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U.S. Soft White Wheat Production: It’s Dry, But Too Early in Harvest to Determine 2023 Yield

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 Wheat Marketing Year in Review

Final export commitment data for marketing year (MY) 2022/23 that ended May 31 is now available, providing an overview of the year’s export and demand trends.

In this article, we will look back on the MY 2022/23 demand trends and current MY 2023/24 data to provide context for the year to come as the world wheat market conditions continue to recover from the year’s volatility.

Since the start of 2022/23, wheat prices and freight decreased, and currency markets stabilized following the steep price shock of Mr. Putin’s unprovoked invasion of Ukraine. Despite the improved conditions, volatility and its consequences still reverberate through the U.S. and global wheat markets.

MY 2022/23 Year End Commercial Sales

Even with the year’s price risk, when ordinary hard red winter wheat exported from the Gulf of Mexico averaged $10.70/MT FOB, Mexico, the Philippines, Japan, South Korea, and Taiwan remained among the top U.S. wheat importers in 2022/23 and have consistently been among the leading importers over the last five years.

As U.S. wheat competitiveness began to improve early in calendar 2023, China entered the market, ultimately surpassing Taiwan to claim the number five spot as their purchases surged 38% above the year prior. Moreover, China became the world’s largest wheat importer with the June World Agricultural Supply and Demand Estimates (WASDE) putting Chinese wheat imports at a record 14.0 MMT.

Bar chart compares U.S. wheat sales to top 10 customers in marketing year 2022/23 to MY 2021/22 indicating Mexico, Philippines, Japan, South Korea were among the top importers.

Mexico, the Philippines, Japan, and South Korea have been consistently among the top five U.S. wheat importers. In 2022/23, China became the world’s largest wheat importer, surpassing Taiwan to claim the fifth-place spot among U.S. wheat importers. Source: USW Commercial Sales Report/USDA Export Sales Data.

Hard red winter (HRW) wheat sales were 32% behind 2021/22, a function of high prices driven by drought and exacerbated by the war risks. Hard red spring (HRS) sales were up 4% following the drought in 2021/22 that severely diminished the crop and put exports at their lowest level since 2008/09. Soft red winter (SRW) sales were nearly even with the year prior and 9% above the five-year average as SRW remained competitive on the global market. Following drought-stressed production in 2021/22, white wheat exports were up 35% at 4.5 MMT and tracking SRW trends. Durum sales were up 109% due to improved production increased sales to Algeria and the European Union.

Bar chart compares U.S. wheat by-class sales in marketing year 2023/24 to the same date in MY 2021/22.

Some classes saw improved export sales year-over-year despite an overall reduction in demand. HRW wheat sales were 32% behind 2021/22, HRS was up 4%, SRW was nearly even with the year prior, white wheat was up 35% and durum was up 109%. Source: USW Commercial Sales Report/USDA Export Sales Data.

MY 2023/24 to Date

Demand has been relatively light so far in MY 2023/24 as many buyers delay purchasing decisions for more concrete information about the upcoming harvest and price fundamentals. Adding optimism for importers are recent rains in the U.S. Plains that have helped boost winter wheat crop ratings and rapid planting progress in HRS production areas.

Overall, U.S. wheat commercial sales are down 18% from last year’s pace at 3.9 MMT. Even so, customers in Japan, South Korea, and Taiwan are ahead of their 2022/23 pace, and SRW commitments have surpassed last year’s level by 18% given its competitive price advantage.

USW Commercial Sales Report comparing export sales to specific countries in marketing year 2023/24.

Year-to-date marketing year 2023/24 commercial sales total 3.9 MMT, down 18% from the year prior. Meanwhile, purchases in Japan are 2% ahead of last year, South Korea up 5% and Taiwan up 75%. Vietnam, Guatemala, Ecuador, and Peru have also surpassed last year’s pace, highlighting how the market sentiment has shifted from a year ago. Source: USW Commercial Sales Report/USDA Export Sales Data.

New 2023/24 Estimates

Meanwhile, the June WASDE released on June 9 reported significant increases in world production estimates and ending stocks; however, the increases were unsurprising, leaving futures prices little changed.

World wheat production increased 10.4 MMT from the May estimates to 800.2 MMT on improved output in Russia, India, and the EU. World consumption increased by 4.4 MMT to 796.1 MMT, accounting for increased feed use in China, Russia, and India. Ending stocks increased to 270.7 MMT due to large projected stocks in India, Russia, and the EU. The estimates were also subdued on the domestic front, raising production by 100,000 MT, and increasing ending stocks by 200,000 MT with no other changes to the U.S. balance sheet.

Keep Up To Date

Though it is still very early in MY 2023/24, analyzing past trends and the monthly supply and demand updates helps provide context to aid purchasing decisions. Compared to this time last year, many influences have turned to favor wheat importers, though the war in Ukraine and weather patterns throughout the global wheat growing region add underlying risk. With risk still ever present, information is vital for planning and executing purchases. You can stay current on the latest reports via the U.S. Department of Agriculture and the U.S. Wheat Associates weekly Commercial Sales and Price Reports.

By U.S. Wheat Associates (USW) Market Analyst Tyllor Ledford

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USDA Reports Confirm the Tight U.S. Wheat Balance Sheet

On March 31, the United States Department of Agriculture (USDA) released its yearly Prospective Plantings Report, and Quarterly Grains Stocks reports. The reports provide valuable insights for U.S. wheat importing customers as we enter the final two months of the 2022/23 marketing year and look ahead to the 2023 harvest. In this article, we will analyze USDA’s recent reports and their implications while also looking at the broader market conditions not encapsulated in USDA’s data.

Prospective Plantings Reaction

USDA estimates the total wheat area for the marketing year 2023/24 at 20.1 million hectares (mha) (49.9 million acres), up 9% from 2022 and 8% above the five-year average.

With a 9% increase in the total area year over year and the highest planted area since 2016, the numbers appear bearish at first glance. However, on Friday, March 31, Kansas City Board of Trade HRW futures closed up 6 cents, Minneapolis Grains Exchange HRS futures closed up 16 cents, and Chicago Merchants Exchange SRW futures remained unchanged. The market reaction points to more bullish influences outside the USDA report scope.

Map of U.S. states showing acre volume and % change in planted area compared to 2022.

Winter wheat planted area is up 13% at 15.2 mha (37.5 million acres). HRW seeding is up 13% at 10.5 mha (26.0 million acres), SRW area increased 18% to 3.1 mha (7.8 million acres), and white winter wheat is at 1.5 mha (3.7 million acres). Source: Prospective Plantings Agricultural Statistics Board Briefing, March 31, 2023.

Despite the increase in overall wheat area, spring wheat area dropped 2% to its lowest level since 2017, 4.3 million hectares (10.6 million acres). Likewise, even as the winter wheat seeding outlook appears positive, the assumption that increased planted area equates to increased production does not always hold, especially as drought persists in the U.S. Southern Plains.

Map of U.S. states shows planted area and % change compared to 2022 for spring wheat.

USDA report showing total spring wheat acres are projected to be down 2% from 2022 at 4.3 million hectares (10.6 million acres). USDA forecasts HRS seedings at 4.0 mha (9.9 million acres), down 3% from 2022/23. Durum plantings are up 9% at 728,000 hectares (1.8 million acres). Source: Prospective Plantings Agricultural Statistics Board Briefing, March 31, 2023.

Weather Risk Creates Uncertainty

Since the spring of 2022, conditions in the U.S. Southern Plains have steadily deteriorated. A continued lack of precipitation and above-normal temperatures has left 48% of the winter wheat-growing region in drought. The severe dryness increases the likelihood of abandonment (particularly in Hard Red Winter wheat) and has a detrimental impact on the yield of the fields that make it to harvest.

Vertical bar chart from USDA Reports showing a comparison of wheat planted and harvested area since 2017.

Winter wheat abandonment has averaged 33% the last five years, , though in 2022/23, it increased to 42%. As drought persists, the share of area abandoned may increase. Source: USDA National Agricultural Statistics Service.

Meanwhile, late-season snow and cold temperatures in the HRS planting region have delayed spring fieldwork. A late spring may affect spring wheat plans, increasing the likelihood of prevent plant as farmers run up against crop insurance deadlines. A rapid warm-up is not yet out of the question.

Map of the U.S. from USDA reports showing snow depth and winter wheat production areas.

Winter weather persists in much of the Northern Plains. As of April 1, farmers in the Dakotas, Montana, and Minnesota have had less than 1 day suitable for fieldwork. Late planting has a negative impact on yield and area. Source: USDA Weekly Weather and Crop Bulletin.

A Tight U.S. Balance Sheet

As drought persists in the U.S. Southern Plains and cold lingers in the North, the weather fuels supply concerns; thus, supporting wheat prices. In addition to weather fears, the USDA Quarterly Grains Stocks report put all wheat stocks at 25.7 MMT, down 8% from last year and hovering at their lowest level since 2008. Meanwhile, the April World Agricultural Supply and Demand Estimates forecast 2022/23 U.S. ending stocks at 16.3 MMT, up 5% from the March estimates, but still down 14% from 2021/22.

Though ending stocks rest precariously above historic lows, April’s increase may help alleviate some price pressure, especially as weather remains an unpredictable bullish factor. Nevertheless, as the end of the marketing year approaches, a tighter balance sheet and weather uncertainty will continue to influence U.S. prices until well into the 2023 harvest.

By USW Market Analyst Tyllor Ledford

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U.S. Farmers Respond to Higher Wheat Prices by Planting More

Since Russia’s unprovoked invasion of Ukraine sent them soaring one year ago, global and U.S. wheat prices have decreased significantly. Continued Black Sea Grain Corridor exports and improved production outlook in major exporters such as Russia and Australia have helped relieve the market of some supply pressure. Bulk ocean freight rates have also broken in favor of wheat and other grain importers.

Even more relief for buyers arrived with the USDA Grains and Oilseed Outlook released on Feb. 23 that projected an 8% increase in all U.S. wheat planted area. On Feb. 24, wheat futures fell as much as 30 cents overnight in response to that report.

In a classic supply and demand equation, tight global wheat stocks and the uncertainty of the Black Sea pushed prices higher and provided an economic incentive to plant more wheat and futures prices reacted to the news.

Chart showing U.S. wheat class futures price volatility over the past several years.

In response to the increased wheat acre estimates, Chicago Board of Trade (CBOT), Kansas City Board of Trade (KCBOT), and Minneapolis Grains Exchange (MGEX) wheat futures recently dropped, and have come down as much as 41% from the highs hit in March 2022 to prices not seen since September 2021. Source: Source: U.S. Wheat Associates Price Charting Tool.

Historical Perspective

Over the last two decades, competition for wheat acres has increased as profit margins have shifted to favor other crops such as corn and soybeans. Meanwhile, as market volatility persists, farmers increasingly utilize diversified crop rotations to mitigate price and input risk. The combined impact has resulted in a slow erosion of U.S. wheat annual planted area, with the most recent five-year average coming in at 46.0 million acres (18.6 million hectares), down 24% from the 2002.

In addition to supply pressures at home, enhanced production in competing exporters has highlighted the increasingly tight U.S. balance sheet. Production in Russia has increased 76% over the last decade, while Argentine production, increased 138% from 2012/13 to 2021/22, (excluding the historic drought impacting the 2022/23 crop).

Wheat planted area erosion and increased global competition, coupled with drought-inflicted production shortfalls in the U.S. over the last three marketing years have created a tight balance sheet both domestically and on a global scale, underpinning wheat prices.

Chart showing the volume of planted acres since 2013/14 for wheat, corn and soybeans to illustrate influence on wheat prices.

Wheat acres have decreased over the last decade, compared to the relative, recent stability of soybean and corn planted area. Source: USDA Economic Research Service Wheat Data, USDA National Agricultural Statistics Service.

A Break in the Trend

Breaking from the historical trend, in January 2023, the USDA Winter Wheat and Canola Seedings report projected the 2023 winter wheat seeded area at 37.0 million acres (14.9 million hectares), up 11% from 2022 and 14% above the five-year average. The Hard Red Winter wheat (HRW) area was up 10% to 25.3 million acres (10.2 million hectares), while white winter wheat is up by 3% to 3.73 million acres (1.5 million acres). Soft Red Winter wheat (SRW) experienced the most significant planting increase, jumping 20% from 2022/23 to 7.9 million acres (3.2 million hectares)

Further echoing the sentiment for increased planted area, the recent USDA Grains and Oilseed Outlook projected an 8% increase in all wheat planted area to 49.5 million acres (20.0 million hectares), driven primarily by the jump in winter wheat acres. The estimate is the highest since 2016 and 8% above the five-year average.

Bar chart shows total wheat planted area in acres from 2012 through an estimate for 2023.

The 2023 estimate of wheat planted area mark a substantial increase in wheat acres compared to the last twenty years and the largest planted area since 2016. Source: USDA National Agricultural Statistics Service Data.

Looking Ahead

As producers begin their spring wheat sowing campaigns, Jim Peterson, Policy and Marketing Director at the North Dakota Wheat Commission, notes that though there is room for increased planting, many farmers minimized price risk by locking in their crop rotations and inputs for the season early, which tempers major acre shifts. He also added that spring wheat planted area increases this year would be in part a rebound after last year’s wet spring prevented many acres from being planted.

More clarity will come on March 31, when USDA publishes its annual Prospective Plantings Report outlining the initial spring wheat area and updating winter wheat area estimates. Likewise, the May 2023 World Agricultural Supply and Demand Estimates will provide the government’s first insight into the 2023/24 marketing year.

The incentive to plant wheat remains strong, but planted acres do not necessarily equate to production, especially as drought conditions persist in the southern plains. As always, the weather will play a crucial role in crop production as spring planting begins and the winter wheat crop emerges from dormancy.

By USW Market Analyst Tyllor Ledford

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