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World’s Farmers Outgrow Wheat Consumption Again

By Claire Hutchins, USW Market Analyst

USDA pegs 2020/21 world wheat production at a record 773 million metric tons (MMT), up 1% from last year and 3% above the 5-year average of 721 MMT. Total global supplies are forecast to reach a record 1,072 MMT, 2% more than last year. USDA projects significantly higher production in several of the world’s major exporting regions including Australia, Canada and Russia. Specifically, in Australia, production is expected to rebound 87% on the year to 28.5 MMT as favorable precipitation during the growing season pulled the country out of a severe, three-year drought. USDA estimates 2020/21 world wheat ending stocks will reach a record 321 MMT, up 7% from last year and 16% more than the 5-year average.

Higher global production and ending stocks are matched by increased global demand, lending confidence to the 26.5 MMT USDA forecast for the final 2020/21 U.S. wheat export volume. USDA expects total global consumption will reach a record 751 MMT this year, slightly higher than last year and 2% more than the 5-year average. Increased total global consumption is driven by a significant increase in human consumption which more than offsets reduced feed wheat use. Global human wheat consumption is expected to increase 2% on the year to a record 613 MMT. USDA expects global wheat trade to reach 190 MMT, slightly below last year’s record but 5% more than the 5-year average.

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U.S. Wheat Export Prices Firm on Higher Futures Prices and Export Basis Values

By Claire Hutchins, U.S. Wheat Associates Market Analyst

It is no secret that wheat futures prices have reached unexpected heights recently. Higher futures prices usually pressure export basis values when farmers sell wheat “into the rally” because that increases exportable U.S. wheat supplies. However, we are seeing a completely different phenomenon in the recent market. Extremely tight elevation capacity out of the Gulf and Pacific Northwest (PNW) due to massive U.S. agricultural commodity exports to China is sustaining high wheat export basis values, despite increased farmer selling.

CBOT soft red winter (SRW) futures and KCBT hard red winter (HRW) futures, specifically, have jumped over the past month beyond expected levels. Between Sept. 11 and Oct. 9, for example, CBOT SRW futures prices increased 11 percent to $5.94/bu, the highest since December 2014. Over the same period, KCBT HRW future prices jumped 13 percent to $5.36/bu, the highest since August 2018. MGE hard red spring (HRS) futures have increased too, by 6 percent since Sept. 11 to close at $5.44/bu on Oct. 9.

Source: DTN and USW Price Charting Tools

U.S. grain traders agree generally that the “run up” in futures prices is attributed to technical buying, where “managed money” or commodity funds buy significant amounts of U.S. wheat futures contracts with the expectation that the contracts will gain value over time. While not the whole story, part of this technical buying spree can be attributed to varying severities of dryness from Argentina to the U.S. Great Plains to the Black Sea.

These high export basis levels could hold on. “Increased farmer selling hasn’t made a dent on export basis,” said one grain trader. Limited elevation capacity is the reason.  That is because China has purchased 22.1 million metric tons (MMT) of U.S. soybeans, 9.98 MMT of corn and 1.48 MMT of wheat for delivery in 2020/21, as of Oct.1. Such demand causing “nearly non-existent” elevation capacity for wheat is sending export basis values higher.

“October, November and now nearly all of December are at capacity; we can’t add a lot more business for those months. If anyone were to sell anything for those delivery periods, it would raise elevation costs substantially more,” said another industry contact.

Additionally, export elevators are likely to charge more to elevate wheat in the next couple of months because they expect to store and export more corn and soybeans. It is more complex and expensive for export elevators to handle multiple commodities at the same time, said a representative from the U.S. grain trade.

Between June 5 and Oct. 9, Gulf HRS 14.0 percent protein export basis (on a 12 percent moisture basis) jumped 55 percent to $2.40/bu, Gulf HRW 11.5 percent protein export basis jumped 31 percent to $1.90/bu and Gulf SRW export basis jumped 80 percent to $1.35/bu.

Over the same period, PNW HRS 14.0 percent protein export basis increased 55 percent to end at $2.40/bu and PNW HRW 11.5 percent protein export basis increased 47 percent to close at $2.50/bu.

The two components of FOB are the futures price plus export basis so when both go up, the FOB prices jump substantially.

Between Sept. 11 and Oct. 9, Gulf HRS 14.0 percent protein FOB jumped 6 percent to end at $288/MT, the highest since June 2018. Gulf HRW 11.5 jumped 9 percent to close at $267/MT, the highest since December 2014. SRW increased 11 percent to end at $277/MT, the highest in over five years.

Over the same period, PNW HRS 14.0 percent protein increased 7 percent to close at $288/MT, the highest since May 2018, and PNW HRW 11.5 percent protein jumped 9 percent to end at $289/MT, the highest in more than five years.

What does this mean moving forward?

While U.S. Wheat Associates (USW) does not have a crystal ball, based on our information, we expect  export basis levels will stay at these higher levels through January assuming Chinese buying remains strong.  Futures prices could come down off their recent rally if, for example, “managed money” reverses its long position in wheat futures, but there would have to be a significant downward correction to take pressure off current FOB values.

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2020 Hard Red Winter Crop Provides Exceptional Range of Quality and Value

Variable growing conditions greatly influenced the 2020 U.S. hard red winter (HRW) wheat crop. In areas with favorable growing conditions, record yields resulted in lower protein but excellent test weights and kernel characteristics, while regional swings in temperature and moisture led to lower yields with higher protein. The result is a crop that has generally outstanding kernel characteristics with flour, dough and bake quality attributes equal to or better than last year and many of the 5-year averages. Overall, the 2020 HRW crop can be characterized as clean and sound with good milling and processing characteristics, providing customers with an exceptionally good range of quality and value.

U.S. Wheat Associates (USW) has posted the full 2020 Hard Red Winter Regional Report on its website here, as well as the 2020 California Hard Red Winter Regional Report here.

USDA estimates the 2020 HRW planted area was again near historic 100-year lows, continuing the trend of recent years. Total HRW production is estimated at 17.9 MMT (695 mil bu), a 4.8 MMT (174 mil bu) decrease from 2019. Growing conditions varied among the HRW production regions.

  • The western Central and Southern Great Plains experienced insufficient moisture, freeze events and high temperatures during key stages of crop development, resulting in lower yields and kernel size, but higher protein.
  • The eastern Central and Southern Great Plains experienced favorable growing conditions resulting in record yields and very good kernel characteristics, but lower protein.
  • The Northern Great Plains and Pacific Northwest also experienced variable growing conditions. Washington, Montana and South Dakota harvested crops are equal to or better than average with very good kernel characteristics and protein. However, Oregon experienced a significant reduction in yield due to unseasonably dry weather.

With very few exceptions disease and insects were not a major issue for the 2020 HRW crop.

Here are highlights of data from the 2020 HRW wheat crop.

 

Wheat and Grade Data:

  • Grade – the overall average is U.S. No. 2 or better.
  • Test Weight average of 61.4 lb/bu (80.8 kg/hl) is above 2019 and the 5-year averages.
  • Dockage, total defects and foreign material averages are all equal to or similar to 2019 and the 5-year averages.
  • Wheat Protein (11.9%, 12% mb) and shrunken and broken (1.1%) are above 2019 and the 5-year averages.
  • 1000 Kernel Weight averages at 31.2 g, which is less than 2019 but higher than the 5-year average.
  • Wheat Falling Number – Average of 369 sec, indicative of sound wheat.

 

Flour and Baking Data:

  • Laboratory Mill Flour Extraction average is 73.5%, lower than the 2019 and 5-year averages of 74.5% and 75.4%, respectively.
  • Flour Ash levels of 0.49% (14% mb) is comparable to last year but lower than the 5-year average.
  • Alveograph W value of 261(10-4 J) is significantly higher than last year and the 5-year averages.
  • Farinograph peak and stability times, 5.3 and 10.3 min, respectively, are higher than the 2019 and the 5-year averages. Average bake absorption is 63.1%, also above the value for 2019 and the 5-year average.
  • Loaf volume averaged 859 cc, comparable to last year’s and the 5-year averages.

Buyers are encouraged to review their quality specifications to ensure that their purchases meet their expectations.

View other summaries of the 2020 U.S. wheat crop:
Hard Red Spring
Hard White
Soft White
Soft Red Winter
Durum

View the full 2020 U.S. Crop Quality Report and other related resources here.

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Latest USDA Report Adjusts Earlier U.S. Wheat Production Estimates

By Claire Hutchins, U.S. Wheat Associates Market Analyst

On Sept. 30, USDA released its latest Small Grains Summary in which its estimate of 2020 U.S wheat production fell to 49.7 million metric tons (MMT). That is down 5 percent from last year and 8 percent below the 5-year average due to reduced yields and lower harvested area. In its report, wheat production, yield and harvested area estimates all fell from the USDA’s Sept. 11 World Agricultural Supply and Demand Estimates (WASDE) report.

While production was down this year, the harvest volume coupled with significant carry-in stocks of 28.4 MMT ensure that a reliable supply of U.S. wheat for 2020/21 remains.

Here is a look at 2020/21 U.S. wheat production by class.

Source: USDA 2020 Small Grains Summary

Hard Red Winter (HRW). According to USDA, total HRW planted area fell 4 percent from last year to 21.5 million acres (8.70 million hectares). Significant yield reductions in Colorado and Kansas due to extreme dryness added pressure to overall U.S. HRW production of 17.9 MMT, down 21 percent from last year and the 5-year average. Though dryness across the Southern Plains challenged producers during the growing season, it made for a quick 2020 harvest with minimal issues. Harvest sample data shows the average HRW protein level at 11.9 percent (on a 12 percent moisture basis), 5 percent more than last year and 2 percent more than the 5-year average. The crop’s moisture level is down 5 percent from last year at 10.9 percent. The average test weight is up significantly on the year at 61.7 lb/bu (81.1 kg/hl), which is 2 percent more than the 5-year average.

Hard Red Spring (HRS). USDA estimates total HRS planted area for harvest in 2020 fell 4 percent from last year to 11.5 million acres (4.66 million hectares), 2 percent below the 5-year average due to overly wet field conditions at planting and concerns over farmer profitability, specifically in eastern North Dakota and northwestern Minnesota. North Dakota HRS planted area fell 15 percent from last year to 5.70 million acres (2.31 million hectares) and Minnesota planted area fell slightly from 2019 to 1.43 million acres (579,000 hectares). USDA estimates total HRS production will reach 14.4 MMT, up 1 percent from last year and 4 percent more than the 5-year average. As of Sept. 25, 94 percent of the HRS crop was in the bin. Harvest data shows stable average HRS protein levels at 14.4 percent and a higher average DHV content of 63.0, up 21 percent from last year on significantly more favorable harvest conditions. The average HRS test weight is up 1 percent from last year at 61.6 lb/bu (81.0 kg/hl).

Soft Red Winter (SRW). USDA adjusted total area planted to SRW in fall 2019 for harvest in 2020 up 8 percent on the year to 5.63 million acres (2.28 million hectares) as producers returned to a trendline planting pattern following extremely poor marketing conditions in fall 2018. USDA estimates total SRW production in 2020 reached 7.60 MMT, up 17 percent from the year prior. Favorable weather conditions helped farmers with a rapid harvest. Overall, the 2020 SRW crop is sound and features very good quality characteristics. The 2020 USW SRW Crop Quality Report is available online. 

White Wheat (Soft White, Club and Hard White). White wheat planted area, which includes more than 99 percent soft white (SW), totaled 4.12 million acres (1.67 million hectares) for harvest in 2020, in line with last year and the 5-year average. Significantly higher yields in Washington and Idaho boosted total U.S. white wheat production to 7.89 MMT, up 6 percent from last year and 11 percent more than the 5-year average. Dry conditions during harvest accelerated farmer progress through the late summer and autumn. When compared to last year, this year’s soft white (SW) harvest samples show a higher average test weight at 61.9 lb/bu (81.4 kg/hl) and a higher average falling number value of 323 seconds. The average SW moisture level is down 7 percent from last year at 9.20 percent and the average protein level is down from last year and the 5-year average at 9.80 percent.

Durum. Strong market prices at planting time supported total U.S. durum planted area in 2020 at 1.68 million acres (680,000 hectares), up 25 percent from last year. Significantly higher planted area more than offset reduced average yields. USDA expects total U.S. durum production will reach 1.87 MMT in 2020, up 27 percent on the year. As of Sept. 25, durum harvest stood at 91 percent and 70 percent of the expected samples had been tested. Early sample data shows slightly higher average protein levels than last year at 13.7 percent. The average test weight is up 2 percent from last year and the 5-year average at 62.0 lb/bu (80.7 kg/hl).

 

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2020 Global Wheat Harvest Update

By Claire Hutchins, U.S. Wheat Associates Market Analyst

As the 2020 wheat harvest nears its end in the Northern Hemisphere, U.S. Wheat Associates (USW) surveyed industry sources to assess the global harvest situation.

United States. The 2020 U.S. hard red winter (HRW) and soft red winter (SRW) harvests are officially complete and preparations for the 2021 crop are now underway. The Pacific Northwest (PNW) soft white (SW) harvest made strong progress last week on favorable field conditions. Farmers in Washington have harvested 95% of the expected SW crop. Idaho’s SW crop is 99% harvested and Oregon’s SW harvest is now complete.

Warmer weather next week is expected to push spring wheat harvest nearly to its end across the Northern Plains.

USDA forecasts U.S. wheat production in 2020/21 will total 50.0 million metric tons (MMT), down 4 percent from last year on reduced planted area and lower average yields. Total U.S. wheat exports are expected to reach 26.5 MMT, up 1 percent from last year and 5 percent more than the 5-year average, if realized.

Click here to read more about the 2020 U.S. wheat harvest.

Canada. Canada is set to reach its second-highest level of wheat production in more than a century.

“The projected increase in wheat area is largely attributable to the durum wheat and winter wheat area remaining after winterkill, which offset the decrease in spring wheat area,” said Statistics Canada (Statscan) on Aug. 31.

USDA expects total Canadian wheat production will reach 36.0 MMT, up 11 percent from last year and 16 percent more than the 5-year average. Total wheat harvested area at 9.9 million hectares (24.5 million acres), is up 2 percent from last year and 5 percent more than the 5-year average.

In Saskatchewan, Canada’s largest wheat producing province, as of Sept. 8, official data showed 32 percent of spring wheat in the bin, the durum harvest at 62 percent complete and winter wheat at 99 percent harvested.

In Alberta, the second-largest wheat producing province in Canada, as of Sept. 8, spring wheat is 13 percent harvested, durum is 58 percent complete and winter wheat is 92 percent harvested. Recent frosts have been reported, but it is too early to determine if there was any crop damage as a result, said Alberta’s Department of Agriculture and Forestry.

This year, USDA forecasts total Canadian wheat exports will reach 25.0 MMT, the highest in more than 10 years.

Russia. According the Russia’s Ministry of Agriculture, Russian farmers have harvested 78.8 MMT of wheat as of Sept. 9, 24% more than this time last year. The average yield is up slightly this year at 48.0 bu/acre (3.23 MT/ha). Increased harvested area is expected to augment increased average yields. USDA predicts Russian wheat harvested area will jump 4 percent from last year to 28.3 million hectares (69.9 million acres), 6 percent more than the 5-year average. SovEcon, a Russian agriculture consultancy, increased the country’s wheat production forecast from 82.6 MMT last month to 83.3 MMT on Sept. 10.

USDA’s estimate for Russian wheat output differs from SovEcon’s report. USDA did not change its forecast of 78.0 MMT in 2020, unchanged from the August forecast, but 6 percent more than last year, if realized. USDA forecasts Russian wheat exports in 2020/21 will reach 37.5 MMT, up 9 percent from last year and 14 percent more than the 5-year average.

Ukraine’s 2020 wheat harvest ended on Sept. 7. The country’s Ministry of Agriculture reported final production at 26.9 MMT, in line with USDA’s estimate, and down 7 percent on the year as continued dryness through the growing season challenged average yields. A 3 percent decrease in harvested area from last year, at 6.80 million hectares (16.8 million acres), pressured overall production. USDA predicts total Ukrainian wheat exports will total 18.0 MMT in 2019/20, down 14 percent from last year’s record, but in line with the 5-year average, if realized.

European Union (EU). According to Stratégie Grains (SG), a European agriculture consultancy, estimated soft (non-durum) wheat production in the EU (including the United Kingdom) decreased by more than 2.0 MMT between July and August to 128 MMT.

“With the harvest ending in France and poor results in southeastern Europe, new reductions to growing areas in France and Germany accentuated the forecasted decline. Soft wheat production has therefore fallen by almost 20.0 MMT, or 13 percent, from last year,” said SG.

Poor planting conditions in the fall of 2019 followed by an extremely warm, dry growing season challenged soft wheat production in the EU’s two largest producing countries, France and Germany. According to USDA, total EU wheat harvested area is expected to fall 5 percent from last year to 24.7 million hectares (61.0 million acres), down 6 percent from the 5-year average, if realized. The total wheat average yield is expected to drop 7 percent from last year to 82.0 bu/acre (5.51 MT/hectare), down 3 percent from the 5-year average.

SG estimates that total EU durum production will fall slightly below last year to 7.30 MMT. USDA predicts total EU wheat production, including soft wheat and durum, will fall to 136 MMT, 12 percent less than last year, 9 percent below the 5-year average and the lowest output since 2012/13.

European Commission (EC) data shows that, so far in marketing year 2020/21, the EU and the United Kingdom have exported 3.60 MMT of wheat to all non-EU destinations. That is 41 percent behind their export pace this time last year. USDA forecasts the EU will export just 25.5 MMT of wheat this marketing year, 34 percent less than last year and 13 percent less than the 5-year average.

USW will continue to monitor global conditions as farmers in the Northern Hemisphere start the 2021 winter wheat planting campaign.

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Inland grain elevator with grain rail cars to help demonstrate rail rates.
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Secondary Rail Rates, Tight Elevation Capacity Continue to Support Wheat Export Prices

By Claire Hutchins, U.S. Wheat Associates Market Analyst

Gulf and Pacific Northwest (PNW) hard red spring (HRS) and hard red winter (HRW) basis values have jumped significantly in the last month due to increased domestic secondary rail rates and limited export elevation capacity, both driven by stronger-than-expected U.S. agricultural export sales to China.

It is important for overseas wheat buyers to understand the potentially significant impact of price movement in the domestic secondary rail market on export prices.

U.S. railroads auction domestic freight in the “primary railcar auction market.” Grain shippers can meet their need for rail capacity by trading this freight among themselves in the secondary railcar auction market at prices above or below the primary tariff rate, depending on national supply and demand conditions. According to the USDA Agricultural Marketing Service (AMS), the secondary railcar market evolved to enable rail movements of grain to be more responsive to market pressures, like increased commodity exports or reduced railcar availability.

This year, AMS data show the average secondary rate for shuttle trains to be delivered in October was up 36 percent between July 30 and Aug. 20 to $1,172/car, nearly three times greater than the previous 3-year average.

Over the same period, Gulf HRS 14.0 (12% moisture basis) export basis increased 16 percent to $2.20/bu, PNW HRS 14.0 export basis increased 21 percent to $2.00/bu. Gulf HRW 12.0 export basis increased 11 percent to $1.95/bu and PNW HRW 12.0 increased 24 percent to $2.55/bu.

According to U.S. grain traders, the unexpectedly swift pace of agricultural commodity exports to China and rail labor shortages due to COVID-19 furloughs are supporting secondary rates and, in turn, wheat export basis levels.

“If rail logistics through October, November and December run smoothly, we could see secondary rail rates plateau,” said one grain trader. “But if things go wrong in terms of weather or continued labor shortages, we could see more upside to secondary rail rates in the near future.”

Limited export elevation capacity out of the Gulf and PNW due to the swift uptick in Chinese demand for U.S. agricultural goods continues to add support to wheat export basis values.

“September and October are at capacity; we can’t add a lot more business for those months. If anyone were to sell anything for delivery in those periods, it would raise elevation costs substantially,” said another grain trader. Additionally, export elevators are going to charge more to elevate wheat in the next couple of months because they expect to store more corn and beans at that time of year. It is more complex and expensive for export elevators to handle multiple commodities at the same time, said a representative from the U.S. grain trade.

Soybeans. “A lot of customers are surprised by the fact that export capacity is filling up so quickly with soybeans,” said a U.S. grain trader. The reason, however, is no surprise: China’s dramatic increase in U.S. soybean purchases this year compared to previous years. According to USDA, China bought 17.0 million metric tons (MMT) of U.S. soybeans for delivery in the soybean marketing year 2019/20, which ended Aug. 31. That is 21 percent more than the 14.1 MMT China purchased for delivery in marketing year 2018/19.

Corn.  Export sales to China for marketing year 2019/20, at 2.24 MMT, are more than five times greater than the amount sold in 2018/19.

Wheat. It is no secret China has re-emerged as a buyer of U.S. wheat in a big way. According to USDA, as of Aug. 20, total U.S. wheat export sales to China total 1.22 MMT, for delivery in the current wheat marketing year. magnitudes greater than the 60,500 metric tons (MT) sold this time last year. China is currently the second largest market for U.S. wheat in marketing year 2020/21, which started June 1.

“If China wants to purchase more U.S. wheat for October, November and December deliveries, we could see export basis levels go higher in the near future,” said an industry contact.

 

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Trade Policy Opportunities and Competitive Prices Support U.S. Wheat Export Sales Early in the Marketing Year

By Claire Hutchins, USW Market Analyst

USDA estimates the United States will export 25.9 million metric tons (MMT) of wheat in 2020/21, 2 percent behind last year’s pace if realized. However, two months into marketing year (MY) 2020/21, total U.S. wheat commercial sales are 8 percent ahead of last year’s pace at 9.62 MMT and are 12 percent ahead of the 5-year average.

To date, export sales of hard red spring (HRS) wheat, white wheat and durum are significantly ahead of last year’s pace. Sales of hard red winter (HRW) wheat are nearly in line with last year, while sales of soft red winter (SRW) lag 2019/20. Success in individual markets such as China and Brazil due to policy changes and strong education programs by U.S. Wheat Associates (USW) are supporting overall sales. As in other markets, competitive pricing for U.S. wheat is helping fuel a faster import pace by traditionally strong U.S. wheat buyers like the Philippines, Japan and South Korea.

Here is more detail about the current factors underlying U.S. wheat export sales.

HRS. Total HRS export sales of 2.85 MMT are 28 percent ahead of this time last year and are 12 percent ahead of the 5-year average. Sales to the Philippines, the top market for HRS, are 23 percent ahead of last year at 768,000 MT and are 52 percent ahead of the 5-year average. Rising per capita consumption combined with population growth and competitive HRS prices are supporting strong sales to the Philippines early in MY 2020/21.

In Japan, the second largest market for HRS, sales of 379,000 MT are up 52 percent on the year.

“We had good start this year in the Japanese market following the U.S. and Japan trade agreement implemented on January 1,” said Rick Nakano, USW Country Director in Japan. “This gives U.S. wheat a better opportunity to be traded on equal footing with similar classes of wheat from Canada. This results in a great outcome for U.S. wheat to satisfy the needs of Japanese millers that now pay the same price mark-up as for Canadian wheat. Additionally, the relative price increase for Canadian spring wheat has also supported HRS demand in the Japanese market.”

Source: USDA ERS export sales data as of July 23, 2020

White. Total U.S. white wheat sales are 23 percent ahead of last year at 1.93 MMT, 12 percent ahead of the 5-year average. In South Korea, the second largest market for U.S. soft white wheat, export sales are up 27 percent on the year and are 4 percent ahead of the 5-year average.

“The price of U.S. white wheat has been much more competitive than comparable Australian classes during the first and second quarter of 2020,” said C.Y. Kang, USW Country Director in South Korea. Kang added that HRS and U.S. white wheat sales to South Korea are up on the year in part because South Korean instant noodle production is up on increased demand during the COVID-19 pandemic.

Sales to Japan, the third largest market for U.S. white wheat are 3 percent ahead of this time last year at 235,000 MT.

“The demand for U.S. Western White (WW) wheat, a blend of U.S. soft white wheat and U.S. club wheat, has been stable in Japan with strong consumption for confectionery products including sponge cake and biscuits. U.S. WW is a unique product and cannot be substituted by Australian, Canadian or domestically grown Japanese wheat,” said Nakano.

Source: USDA ERS export sales data as of July 23, 2020; about 99% of white wheat sales are soft white and soft white sub-classes

HRW. Total HRW sales are slightly below last year at 3.52 MMT, but 21 percent ahead of the 5-year average. Strong export programs to China and Brazil are supporting HRW sales in the first few months of 2020/21.

As of July 23, China has purchased 669,000 metric tons (MT) of HRW after no purchases in 2019/20. Strong HRW export sales so far in 2020/21 can be attributed to the Phase One agreement between the United States and China and HRW’s competitive prices compared to other classes of U.S. wheat. So far in marketing year 2020/21, China is the largest market for HRW.

HRW export sales to Brazil are more than double this time last year at 257,000 MT and are 85 percent ahead of the 5-year average. According to Miguel Galdos, USW Regional Director in South America, increased sales to Brazil can be attributed to the Brazilian government opening a tariff rate quota (TRQ) which allows up to 750,000 MT of non-Mercosur (South America’s free trade bloc) wheat to enter the country tariff-free. Strong educational programs in Brazil by USW are encouraging millers to take advantage of the high quality and competitive prices of U.S. wheat. To date, Brazil is the fifth largest market for HRW.

“USW provides the best trade and technical service to our customers and we are here for Brazilian mills for any need they have,” said Galdos.

Source: USDA ERS export sales data as of July 23, 2020

Durum. Total durum export sales are 6 percent ahead of this time last year at 385,000 MT and are 57 percent ahead of the 5-year average. Export sales to Italy, the largest market for U.S. durum, are more than double this time last year and are significantly higher than the 5-year average.

“Italy needs the high protein content of durum from North America, because it does not produce enough high protein durum locally,” said Rutger Koekoek, USW Regional Marketing Director for the European Region.

It is expected that Italy will produce an average volume of durum this year and will need to import large volumes of North American durum wheat again in MY 2020/21.

“I am still expecting an above average export volume of U.S. durum to Italy this marketing year,” said Koekoek.

SRW export sales are a different story. Total SRW export sales are down 21 percent on the year to 927,000 MT, 17 percent behind the 5-year average.

“It is a price story,” said one grain trader, “we’re priced out of the world market, especially to our buyers in Latin America and Nigeria.” Between early January and late July, the average export price for SRW was $234/MT, 8 percent higher than the same period last year and 12 percent higher than the 5-year average.

In Colombia, the second largest market for SRW, export sale of 73,000 MT are 18 percent behind last year’s pace and 22 percent behind the 5-year average.

“Colombian mills bought more wheat than they needed between March and May due to demand uncertainty around COVID-19. They are now covered for the next couple of months. Higher prices are also impacting 2020/21 SRW sales to Colombia,” said Galdos.

High SRW export prices early in 2020, which continued into late July, are also having a significant impact on SRW demand in Nigeria, which has imported no SRW yet in 2020/21.

Source: USDA ERS export sales data as of July 23, 2020

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Tight Exportable Supplies, Elevation Capacity Prop Up SRW Export Prices

By Claire Hutchins, USW Market Analyst

The inverted spread in export prices for U.S. soft red winter (SRW) and hard red winter (HRW) that has appeared occasionally recently settled into the market in early July. What is happening to fuel this situation?

First, there are limited exportable supplies of SRW along the Mississippi River due to lower planted area in key states. That lower supply of SRW is also competing for export elevation capacity in the Center Gulf with increased export demand for soybeans and corn. U.S. Wheat Associates (USW) believes these two factors could continue to support Gulf SRW export prices in the coming weeks.

Source: USW weekly Price Report

Between June 26 and July 17, Gulf SRW free on board (FOB) prices increased 16 percent to $239/MT.

With planted area down 13 percent and 12 percent in two key SRW-producing states, Illinois and Missouri, respectively, the recent harvest did little to improve exportable supplies of SRW. The SRW harvest in states tributary to the Mississippi River feeding into Center Gulf export terminals, was “a flash in the pan” said one grain exporter.

“We don’t have abundant supplies up and down the Mississippi River and rail rates are just too high for it to make sense to pull SRW supplies inland from the Midwestern states,” said another trader.

A swift uptick in export demand for U.S. soybeans and corn is limiting export elevation capacity out of the Center Gulf, which adds support to nearby Gulf SRW export prices. According to U.S. grain traders, customers may have difficulty finding export capacity for “grocery boats” (vessels containing multiple commodities or multiple classes of wheat) out of the Center Gulf for nearby deliveries which supports SRW export prices.

Soybeans. “A lot of customers are surprised by the fact that export capacity is filling up so quickly with soybeans,” said one industry contact. The reason, however, is no surprise: China’s dramatic increase in U.S. soybean purchases this year compared to previous years. According to USDA, China bought 1.49 million metric tons (MMT) of U.S. soybeans between May 28 and July 9 for delivery in 2019/20. That is nearly 35 percent more than the 959,000 metric tons (MT) China purchased over the same period in 2019. U.S. soybean sales to all destinations, between May 28 and July 9, reached 4.15 MMT, nearly double the volume over the same period in 2019.

Source: USDA FAS Export Sales data as of July 9, 2020

Corn. Between May 28 and July 9, total U.S. corn export sales, to all destinations, reached 3.65 MMT, more than double the volume sold over the same period in 2019. Export sales to Mexico, the largest market for U.S. corn, reached 815,000 MT during the previously noted 2020 period, nearly quadruple the total volume sold in 2019. Between July 2 and July 9, USDA reported China bought 768,000 MT of U.S. corn, its largest weekly purchase since October 2011.

Source: USDA FAS Export Sales data as of July 9, 2020

It is interesting to note that Gulf SRW FOB prices for August delivery are currently more than all HRW prices from the Texas Gulf. As of July 17, USW reported that HRW ordinary FOB for August delivery was $216/MT and HRW 11 percent protein (on a 12 percent moisture basis) was $220/MT compared to $239/MT for SRW.

Photo above: A grain barge headed downstream on the Mississippi River.

 

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Commercial U.S. Wheat Export Sales Top USDA Estimate

By Claire Hutchins, USW Market Analyst

Despite challenging market factors, U.S. wheat exports for marketing year (MY) 2019/20, which ended May 31, totaled 26.9 million metric tons* (MMT) (988 million bushels), ahead of USDA’s export volume estimate of 26.4 MMT (970 million bushels). That is 4 percent ahead of MY 2018/19 and 10 percent greater than the 5-year average of 24.4 MMT (897 million bushels).

Commercial sales of all classes of wheat in MY 2019/20 exceeded 2018/19 levels in part from favorable market factors including abundant exportable supplies, strong harvest qualities, and competitive export prices at the beginning of the marketing year.

This offset such bearish factors as a strong U.S. dollar, competitor’s advantages, difficult winter wheat planting conditions, significant delays to the spring wheat and durum harvests, uncertainty about U.S. trade policies, and recent challenges during the COVID-19 pandemic.

Throughout the year, even in the face of the pandemic restrictions on meetings and travel, U.S. Wheat Associates (USW) representatives were able to sustain a strong level of service and information flow to its customers, with support from its state commissions members and USDA’s Foreign Agriculture Service export market development programs.

Hard Red Winter. Significantly greater production and attractive export prices buoyed hard red winter (HRW) exports year-over-year. Total 2019/20 HRW exports came in at 10.2 MMT (375 million bushels), 9 percent ahead of last year. According to USDA, higher yields due to cool, moist conditions during the 2019 growing season more than offset decreased planted area. HRW production increased 26 percent in 2019/20 to 22.7 MMT (834 million bushels). The average HRW export price in the first two months of MY 2019/20 fell 4 percent from the year prior to $233/MT. Increased exports to Mexico, the largest market for HRW, Taiwan, Indonesia, Brazil and Colombia more than offset reduced exports to Nigeria, Japan, Iraq and Egypt. Sales to Mexico totaled 2.61 MMT (95.9 million bushels), the highest on record and 22 percent more than last year. Sales to Nigeria, the second largest market for HRW, fell 11 percent from last year to 1.01 MMT (37.1 million bushels). HRW sales to China picked up in 2019/20 to 302,000 MT (11.1 million bushels) compared to the zero metric tons sold in 2018/19.

Hard Red Spring. Total hard red spring (HRS) commercial sales of 8.0 MMT (294 million bushels) were 12 percent greater than last year and 36 percent greater than the 5-year average of 1.45 MMT (53.3 million bushels). Exportable supplies were relatively stable year-over-year as higher beginning stocks in 2019/20 cushioned reduced production. Commercial sales to the Philippines, Japan, Taiwan, South Korea and Vietnam, the top five export markets for HRS, all outpaced 2018/19 sales. HRS sales to China for delivery in 2019/20 at 146,000 MT (5.36 million bushels) were more than 4 times greater than the quantity sold for delivery in 2018/19.

Soft Red Winter. Soft red winter (SRW) sales fell 27 percent on the year to 2.45 MMT (90.0 million bushels) as reduced exportable supplies supported export prices. USDA estimates 2019/20 SRW production fell 17 percent from last year to 6.50 MMT (239 million bushels). The average SRW export price for 2018/19 was $217/MT, but for almost the entire second half of the marketing year, SRW futures prices were higher than HRW futures. Exports to 8 out of the top 10 SRW markets fell below 2018/19. Sales to Mexico, the top market for SRW, fell 11 percent from last year to 815,000 MT (29.9 million bushels). Price sensitive buyer Egypt made no SRW purchases in MY 2019/20. Sales to Colombia, the fourth largest market for SRW, increased 11 percent year-over-year to 288,000 MT (10.6 million bushels).

White Wheat. Total commercial sales of soft white (SW) and hard white (HW) wheat of 5.37 MMT (197 million bushels) were slightly less than last year but still 14 percent ahead of the 5-year average of 4.69 MMT (172 million bushels). HW sales represent about 4 percent of the total. Sales to 3 of the top 5 white wheat markets fell below 2018/19. Sales to Japan, the second largest market for white wheat, fell 21 percent from last year to 701,000 MT (25.8 million bushels). Sales to the Philippines, the top market for white wheat, increased 14 percent from last year to 1.51 MMT (55.5 million bushels).

White Wheat Sales

Note that USDA reports both SW and hard white (HW) in its U.S. White Wheat commercial sales. HW represents about 4% of total White Wheat sales.

Durum. USDA reported 2019/20 durum sales at 965,000 MT (35.5 million bushels), nearly double last year’s figure and 70 percent greater than the 5-year average on significantly increased European Union (EU) imports. EU durum production fell 14 percent year-over-year on sharply lower harvested area, prompting greater imports from the United States. Italian imports of U.S. durum nearly tripled last year’s import volume at 672,000 MT (24.7 million bushels).

*Slight adjustments will be made when final commercial sales data is published on June 11.

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2020 Hard Red Winter Wheat Tour Goes Virtual in Kansas

By Claire Hutchins, USW Market Analyst

Each year in May, the Wheat Quality Council (WQC) hosts a three-day winter wheat tour across Kansas and parts of surrounding states to assess hard red winter (HRW) wheat conditions and yield potential. For the past 50 years, caravans of industry stakeholders including farmers, journalists, economists, millers, traders and agronomists have joined together to report on the crop.

This year, with the uncertainty of the COVID-19 pandemic, WQC could not conduct the traditional tour. Instead, Kansas Wheat and K-State Research and Extension (KSRE), in conjunction with the Kansas Department of Agriculture, and other industry partners held a virtual wheat tour.

Instead of the traditional process, a small group of crop scouts surveyed hundreds of fields in Kansas between May 18 and May 21, and estimated environmental, disease and pest pressures and yield potential by region and for the whole state. These estimates represent a snapshot in time and are subject to change with environmental developments.

Stakeholders followed the tour closely through social media (#wheattour20) and in summaries conducted on the Zoom conference service at the end of each day. The event started with some trepidation as drought in the western third of the state, dryness in the state’s central corridor and broad freeze damage in April had raised concerns about what scouts would find.

“Overall, the crop was in better condition than I personally was expecting,” said Justin Gilpin, CEO, Kansas Wheat. “The last two weeks of moisture have really aided secondary tillers emerging in the central corridor and heads are filling with the added moisture.”

After three days of sampling, the state’s 2020/21 wheat crop potential (planted 2019) was estimated at 7.73 million metric tons (MMT), 7 percent below USDA’s May 12 estimate of 8.33 MMT and 16 percent below last year’s output of 9.20 MMT. The state’s average estimated wheat yield came in at 44.5 bu/acre (2.99 MT/ha), 14 percent below last year’s realized yield average of 52.0 bu/ acre (3.50 MT/ha).

According to Kansas Wheat, the state’s north-central district has been plagued by spring drought, and stripe rust and barley yellow dwarf are starting to emerge. The spring freeze also had a significant effect on the crop in that area. The tour estimated the average yield potential for north central Kansas at 41.1 bu/acre (2.76 MT/ha).

“Quality-wise, good rains will help with yield and test weights in the central corridor,” said Gilpin.

Image courtesy of KSU Wheat and Forage Extension Pathology.  

The crop looked better in northwest Kansas but was still variable. Jeanne Falk Jones, Multi-County Extension Agronomist, KSRE said, “April took a toll on the wheat crop this year with all the cold temperatures.”

She reported cosmetic leaf burn from cold temperatures on April 2 and 3, and again April 12 to 15. The area has suffered from drought stress, weed pressure due to thin stands, low pressure wheat streak mosaic virus, tan spot and stripe rust. The average yield potential was 51.7 bushels per acre (3.48 MT/ha).

In west-central and southwest Kansas, the driest parts of the state, the wheat is thin and short. Gary Millershaski, Kansas Wheat Commissioner from Lakin, Kan., reported that many acres of wheat had been abandoned due to extreme drought conditions in the spring and fall. In addition, planted acres were already down significantly in the area. He said only 30 percent to 40 percent of wheat in the area emerged before winter, which had a negative effect on yield potential.

Severe drought stress in the eastern part of Seward County, Kan. Photo courtesy of Romulo Lollato.

Buyers should keep in mind that crop yield and grain protein content are generally inversely related. Fields that were fertilized for 50.0 bu/acre (3.36 MT/ha) that end up with lower yields should produce a crop with higher protein levels.

Millershaski said, “I believe our quantity is going to be down a little bit, but I feel like our quality is going to be unbelievable.”

Calculated yield potential for west-central Kansas was 42.5 bu/acre (2.86 MT/ha), and the southwest Kansas estimate came in at 32.4 bushels per acre (2.18 MT/ha).

“It is amazing how the crop was still holding on, holding out hope for just one shot of rain. Cool night temperatures have helped the wheat from burning up. In those areas of 20 to 25-bushel wheat, if it catches a rain, it may run up to 35 bushel wheat, which is an amazing testament to the wheat varieties,” said Gilpin.

To see more information about the 2020 virtual wheat tour, click here.

Header Photo: Evidence of freeze damage in central Kansas. Photo courtesy of KSU Wheat and Forage Specialist, Romulo Lollato.

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