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USDA Reports Offer Early Snapshots of 2018/19 U.S. Winter Wheat Crop

From USDA and Media Reports

Hours of work will come to fruition this week for market analysts at USDA and the farmers and buyers they serve. The results of some new reports provide an early look at the next U.S. winter wheat crop, which includes hard red winter (HRW), soft red winter (SRW) and fall-planted soft white (SW) classes.

Starting with a brief look back, we do know that U.S. farmers harvested the smallest area of wheat in 2017 since detailed records started in 1919. That was not a surprise because USDA had estimated planted area for all wheat classes, including spring wheat, for 2017/18 at a similar record low. Winter wheat planted area was down 9 percent from 2016/17.

New estimates suggest the base will be even lower for 2018/19. Reuters reported Nov. 28 that USDA estimates U.S. farmers are likely to expand corn and soybean plantings while reducing wheat seedings to 45.0 million acres for 2018/19, down from the record low of 46.0 million for 2017/18. Reuters noted that the forecasts are developed by consensus within the USDA on a long-term scenario for the agricultural sector for the next decade. USDA will release its complete report on projections for the next 10 years in February.

Arlan Suderman, chief commodities economist for INTL FCStone, expects U.S. wheat farmers will continue plant less wheat because of the price pressure from the record global wheat stocks. He estimates seeded area will be down another 4 percent to 6 percent in 2018. Suderman said the strong U.S. dollar pressures demand for U.S. wheat while encouraging wheat expansion overseas, such as in the Black Sea region. He believes markets that value high quality wheat and strong protein offer stronger opportunity for U.S. wheat.

As a counterpoint, a poll by a national agricultural publication fielded last July suggests farmers may slightly increase wheat seedings. The Farm Futures magazine survey found growers wanting to boost wheat seedings by 2.5 million acres to 48.1 million, a 5.4 percent increase over 2017. The survey suggested that winter wheat would make up nearly 90 percent of that increase.

The first official estimate of winter wheat planted area from USDA will be released in its Prospective Plantings report in March 2018.

USDA’s latest conditions report released on Nov. 26 suggests the new HRW wheat crop seeded in the Central and Southern Plains is stressed by dry weather. Oklahoma farm broadcaster Ron Hays reported that “winter wheat crop ratings continue to slide as Oklahoma, Kansas and Texas wheat conditions all fell in the latest reporting week. Oklahoma has seen its good to excellent score on the 2018 wheat crop drop from 41 percent two weeks ago to 30 percent this week; Kansas dropped five points from two weeks ago to 51 percent good to excellent and Texas dropped ten percentage points to 36 percent good with no score for excellent in this week’s final weekly score of the season.”

On Nov. 30, USDA will issue a quarterly update to its forecast of U.S. farm exports for fiscal year 2018 (Oct. 2017 to Sept. 2018). In a previous report, USDA said the total of $140.5 billion for FY2017 ended a two-year decline and was the third-highest on record. USDA currently forecasts U.S. wheat exports for marketing year 2017/18 at 27.2 million metric tons (MMT), down slightly from 28.7 MMT in 2016/17.

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Latest USDA Forecast Accounts for Increased U.S. Wheat Export Demand

By Steve Mercer, USW Vice President of Communications

USDA market analysts cited Iraq’s major purchase of hard red winter (HRW) wheat as the specific basis for a significant drop in U.S. ending stocks in the November World Agricultural Supply and Demand Estimates (WASDE) report. The report correspondingly put its total U.S. export forecast for 2017/18 up 0.7 million metric tons (MMT) to reach 27.2 MMT. This would be down 5 percent from 2016/17 but 2 percent above the 5-year average, if realized.

The ending stocks forecast continues to be the primary plot of the 2017/18 global wheat market story. The WASDE report noted that even with slightly lower supplies and higher use, ending stocks are still expected to hit a record level.

USW Market Analyst Stephanie Bryant-Erdmann, who is currently on an international assignment, shows in USW’s latest Supply and Demand Report that global ending stocks are projected to reach a record level: 268 MMT, or 5 percent higher than 2016/17, if realized. Estimated Chinese ending stocks of 127 MMT account for 48 percent of global ending stocks, which is 58 percent greater than the 5-year average.

Bryant-Erdmann provides a more nuanced analysis of global stocks by charting the current global stocks-to-use ratio with and without China’s stocks, which are not likely to move to export. She shows that the 2017/18 ratio drops about 64 percent from 36 percent to 22 percent without Chinese stocks. More significant, though, is the historical look, showing that exportable stocks are on a three-year downward trend. In fact, Bryant-Erdmann shows that exporter ending stocks are expected to fall 5 percent year over year to 74.3 MMT, and ending stocks in importing countries are forecast to fall to 66.0 MMT, 5 percent below the 5-year average of 70.5 MMT.

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USDA Projects Shifting Supplies of Wheat, Location Will Likely Impact Quality and Availability

By Stephanie Bryant-Erdmann, USW Market Analyst

USDA expects a lower world wheat production in 2017/18 of 751 million metric tons (MMT) (27.6 billion bushels), down slightly from the record high 754 MMT (27.7 billion bushels) in 2016/17 but 5 percent above the 5-year average. If realized, it would be the first production decline since 2012/13. While world wheat production is projected to decline year over year, USDA expects slightly higher total consumption in 2017/18 at 740 MMT (27.2 billion bushels), compared to the 5-year average of 705 MMT (25.9 billion bushels). With production expected to decline and consumption forecast to rise, availability of global wheat supplies is largely dependent on location and whether or not that country is an importer, exporter or China.

Record-large world carry-in stocks offset the production decline with total world supply reaching a projected 1007 MMT (37.0 billion bushels), up 12.4 MMT from 2016/17. However, removing China’s 2017/18 projected beginning stocks and production from global wheat supply reveals roughly a 3 MMT decline in global supplies. While small, the decline in global wheat supplies is compounded by a shift in location, which has implied impacts on availability, quality and, of course, price.

Exporting countries. USDA forecasts supplies in the top wheat exporting countries of Argentina, Australia, Canada, the European Union (EU), Kazakhstan, Russia, Ukraine and the United States to decrease by 2 percent or roughly 10 MMT year over year to 460 MMT. A 9 MMT year over year increase in exporter beginning stocks partially offsets the anticipated 5 percent decrease in production. However, a 19 percent increase in Russian wheat supplies due to sharply higher 2017/18 production is partially masking forecasted declines in five of the major eight exporters — Argentina, Australia, Canada, Ukraine and the United States. Wheat supplies in the EU are expected to remain stable year over year at 161 MMT, and Kazakhstan wheat supply is expected to increase 2 percent from 2016/17 due to higher beginning stocks.

Russian wheat supplies total 20 percent of exporting country supplies, making the quality of the crop very important. SGS Russia, an independent crop inspection service, reported preliminary data for winter wheat in south, central and the Volga-Urals regions of Russia showed lower protein levels due to favorable growing conditions which boosted yields. According to the SGS data, 22 percent of samples graded as Russian 3rd class wheat (10.5 to 11.9 percent protein on a 12 percent moisture basis (mb)); 46 percent of the samples graded as Russian 4th class wheat (8.8 to 10.5 percent protein on a 12 percent mb); and 32 percent as 5th class wheat (feed wheat). SGS reports that some areas have Fusarium damage, high levels of sprout damage and very low falling numbers; but test weight values are generally higher across all regions.

Importing countries. Importing country beginning stocks are forecast to be 10 percent lower year over at 72.4 MMT, due to customers utilizing “just in time” purchasing strategy to take advantage of low global wheat prices. Production in the importing countries is expected to increase 7 percent year over year, lifted by a 11.4 MMT increase in India after two poor crops there. Total importing country supplies are expected to increase 2 percent to 307 MMT due to the lower beginning stocks falling and increased production. However, it should be noted that 108 MMT, roughly 35 percent, of that supply will remain in India.

China. USDA expects Chinese beginning stocks to climb to 111 MMT, up 14 percent over 2016/17. If realized, China will hold 43 percent of 2017/18 total global wheat beginning stocks. Chinese wheat production is also expected to rise in 2017/18 to 130 MMT, up 1.15 MMT from 2016/17. This puts total 2017/18 Chinese wheat supplies at 241 MMT, 7 percent greater than 2016/17. Yet Chinese wheat consumption is expected to decline 2 percent to 116 MMT due to an anticipated decrease in wheat feed usage. With supply up and consumption down, 2017/18 Chinese ending stocks are expected to grow to 127 MMT, up 14 percent from last year and a new record. If realized, Chinese ending stocks would account for 47 percent of all global wheat ending stocks for 2017/18.

While supplies in most importing countries are shrinking (India being the notable exception), global human consumption of wheat continues to grow. USDA expects global human wheat consumption to increase 2 percent in 2017/18, led by increases in regions that depend on imports for the entirety of their supply, including Southeast Asia, Central America and the Caribbean. With 81 percent of global wheat consumption going to humans, understanding the quality and availability of the 2017/18 crop is important.

The 2017/18 USW Crop Quality report will be available online on Monday, Oct. 23. Contact your local USW representative for more information about the 2017/18 U.S. wheat quality, production and logistics.

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USDA Reports Smallest U.S. Harvested Area in 127 Years

By Stephanie Bryant-Erdmann, USW Market Analyst

USDA’s Sept. 30 Small Grains Summary reported that U.S. farmers harvested 37.6 million acres (15.2 million hectares) of wheat for the 2017/18 crop, a 14 percent reduction from 2016/17 and the smallest harvested area since 1890. USDA estimated U.S. 2017/18 wheat production at 47.4 million metric tons (MMT) (1.74 billion bushels), down 25 percent year over year and 15 percent below the 5-year average. The smallest planted area since USDA record began in 1919, adverse weather conditions and wheat streak mosaic virus all contributed to reduced harvested area.

The largest beginning stocks since 1988/89 will partially offset lower production. USDA expects 2017/18 U.S. beginning stocks to total 32.2 MMT (1.18 billion bushels), up 21 percent year over year and 57 percent greater than the 5-year average. Total 2017/18 U.S. wheat supply is forecast at 79.6 MMT (2.92 billion bushels), down 11 percent from 2016/17 but in line with the 5-year average. Despite the sharp year over year reduction in yields, USDA expects the final average yield to reach 46.3 bu/acre (3.11 MT/ha), similar to the 5-year average of 46.6 bu/acre (3.13 MT/ha).

Last fall, low farm gate prices and large carry-in stocks prompted U.S. farmers to plant 32.7 million acres (13.2 million hectares) of winter wheat, down 9 percent from 2016/17. The winter wheat crop went into winter dormancy in good or above average condition. A mild winter and early spring was beneficial for both winter wheat and, unfortunately, the mites that carry wheat streak mosaic virus. The disease was widespread in Kansas, Oklahoma and parts of Nebraska, cutting yields and causing higher rates of abandonment in affected hard red winter (HRW) areas. A late spring blizzard in western Kansas cut yields and increased abandonment. Soft red winter (SRW) generally came out of dormancy in better than normal conditions, but growing conditions also varied widely across the Southeast. In some areas, excessive moisture helped boost yields, in others it delayed or prevented emergence.

As with winter wheat, low spring wheat and durum farm gate prices and large carry-in stocks reduced planted areas. After planting (which is generally early), drought conditions spread across Montana, North Dakota and South Dakota with devastating effects on yield. As a result, the rate of abandonment in South Dakota, which was particularly hard hit, is estimated at 37 percent — nearly triple the state’s 5-year average.

Here is a by-class breakdown of the Sept. 30 report.

Hard Red Winter (HRW). USDA estimates total 2017/18 HRW production fell to 20.4 MMT (750 million bushels), down 31 percent from 2016/17 and 15 percent below the 5-year average. USDA forecast 2017/18 HRW beginning stocks at 16.1 MMT (593 million bushels), up 33 percent year over year and 81 percent above the 5-year average. Even with large beginning stocks, total HRW supply will fall 12 percent year over year to 36.5 MMT (1.34 billion bushels). Total HRW planted area fell to 23.8 million acres (9.63 million hectares), down 10 percent from 2016/17. Yields also fell an average 13 percent from 2016/17 in the top HRW-producing states of Texas, Oklahoma and Kansas.

Hard Red Spring (HRS). USDA estimates total 2017/18 HRS production fell to 10.5 MMT (385 million bushels), down 22 percent from 2016/17 and 26 percent below the 5-year average. USDA forecast 2017/18 HRS beginning stocks at 6.40 MMT (235 million bushels), down 14 percent year over year but still 21 percent above the 5-year average. Total HRS supply will fall 12 percent year over year to 16.9 MMT (620 million bushels). USDA estimates farmers planted 10.3 million acres (4.17 million hectares) to HRS, 10 percent below 2016/17 levels. The drought cut yields an average of 11 bu/acre (0.74 MT/ha) in Montana, North Dakota and South Dakota. Abandonment in Montana and North Dakota was double the respective 5-year averages at 9 and 6 percent, and South Dakota farmers abandoned 37 percent of wheat fields due to the drought. The single bright spot for HRS production was Minnesota, with a record high average yield of 67.0 bu/acre (4.50 MT/ha) offsetting lower harvested area.

Soft Red Winter (SRW). USDA estimates total 2017/18 SRW production fell to 7.95 MMT (292 million bushels), down 15 percent from 2016/17 and 32 percent below the 5-year average. USDA reported 24 percent of SRW acres were abandoned compared to 17 percent last year. Record high yields in six SRW producing states partially offset the lower harvested area. USDA forecast 2017/18 SRW beginning stocks at 5.85 MMT (215 million bushels), up 37 percent year over year and 47 percent greater than the 5-year average. So, total SRW supply will rise slightly year over year to 13.8 MMT (507 million bushels). USDA estimates total 2017/18 SRW planted area at 5.61 million acres (2.27 million hectares), 15 percent lower than 2016/17 and 30 percent below the 5-year average.

Soft White (SW). USDA estimates total 2017/18 SW production declined to 6.14 MMT (226 million bushels), down 11 percent from 2016/17 due to small declines in harvested area and average yields in Washington and Idaho that were down 7 and 10 percent, respectively. USDA reports white wheat planted area decreased 3 percent year over year. White wheat planted area fell to 4.02 million acres (1.63 million hectares), 2 percent below the 5-year average. USDA projected white wheat beginning stocks will increase 42 percent year over year to 3.02 MMT (105 million bushels). If realized, that would be 65 percent above the 5-year average.

Durum. U.S. durum production fell 51 percent in 2017/18 to 1.49 MMT (54.9 million bushels) from lower planted area and yields in Montana, North Dakota and South Dakota. USDA estimates 1.91 million acres (773,000 hectares) were planted to durum, down 11 percent from 2016/17 but still 6 percent above the 5-year average of 1.80 million acres (729,000 hectares). Abandonment also increased this year from 2 percent in 2016/17 to 8 percent in 2017/18, due to the drought. USDA projected 2017/18 durum beginning stocks to climb to 980,000 metric tons (MT) (36 million bushels), nearly double the 5-year average and 29 percent above 2016/17 levels. USDA forecast total U.S. durum supply at 2.48 MMT (91 million bushels), down 31 percent year over year.

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Taking Stock of the 2017/18 World Wheat Crop

By Stephanie Bryant-Erdmann, USW Market Analyst

USDA’s latest forecast of total world wheat production stands at 745 million metric tons (MMT), down 1 percent from 2016/17. Though USDA expects global wheat production to decrease by 8.46 MMT, it expects global wheat consumption to remain high at 737 MMT, down 1.13 MMT from the 2016/17 record. With lower production and stable consumption, staying abreast of the location and quality of the 2017/18 wheat crop is key. The following is a look at production and quality expectations for major exporting regions and countries outside the United States.

Black Sea. On Sept. 15, Russia’s Ministry of Agriculture reported wheat harvest was 84 percent complete. To date, the reported average yield is 3.51 metric tons per hectare (MT/ha) (52.2 bu/acre) compared to 2.95 MT/ha (43.9 bu/acre) on the same date in 2016. Russian consultancy SovEcon forecast 2017/18 Russian wheat production at 81.1 MMT, up 13 percent from 2016/17. Strategie Grains reported that Ukrainian farmers harvested 26.0 MMT of wheat this year, on par with 2016/17. Kazakhstan wheat harvest is underway, and Strategie Grains pegged 2017/18 Kazakh wheat production at 14.2 MMT, which would be down 5 percent from 2016/17. USDA expects Black Sea exports to total 56.5 MMT, up 7 percent from 2016/17, if realized.

SGS Russia, an independent crop inspection service, reported preliminary quality data for winter wheat in Russia’s South, Central and Volga-Urals regions, which showed lower protein levels due to favorable growing conditions and high yields. According to the SGS data, 52 percent of the samples graded as Russian 4th class wheat, up from 46 percent of samples in 2016/17. Russian 4th class wheat has between 8.8 and 10.5 percent protein on a 12 percent moisture basis. Though the percentage of samples that graded 3rd class wheat (10.5 to 11.9 percent protein on a 12 percent moisture basis) and 5th class (feed wheat) decreased in 2017/18, impacts on supplies of those two classes are expected to be minor due to record large production. SGS reports that some areas have Fusarium damage, high levels of sprout damage and very low falling numbers; but test weight values are generally higher across all regions. SGS reports the average protein of Ukraine’s 2017/18 wheat crop is 10.1 percent (12 percent mb) compared to 10.5 percent in 2016. The crop has higher average moisture and higher bug damage compared to 2016 per SGS.

Canada. In its Sept. 15 report, Agriculture and Agri-Food Canada (AAFC) projected 2017/18 wheat production (excluding durum) to be 21.6 MMT, down 10 percent from 2016/17. A 1 percent increase in planted area was more than offset by sharply lower yields. AAFC expects total Canada Western (Hard) Red Spring (CWRS) to account for 74 percent of total Canadian wheat production at 16.1 MMT. Canadian durum production is estimated at 3.90 MMT, down 50 percent year over year due to a 16 percent decrease in planted area and lower than average yields.

According to Alberta crop reports, favorable conditions are allowing harvest to proceed rapidly. As of Sept. 12, 50 percent of the crop was harvested compared to 31 percent at this time last year. Hot, dry conditions are aiding Saskatchewan wheat harvest as well. As of Sept. 14, Saskatchewan spring wheat and durum harvests were 63 and 81 percent complete, respectively, compared to 38 and 62 percent complete the week prior and significantly better than last year when frequent rainfall delayed harvest. Preliminary durum grade data from the Saskatchewan weekly crop report shows 97 percent of the crop graded as #1 or #2 Canadian Western Amber Durum (CWAD). On average, Saskatchewan produces 85 percent of the Canadian durum crop.

European Union. Stratégie Grains (SG) forecast total European Union (EU) wheat production at 151 MMT, up 4 percent year over year due to a return to normal production levels in France. Durum production is expected to decrease to 8.9 MMT, down from 9.9 MMT in 2016/17, but common (non-durum) wheat production will climb 5 percent to 142 MMT. After a disastrous 2016/17 French harvest when late rain damaged yields and quality, 2017/18 French wheat production rebounded to 37.4 MMT, up 31 percent year over year. SG noted French wheat quality is very good, but rain at harvest hurt German and Polish wheat quality. SG estimated EU milling quality wheat output at 66 percent of total 2017/18 production, putting total EU common wheat milling quality production at 93.9 MMT. That is in line with the 5-year average and 12 percent greater than 2016/17. SG expects EU total wheat exports to fall to 23.1 MMT, down 4 percent year over year, if realized, due to quality issues in Germany and increased competition from the large Black Sea supply.

Argentina. Bolsa de Cereales Buenos Aires (Buenos Aires Grain Exchange) recently estimated farmers in Argentina planted 5.35 million hectares (13.2 million acres) of wheat in 2017/18, up 5 percent from 2016/17. As of Sept. 7, Bolsa rated 71 percent of Argentine wheat in very good to excellent condition compared to 63 percent the prior year. However, excessive moisture is preventing fieldwork in some areas and threatening emerging wheat plants. The International Grains Council (IGC) pegged Argentine wheat production at 16.5 MMT, down 6 percent from 2016/17 if realized. With carry-in stocks expected to remain stable year over year at 600,000 MT, Argentine supply will also decrease 6 percent from 2016/17 to 17.1 MMT. IGC expects Argentina to export 10.5 MMT, down from 11.5 MMT in 2016/17 due to the smaller supply.

Australia. The Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) forecasts 2017/18 wheat production at 21.6 MMT, down 38 percent from 2016/17 due to a 3 percent reduction in planted area and sharply lower yields. Australian farmers decreased planted wheat area for 2017/18 to 12.4 million hectares. A drier than normal winter has depleted soil moisture reserves in the many wheat-producing areas, which need timely rains to maintain current yield potential. USDA expects Australian exports to increase to 18.5 MMT, down 20 percent from 2016/17 and 1 percent below the 5-year average.

Together with its partner organizations across the United States, USW is testing more than 2,000 samples of wheat this year for its annual Crop Quality survey. The preliminary results are reported every Friday in the USW Harvest Report, and the final results for all classes are published in by-class reports and in our annual Crop Quality Report near the end of October. Please contact your local USW representative for more information about the USW Crop Quality survey, report or seminars.

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USDA: World Wheat Consumption Increases, Spring Wheat in Short Supply

By Stephanie Bryant-Erdmann, USW Market Analyst

USDA increased its estimates for world wheat production, consumption and trade in its August World Agricultural Supply and Demand Estimates (WASDE) report released today. USDA forecast global wheat production at 743 million metric tons (MMT), 3 percent above the 5-year average but still 2 percent below last year’s record. The global wheat consumption estimate increased to 737 MMT in 2017/18, up 4 percent from the 5-year average but down slightly from the 2016/17 record. USDA projects 2017/18 world wheat trade at 180 MMT, down 1 percent from last year but still 10 percent above the 5-year average, which would be the second highest on record. USDA also lowered its U.S. and Canada spring wheat supply estimates.

USDA forecasted U.S. wheat production to fall 25 percent year over year to 47.3 MMT. The drop is due to lower yields for spring wheat and durum as a result of the drought across the U.S. Northern Plains, but does not reflect abandoned acre data. USDA pegged U.S. spring wheat production at 9.91 MMT, down 26 percent from 2016/17 and 30 percent below the 5-year average, if realized.

Total 2017/18 U.S. spring wheat supply, which USDA pegged at 16.3 MMT, is down 22 percent from 2016/17 and results in a U.S. spring wheat stocks-to-use ratio of 24 percent. The ratio was 44 percent in the August 2016 WASDE and 51 percent in the August 2015 report. The current low stocks-to-use ratio seems supportive for U.S. spring wheat prices. Many in the industry believe supply will decrease further when abandoned acres are determined.  The North Dakota Wheat Commission noted in Assessing the Wheat Quality Council Tour 2017 Yield Estimate (below), “…abandoned acres will certainly have a significant impact on final production for both spring and durum, but may not be fully reconciled until USDA releases its final harvested acreage report for the 2017 crops.”

The drought that is impacting the United States is also decreasing yield potential in Canada. USDA now estimates 2017/18 Canadian wheat production will total 26.5 MMT, down 16 percent from the prior year. The United States and Canada normally account for 60 percent of global high protein wheat exports.

Favorable spring wheat growing conditions in Russia and Kazakhstan may partially offset lower North American spring wheat production. Time will tell what quality and quantity of spring wheat is available for export, and at what value. Customers should remain abreast of current crop conditions, harvest conditions and U.S. prices and contact their local USW representative for any questions concerning the 2017/18 U.S. wheat crop.

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U.S. Wheat Production to Fall to Lowest Level Since 2002/03

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

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

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

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

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

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

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

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

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Digging Deeper: How Global Supplies Will Tighten in 2017/18

By Stephanie Bryant-Erdmann, USW Market Analyst

While markets focused on USDA’s latest global supply and demand values, a deeper look provides perspective for wheat buyers. Breaking the supply values down into three categories — importer, exporter and China — shows some interesting trends. USDA expects world wheat supply in 2017/18 to fall 2 million metric tons (MMT) year over year to 993 MMT due to a 2 percent decline in its estimated production of 738 MMT. If realized, it would be the first production decline since 2012/13. The anticipated decrease in exporter and importer supplies will be larger, but that decrease is masked by estimated increases for China. Removing China’s 2017/18 projected beginning stocks and production from global wheat supply reveals an 18.2 MMT or approximately 2 percent decline in global supplies.

Importing countries. Ending stocks in major wheat importing countries for 2016/17 — soon to be 2017/18 beginning stocks — are expected to fall to a 6-year low of 68.0 MMT. Production in the importing countries is expected to increase 5 percent year over year, lifted by a 10 MMT increase in India after two poor crops there. Total importing country supplies are expected to remain stable at 300 MMT, with beginning stocks falling and production increasing only marginally in importing countries. However, it should be noted that 107 MMT, roughly 35 percent, of that supply will remain in India.

Exporting countries. USDA forecasts supplies in the top wheat exporting countries of Argentina, Australia, Canada, the European Union (EU), Kazakhstan, Russia, Ukraine and the United States to decrease by 4 percent or roughly 19 MMT year over year to 451 MMT. A 10.5 MMT year over year increase in exporter beginning stocks partially offsets the anticipated 7 percent decrease in production. Of the major eight exporters, only the EU and Argentina expect to see increases compared to last year.

China. USDA expects Chinese beginning stocks to climb to 111 MMT, up 14 percent over 2016/17. If realized, China will hold 43 percent of 2017/18 total global wheat beginning stocks. Chinese wheat production is also expected to rise in 2017/18 to 131 MMT, up 2.15 MMT from 2016/17, yet Chinese wheat consumption is expected to decline 2 percent to 116 MMT due to an anticipated decrease in wheat feeding. With supply up and consumption down, 2017/18 Chinese ending stocks are expected to grow to 128 MMT, up 15 percent from last year and a new record. If realized, Chinese ending stocks would account for 49 percent of all global wheat ending stocks for 2017/18.

Global supply and demand estimates give broad perspective for purchasing decisions, but customers should take care to remove Chinese stocks from the equations because the entire volume will stay in China. Thus, China’s ending stocks skew the total global stocks-to-use ratio higher to 35 percent. Without China, the global ratio would be 21 percent.

Buyers should also note that USDA’s first estimates for 2017/18 wheat production use trendline yields and average harvested area. As last year demonstrated, weather can significantly affect yield potential, abandoned acres, quality and total production. For example, the actual effect of the late April freeze and snow, as well as increasing plant disease pressure, on hard red winter (HRW) production and quality will not be revealed until harvest. Buyers should continue to monitor conditions around the world, and recognize that global wheat supplies are much tighter than traditional global supply and demand estimates show.

To keep up to date on the 2017/18 U.S. wheat harvest and initial quality analysis, it is easy to subscribe to USW Weekly Harvest Reports. To read the first report, click here.

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Importer Ending Stocks Shrink to 6-Year Low

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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U.S. Wheat Planted Area Falls to Record Low

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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