USDA’s January 2017 estimate to 32.7 million acres (13.23 million hectares). However, the new estimate is still 9 percent down from 2016/17 planted area. The increase came from hard red winter (HRW) area, estimated at 23.8 million acres (9.63 million hectares), up 2 percent from the previous projection. Still, HRW planted area will be down 10 percent from 26.5 million acres (10.7 million hectares) planted for 2016/17.

Soft red winter (SRW) planted area decreased from the previous estimate to 5.53 million acres (2.24 million hectares). The biggest declines occurred in Midwest states where SRW faces strong competition for acres from corn and, particularly this year, from soybeans.

USDA expects white wheat acres — planted in both winter and spring — to reach 4.12 million acres (1.67 million hectares) for 2017/18, down slightly from 2016/17, but in line with the 5-year average. For the first time in three years, the Drought Monitor shows adequate soil moisture in the Pacific Northwest (PNW) following a rather wet winter.

Given the drop in planted area, crop conditions become crucial to any look out at potential production for 2017/18. For HRW, the April 6 Drought Monitor also shows that 45 percent of Kansas and 66 percent of Oklahoma were abnormally dry or experiencing moderate drought, even though the region received 1 to 4 inches (2.5 to 10 cm) of rain last week. Fifteen percent of Oklahoma remains in severe or extreme drought. In 2016, these states grew nearly half of the total U.S. HRW crop.

Last week’s beneficial moisture improved U.S. winter wheat condition in Kansas, Oklahoma and Texas, but the crop is still in worse condition than last year at this time. As of April 3, USDA rated the winter wheat crop at 51 percent good to excellent, compared to 59 percent on the same date in 2016. USDA rated 14 percent of the crop as poor or very poor, up from 7 percent last year.

The U.S. Northern Plains received abundant precipitation this winter, providing good soil moisture for HRS and durum planting. The past two years, farmers in North Dakota, Montana and Minnesota began HRS planting 7 to 14 days ahead of normal due to early springs. This year, planting dates will be closer to normal as farmers are now waiting for fields to dry out.

According to USDA, U.S. total spring-planted area will decline to an estimated 11.3 million acres (4.57 million hectares), 3 percent less than in 2016/17. The estimate includes 10.6 million acres (4.3 million hectares) of hard red spring (HRS), down 7 percent from 2016, if realized.

USDA expects U.S. durum planted area to total 2.00 million acres (809,000 hectares), down 17 percent from 2016/17. If realized, this would further constrict the global durum supply discussed in the March 23 Wheat Letter.

Continuing to drive the decline in U.S. wheat planted area is a net farmer return on wheat that dropped 18 percent between 2015/16 and 2016/17, while input costs declined only one percent in the same time period. USDA expects this trend to continue in 2017/18, with returns falling another 6 percent from already unprofitable 2016/17 levels.

There is a long way to go before the final count is in. However, with less planted area and an expected return to trend line yields, the International Grains Council (IGC) pegged 2017/18 U.S. wheat production at 50.2 MMT, down 20 percent from 2016/17.

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By Stephanie Bryant-Erdmann, USW Market Analyst

Global durum prices remain under pressure from a large 2016/17 crop. Per International Grains Council (IGC) data, global durum production increased 3 percent year over year to 40.2 million metric tons (MMT), 9 percent above the 5-year average and the largest since 2009/10.

As reported in the USW Price Report, U.S. free-on-board (FOB) Great Lakes durum prices have slipped 4 percent since the beginning of marketing year 2016/17 to a range from $303 to $309 per metric ton (MT) on March 17. Over the same time, Canadian FOB St. Lawrence durum prices declined 10 percent year over year based on Agriculture and Agri-Food Canada (AAFC) data.

Despite lower prices, global durum trade is expected to decline 7 percent to 8.0 MMT in 2016/17. But while trade volumes are expected to decrease, consumption of durum is expected to increase 5 percent year over year to 38.7 MMT. Global human durum consumption remains steady at roughly 30 MMT. Seed and residual usage is projected to increase 10 percent in 2016/17 to 5.4 MMT, but the largest change is expected in global durum feeding. IGC anticipates durum feed usage to reach 3.2 MMT in 2016/17, up 68 percent year over year, if realized. Canadian animal feed usage is expected to double to 1.4 MMT in 2016/17 due to lower prices and lower quality supplies. Animal feed usage in the European Union (EU) is also expected to more than double in 2016/17 to 700,000 MT.

International Grains Council Feb. 23 2017 Grain Market Report

While there are eight major exporters of common wheat, there are just four major exporters of durum — Canada, the European Union (EU), Mexico and the United States — all of which are in the Northern Hemisphere and benefited from the wet spring and mild summer that boosted 2016/17 yields and supplies. These four exporters account for an average 95 percent of total global durum exports each year. Year over year, durum supply in the major exporting countries increased 19 percent to 49.3 MMT. IGC expects global durum ending stocks to total 10.7 MMT, 41 percent above the 5-year average.

Against this backdrop, farmers are making plans and, in some places, are beginning to sow durum in the Northern Hemisphere. Spring weather affects planting decisions, but early projections expect significantly lower durum planted area in 2017/18. Stratégie Grains expects reduced planted area and more normal yields will cut 2017/18 EU durum production by 9 percent year over year to 8.9 MMT. AAFC pegged Canadian durum production at 5.5 MMT, which would be down 29 percent year over year if realized. The reduction is based on an expected 20 percent decline in planted durum area and a projected 15 percent decrease in yield. Stratégie Grains forecasts 2017/18 Mexican durum production at 2.0 MMT, down an estimated 20 percent from 2016/17, if realized.

As discussed in the March 9 Wheat Letter, USDA pegged U.S. spring and durum planted area at 13.6 million acres (5.51 million hectares) at its annual Agricultural Outlook Forum and forecasted total U.S. wheat production to fall 20 percent year over year. USDA will release detailed acreage projections in the Prospective Plantings Report on March 31.

In the United States, durum farmers have a saying, “plant durum every year and sell every third year.” The soaring yields seen in marketing year 2016/17 put plenty of durum in storage, but provided little incentive to farmers to sell it. U.S. farmers see this as a time to wait for prices to rise, ensuring that regardless of final 2017/18 production volume, the U.S. store will remain open and able to supply the world market with high quality durum.

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By Stephanie Bryant-Erdmann, USW Market Analyst

The USDA held its annual Agricultural Outlook Forum Feb. 23 to 24 where the 2017 Grain and Oilseeds outlook was presented. USDA currently estimates 2016/17 (June to May) wheat acreage at 46.0 million acres (18.6 million hectares), a nine percent decrease from last year.

USDA reported that winter wheat plantings are down 10 percent with the HRW crop having the largest decrease. HRW plantings fell by 12 percent to 23.3 million acres (9.43 million hectares). Soft red winter (SRW) plantings decreased by 300,000 acres (121,000 hectares) to 5.7 million acres (2.3 million hectares). USDA anticipates a 3 percent reduction in spring wheat plantings due to more favorable returns for other commodities. Currently, USDA’s spring wheat and durum acreage projection stands at 13.6 million acres (5.51 million hectares).

Due to the expected reductions in planted area and a return to trend line yields, production will decrease to a projected 50.0 MMT. If realized, that would be down 20 percent year-over-year. Based on trend yields, USDA expects the national average yield to fall to 47.1 bushels per acre (31.6 MT per hectare). USDA projects the wheat harvested-to-planted ratio will be 0.85, on par with 2016/17 and the 5-year average.

Though winter wheat planted area is at its lowest level in 108 years, growing conditions can greatly impact production levels as demonstrated in 2016/17. In February, winter wheat ratings declined in Illinois, Kansas, Montana, Nebraska, North Dakota and South Dakota, according to the monthly USDA Crop Progress report. The biggest change was noted in Montana, where USDA rated 5 percent of winter wheat in good to excellent condition compared to 70 percent in January. The percentage of Oklahoma wheat rated good to excellent increased to 43 percent, up from 33 percent in January. USDA reported 15 percent of Oklahoma wheat in poor or very poor condition, down from 17 percent in January, but significantly higher than the 1 percent poor or very poor on the same date last year. USDA resumes weekly crop progress reporting on April 3.

Large carryover stocks will partially offset the projected lower production, yet the forecast expects total U.S. supplies to decrease in 2017/18. USDA forecasts 2017/18 U.S. supplies at 84.3 MMT, down 9 percent from 2016/17, still 1 percent more than the 5-year average, if realized. Demand in the United States will decline in 2017/18, due to decreased feed usage. USDA anticipates a 2 percent decrease in domestic use, from 33.9 MMT to 33.1 MMT.

Smaller U.S. supplies and competition from other origins are expected to constrain U.S. wheat exports. USDA expects U.S. exports to decline slightly to 26.5 MMT, down 5 percent from the forecasted 2016/17 U.S. wheat export level of 27.9 MMT. U.S. ending stocks are forecast to decrease to 24.6 MMT, down 21 percent year-over-year but still 8 percent above the 5-year average.

To read more from the USDA Outlook Forum or to download presentations, please visit https://www.usda.gov/oce/forum/.

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By Stephanie Bryant-Erdmann, USW Market Analyst

Since Jan. 1, the nearby wheat futures contract for hard red winter (HRW) on the Kansas City Board of Trade (KCBT) rallied 13 percent or 54 cents per bushel ($20 per metric ton) returning to price levels like those seen in June 2016. The rally is drawing support from both demand and supply factors. On the demand side, year to date U.S. 2016/17 HRW export sales total 10.1 million metric tons (MMT), up 95 percent from 2015/16 and 30 percent ahead of the 5-year average. Savvy buyers are also securing supplies for the next marketing season. To date, HRW export sales for marketing year 2017/18 total 182,000 metric tons (MT), up 8 percent from last year.

Robust demand for HRW is supported in part by low prices, but also by a change in the dynamic of the U.S. dollar. A strong U.S. dollar generally makes U.S. exports more expensive relative to other origins. However, while the U.S. dollar continues to strengthen against most currencies, it weakened against key competitor currencies. Year-over-year, the U.S. dollar weakened 3 percent against the Australian dollar, 11 percent against the Kazakhstani tenge and 20 percent against the Russian ruble. This shift is driving demand back to U.S. wheat in areas where the United States has a logistical advantage because it decreases the ability of buyers to offset increased shipping costs with lower priced wheat from competing origins.

The same low prices supporting HRW demand caused U.S. farmers to decrease HRW planted area by 12 percent last fall to 23.3 million acres (9.43 million hectares), which will likely result in smaller 2017/18 HRW production. Last year, record high yields offset lower planted area, but U.S. HRW planted area for 2017/18 is 20 percent less than five years ago. As discussed in the Feb. 23 Wheat Letter, farmers across the U.S. plains expect yields to return to the trend line this year given the current soil moisture and crop conditions.

Reduced HRW supplies are expected to be part of a smaller total world wheat crop in 2017/18 following last year’s record-large production. Production is expected to return to more normal trend lines around the world resulting in smaller crops for most of the world’s wheat exporting countries. The notable exception is the European Union (EU), where wheat production is expected to rebound after excessive rain cut yields last year. The European Commission forecast 2017/18 EU common wheat production at 143 MMT, up 7 percent from 2016/17 with better yields offsetting a slight reduction in planted area. EU 2017/18 durum production is expected to fall 2 percent from last year to 8.8 MMT, due to a reduction in planted area.

On Mar. 6, the Australian Bureau of Agricultural Research and Sciences (ABARES) projected Australian wheat planted area will decrease 1 percent to 31.6 million acres (12.8 million hectares) citing increased competition for area from canola, pulses and sheep. With the assumption of average growing season conditions and a return to trend line yields, ABARES forecast Australian 2017/18 wheat production at 24.0 MMT, down 11 MMT from 2016/17 and 5 percent below the 5-year average, if realized.

In February, Agriculture and Agri-Food Canada (AAFC) estimated 2017/18 Canadian wheat planted area will fall by 3 percent to 22.6 million acres (9.15 million hectares). A projected 29 percent decrease in durum acres and 12 percent decrease in winter wheat acres more than offset the expected 5 percent increase in spring wheat acres. Excessive rains last fall hurt quality and delayed harvest and subsequent fall planting across Canada. With decreased planted area and an expected return to trend line yields, AAFC expects Canadian wheat production to decrease in 2017/18 to 28.6 MMT. If realized, that would be a 10 percent decline from the prior year and 3 percent below the 5-year average.

Last fall, Russian farmers planted winter wheat on 36.5 million acres (14.8 million hectares), up 4 percent from the prior year. The Russian Ministry of Agriculture expects spring wheat planted area will decline slightly to 33.6 million acres (13.6 million hectares) due to increased competition for area from corn. Strategie Grains (SG) expects Russian 2017/18 wheat production to total 67.2 MMT, down 14 percent from last year’s record production due to a return to trend line yields that more than offset the increase in planted area.

SG expects Kazakhstan 2017/18 wheat production to fall 18 percent year-over-year to 13.8 MMT due to reductions in planted area and yield. Ukrainian farmers are also expected to produce less wheat in 2017/18. SG projects Ukraine wheat production will total 23.9 MMT. If realized that would be down 8 percent from 2016/17, but 7 percent above the 5-year average of 22.5 MMT.

The world is poised to produce a smaller wheat crop for the first time in four years, and the recent wheat futures rally indicate farmers, traders and customers alike are all taking notice, especially in light of record consumption. Before spring fully arrives with its typically volatile weather, customers should consider joining those who are securing supplies of high-quality U.S. wheat at what remain very attractive prices.

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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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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).