You are here: / Market and Crop Analysis
thumbnail
,

USDA Outlook Forum Provides First Glimpse into 2024/25 U.S. Wheat Balance Sheet

As the southern hemisphere wheat harvest nears completion and world anticipates the next northern crop, many buyers, mill owners, and end-product manufacturers are considering purchasing decisions that will affect their businesses into the first quarter of marketing year 2024/25. With forward thinking in mind, USDA released its latest Grains and Oilseeds Outlook on Feb. 15, providing initial projections for U.S. wheat. Though subject to change, these projections help provide a baseline for future updates and a glimpse into the issues and opportunities that may emerge as the year progresses.

Preliminary Acreage, Production, and Use Outlook

The Grains and Oilseeds Outlook projected total grains and oilseeds planted area at 225.5 million acres (91.25 million hectares), down from 227.8 million acres (92.2 million hectares) last year due to lower farm prices. USDA forecasted 2024 total wheat area at 47.0 million acres (19.0 million hectares), down from 49.6 million (20.1 million hectares) in 2023 but above the five-year average of 46.4 million (18.7 million hectares). The January Winter Wheat and Canola Seedings report estimated winter wheat area down 6% to 34.4 million acres (13.9 million hectares), leaving 12.6 million acres (5.1 million hectares) for hard red spring wheat (HRS), white spring wheat, and durum. USDA expects combined spring wheats and durum area to be slightly lower. However, private analysts and traders feel HRS acres may remain steady to slightly higher if planting conditions are favorable.

Bar chart from USDA;s 2024 outlook shows wheat harvested area over the last 10 years.

USDA forecasts wheat area at 47.0 million acres (19 million hectares), down 5% year over year but sitting just ahead of the five-year average of 46.4 million acres (18.7 million hectares). Source: USDA Grains and Oilseeds Outlook.

Despite the lower total planted area, USDA’ outlook anticipates a 2% yield increase to 49.5 bu/acre (3.33 MT/hectare). Following record abandonment in 2023, USDA’s estimated harvested area of 38.4 million acres (15.5 million hectares) is up 3%. The combined impact of improved yield and lower abandonment due to improved soil moisture conditions is expected to boost production to 51.7 MMT from 49.3 MMT in 2023/24. With the inclusion of higher beginning stocks, U.S. wheat supply estimate sits 6% higher year over year.

USDA predicts a slight decrease in domestic consumption to 30.8 MMT, marking a year-over-year reduction of 272,000 MT. In contrast, USDA expects U.S. wheat exports to bounce back to 21.09 MMT in 2024/25 on increased supplies.

A Looser Balance Sheet to Come?

Over the last seven years, there has been a steady erosion of U.S. ending stocks, falling from the recent high in 2016/17 of 32.1 MMT to a low in 2022/23 of 15.5 MMT, demonstrating the tightening of the U.S. balance sheet and providing underlying support to U.S. wheat prices. U.S. stocks will end 2023/24 slightly higher that with the improved production outlook suggests continued reversal of the downward trend.

Bar chart from USDA's outlook shows a trend down, then up in U.S. wheat ending stocks.

USDA forecasts 2024/24 U.S. ending stocks to increase 16% to 20.9 MMT on higher production and beginning stocks. Despite the increase, ending stocks still sit 35% below the peak of 32.1 MMT in 2016/17. Source: USDA Grains and Oilseeds Outlook and February 2024 WASDE.

The current outlook casts a bearish tint on the upcoming crop year, but there is ample time between now and harvest for market conditions to change. For example, U.S. wheat total commercial sales and exports for 2023/24 sit at 17.6 MMT, 7% above last year’s pace and 89% of total projected exports. Crop conditions for winter wheat are much better than in the past few years but weather going forward will dictate final production.

USDA’s Prospective Plantings report, to be released on Mar. 28, and the May 2024 WASDE will provide detailed revisions for the 2024 U.S. wheat balance sheet, while Crop Progress Reports will provide updates on current crop conditions and planting progress. In the interim between harvests, world wheat markets will continue to search for new direction and shift based on emerging information. U.S. Wheat Associates (USW) will closely watch the crop and share additional information as the season progresses.

By Tyllor Ledford, USW Market Analyst

/by
thumbnail
, , , , , , , ,

Early Optimism Blooms for 2024 U.S. Winter Wheat Production

Drought in major U.S. wheat-growing regions over the past few years is well-documented. The persistent dry conditions acutely impacted U.S. wheat yield and increased abandonment, with 2023/24 production coming in 6% below the pre-drought five-year average. Now, entering the second half of the marketing year, the focus has shifted to the 2024 harvest and its impact on both U.S. and global supply and demand. Although it is early, optimism has begun to bloom for the 2024 winter wheat harvest, and the following highlights the factors that have helped boost the U.S. wheat outlook.

Acreage Down, But Conditions Improved

The Winter Wheat and Canola Seedings Report, published on Jan. 12, put the preliminary winter wheat acreage at 34.4 million acres (m.a.) (34.3 million hectares), down 6% from 2023 but still 4% ahead of the five-year average. The hard red winter (HRW) wheat area is estimated at 24.0 m.a. (9.7 million hectares), down 5% on the year, while the soft red winter (SRW) area is approximately 6.89 m.a. (2.8 million hectares), a 7% decrease. The white winter wheat (including soft white and hard white winter) area came in at 3.5 m.a. (1.4 million hectares). Desert Durum® seedings in Arizona and California for the 2024 harvest are estimated at 65,000 acres (26,300 hectares) total, up 16% from 2023 and 48% below 2022.

This bar chart shows U.S. wheat planted area by class between 2013/14 to 2023/24.

According to the Winter Wheat and Canola Seedings Report, published on Jan. 12, the winter wheat acreage is estimated at 34.4 m.a., down 6% from 2023 but still 4% ahead of the five-year average. The HRW area is estimated at 24.0 m.a., SRW at 6.89 ma, and the white winter wheat area came in at 3.5 m.a. Desert Durum® seedings in Arizona and California are estimated at a combined 65,000 acres. Source: USDA Winter Wheat and Canola Seedings Report.

Moving toward fall of 2023, moisture helped replenish dry soil in the U.S. Southern Plains, aided planting, and supported early-season growth and emergence, while making visible improvements in the U.S. Drought Monitor. According to USDA, as of Jan. 30, 2024, winter wheat area in drought registered at 17%, down from 22% the week prior and 58% last year. Meanwhile, the last aggregate USDA Crop Progress Report, published on Nov. 27, 2023, put 50% of winter wheat in the good to excellent category, the highest since 2020.

This line chart shows the percentages of U.S. winter wheat rated "good to excellent" from 2015 to 2024.

The last national USDA Crop Progress Report put 50% of the U.S. winter wheat crop in good to excellent condition, the highest since 2020. Source: USDA NASS Data.

Despite the decreased acreage, the cautious optimism about wheat conditions suggests the potential for improved yield and reduced abandonment for the 2024 harvest. Improved yields will provide a welcome boost to U.S. wheat production, helping improve supply and relieving pressure on the U.S. balance sheet and wheat prices.

An Early State-by-State Snapshot

Comments from producers at a recent meeting of the U.S. Wheat Associates (USW) Wheat Quality Committee echoed the optimistic sentiment. However, despite the objectively improved crop outlook from the year prior, winter conditions have started to vary as the season progresses, serving as a reminder that much can change before harvest time.

Following are condition recaps in major winter wheat-producing states from committee members and National Agricultural Statistics Service (NASS) data as of Jan. 28:

Kansas. Data from NASS rates 54% of Kansas winter wheat good to excellent, and optimism has bloomed regarding the 2024 harvest. Kansas wheat farmer and USW Secretary-Treasurer elect Gary Millershaski highlighted visible improvements to wheat stands compared to the previous year.

Texas. NASS data put Texas wheat conditions at 42% good to excellent, while Texas farmers remain optimistic about current conditions.

Oklahoma. An Oklahoma farmer commented that soil moisture remains adequate, and the wheat entered dormancy in good condition. Oklahoma crop conditions rated 63% of the crop in the good to excellent category.

Colorado. About 61% of the crop sits in the good to excellent category, though winds and dry weather this winter may cause some condition deterioration.

Nebraska. According to a Nebraska farmer, rain during planting helped boost conditions, and the stands continue to benefit from the soil moisture. Current conditions put Nebraska winter wheat at 69% good to excellent.

South Dakota. South Dakota Wheat Commission CEO Jon Kleinjan commented that the state’s HRW wheat was seeded with adequate moisture. As good snow cover remains, he is optimistic about the 2024 crop. Likewise, NASS put 53% of winter wheat in good to excellent.

Montana. Approximately 41% of the HRW crop sits in the good category; however, cold and a lack of snow coverage have negatively impacted crop conditions this winter.

USDA/NOAA Map of Winter Wheat in Drought from Jan. 30, 2024.

According to the weekly USDA Agriculture in Drought Report, as of Jan. 30, 2024, 17% of U.S. winter wheat resides in areas experiencing drought, down from 22% last week and much improved from 58% last year. Source: U.S. Agriculture in Drought.

More Data to Come

The upcoming USDA Prospective Plantings Report will provide preliminary estimates for spring wheat, durum, and the white spring wheat area and update the winter wheat estimates. It is important to remember that the 2024 harvest is still months away, and conditions can and will change as the crop year progresses. Nonetheless, even after an extended drought, U.S. wheat farmers remain resilient and committed to growing a reliable supply of high-quality wheat for their customers around the world.

By USW Market Analyst Tyllor Ledford

/by
thumbnail

USW Analyst Shares Global Wheat Market Summary with Farmer Directors

U.S. Wheat Associates (USW) Market Analyst Tyllor Ledford compiles a comprehensive “World Wheat Supply and Demand” summary for three USW Board of Directors meetings each year. Using the USDA World Agricultural Supply and Demand Estimates (WASDE) report as her primary source, Ledford prepared the attached market summary for the USW Winter Board Meeting in Washington, D.C., Jan. 23 to 26, 2024.

Following is the start of Ledford’s report. Continue reading the entire report here.

World Wheat Supply and Demand

Released on January 12, the World Agricultural Supply and Demand Estimates (WASDE) had a bearish impact on the market, as the estimates quantified the sustained record export flows from the Black Sea and increased ending stock levels. The 2023/24 global wheat production is forecast at 784.9 MMT, up 1.9 MMT from December’s estimates. Meanwhile, world wheat demand remains at a record high of 796.4 MMT, outpacing world wheat production by 11.5 MMT

Page 2 USW World Wheat Supply and Demand Summary

USW Market Analyst Tyllor Ledford’s report to the USW Board of Directors includes highlights of world wheat supply and demand. Read more at https://www.uswheat.org/wp-content/uploads/USW-Market-Summary-Winter-2024.pdf.

Although demand surpassed supplies, the January WASDE increased world ending stocks by 1.8 MMT. The current estimate of 260.0 MMT is a 4% decrease from the year prior and the lowest level since 2015/16. In major exporting countries, wheat stocks sit at 58.7 MMT, an improvement from previous estimates but still below 60.4 MMT the year prior. Increased ending stocks in the EU and Ukraine helped support the recent increases. World wheat trade is expected to reach 209.5 MMT, down from 220.2 MMT in 2022/23.

Domestically, the January WASDE made few significant changes, while the Winter Wheat Seedings Report overshadowed the WASDE’s impacts. U.S. ending stocks came in 300,000 MT lower, though USDA foresees ending stocks at 17.6 MMT, a 14% increase year over year and the first increase since 2015/16. That estimate helps loosen the U.S. wheat balance sheet and relieve underlying price pressure, though ending stocks still sit 13.9 MMT below the recent highs hit in 2016/17.

 

 

/by
thumbnail
, , ,

U.S. Wheat Export Basis Levels Support On-Going Competitiveness

During the summer of 2023, U.S. wheat export basis levels hovered near record lows as slow demand met seasonal weakness. Across almost all the U.S. wheat classes and export points, export basis levels hovered below average, signaling a unique pricing opportunity for U.S. wheat. Historical trends indicate that basis levels generally hit their lowest point during wheat harvest and increase in October, November, and December as export capacity tightens in response to an influx of corn and soybeans.

Following the seasonal pattern, U.S. export basis levels have since risen for all U.S. wheat classes. Despite the increase, the average HRS basis for the Gulf and Pacific Northwest sits 15% below the five-year average, while HRW and SRW sit 31% and 27% below the five-year average, respectively. The following examines the underlying factors driving this trend and its impact as we dive into the second half of marketing year 2023/24.

Line chart showing export basis levels from December 2022 to December 2023.

U.S. export basis levels generally follow a seasonal pattern, hitting lows during the wheat harvest and highs during October, November, and December as elevation capacity tightens in response to the corn and soybean harvest. In July 2023, basis levels hovered near record lows as seasonal weakness was coupled with an overall lack of demand. Source: U.S. Wheat Associates Price Report.

Excess Capacity Meets Slow Demand

The most significant factor influencing the below-average basis values is the overall decrease in export volume for grains and oilseeds, particularly for soybeans. According to USDA, for the week ending December 28, 2023, inspections for all grains (wheat, corn, and soybeans) were down 19% from the same period last year and 39% below the three-year average.

U.S. soybean exports are down due primarily to South American competition in the Chinese market. Reflected in the December 2023 World Agricultural Supply and Demand Estimates, forecast for U.S. soybean exports to all destinations came in at 47.6 MMT, down from 54.2 MMT in 2022/23 and 58.6 MMT in 2021/22. Meanwhile, total Brazilian exports are forecast at a record 99.5 MMT, up from 95.5 MMT the year prior and 18% above the five-year average as record quantities of soybeans are exported to China.

U.S. wheat exports face similar competitive headwinds. USDA export data shows that the export pace sits 14% behind last year and 26% below the five-year average.

Line chart shows price changes since 2019 for secondary grain railcar auction market bids to illustrate effect on wheat export basis.

Secondary Railcar Auction Market Bids (a real-time reflection of the supply and demand for rail freight) for October, November, and December sit at $65.12/car on average, down from $836.11/car last year and the five-year average of $262.96/car. The combined impact of excess capacity within the grain handling and logistics system has removed pressure on wheat basis levels and allowed them to drift lower. Source: USDA Rail Transportation Dashboard.

The decrease in overall grain volume has created surplus capacity in the U.S. logistics systems, particularly for the railroads. As a result, Secondary Railcar Auction Market Bids (a real-time reflection of the supply and demand for rail freight) for October, November, and December sit at $65.12/car on average, down from $836.11/car last year, and the five-year average of $262.96/car. The combined impact of excess capacity within the grain handling and logistics system has removed pressure on wheat basis levels and allowed them to drift lower.

Basis Levels Support Competitiveness

As overall grain export volume remains below average, we can expect the depressing impact on the basis to continue. South American competition for soybean exports will continue to influence grain markets, forcing participants to readjust to the changing dynamic.

The combined impact of below-average basis levels and the downward trend in wheat futures prices, driven by competition from the Black Sea, Canada, and other origins, has helped improve U.S. wheat competitiveness throughout 2023/24. Therefore, basis movements will continue to play a key role in maximizing value and capitalizing on opportunities as they arise in the market.

By USW Market Analyst Tyllor Ledford.

/by
thumbnail
, ,

China’s Soft Red Winter Purchases: The Right Wheat at the Right Time

The purchase by China of 1.12 million metric tons (MMT) of U.S. soft red winter (SRW) wheat for delivery in 2023/24 between Dec. 4 and 8 is a significant and, in terms of its volume, somewhat unexpected factor in the current market. The buyers clearly took advantage of a price opportunity, yet there are other influencing factors behind this buying surge to consider.

Already in the Market

China is in a wheat-buying phase driven in part by reported damage to its 2023 crop from rain at harvest. USDA expects China to exceed its WTO-agreed 9.6 MMT tariff rate quota again in 2023/24. By late November, China had already purchased a total of 1.01 MMT of four U.S. wheat classes, including 789,000 MT of SRW in 2023/24.

The U.S. Wheat Associates (USW) Price Report on Nov. 22 estimated SRW FOB export price out of the Gulf at $250 per MT, and on Nov. 30 at $258 per MT, a very competitive price relative to other wheat origins.

After the recent deals through Dec. 8, total 2023/24 SRW commercial sales to China to date now exceed 1.9 MMT. As a result, USDA raised its Dec. 8 estimate of total SRW sales in 2023/24 by about 817,000 MT to 4.76 MMT. If realized, that would be the largest volume of SRW exports since 2013/14.

A Trusted Source

Portrait of USW Regional Vice President Jeff Coey.

Jeff Coey

Why so much SRW? USW Regional Vice President Jeff Coey suggests that China’s buyers and flour millers are very familiar with this soft wheat class grown in the eastern third of the United States.

“It is a story that goes back decades,” said Coey. “First, our SRW is closest to the wheat grown in China. And the investment U.S. wheat growers have made in USW’s trade and technical service over many years has given Chinese buyers the confidence to import SRW, and other classes, when the opportunity arises.”

Coey said maintaining that education process was the goal behind USW’s investment of Agricultural Trade Promotion (ATP) program funds to bring a team of Chinese buyers to the United States in early November 2023. The visit included in-depth time with Federal Grain Inspection Service inspectors at an export elevator in Houston, Tex., as well as time with a SRW farmer and officials at USDA’s Agricultural Research Service (ARS) Soft Wheat Quality Lab (photo above) in Ohio.

“Those visits in particular were instructive,” said Coey. “Understanding the third-party inspection and certification process and the testing demonstrated at the ARS lab gave the buyers a sense of the design behind the quality data we share with them.”

Three people examine cookies at the USDA-ARS Wheat Quality Lab in Wooster, Ohio, in Nov. 2023.

Quality testing at the USDA-ARS Wheat Quality Lab in Wooster, Ohio, includes cookie spread testing, demonstrated during a November visit for a Chinese wheat buying team.

On the Ground Input

Ohio farmer and USW director Ray Van Horn was in the middle of his corn harvest when the Chinese buyers visited his farm.

“Ray and representatives of our member state wheat commission Ohio Corn and Wheat hosted the team on a crisp, clear afternoon in one of Ray’s fields with a beautiful, new stand of soft red winter wheat. It was a perfect place to share information about the wheat production decisions he makes and how that may affect buyers,” Coey said.

Ohio farmer Ray Van Horn talks with Chinese wheat buyers in his field planted with soft red winter wheat.

In a field seeded with a 2024 soft red winter wheat crop, Ohio farmer Ray Van Horn (right) discusses how he makes decisions and manages his crops with members of a Chinese wheat buying trade team sponsored by USW and hosted by Ohio Corn & Wheat in early November.

Adding value to this buying opportunity is the fact that U.S. farmers produced two large SRW crops with excellent quality in 2022 and 2023.

“Together all these factors helped build the confidence that these buyers can select U.S. soft red winter this year and have a deep supply of consistent quality with a ready domestic market,” Coey concluded.

By USW Vice President of Communications Steve Mercer

/by
thumbnail
, , ,

Market Analyst Shares Crop Quality Seminar Experience, Customer Feedback

Following is USW Market Analyst Tyllor Ledford’s report on her participation in the 2023 Crop Quality Seminars. She appears on the left in the photo above with Regional Vice President for South and Southeast Asia Joe Sowers and Assistant Regional Director Joe Bippert at the Crop Quality Seminar in Bangkok, Thailand.

For many, the month of November includes preparations for an upcoming holiday season and a time of reflection as many cultures around the world look ahead to a new year. At U.S. Wheat Associates (USW), the month of November marks Crop Quality Seminar season, a time when USW staff from around the world inform customers about new wheat crop quality characteristics, provide insight on current market conditions, and highlight opportunities for customers as they make purchasing decisions into the coming year.

Cover of the 2023 USW Crop Quality Report including photos of a wheat field, pasta, sponge cake, and bread.

Download the 2023 U.S. Wheat Crop Quality Report here.

From November 6 to 10, I had the pleasure of joining a team of USW staff, state wheat commission staff, partner organizations, exporters, and wheat farmers on the Southeast Asia Crop Quality tour in Manila, Philippines, Jakarta, Indonesia, and Bangkok, Thailand. The seminars represent a cumulation of the years’ work, from when the winter wheat crop was planted in 2022 through spring fieldwork, harvest, rigorous quality testing, and finally, the compilation of the 2023 crop quality booklets.

A Unique Gathering

Differing from other USW sponsored events, the Crop Quality seminars provide an annual opportunity for representatives from across the U.S. wheat supply chain to gather in one location with major flour milling stakeholders from the region. Attendees included a mix of producers, country elevator managers, U.S. export companies, flour mill staff, and end product manufacturers. With a wide range of representation from across the supply chain, this year’s event provided the opportunity to address special topics of concern, including how farmers make planting decisions and the future of wheat acreage, new technology implementation by wheat producers, and the grain origination process from a country elevator point of view. The U.S. supply chain is large and complex; therefore, perspectives from different aspects of the supply chain help bridge the gap between the producers of U.S. and the end users.

In our region alone we reached over 250 customers from Thailand, Malaysia, Myanmar, Singapore, Vietnam, the Philippines, and Indonesia throughout three seminars. It was enlightening to witness firsthand the great relationships USW has with the flour milling industry in the region and reconnect with familiar faces that have visited farms in the U.S. or participated in other USW sponsored activities and events.

Photo from the front of a large conference room at the 2023 USW Crop Quality Seminar in Bangkok, Thailand.

Nearly 150 flour mills staff, end product manufactures, and industry stakeholders gathered at the 2023 USW Crop Quality Seminar held in Bangkok, Thailand.

Timely Information Aids in Future Planning

Throughout the week, a common focus of questions and hallway conversations centered on future purchasing decisions, potential threats, and the key question of “where will prices go next?”

Market sentiment is ever changing and now more than ever, lurking factors that are not yet reflected in current market prices continue to play a role in wheat market dynamics. Even in years with less variability, accurately predicting price direction is a challenge, but this year, with many more unknowns than knowns in the market, making predictions is more difficult than ever.

Nevertheless, the questions and conversations highlight the continued need for information sharing as customers navigate the complexities of the world wheat market. Regardless of the year, crop conditions, and market outlook customers rely on USW to provide accurate, timely, and transparent information, in addition to the high-quality wheat on which customers know they can rely.

/by
thumbnail
, , ,

Investments in U.S. Supply Chain Infrastructure Benefit Wheat Importers

Over the last few weeks, we have explored all the major modes of the U.S. supply chain, evaluated recent trends, and highlighted how each type of transportation plays an integral role in the U.S. supply chain. Barging, rail, and oceangoing vessels work together to create the dependable supply chain importers of U.S. wheat expect. In periods of increased risk and volatility, a trustworthy, reliable supply chain is essential for providing customers with the wheat they need.

In the final installment of this series, we will explore the continued investment into the U.S. supply chain and highlight recent projects planned to keep the U.S. inland logistics system running efficiently and effectively.

This Just In

On Nov. 6, the U.S. Department of Transportation’s Maritime Administration (MARAD) recently announced that more than 40 ports across the United States will receive $653 million in funding for improvement projects that will help with the movement of grain. Under the Port Infrastructure Development Program, the funding will help grow capacity and increase efficiency at coastal seaports, Great Lakes ports and inland river ports.

Stakeholder Commitment

With private companies owning and operating grain export infrastructure and assets, the U.S. supply chain benefits from significant commercial investment to ensure the effectiveness of the logistics system. Holding one of the largest stakes within inland transportation, the U.S. Class I railroads value the system’s reliability and understand its importance to wheat buyers worldwide.

One of the latest examples of continued private investment in the U.S. supply chain is the newly constructed rail bridge at Sandpoint Junction in the Burlington Northern Santa Fe (BNSF) rail network. On August 7, the inaugural trip on the new Sandpoint Junction Connector rail bridge occurred, representing the official opening of two-way traffic crossing Lake Pend Oreille in northern Idaho. This junction is crucial because it is a merging point between the BNSF and Montana Rail Network and serves as the primary gateway that links grain grown in the Northern Plains to port access in the Pacific Northwest (PNW).

Map of the Pacific Northwest showing the location of an investment in the U.S. supply chain moving wheat to PNW ports.

The new Sandpoint Junction Connector rail bridge will allow two-way traffic across Lake Pend Oreille in Idaho, helping improve efficiency for wheat and other grain moving by rail from the Northern Plains to the PNW for export. Source: BNSF.

CPKC Network

CPKC railroad logoAnother noteworthy project is a $100 million investment commissioned by Kansas City Southern in October 2022 (now part of the Canadian Pacific Kansas City rail network) to construct a new international rail bridge connecting Laredo, Texas, U.S. to Nuevo Laredo, Tamaulipas, Mexico. The bridge expansion will allow trains to operate in both directions simultaneously, granting more economical access to the U.S. supply chain for Mexico, the largest importer of U.S. wheat.

Government Investment

Complimenting private investment into the domestic logistics systems, the U.S. federal government provides significant support to the U.S. grain supply chain to uphold its safety and dependability.

In September, the Department of Transportation Federal Railroad Administration granted $1.4 billion to finance 70 rail improvement projects through the Consolidated Rail Infrastructure and Safety Improvements program. The largest grant (nearly $73 million) is for the Palouse River and Coulee City Railroad (PCC) improvements by the Washington State Department of Transportation. The PCC, a regional shoreline railroad, carries wheat traffic in major wheat-growing counties in eastern Washington, and the upgrades will help improve wheat shipments to elevators and seaports in the PNW by allowing for higher speeds and larger railcars.

Prevention Is the Best Medicine

While capital investment and improvement are vital to maintaining the efficiency of the U.S. rail systems and promoting wheat exports in the face of strong global competition, the U.S. supply chain benefits most from continuous investment in maintenance and repairs by private companies and state and federal governments. The backbone of a dependable, reliable system lies in the safety and proper function of the infrastructure and assets that make up the supply chain.

An important example of the commitment to preventive maintenance is the upcoming lock and dam closure on the Columbia Snake River System. In January 2024, the Army Core of Engineers will be performing maintenance on major components at the John Day and McNary dams on the Columbia River and at the Lower Monumental, Little Goose, and Lower Granite dams on the Snake River, resulting in an extended river closure from January 14 to March 29, 2024. This maintenance represents a forward-thinking investment by the U.S. Army Corps of Engineers (USACE) to ensure this critical waterway remains operational for decades to come.

Mississippi River Study

In addition, USACE is conducting a 5-year, Lower Mississippi River Comprehensive Management Study that it says will yield recommendations for effective and practical management of the Mississippi River from Cape Girardeau, MO, to the Gulf of Mexico, a key U.S. supply chain serving growing export demand for U.S. soft red winter wheat.

According to the USACE, the purpose of the study is to identify recommendations for the comprehensive management of the region across multiple purposes, including navigation, flood risk management, and environmental restoration.

The combined impact of preventive maintenance, efficiency improvements, and significant capital investment are key components that differentiate the U.S. wheat supply chain and help the U.S. wheat export supply system remain the most reliable in the world.

By USW Market Analyst Tyllor Ledford

/by
thumbnail
,

World Wheat Prices Hover at Lower Levels With Bullish Factors Lurking

Since the start of the year, world wheat prices have consistently trended lower, with Russian wheat maintaining its position as the world’s cheapest origin. With the Northern Hemisphere wheat harvest now complete, it brings about the question: have markets touched their seasonal lows, and in what direction will they go next? In this article, we will evaluate the underlying market factors driving recent price trends and highlight factors to watch moving forward.

A Downward Trend

Following the initial shock of Russia’s Ukraine invasion in 2022 with volatility on the way, world wheat prices have steadily decreased. From January 2023 to present, world wheat prices are down $77/MT, on average.

Russia’s influence in the world market is driving this trend in world price levels. According to the October World Agricultural Supply and Demand Estimates, Russian production was estimated at 85.0 MMT, 5.0 MMT above the five-year average. Likewise, 2023/24 Russian exports are forecast at 50.0 MMT, the highest on record. The ample supplies of Russian wheat and significant export flows have put downward pressure on the world wheat market. As a result, the October 23, 2023 AgriCensus price data puts Russian wheat with 12.5% protein (on a dry moisture basis) at $225/MT FOB, their lowest price since September 2020 and the cheapest on the world market.

Over the same time, world wheat demand has softened. For the first time since 2018/19, USDA projects a reduction in global use, with the October WASDE putting demand at 792 MMT, down from 796 MMT the year prior.

Line chart showing world wheat prices in several countries are on a downward trend.

Since January 2023, world wheat prices have decreased by 17%, weighed by ample supplies exported from Russia. Source: AgirCensus Price Data, October 23, 2023.

More Than Meets the Eye

At first glance, the global supply and demand situation shows ample Black Sea grain exports and softening global demand, the perfect pairing for lower global wheat prices.

Looking more closely, ending stocks in major exporting countries are forecast to fall to the lowest level since 2012/13, demonstrating a tighter global balance sheet that is, apparently, not reflected in current price levels.

Bar chart showing a downward trend in ending stocks of wheat in major exporting countries and world wheat prices.

Ending stocks in major exporting countries are down 10% on the year and 29% from 2017/18. Despite the decreased stocks, wheat prices sit near 2021 levels, failing to reflect the tighter world balance sheet. Source: World Agricultural Supply and Demand Estimates and U.S. Wheat Associates Price Report.

Additionally, Southern Hemisphere wheat production, particularly Australian output, is a factor to watch. As the El Niño weather event develops in the equatorial Pacific, dry weather is expected to prevail in Australia. As a result, the October World Agricultural Supply and Demand Estimates put Australian production at 24.5 MMT, down 1.5 MMT from September and 15.2 MMT below the year prior. However, recent rains in Australia may help improve yields, bringing an additional bearish influence to the world market.

Beyond Traditional Fundamentals

In addition to supply and demand, macroeconomic factors have played an increasingly important role in world wheat prices. The U.S. dollar was strong a year ago, but softened over the first half of 2023. However, beginning in July, the dollar index shifted up again, driven by a sustained hawkish view held by the U.S. Federal Reserve and the resilience of the U.S. economy in the face of higher interest rates. As importers are keenly aware, a strong dollar adds cost to wheat purchases.

On the bullish side, commercial funds have become “net short” in the Chicago Board of Trade Wheat (CBOT) futures. The trend indicates that commercial investors believe prices will continue trending lower. If the sentiment shifts and prices rise, funds will be forced to cover the positions, potentially adding significant volatility and upward pressure on Chicago wheat futures and the market as a whole.

Chart showing the volume of net short positions in wheat futures since early 2022 indicating an uptick in short positions.

Speculative funds hold a net short position in CBOT Wheat futures. If sentiment shifts, forcing a massive covering of the short positions, prices will skyrocket; thus, contributing additional short-term volatility and bullish influence on the market. Source: Commodity Futures Trading Commission Data.

Finally, we cannot discuss global wheat prices without addressing the geopolitical risks associated with continued conflicts. Grain continues to flow from the Black Sea, and the market outlook has stabilized. Nevertheless, sentiment could shift quickly if a new development or escalation occurs in the conflict. Similarly, the unknowns of the war in the Middle East could have a detrimental impact on oil prices, directly impacting ocean freight rates and dampening the global economy.

Key Takeaways

In summary, many lurking influences may impact world wheat prices, both bullish and bearish, that are not yet priced into world markets. Buyers should closely monitor the Southern Hemisphere wheat harvest developments, pay attention to upcoming updates to the USDA World Agricultural Supply and Demand Estimates, and stay well informed regarding changes in the world macroeconomic situation.

With many unknowns, it is vital to maintain a dialogue with your local U.S. Wheat Associates (USW) office and suppliers to capitalize on opportunities to maximize the value of U.S. wheat.

By Tyllor Ledford, USW Market Analyst

/by
thumbnail
,

Rising Ocean Freight Rates Pushed by Uptick in Fuel Costs, Chinese Demand

In a series of articles on U.S. supply chain transportation, we have explored the importance of barging and rail on U.S. wheat exports and how they contribute to the reliability of the U.S. marketing system. Barging and rail account for 89% of all U.S. wheat export shipments.

After traveling through the inland logistics system, on average, 90% of all U.S. wheat is exported via maritime transportation routes. Ocean freight is pivotal in wheat exports as the primary mode of transporting U.S. wheat to importers worldwide. With the significance of bulk ocean freight in mind, today’s article will evaluate recent trends in maritime transportation as rates begin to rise after an extended period of stagnant prices.

This chart tracking ocean freight rates the past year show rate rising after a long period of decline.

Ocean freight rate indices are tracking higher after a stretch of stagnation. Until recently, freight markets were weighed by low demand and little price direction. Source: U.S. Wheat Associates Price Report.

Fundamental Shifts

Throughout the fall of 2022, ocean rates steadily decreased, touching COVID-era lows in February 2023, driven down by low demand, an increasing supply of vessels, and normalized oil prices. After a brief uptick in March and April, freight rates and indices remained surprisingly stable until recently.

Oil prices are back on the rise after a steady decline throughout much of 2022 and the initial months of 2023. In April, major oil producers in OPEC and allied countries (OPEC+) decided to decrease oil production by 3.6 million barrels per day (3.7% of global demand). The OPEC+ alliance cited weak demand and “interferences” in the market (Western sanctions on Russian oil production) as the primary reasons for the shift. With rising oil prices, vessel owners are paying more for diesel fuel and pass on the extra cost to their bulk commodity customers via higher rates.

This chart of Brent crude oil prices indicates the market price is rising.

Oil prices have reversed their recent downward trend and are back up around $90/barrel for the first time since Russia invaded Ukraine in early 2022. Source: Trading Economics.

En Route to China

Moreover, China’s increasing freight demand is adding cost. In our last freight update, we highlighted China as one of the primary ocean freight rate drivers as the world’s leading importer of dry bulk commodities, specifically coal and iron ore. In 2022, China’s GDP growth slowed to 2.8% compared to 8.1% in 2021; as a result, manufacturing activity and demand for iron ore decreased, helping freight rates come down.

Since then, there has been a resurgence of Chinese economic activity and the possible infusion  of 1 trillion yuan ($137 billion) in infrastructure projects and lower interest rates to boost the economy. Likewise, Chinese demand for agricultural commodities is on the rise. Recently, for example, China purchased more than 200,000 metric tons of U.S. soft red winter (SRW), the largest single purchase since 2019.

This chart shows The Chinese Import Dry Bulk Freight Index is back on the rise after stagnation throughout 2023.

The Chinese Import Dry Bulk Freight Index is back on the rise after stagnation throughout 2023, driven by the combined demand for iron ore and agricultural products, specifically soybeans. Source: Shanghai Shipping Exchange.

Issues To Watch

Despite recent positive signs for the Chinese economy, major property developer China Evergrande Group still faces repercussions of Chapter 15 bankruptcy, casting a shadow of doubt over Chinese economic recovery. At the same time, economists are unsure if recent gains will hold or if a stimulus would be sufficient to support the economy long term. Economic recovery in China, or lack thereof, will continue to drive dry bulk ocean freight trends in the near future.

Another ocean freight concern is the effect of low water levels on the Panama Canal. The Panama Canal serves 5% of world trade, and severe drought continues to impact trade flows. Only up to 32 ships are currently authorized to transit daily, down from 36 ships in normal conditions. Maximum vessel draft has decreased to 44 feet, down from 50 feet. Water levels at Gatun Lake, the primary water source for the canal, were at 24.2 meters (79.7 feet) in mid-September, down from 26.6 meters. It will be important to observe how the emerging El Niño weather pattern may affect water levels and, thus, transportation through the canal.

Integral Part of the System

As the last leg of the U.S. supply chain, ocean freight plays a significant role in transporting U.S. wheat to destinations worldwide. Monitoring trends in ocean freight is critical to understanding the cost and potential price risks for importers. Changes in ocean freight rates can greatly impact the landed cost of U.S. wheat for importers, so it is critical to distinguish what factors influence the price of U.S. wheat at every point in the supply chain, from inland logistics to the ocean vessel.

This article is part of a series outlining the transportation logistics for U.S. wheat, highlighting barge freight, the railroads, infrastructure investments, and maritime transportation trends.

By USW Market Analyst Tyllor Ledford

/by
thumbnail
, , ,

Wheat Industry News

News and Information from Around the Wheat Industry

Speaking of Wheat

“Amidst the backdrop of diverse perspectives and conflicts of our times, farmers continue planting seeds of sustenance and resilience, stewarding the land for generations, and producing a safe and reliable food supply. The values of integrity, honesty, and care we see in agriculture offer a model for achieving sustainable progress in society and industries, ensuring that resources are managed in ways that benefit present and future generations. Farmers are at the heart of this truth.” – Jim Britt, Director of Communications, Maine Department of Agriculture, Conservation and Forestry. Read more here.

World Wheat Production Ends Record Run

USDA reported this week that following 3 years of record production 2023/24 global wheat production is now forecast down as year-over-year reductions are forecast in the EU, Russia, Canada, Australia, Kazakhstan, and Brazil. Total wheat use has now exceeded production for 4 years running and tightening supplies in these major exporters puts exportable supplies at their lowest level in 11 years. Analysts suspect this bullish note will not spark a rally in part because USDA also reduced global wheat use estimates. Read more here.

WASDE Turns 50

USDA on Sept. 12 celebrated the 50th anniversary of its “World Agricultural Supply & Demand Estimates” or WASDE report. The report was established in September 1973 to “give the public the timeliest analytical information available officially from the Department.” Commenting on the report, USDA Secretary Tom Vilsack said: “This work behind the scenes gets attention in this moment, but then gets analyzed and utilized for weeks on end and helps to establish the market prices …” It is important for trade and global competition, he added. The U.S. Wheat Associates (USW) Supply and Demand report is based and expands on the monthly WASDE report. Listen to Vilsack’s comments here.

Wheat Disease Impact Much Lower in 2022

According to an analysis by the Crop Protection Network, disease in 2022 reduced wheat production by 3.6% in surveyed U.S. states and by 1.9% in Ontario. Overall reduction in 2022 was less than half that of any other year of data collection (2018-2021), and percentage losses were also much lower than previous years. Total estimated yield loss in 2022 from wheat disease in the U.S. and Ontario was 55.7 million bushels, valued at nearly $500 million. This does not include the economic costs of disease management practices such as fungicide seed treatment or foliar application, crop scouting, and development of disease-resistant varieties. Read more here.

This grid pattern represents the percentage of wheat production in 2022 by U.S. state and the Canadian province of Ontario among the states and Ontario surveyed by the Crop Protection Network for an analysis of wheat disease yield impact.

This grid pattern represents the percentage of wheat production in 2022 by U.S. state and the Canadian province of Ontario among the states and Ontario surveyed by the Crop Protection Network for an analysis of  disease yield impact.

Brabender Introduces New Farinograph

According to a company statement, Brabender has introduced a new “FarinoGraph” that offers new features, the latest technology, optimized user friendliness and more. Farinograph is used to determine water absorption capacity of flour and the rheological properties of dough. “Measurements with the new “FarinoGraph” are now even more automated and timesaving,” said Viktor Schäfer, Brabender business development manager software solutions. “For instance, we have implemented an artificial intelligence based on previous measurements to predict the measurement curve and added a function to save measurement time.” Read more here.

Pellman Makes Rounds with USW Policy Team

The National Association of Wheat Growers (NAWG) brought more than 20 wheat farmers to Washington, D.C. Sept. 12-13 for its annual fall “Fly-In.” The effort included two days of meeting members of Congress. Led by the U.S. Wheat Associates (USW) Trade Policy team, USW Secretary/Treasurer Jim Pellman joined his fellow wheat farmers at the Capitol to voice support USDA’s Market Access Program (MAP) and Foreign Market Development (FMD) program, as well as the American Farmers Feed the World Act of 2023.

Pictured with Jim Pellman (far right) are Oklahoma farmer and NAWG Vice President Keeff Felty (left) and North Dakota Congressman Kevin Cramer (center) .

Pictured with Jim Pellman (far right) are Oklahoma farmer and NAWG Vice President Keeff Felty (left) and North Dakota Congressman Kevin Cramer (center) .

 

Subscribe to USW Reports

USW publishes various reports and content available to subscribe to, including a bi-weekly newsletter highlighting recent Wheat Letter blog posts and wheat industry news, the weekly Price Report, and the weekly Harvest Report (available May to October). Subscribe here.

Follow USW Online

Visit our Facebook page for the latest updates, photos, and discussions of what is going on in the world of wheat. Also, find breaking news on Twitter, video stories on Vimeo and YouTube, and more on LinkedIn.

/by

Think Farm Export Programs Don’t Matter? Think Again.

GET THE REST OF THE STORY

DTN Wheat Detail
DTN Corn Detail

2008-2013 U.S. Wheat Associates. All Rights Reserved
Privacy Policy | Non-Discrimination Statement