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Chinese Wheat Stocks Mask Tight Stocks to Use Ratio

By Stephanie Bryant-Erdmann, USW Market Analyst

On May 10, USDA forecast the 2018/19 global wheat supply to hit a record 1,018 million metric tons (MMT) despite the expectation that global wheat production will fall for the first time in 5 years to 748 MMT.

At the same time that global wheat production is expected to decrease, global wheat consumption is expected to reach a new record of 754 MMT, 5 percent above the 5-year average.

The reason global wheat supplies continue to grow is because of an anticipated 6 percent year over year increase in beginning stocks — 47 percent of which are in China. This large percentage of global wheat stocks residing in China’s wheat stocks are masking an otherwise declining global wheat supply.

By the end of 2018/19, USDA expects Chinese ending stocks to total 139 MMT, 52 percent of global wheat ending stocks.

Because China’s endings stocks are masking the declining global wheat supply, the traditional stocks-to-use ratio is 35 percent.

However, when Chinese stocks and use are removed from the ratio, the 2018/19 global stocks-to-use ratio falls sharply to 20 percent, the tightest stocks-to-use ratio since 2007/08.

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.

View the U.S. Wheat Associates full 2018 May World Wheat Supply and Demand Situation Graphic Summary.

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Wheat Tour Scouts Expect Sharply Lower 2018/19 Production

By Stephanie Bryant-Erdmann, USW Market Analyst

This week I joined the annual Wheat Quality Council (WQC) Hard Red Wheat (HRW) Tour for an early survey of the new crop. Each year, participants gather in Manhattan, Kan., and spend the next two and a half days in small scout teams, randomly stopping at 14 or more fields in a full day along the same routes followed for many years. The teams measure yield potential, determine an average for the route and estimate a cumulative average for the day when all the scouts come together in the evening. Last year, tour participants faced snow and muddy fields. This year, the snow is a distant memory, as fields on days one and two were all bone dry. A violent storm rolled through central Kansas on Day 2, which cut some scouting short, but brought much needed moisture to the wheat fields.

Just a few hours before U.S. Wheat Associates (USW) published this issue of “Wheat Letter,” the tour estimated a final average yield potential of 37.0 bushels per acre (bu/ac) or about 2.49 metric tons (MT) per hectare for the 2018/19 Kansas HRW crop. This year, the tour participants made 644 stops to scout fields. Combining seeded area with per-acre yield potential, the total production potential estimate was 243.0 million bushels [(6.61 million metric tons (MMT)]. Last year’s total production estimate was 282 million bushels (7.67 MMT).

On the first day, the tour traveled from Manhattan along several routes covering most northern Kansas counties. The cumulative Day 1 average yield potential was 38.2 bu/ac, which is equivalent to about 2.57 MT per hectare, compared to 43.0 bu/ac (2.89 MT per hectare) in 2017. To reach that average, participants surveyed a record 317 fields recording a range from a low of 17 bu/ac to a high of 93 bu/ac. We saw very short wheat that was two to four weeks behind developmentally. Fields were very dry, which has prevented disease establishment, but threatens yield potential.

Participants also received a report on the Nebraska and Colorado wheat crops. Nebraska estimated an average 43.0 bu/ac (2.89 MT per hectare) for a total production estimate of 43.7 million bushels (1.19 MMT), down roughly 7 percent from last year’s tour estimate. Colorado estimated an average of 35.0 bu/ac (2.35 MT per hectare) with total production estimated at 70 million bushels (1.90 MMT), down 19 percent year-over-year, if realized.

On the second day, the tour traveled on routes that led from the city of Colby to Wichita, making 284 stops. The number of observations was up significantly from last year due to much better field conditions this year, though severe weather including tornados and hail, did cut some scouting short. Scouts reported most wheat was one to two weeks behind normal development, but continued to see very little disease pressure. This year, the tour estimated Day 2 average yield at 35.2 bu/ac (2.37 MT per hectare), for a combined two-day average of 36.8 bu/ac (2.47 MT per hectare) across 601 stops. Last year, the combined two-day average was 44.9 bu/ac (3.02 MT per hectare) on 427 stops.

Participants also received a crop report from Oklahoma, where drought conditions severely impacted the panhandle of the state which received less than 0.1 inch (less than 0.5 cm) of rain between September and mid-February. The estimated average yield in Oklahoma is 24.8 bu/ac (1.67 MT per hectare), for a total production estimate of 54.8 million bushels or about 1.49 MMT. If realized, that would be down 44 percent year over year. With decreased yield potential, many farmers have chosen to graze out the wheat fields to feed hungry cattle whose pasture has been impacted by the drought as well. As a consequence, harvested area in Oklahoma is expected to be sharply lower in 2018/19.

The third and final day of the tour was shorter, with each car making three to four field stops on the way from Wichita to Manhattan for the final report. The Day 3 estimated average yield was 39.8 bu/ac, (2.67 MT per hectare) across 43 stops.

View highlights and photos from the tour by searching #wheattour18 on Facebook and Twitter. The WQC also sponsors a spring wheat tour in the Northern Plains in July. For more information, visit the Council’s web site at https://www.wheatqualitycouncil.org.

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Competing for Acres: 2018/19 Global Wheat Production to Fall

By Stephanie Bryant-Erdmann, USW Market Analyst

At first glance, the USDA April 10 World Agricultural Supply and Demand Estimates (WASDE) held very few surprises for wheat. Most reviewers would consider this a bearish report with another increase in predicted U.S. and global wheat ending stocks. However, a somewhat unnoticed factor was increased global wheat feed use, now forecast at 146 million metric tons (MMT), 7 percent above the 5-year average. This was due largely to shrinking supplies of traditional feed grains. With an average 19 percent of global wheat production being used as feed each year, the current feed grain supply and demand situation has implications for wheat.

A deeper look at the feed grain situation shows the most striking decrease was in global corn production, which fell 4 percent year over year to 1.04 billion metric tons due to sharply lower production in drought-stricken Argentina and lower second-crop corn production in Brazil. At the same time, 2017/18 corn feed demand grew 18.0 MMT. These facts set up a total stocks-to-use ratio of 19 percent. However, it is important to note that China holds 40 percent of the world’s corn stocks, which will not leave the country.  Removing China from the equation brings the stocks-to-use ratio down to 14 percent.

The constrained corn supply caused USDA to reduce global corn feed demand by 4 MMT from the prior month’s estimate of 654 MMT. In addition to reduced corn feed use in Argentina, USDA noted decreased corn feed demand in the European Union (EU) with a corresponding increase in wheat feed demand. EU 2017/18 wheat feed use is expected to reach 58.5 MMT, 9 percent above the 5-year average, if realized.

While corn had the most precipitous drop in supply and increase in demand, global production of barley, millet, oats and sorghum also fell in 2017/18, while rye remained stable year over year. Including corn, global feed grain production fell 4 percent or 49.9 MMT year over year in 2017/18, while global feed grain consumption increased 15.1 MMT. The increased consumption and decreased supply of traditional feed grains will cut 2017/18 ending stocks for those grains by 38.8 MMT.

With the global feed grain supply tightening, prices for those commodities continue to rise. Since the beginning of 2018, world feed barley prices increased an average $19 per metric ton (MT), global sorghum prices averaged a $15/MT increase, and the average world corn price increased $26 per MT, according to International Grain Council (IGC) data. Supported by increased feed wheat demand, global wheat prices also increased an average $9 per MT.

With feed grain prices increasing, farmers around the world have taken notice and are expected to plant more corn, barley and sorghum in 2018/19 — at the expense of wheat.

IGC expects 2018/19 global wheat harvested area to fall to a six-year low of 538 million acres (218 million hectares), down 1 percent from 2017/18 levels. The analyst group expects generally favorable Northern Hemisphere weather to increase global yields and partially offset the reduced planted area. Still, IGC currently forecasts 2018/19 global wheat production to fall 17 MMT year over year to 741 MMT.

Weather news is dominating the futures markets right now, but customers should be mindful of the feed grain situation, which is slowly siphoning some of the world’s excess wheat stocks in 2017/18 and switching wheat planted area to feed grains.

To track U.S. wheat prices, please subscribe to the U.S. Wheat Associates (USW) Weekly Price Report.

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Global Perspective on Wheat Trade

By Vince Peterson, USW President

U.S. Wheat Associates (USW) President Vince Peterson traveled to Australia last month to speak to an Australian farmer organization about what the future might hold for wheat farmers around the world. His message was far more upbeat than might be expected at a time when U.S. wheat planted area is historically low and Russian wheat production and export demand in on the rise.

Peterson shared this summary of his presentations for Wheat Letter.

There is no doubt that Russian wheat has benefited from record yield after record yield for the last five years leading to an 85 million metric ton (MMT) year in 2017. That yield was about two-thirds of a metric ton per hectare greater than its trend line projection. Digging deeper, though, it is interesting to note that Russia has not increased its wheat planted area all that much. It is about 3 million hectares on the trend line. Its farmers have increased land area planted to “other crops” at more than double the rate they increased wheat. Russian farmers and investors, like their counterparts around the world, will be looking for the best possible return on that land. As the cropping trend continues, it implies a shift in future growth away from a wheat concentration to broader diversification of crops.

Buyers and other industry analysts also need to remember that Russia has, on average over the past five years, sold more than 80 percent of its wheat exports to buyers in Africa and the Middle East. Those regions are wheat production deficient — and per capita wheat consumption in many of those countries is very high. Population in those regions will grow by 1.3 billion people who will collectively eat at least another 60 MMT of wheat every year and about 50 MMT of that increased demand will likely need to be imported.

In addition, the final cost of imported wheat, rather than end-product quality, weighs most heavily in these same markets. The signals from these buyers back to Russian wheat farmers will continue to be a need for low to moderate protein wheat at very low, delivered prices.

Rightly so, markets in Russia’s “backyard” will represent its most profitable export opportunity. In turn, these market factors offer limited incentives for Russian farmers to produce high performing wheats for far off markets.

Freight costs matter, too. The cost of moving wheat has shifted wildly over the past 15 years. The commodity spikes in 2007 to 2012 in both prices and trade volume, fueled by the price of petroleum reaching $140 per barrel, pushed ocean freights to outlandish numbers about 10 years ago. That provided an incentive for ship building and expansion that more than doubled the dry bulk carrier fleet.

The growing cargo fleet capacity peaked in 2015. In 2016, for the first time in a dozen years, the fleet capacity began to decline. Ocean freight rates quickly hit bottom so Russia could afford to move wheat almost everywhere. That pendulum is now starting to swing back. Oil prices have moved back up; the ship supply will continue to shrink with fewer new commissions and increased demolition/scrapping. It is likely the next cycle will “normalize” with freight rates back at least at moderately higher levels that are profitable for ship owners. The next cycle is going to make it far more expensive, and far less economical, for Russia (and any origin, for that matter) to be shipping their wheat half way around the globe into a competitor’s backyard. Particularly if those supplies are just of moderate to fair quality parameters.

So, my crystal ball conclusion is that the influence of Russian wheat is not done growing, but the outlook for other global suppliers is much more positive. While Russia’s wheat industry is here to stay as a main player in the world market, it will behave more responsibly to these changing market signals in the next 20 years, making this next cycle far different for the United States, Canada, Australia and other suppliers than it has been in the past 20 years.

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As Always, Weather Is the Wildcard for U.S. Wheat Planting and Production

By Stephanie Bryant-Erdmann, USW Market Analyst

According to the March 29 USDA Prospective Plantings report, U.S. total spring-planted area will jump to an estimated 14.1 million acres (5.71 million hectares), 12 percent above 2017/18, if realized. The estimate includes 12.1 million acres (4.90 million hectares) of hard red spring (HRS), up 17 percent from 2017, if realized. It is important to note that this is an estimate, as farmers in the top four HRS producing states of Minnesota, Montana, North Dakota and South Dakota have not started planting due to extremely cold, snowy weather across the region.

USDA expects a 1.05 million acre (425,000 hectare) increase in North Dakota spring wheat area, which is forecast at 6.40 million acres (2.59 million hectares). If realized, that would be up 20 percent year over year. Spring wheat acres in Minnesota are also expected to increase 38 percent from 2017/18 levels to 1.6 million acres (648,000 hectares). South Dakota 2018/19 HRS planted area is forecast at 1.05 million acres (425,000 hectares), up 80,000 acres (32,000 hectares). However, the planting window for spring wheat in North Dakota and Minnesota is no more than three weeks; after that the yield potential starts to decrease and farmers choose to plant alternative crops.

“This cold, wet spring could work against spring wheat planting in eastern North Dakota and western Minnesota,” said Mike Krueger, an independent market analyst based in North Dakota. “Farmers in these areas are reluctant to plant spring wheat after late April and right now the forecast is calling for another two weeks of cold weather and snow. If planting is delayed until May, we will probably see a switch to soybeans or other crops.”

USDA forecast Montana HRS planted area at 2.50 million acres (1.00 million hectares), in line with 2017/18 planted area. But, in contrast to eastern North Dakota and western Minnesota, the late spring may increase HRS planted acres in parts of Montana according to Cassidy Marn, marketing program manager with the Montana Wheat & Barley Committee.

“Farmers in Montana have fewer alternatives and, since we can only grow limited quantities of corn and soybeans here, wheat tends to be the last alternative,” said Marn. “Planting peas and lentils is possible, but given the amount of snow we still have on frozen ground, some farmers could miss the window for those crops. Planting spring wheat in June is not ideal, but it is preferable to planting nothing.”

USDA expects U.S. durum planted area to total 2.00 million acres (809,000 hectares), down 13 percent from 2017/18, if realized. The predicted decline is driven in large part by USDA’s expectation that North Dakota farmers will switch from durum to HRS or oilseed crops due to lower returns on durum in recent years. In addition, growers near the border are frustrated by a large volume of durum freely crossing the border from Canada that increases pressure on durum prices. Weather conditions will also affect durum planting decisions.

USDA also updated the winter wheat planted area from its January 2018 estimate, increasing winter wheat planted area by 50,000 acres (20,000 hectares) to 32.7 million acres (13.2 million hectares). The new estimate is still 2 percent below the 2017/18 planted area. The increase came from hard red winter (HRW) area, estimated at 23.2 million acres (9.39 million hectares), up slightly from the previous projection, but still 2 percent below the year prior and 17 percent below the 5-year average.

The decreased HRW planted area makes crop conditions even more crucial. The April 2 USDA Crop Progress report rated 10 percent of Kansas HRW, 9 percent of Oklahoma HRW and 17 percent of South Dakota winter wheat as good, with virtually none of the crop rated as excellent in those states.

Soft red winter (SRW) planted area decreased from the previous estimate to 5.85 million acres (2.37 million hectares), but is still 4 percent above 2017/18 planted area. Overall, conditions for SRW are similar to what growers faced at the same time last year with a majority of the crop rated in good to excellent condition.

USDA expects white wheat acres — planted in both winter and spring — to reach 4.15 million acres (1.68 million hectares) for 2018/19, up 3 percent from 2017/18, but in line with the 5-year average. The U.S. Drought Monitor shows adequate moisture for Washington, but southern Idaho and Oregon are experiencing abnormally dry to moderate drought conditions. Still, USDA reported that the majority of the white wheat crop in those states are in good to excellent condition.

The expected increase in spring wheat area would increase total U.S. wheat planted area to 47.3 million acres (19.1 million hectares) in 2018/19, up 3 percent year over year. The increase was unexpected, but if realized it would still be the second lowest planted wheat area since 1919 when USDA records began.

As always, spring brings the waiting game — all we can do is watch how the crops respond to conditions going forward.

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Global Winter Wheat Condition a Mixed Bag

By Stephanie Bryant-Erdmann, USW Market Analyst

The end of March heralds not only the beginning of spring — a crucial time for both winter and spring wheat production — but also the first round of winter wheat condition reports.

Black Sea — Snow across Russia and Ukraine is providing much needed protection from the recent cold snap in the region, but is delaying spring planting, according to Ukrainian consultancy UkrAgroConsult and the Russian Meteorological Service. As of Feb. 26, the Russian Meteorological Service reported 95 percent of Russian winter grains were rated in fair to good condition, unchanged from the last crop condition report on Nov. 30, 2017. UkrAgroConsult rated 49 percent of Ukrainian winter wheat in good to excellent condition, compared to 40 percent the year prior. Stratégie Grains forecast 2018/19 Russian wheat production at 77.0 million metric tons (MMT), down sharply from 2017/18 due to an anticipated return to trendline yields and smaller planted area. Ukrainian 2018/19 wheat production is estimated at 26.5 MMT, compared to 26.1 MMT in 2017/18.

European Union (EU) — According to the March EU crop monitoring service (MARS) report, EU winter conditions were adequate for winter wheat development despite unusual temperature fluctuations. Temperatures in December, January and the first half of February were generally 1°C to 6°C warmer than normal across Europe before plunging the last half of February to as low as -15°C and -20°C across Poland, Denmark and Sweden. Precipitation in excess of 20 cm (8 inches) in France, the EU’s top wheat producing country, flooded some fields. On March 16, FranceAgriMer rated 80 percent of French common wheat as good to excellent, compared to 81 percent the week prior and 92 percent last year. Stratégie Grains expects 2018/19 EU wheat production to total 141 MMT, down an estimated 900,000 metric tons (MT) from 2017/18 due to expected increases in winterkill and smaller planted area in France and Germany.

India — Wheat harvest is currently underway in India, the world’s second largest wheat producing country behind China. While crop condition ratings there are not available, Stratégie Grains anticipates 2018/19 Indian wheat production will fall to 91.4 MMT, down 7 percent year over year due to a 5 percent reduction in planted area and unfavorable weather and disease pressure.

United States — On March 19, USDA released weekly crop progress reports for top hard red winter (HRW) producing states of Kansas, Oklahoma and Texas that showed continued deterioration of topsoil and subsoil moisture and winter wheat crop conditions in Kansas and Texas, but an improvement in Oklahoma. USDA rated 55 percent of Kansas, 66 percent of Oklahoma, and 60 percent of Texas winter wheat in poor or very poor condition, compared to ratings of 53 percent, 72 percent and 53 percent, respectively, the week prior. USDA will resume weekly U.S. crop progress reports on April 4.

Subsoil moisture in Kansas was rated 71 percent short or very short, 28 percent adequate and 1 percent surplus, while 68 percent of Oklahoma and 63 percent of Texas subsoil moisture was rated short or very short. USDA’s evaluation took place before this week’s rain event, so its effects will appear on next week’s report. However, additional precipitation will be needed to make up the shortfall. According U.S. National Oceanic and Atmospheric Administration (NOAA) data, accumulated precipitation across the majority of the HRW-growing area in Kansas, Oklahoma and Texas is 3 to 6 inches (8 to 15 cm) below normal.

We are months away from knowing what the 2018/19 world wheat crop will look like and, as always, the weather will have the final say on yields and production. Buyers can be sure the U.S. wheat store will continue to supply high-quality wheat, regardless of what happens in 2018/19.

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2018/19 U.S. Wheat Planted Area Expected to Increase Despite Dry Conditions

By Stephanie Bryant-Erdmann, USW Market Analyst

Total U.S. planted wheat area will rise 500,000 acres (202,000 hectares) in 2018/19 due to an expected increase in spring wheat area (including durum) according to Joanna Hitchner of the USDA World Agricultural Outlook Board. The USDA held its annual Agricultural Outlook Forum on Feb. 22 to 23, where Hitchner presented the 2018/19 Grain and Oilseeds Outlook.

USDA forecasts 2018/19 combined spring wheat and durum planted area at 13.9 million acres (5.63 million hectares). If realized, that would be up 2 percent from 2017/18 and the largest spring and durum planted area since 2015/16. Increased spring wheat and durum planted area is expected to more than offset the lowest U.S. winter wheat planted area since 1909. USDA currently estimates 2018/19 (June to May) wheat acreage at 46.5 million acres (18.8 million hectares), a one percent increase from last year, if realized.

Wheat buyers should note that factors affecting planting decisions can change before seed is sown. Long-term dry conditions in top hard red spring (HRS) and durum producing states of Montana, North Dakota and South Dakota may significantly alter farmers’ plans.

In January, USDA reported U.S. farmers planted 32.6 million acres (13.2 million hectares) of winter wheat last fall, down slightly from 2017/18, but 15 percent below the 5-year average. Increases for soft red winter (SRW) and white wheat offset a decrease in hard red winter (HRW). USDA assessed 2018/19 HRW planted area at 23.1 million acres (9.35 million hectares), down 2 percent from 2017/18 with planted acreage down year over year in nearly every HRW-producing state. However, 2018/19 total SRW planted area of 5.98 million acres (2.42 million hectares) increased 4 percent from last year, and white winter wheat planted area increased to an estimated 3.56 million acres (1.44 million hectares), up 1 percent from the prior year. Winter durum planting in the Southwestern United States was estimated at 74,000 acres (30,000 hectares), down 41 percent from 2017/18 and 51 percent below 2016/17.

Based on trend yields, USDA expects the national average yield to grow to 47.4 bushels per acre, up from 46.3 in 2017/18 due to expected increases in spring and durum wheat yields which were hard hit by last year’s drought. USDA projects the wheat harvested-to-planted ratio will increase to 0.83, up slightly from last year’s 0.82 due to a small decrease in expected abandonment rates. Total U.S. 2018/19 wheat production is forecast to rise by 6 percent year over year to 50.0 million metric tons (MMT).

In addition to lower planted area for winter wheat, crop conditions for many HRW-producing states are deteriorating due to sustained drought conditions. On Feb. 26, USDA rated 12 percent of Kansas winter wheat in good to excellent condition, down from 14 percent at the end of December. Winter wheat condition remained unchanged in Oklahoma with just 4 percent rated good to excellent, but declined in Colorado, Montana, Nebraska, North Dakota and South Dakota. SRW conditions improved in Illinois, where 45 percent of the winter wheat crop was rated in good to excellent condition compared to 38 percent last month. USDA will resume weekly U.S. crop progress reports in April.

A decrease in carryover stocks is expected to offset increased production, and the total U.S. wheat supply is expected to fall in 2018/19. USDA forecasts 2018/19 U.S. supplies at 77.5 MMT, down 2 percent from 2017/18, if realized, in part because USDA anticipates a slight increase in domestic use, from 30.4 to 30.7 MMT.

Price competition and large supplies in other wheat exporting countries will continue to pressure demand for U.S. wheat. USDA expects U.S. exports to fall to 25.2 MMT, down 3 percent from the forecasted 2017/18 U.S. wheat export level of 25.9 MMT.

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

To see the latest Drought Monitor, please visit https://droughtmonitor.unl.edu/

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Early Estimates Expect 2018/19 Wheat Production to Fall in the Black Sea

By Stephanie Bryant-Erdmann, USW Market Analyst

USDA will issue its first 2018/19 U.S. wheat production estimate on Feb. 23 at its Annual Agricultural Outlook Forum, rounding out the estimates already available for Northern Hemisphere wheat exporting countries. Following is a by-country summary of current production estimates.

Canada.  Agriculture and Agri-Food Canada (AAFC) forecasts 2018/19 Canadian common wheat (excluding durum) production at 24.3 million metric tons (MMT), down 3 percent from 2017/18.  A return to average yields is expected that would more than offset a 4 percent increase in wheat planted area. 2018/19 Canadian wheat planted area is forecast at 9.51 million hectares (23.5 million acres). AAFC anticipates an increase in spring wheat planted area that would also offset an 11 percent decrease in winter wheat planted area. Canadian durum production is expected to reach 5.70 MMT, up 15 percent due to increased planted area and increased yields.

European Union. Strategie Grains estimates 2018/19 European Union (EU) common wheat production at 142 MMT, in line with 2017/18 production. A forecasted increase in average yield is expected to offset a slight decrease in planted area. 2018/19 EU wheat planted area is expected to fall slightly to 23.2 million hectares (57.3 million acres) due to lower prices. EU durum production is expected to increase slightly in 2018/19 to 9.20 MMT due to increased planted area in Italy.

Kazakhstan.  Stratégie Grains anticipates 2018/19 Kazakhstan wheat production will reach 13.7 MMT, down 2 percent year over year, if realized. Wheat planted area is expected to decrease slightly in 2018/19 to 11.7 million hectares (28.9 million acres) due to lower prices. Nearly all of Kazakhstan production is spring wheat.

Russia. The Russian Ministry of Agriculture expects 2018/19 Russian spring wheat planted area to decrease slightly to 12.9 million hectares (31.9 million acres), down 50,000 hectares (123,000 acres) year over year, if realized. 2018/19 winter wheat planted area remained stable year over year at 14.9 million hectares (36.8 million acres). Stratégie Grains predicts 2018/19 Russian wheat production will fall 9 percent from 2017/18 to 77.3 MMT on the expectation of lower average yields.

Ukraine. UkrAgroConsult forecasts 2018/19 Ukrainian wheat production to total 25.1 MMT, down 4 percent from 2017/18, if realized. An expected reduction in average yields will more than offset an estimated 2 percent increase in wheat planted area. 2018/19 Ukraine winter wheat planted area is estimated at 6.28 million hectares (15.5 million acres).

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U.S. Crop Conditions Fall as Drought Conditions Worsen

By Stephanie Bryant-Erdmann, USW Market Analyst

Farmers will tell you that winter wheat is a hardy plant; but for the current U.S. winter wheat crop, one of its most important inputs, water, is increasingly in short supply. The Feb. 1 U.S. Drought Monitor showed that drought ranging from abnormally dry to extreme, affects most of the winter wheat production area across the country. Specifically, 81 percent of Oklahoma is in a severe to extreme drought, while 65 percent of Kansas is in a moderate to extreme drought. In South Dakota and Colorado, 64 percent and 59 percent of the topsoil moisture was rated as short to very short, respectively.

USDA noted the drought’s impact on winter wheat crop conditions in its monthly winter wheat crop condition report* on Jan. 29, which showed 29 percent of the area assessed by the survey is in good to excellent condition, down from 41 percent good to excellent at the end of December. USDA rated 35 percent in fair condition and 37 percent in poor or very poor condition, up from 22 percent last month. The assessment covered 69 percent of the estimated 32.6 million acres (13.2 million hectares) planted for 2018/19.

Deteriorating crop conditions could multiply the effect of low planted area to decrease 2018/19 U.S. winter wheat production. USDA noted the 2018/19 winter wheat planted area is 15 percent below the 5-year average in its Jan. 12 Winter Wheat and Canola Seedings report, which is the second lowest number of planted winter wheat acres on record.

Of the winter wheat classes, hard red winter (HRW) is the most severely affected by drought. USDA reported 23 percent of HRW assessed acres are in good to excellent condition, compared to 35 percent in December. Forty-two percent of HRW acres were rated in poor or very poor condition, up from 25 percent one month prior. The only major HRW state not assessed last week was Texas, where 5 million acres (2.02 million hectares) of winter wheat were planted for 2018/19. However, precipitation maps show it has not rained in 110 days in Northern Texas (accounting for about 60 percent of Texas wheat production). In response to these reports, the Kansas City Board of Trade (KCBT) March wheat contract rallied 20 cents last week to $4.63/bu ($170/MT), the highest point since July 2017.

Soft red winter conditions are variable. USDA rated 58 percent of soft red winter (SRW) wheat assessed acres in good to excellent condition compared to 68 percent four weeks prior, and just 7 percent were rated in poor or very poor condition. However, SRW crop conditions were not uniformly positive. Better crop conditions in Ohio and Tennessee mask worsening moisture conditions in the Southeast and Mid-Atlantic regions. Ninety-five percent of Virginia, 61 percent of North Carolina and most of Maryland are abnormally dry or in moderate drought. Ratings were not available for several southern SRW states where drought conditions are more severe. Deteriorating crop conditions also helped push Chicago Board of Trade (CBOT) March wheat futures price to its highest point in five months at $4.47/bu ($164/MT).

Winter wheat crop conditions were not reported this month for Idaho, Oregon or Washington where exportable soft white wheat supplies are concentrated. However, the Feb. 1 Drought Monitor shows southern Idaho and nearly all of Oregon are abnormally dry. However, precipitation is expected in the next 5 to 10 days that should be beneficial for most of the estimated 3.56 million acres (1.44 million hectares) of white wheat.

Some rain this week pressured wheat prices, showing that the futures markets will likely be volatile until the spring green up tells the final story. It is a long way until harvest, but customers should closely watch weather conditions across the United States and be ready to take advantage of price moves in their favor.

If you have any questions about the current crop conditions or the U.S. marketing system, please contact your local USW representative.

To track U.S. wheat prices, drought conditions and more, subscribe to the USW Weekly Price Report, here.

*From December through March, USDA assesses winter wheat crop conditions in select states on a monthly basis. Weekly crop progress reporting will resume in April.

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Global Supplies of High Protein Wheat Keep Tightening

By Stephanie Bryant-Erdmann, USW Market Analyst

In the Nov. 2, 2017, issue of “Wheat Letter,” we analyzed the tight supply of high protein U.S. wheat (minimum of 13.0 percent protein at 12 percent moisture basis (mb)) and its effects on pricing. The latest production and quality analysis suggests that global high protein wheat production in marketing year 2017/18 is down as much as 39 percent from average. That strengthens the conclusion that price premiums will continue at least into the first quarter of marketing year 2018/19 (June to May).

Based on available data, U.S. Wheat Associates (USW) has estimated that the world’s wheat suppliers produce about 50 million metric tons (MMT) of high protein wheat in an “average” year. Of that total, USW estimated that about 27 MMT on average are available to export markets, including:

  • 0 MMT of hard red spring (HRS) from the United States;
  • 0 MMT of Canadian Western Red Spring (CWRS);
  • 0 MMT from Kazakhstan, Russia and Ukraine; and
  • 0 MMT of Australian Prime Hard (APH) and Australian Hard (AH).

Looking at 2017/18, high protein wheat production was well below average.

USDA data showed that total U.S. HRS production was down 26 percent year over year at 10.5 MMT, with about 9.0 MMT having at least 13.0 percent protein (12 percent mb). Roughly half of U.S. HRS is exported annually, putting U.S. high protein HRS exports at 4.5 MMT. Carry-in stocks from 2016/17 totaling 6.4 MMT push total HRS supply higher, and potentially also enlarge the supply of high protein HRS. In 2016/17, the average protein was 14.6 percent (12 percent mb), but the protein content of the remaining stocks carried into 2017/18 is unknown. Year to date, the Federal Grain Inspection Service has inspected 3.94 MMT of HRS, 98 percent of which had at least 13.0 percent protein (12 percent mb), and USDA reported an additional 1.26 MMT of HRS sales that have not yet shipped as of Jan. 25. To meet that demand, high protein HRS stocks will need to be pulled out of storage, indicating premiums for HRS are unlikely to shrink in 2017/18.

Of the 19.2 MMT of CWRS produced in 2017/18, about 78 percent, or 15.0 MMT, graded #1 CWRS according to Canadian International Grains Institute (CIGI) data. The average protein for #1 CWRS is 13 percent (12 percent mb), with roughly 75 percent of #1 CWRS samples averaging above 13.0 percent (12 percent mb). If production values match sampling ratios, then Canada produced roughly 11.0 MMT of high protein wheat in 2017/18. On average, Canada exports roughly 70 percent of total wheat production putting total high protein wheat exports at an estimated 8.0 MMT. Weber Commodities, a Canadian-based analyst firm, believes Canada carried in just 1.0 MMT of high protein stocks, putting the estimated total Canadian high protein wheat exportable supply at 9.0 MMT.

Black Sea high protein exports are expected to fall to 3.0 MMT — all from Kazakhstan — due to above average rainfall that significantly lowered protein levels in Russian and Ukrainian wheat.

Australian Prime Hard is only produced in Queensland and New South Wales where La Niña-related drought conditions have sharply cut yields. Generally dry conditions are also expected to hurt Australian Hard wheat yields. USW estimates that Aussie high protein exportable supplies will only reach about 1.5 MMT.

The shrinking supply of high protein wheat can be seen in the prices of the top suppliers. According to the International Grains Council (IGC), the average price for 13.5 percent protein (12 percent mb) HRS exported from the Pacific Northwest (PNW) is up 16 percent year over year. IGC uses the Canadian designation of CWRS as 13.5 percent protein (13.5 percent mb). It reports CWRS prices from both Vancouver and St. Lawrence show an increase of 24 percent year over year. Meanwhile, lower protein wheat producers, such as Argentina, have seen prices fall 4 percent year over year due to the large supply of lower protein wheat.

Here is a table summarizing USW’s estimate of the big cut in global high protein wheat supplies in 2017/18 compared to an average, or “typical” year.

                                    Average Export Supply            2017/18 Estimated Supply

U.S. HRS                        6.0 MMT                                   4.5 MMT

CWRS                          11.0 MMT                                    8.0 MMT

Black Sea                       7.0 MMT                                   3.0 MMT

APH/AH                          3.0 MMT                                   1.5 MMT

Total                            27.0 MMT                                  17.0 MMT

/by

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