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Headlines Keep the Global Wheat Market Bouncing

Grain buyers have the unenviable task of sorting through today’s news and determining what it means for tomorrow’s prices. Experienced buyers have plenty of tools to help with their decisions, but the volatility experienced in 2022 may be embedded for the near future. Talk of a global recession may soften commodity prices initially, but just as quick, geopolitics can reverse any downward trend as we’ve seen the last two weeks.

U.S. wheat futures price chart for one year from October 2021 to late September 2022 showing volatility affecting the global wheat market

Volatility seems to be the new normal in global wheat markets. U.S. wheat futures prices over the past year clearly demonstrate that condition.

Global Supply

The global balance sheet for wheat is down 10.0 MMT in 2022/23 compared to 2021/22 at 1.06 billion metric tons (MT). Beginning stocks this season are the lowest since 2017/18 while ending stocks are expected to be the tightest since 2016/17. Despite Russia’s huge wheat crop and rebounds in production for both the U.S. and Canada, reductions in the European Union (E.U.), Argentina, and Ukraine are helping to keep prices firm.

U.S. wheat production is up this year, increasing almost 4 MMT to 48.5 MMT according to USDA. Exports are expected to increase slightly to 22.5 MMT. According to the latest world agricultural supply and demand estimates (WASDE), production for all classes of U.S. wheat is expected to increase this year except for hard red winter (HRW) wheat which is estimated down 21%. Kansas, the primary HRW growing state, remains dry even as winter wheat planting is underway.

Black Sea Grain Corridor

Russia’s invasion of Ukraine has had the biggest effect on upending the global wheat market. The United Nations brokered an agreement to establish a grain corridor in the Black Sea. As a result, Ukraine has shipped more than 7 MMT of grain since July, when the agreement was signed according to APK. However, Putin’s criticism of the grain deal and escalation of the war on his neighbor have once again roiled markets and sent futures higher.

The multilateral agreement establishing the grain corridor will expire in November. Given the Russian president’s unpredictable actions so far, there is no guarantee that the agreement will be renewed.

Russian Potential

Russia has produced its largest wheat crops ever. The USDA forecasts Russian wheat production at 91 MMT this month while the European Union’s crop monitoring service, MARS, projects the Russian wheat crop will total 95 MMT. The USDA predicts exports could reach 42 MMT. But Russian exports so far this season have been slow to move. According to IKAR, a Russian analyst, Russian wheat exports are expected to reach 4 MMT in September, well behind the 4.7 MMT exported a year ago. Russian wheat exports are not under any western backed trade sanctions, but shipping companies, insurers, and banks are still cautious to do business with Russia.

Additionally, heavy rain in the central and southern areas of the country is delaying plantings. SovEcon reported that 8.6 million hectares (21.2 million acres) of grain had been sown so far, 1.5 million hectares (3.7 million acres) behind their pace a year ago. The consultancy added that it’s the lowest area planted since 2013.

Dependability of Supply

India also played its hand in driving global wheat futures higher. After initial pronouncements of feeding the world’s hungry, India quickly reversed course and blocked wheat exports. The country is expected to instead import 25,000 MT of wheat this year.

Input Costs

High gas prices could affect access to nitrogen-based fertilizers. Yara International, a Norwegian-based fertilizer producer warned that the gas situation in Europe could create shortages and add to risk. Gas prices on the continent have risen 45% since June when Russia curtailed shipments following E.U. sanctions. Yara said it expects to pay $1.1 billion more for natural gas in the third quarter than a year ago. Natural gas is a key ingredient for making nitrogen-based fertilizers.

U.S. dollar value indexed to a basket of currencies showing the general rise over the past year.

U.S. Dollar Value continues to rise against many different currencies, affecting the cost of dollar denominated wheat trade. In such an uncertain global wheat market, even minor changes in the dollar index are adding volatility.

The Rising U.S. Dollar

Overall, the U.S. Dollar (USD) continues to strengthen. Yet in this environment even subtle changes up or down in USD value can move U.S. and global wheat prices.

There is no shortage of headlines that directly affect the global wheat market. It is tough to say how much the road will curve in the near term. Grain buyers will remain busy absorbing the headlines as fast as they come.

By Michael Anderson, USW Market Analyst

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Dry Bulk Freight Rates Riding Rough Seas

This was supposed to be the year dry bulk freight vessel owners turned a profit, Jay O’Neil, a commodities consultant and author of a weekly transportation report recently commented. And U.S. Wheat Associates (USW) shared similar thoughts early in 2021. Instead, S&P Global Market Intelligence noted recently that freight rates for dry bulkers have fallen over the past three months after rates peaked earlier than expected in the second quarter of 2022.

As rates recently climbed, however, O’Neil said the freight market may have finally found its bottom.

Bearish Factors

Since early 2020, shipping has faced uncertainties: labor shortages, various COVID restrictions made worse by each country applying different restrictions, port congestion, and supply chain breakdowns have all competed to make shipping tough. The challenges to shipping logistics have abated. As a result, the number of available vessels floating in the dry bulk freight market has increased.

As China Goes…

China plays such a dominating role in the dry bulk shipping market that analyzing economic activity there can predict the dry bulk fleet’s prospects. China’s economic growth slowed under the government’s zero-COVID policy. The global iron ore trade, one aspect that drives the dry bulk fleet, was down 6% last month compared to a year ago. An analyst with S&P Global Market Intelligence said “slower than expected economic growth” could exist through the second half of 2023. O’Neil covered bearish factors for the dry bulk freight market for USW’s 2021 Crop Quality report.

Russian Coal

Putin’s war in Ukraine has also rerouted some cargo flows and driven up demand for coal, another commodity that absorbs dry bulk shipping capacity. Sanctions on Russian gas supplies have quickly reversed European Union plans to close many coal-fired plants. While the E.U. looks to the United States for coal imports, India and China are taking advantage of cheap Russian coal and changing demand for different bulker size categories.

Another key component that helped bring down dry bulk shipping rates is the easing of port congestion.

“Inefficiencies of last year do not apply to the current market anymore and the supply-demand equation is more straightforward,” said one ship owner. AXS said a primary driver behind the lower rates is the drop in ton-miles.

Overall, Breakwave Advisors, a shipping publication, agreed saying, “Following a period of high uncertainty and significant disruptions across the commodity spectrum, the gradual normalization of trade is shifting the market’s attention back to the traditional demand and supply dynamics that have shaped dry bulk profitability for decades.”

This was all good news for dry bulk freight customers, including the world’s wheat buyers.

Line chart shows the Baltic Dry Index change from April 2022 to September 2022

Stormy Seas for Dry Bulk Freight. After peaking in the second quarter of 2022, the Baltic Exchange Dry Index retreated before bouncing up in September. Some suggest the market found a bottom, yet bearish economic factors continue.

Turning Tides

Yet signs of rate recovery are evident. The Baltic Index on September 9 notched its largest weekly increase in 8 years, according to Reuters data. The index was up 12% to 1,213. On September 12, the Baltic Index marked its fourth consecutive session of gain. AgriCensus, in a story published on August 31, noted that the purchasing managers’ index (PMI) rose to 49.4 in August, up 0.4 compared to July. But still, the index remained below the 50-point mark which separates contraction from growth.

Despite the current strengthening in the shipping index, generally bearish factors affecting dry bulk freight rates such as China’s economic situation remain. Those that follow the market closely say that rebound may simply be a market correction. For now, it seems like vessel owners may have to wait longer before turning that profit that many predicted not long ago.

By Michael Anderson, USW Market Analyst

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USW’s Online Baking Program Putting U.S. Wheat ‘Top of Mind’ in South America

An online training series developed by U.S. Wheat Associates (USW) in the early days of the COVID pandemic continues to have success in its effort to educate South American bakers and millers about the value and quality of U.S. wheat.

Specifically, the Online Baking Certification program promotes baking methods and processes that highlight all six U.S. wheat classes. What is significant about the program is that it’s able to reach a large number of bakery and milling staff who otherwise would not be able to take part in educational workshops. The virtual format allows participants to study at their own pace before testing through a handful of modules to earn certification.

Funded by the Agricultural Trade Promotion Program (ATP) – a USDA Foreign Agricultural Service (FAS) program created in 2018 to help U.S. agricultural exporters enhance their work in international markets and mitigate other obstacles to trade – USW’s online trainings have made great strides toward reaching the goal of boosting awareness of U.S. wheat.

Bakers and millers in Colombia, Peru, Chile, Ecuador, Bolivia and Brazil have been getting a thorough introduction to U.S. wheat and are learning how they can utilize it to improve the quality of breads and other baked goods.

The goal for U.S. wheat is ambitious yet simple: Sharing ways to improve baked products made with U.S. wheat could result in increased consumption in South America, which could lead to more customers for South America’s bakeries.

It could also potentially lead to a greater demand for U.S. wheat.

Putting U.S. Wheat ‘Top of Mind’

USW's Online Baking Certification program build's upon an effort to create awareness of U.S. wheat in South America. Pictured here is an in-person workshop conducted in USW's Santiago office in 2019, prior to the COVID pandemic.

USW’s Online Baking Certification program builds upon an ongoing effort to create awareness of U.S. wheat’s value and quality in South America. Pictured here is an in-person workshop conducted in USW’s Santiago office in 2019, prior to the COVID pandemic.

Miguel Galdos, USW’s regional director in South America, says the goal of the Online Baking Certification program is to create better awareness of U.S. wheat.

“We want U.S. wheat to be top of mind for more bakers in the region, as well as for the technical staff at the milling companies,” he said. “We want to place a higher emphasis on reaching bakers

and technical people to perhaps give them a voice when it comes to wheat purchasing decisions.”

The fact that both bakers and milling staff are registering for the online course, too, is a sign that many in the industry want to take advantage of the opportunity to get experience working with U.S. wheat.

USW, the wheat industry’s export market development organization, works with wheat buyers, millers, bakers, food processors and government officials in more than 100 countries to promote the reliability and value of the six U.S. wheat classes. The new emphasis on creating awareness in South America and educate the people who work directly with wheat and wheat flour inside of bakeries is strategic.

Creating awareness – putting U.S. wheat top of mind of bakers – opens all kinds of opportunities.

“The key is that once they learn one aspect of U.S. wheat’s quality, they want to see what else there is to learn,” explained Galdos. “In this program, they must test out of one module to be able to move on to the next. Before earning the certification, they must complete a two-day practical course in person. Soon, after moving through the program, they are an expert on our product. At that point, U.S. wheat has developed a customer.”

Virtual Training has Become Commonplace

The virtual baking training includes six different modules that allow bakers and milling staff to progress at their own pace. Participants must pass a module to move on to the next, assuring they are exposed to all of U.S. wheat's positive attributes.

The Online Baking Certification program includes six different modules that allow bakers and milling staff to progress at their own pace. Participants must pass one module to move on to the next, assuring they are exposed to all of U.S. wheat’s many positive attributes.

Launched in October 2020 as an alternative to in-person training workshops during the height of the COVID pandemic, the Online Baking Certification program has grown rapidly. USW recently added a Portuguese version to the original Spanish version to attract more Brazilian participation. USW also has plans to add a master-level course in the near-future.

The current program has registered nearly 5,500 students in two years. Thanks to a partnership between U.S, Wheat Associates, the Brazilian Wheat Industry Association and the Brazilian Bakery and Confectionery Industry Association, further growth is expected.

The six South American countries targeted by USW are the six that purchase U.S. wheat.

“The biggest wheat buyer in Colombia has had 15 staff members go through the whole program and earn certification,” said Galdos. “Chile has been another active participant, so we are seeing interest from a good portion of the region. Brazil is promising. We have met with the millers and bakers’ associations and U.S. Wheat Associates is going to be recognized by those associations at an upcoming event.”

The birth of the program came by necessity after in-person trainings and workshops were eliminated because of COVID. By March 2020, USW’s staff in Santiago, Chile, were putting together educational materials to complete the online bakery course – courses featuring baking theory, video instruction and assessment platforms were assembled. USW Baking Consultant Didier Rosada played a key role in the production of baking videos for the modules, which were finished in May 2020 and then sent to selected baking staff around the region for testing.

Opportunity for a Competitive Edge

Those who have completed USW’s Online Baking Certification are reporting they gained greater knowledge of traditional baking methods that work well with U.S. wheat.

Miguel Galdos, USW regional director in South America

Miguel Galdos, USW regional director in South America

Galdos emphasized that the online courses provide U.S. wheat with an advantage over competing wheat growing and exporting countries.

One example is the value of U.S. hard red winter wheat compared to Canadian wheat.

“One thing we stress to the bakers in South America is that many of the products they are baking do not require Canadian wheat that is higher in protein but more expensive,” Galdos said. “U.S. hard red winter wheat is a better option, and the content in the online baking courses teach them why. We show them how to bake with it. The problem is that the bakers are not trained. We want more bakers in the region exposed to the value and quality of U.S. wheat and how using it can benefit their products and their businesses.”

Along with putting U.S. wheat top of mind for South American bakers, Galdos pointed out a valuable additional benefit to USW’s online baking program.

“Through this certification process we are working with bakeries, collaborating with millers, collaborating with the people who either are or could be buying and using U.S. wheat,” he said. “We are educating them and creating awareness for U.S. wheat. At the same time, we are building relationships.”

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Export Opportunities Await U.S. Wheat, But ‘It’s Complicated’

Before providing a simple and straightforward description of the global wheat and grain markets, Mike Krueger paused to consider a handful of variables facing importers, exporters and producers.

Then he used a word that is opposite of simple and straightforward.

“It’s complicated,” Krueger told those attending the 2022 U.S. Wheat Associates (USW) World Staff Conference August 23, 2022.

The quality and reliability of U.S. wheat has long created demand among importers, Krueger noted. Due to increased competition for acreage, political and economic strife in key regions and the potential for weather events to influence yields, Krueger expects demand will expand.

To put it simply: Export opportunities await U.S. wheat.

“A primary reason is that global wheat supplies are likely to shrink due to a renewed focus on soybeans and corn,” Krueger said. “Another factor favoring U.S. producers involves shipping and logistics limitations that hamper competing wheat-growing countries.”

Add in drought effects from a third consecutive La Niña? The effects would further pressure global supplies.

“These things are pushing more export demand for wheat,” Krueger explained. “Can the U.S. meet the demand? That’s a question that hasn’t been answered. will corn, soybeans or wheat be planted? Business decisions are made every single planting season. Our acres are limited.”

Effects of ‘Rush to Crush’

Krueger, a grain industry consultant with Lida Communications and owner of The Money Farm, has nearly 50 years of grain marketing and trading experience. He’s seen how world events and weather can spin wheat supply

Mike Krueger at U.S. Wheat Associates' World Staff Conference

Mike Krueger explains how a growing demand for renewable diesel in coming years will affect worldwide acreage dedicated to soybean production

and demand at the international level. During his “World Supply and Demand Update” presentation at the USW conference, Krueger reported conditions that are ripe for volatility that could continue for years.

“We have tight global supplies to begin with, and we also have a lot of issues that complicate things – including a war in the Black Sea region,” Krueger said, referring to the Ukraine-Russia battle that has the wheat industry keeping a close eye on the news. “Another thing is what we call the ‘Rush to Crush.’ The demand for renewable diesel and other renewable fuels is erasing vegetable oil supplies and that will dramatically boost demand for soybeans and canola. And a new interest in sustainable aviation fuel (SAF) is just one more item that will put pressure on soybean supplies.”

The Rush to Crush movement includes significant investment in soybean crushing facilities in the U.S., setting up a situation where farmers will be enticed to dedicate more acreage to soybeans. This while corn supplies remain tight everywhere, Krueger noted.

“It’s being estimated that perhaps 20 to 30 million more acres of soybeans would be needed to meet such demand, which certainly would be a huge factor in the competition for acreage that we already see,” Krueger said.

Corn seeded area is expected to ramp up as U.S. ethanol demand increases due to high gas prices and enhanced ethanol allowances. Corn exports by the U.S. could rise, too, as China’s surplus stock is typically overstated, according to Krueger.

All this while drought cut soybean production across South America and Brazil’s safrinha (second crop) corn production is smaller than what had initially been estimated.

Export Opportunities Await U.S. Wheat

Ukraine and Russia export roughly 30% of the world’s wheat – and Russia has a record crop under its belt – but the ongoing war is an intangible, Krueger pointed out.

Krueger emphasized how the quality and reliability of U.S. wheat helps create demand in the global marketplace

Krueger emphasized how the quality and reliability of U.S. wheat helps create demand in the global marketplace

“Russia has record production, yet the question is do they have the logistical capacity to export the crop – logistics on the Black Sea are a mess,” he said. “As for Ukraine, the war could really affect their production. Plus, it’s suspected that the amount of wheat that could come out of Ukraine is overstated. It’s really an unknown at this point.”

Where does this leave the U.S. wheat industry? Krueger summed it up with a series of questions, such as: Are there any supply “cushions” outside of Russia and Australia, which is also expecting increased production?

“None,” Krueger replied.

Will world consumption somehow contract? Krueger reminded everyone that “It rarely has.”

Are China’s production numbers real? “Everyone is skeptical,” he warned.

And finally, how will world politics – the war in Ukraine, China’s relationship with Taiwan and ongoing inflation concerns in the U.S. – affect the grain markets and global trade?

Krueger returned to his original assessment.

“Export opportunities await U.S. wheat,” he said. “Again, it’s complicated.”

 

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Black Sea Grain Corridor, Weather and Harvest Pressure Wheat Prices

Russia’s unprovoked invasions of Ukraine sent already bullish wheat futures prices soaring earlier this year.

However, the first grain vessel to leave Ukraine since Russia’s February invasion set sail on Monday, August 1. The ship, carrying 27,000 metric tons (MT) of corn bound for Lebanon, was able to sail nine days after Ukraine and Russia agreed to a deal brokered by the United Nations (U.N.) and Turkey.

The news of the Ukrainian grain cargo’s safe arrival in Turkey sent Chicago Board of Trade wheat futures down more than 3% on August 2. Harvest across the northern hemisphere is another factor helping global wheat prices soften. However, the weather will play a crucial role in the weeks ahead. Hot weather could slash yields as it did in India this year. Too much rain could create quality issues.

In its July World Agricultural Supply and Demand Estimates (WASDE) report, the USDA forecast that global wheat production would total 771.6 million metric tons (MMT), falling 1.7 MMT from USDA’s June estimate and 7.3 MMT less than in 2021/22. Global consumption is forecast at 784.2 MMT, outpacing production by 12.6 MMT.

The tighter balance sheet for worldwide wheat year-over-year is partly due to the Black Sea conflict, but other key exporting regions are worth a look.

Line chart of wheat futures prices since February 2022

United States

The most recent USDA Crop Progress Report, published August 1, reported that 82% of the winter wheat crop was harvested. USDA expects 2022/23 hard red winter (HRW) production to reach 15.9 MMT, falling 6.0 MMT from last season. Soft red winter (SRW) production is estimated at 10.2 MMT, higher than last season, and winter soft white (SW) production at 7.8 MMT, 1.3 MMT more than 2021/22. Many state wheat commissions have reported very limited disease pressure because of dry conditions during the growing season.

In the same report, the USDA rated U.S. spring wheat at 70% good or excellent. Last week the annual hard red spring (HRS) tour estimated that HRS yield would reach 49.1 bushels per acre (bpa) (3.3 MT/ha), the highest since 2015 and above the 5-year average of 39.4 bpa (2.6 MT/ha). In a weekly update, the North Dakota Wheat Commission said spring wheat remains behind in its maturation but added that recent warmer temperatures are helping the crop develop.

Read the weekly U.S. Wheat Associates (USW) Harvest Report here. In addition, North Dakota Wheat Commission Policy and Marketing Director Jim Peterson reviewed U.S. and global durum supply and demand in a webinar sponsored by the Northern Crops Institute (NCI) Aug. 3.

Canada

Canada is rebounding from a drought that slashed spring wheat and durum production there in 2021/22. The USDA raised the Canadian wheat forecast by 57% compared to last year. An analyst with MarketsFarm warned that the USDA is too optimistic and does not take into account the late plantings in the eastern Prairies and the lingering drought in western Canada. The USDA puts 2022/23 exports at 25.0 MMT.

European Union

The European Union (E.U.) has recently been hit with a severe heat wave. Last week the E.U.’s crop monitoring service, MARS, cut its yield forecast to 5.74 MT/ha. France, the largest wheat-producing country in the E.U. experienced its driest July on record and the driest month since 1961. Last week, Agritel, a French consultancy, cut its forecast for French wheat. German farm group DBV, increased Germany’s 2022 winter wheat harvest by 1%  to 21.38 MMT.

While the hot weather in some E.U. countries is concerning, a drought in Romania is affecting the water levels on the Danube River. The river is a major artery for transporting Romanian and, increasingly, Ukrainian grains to E.U. countries and to the Black Sea. The lower water levels mean that ships must sail at reduced tonnage. The Rhine River in Germany and Po River in Italy are also low meaning that barges carrying grain are either unable to sail or must sail with reduced cargos.

Australia

Production in Australia is expected to fall 6.3 MMT to 30.0 MMT this season following the bumper crop harvested in 2021/22. Exports are expected to fall 3.5 MMT to 24 MMT, but this is still 45% above the 5-year average. Even with the surplus of exportable wheat, port capacity in Australia is tight, making it hard for exporters to manage increased demand.

Argentina

The USDA Foreign Agricultural Service attaché, on July 25, lowered the 2022/23 export forecast to 12.35 MMT or 1.15 MMT less than the July WASDE forecast. The wheat-growing region is experiencing prolonged dry weather due to a protracted La Niña weather event making it difficult for farmers to plant their wheat crops.

Russia

Russia is expected to harvest a record crop this season. SovEcon, a Russian market analyst, put total wheat production at 90.9 MMT. The USDA estimates a more modest 81.5 MMT, but even that is 8% higher than in 2021/22 if realized. Recent heavy rain has affected the quality of the wheat being harvested reported Reuters. AgriCensus said that the amount of wheat designated as feed grain would be higher.

Ukraine

Ukraine is expected to harvest 19.5 MMT of wheat in 2022/23 according to USDA, falling 41% behind its 2021/22 production level. Exports are expected to fall to 10.0 MMT, dropping nearly 9.0 MMT year-over-year. Exports are down because of Russia’s Black Sea blockade; however, grain exports through the Black Sea resumed this week. Unfortunately, the ultimate outcome of this deal remains unknown.

Kazakhstan

The Kazak minister of agriculture said that wheat production in the Central Asian country would be 15% to 20% higher this year compared to last. The minister forecasts up to 13.5 MMT total wheat production this season. The Kazakh Grain Union is even more optimistic, indicating 16.0 MMT of wheat production and 9.0 MMT of grain available for export.

Nontraditional Wheat Exporters

Brazil is expected to harvest a record wheat crop in 2022. According to Conab, the food supply and statistics agency, wheat farmers in Brazil planted the largest area in 32 years, around 2.9 million hectares (7.16 million acres), and will harvest a record 9.0 MMT of wheat if the weather holds up. Conab said that Brazilian farmers boosted their plantings due to higher prices caused by supply disruptions.

India boasted plans to export as much as 10.0 MMT of wheat this season. However, hot weather weeks before harvest cut yields. The country instead banned wheat exports, thereby adding even more uncertainty and disruption to the global wheat market.

Chicago Board of Trade (CBOT) wheat futures have averaged $9.61 since January. On Tuesday, August 2, the September contract was trading at $7.74. This is good news for wheat buyers. Allowing Ukrainian wheat back into the market via the “grain corridor” is a positive move for the global price of wheat. The weather in key growing regions, both during harvest and during fall planting, will be the thing to keep an eye on.

By USW Market Analyst Michael Anderson

 

 

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What is the Outlook for World Durum Production?

Global durum production is expected to rebound in 2022/23, but stocks are likely to remain tight this season.

Total durum production in 2022/23 is expected to increase 10% to 33.9 MMT, led by increases in the United States, Canada, and Mexico. While durum production in North America looks good, production across Europe and North Africa is expected to fall. Reductions are led by the E.U. and Australia. Kazakhstan is expected to produce more durum but has banned wheat exports through September. Countries across North Africa, including Morocco, Algeria, and Tunisia, grow significant domestic crops, but durum production this year is forecast to be smaller, increasing the need for imports.

Drought Slashed Production

Last year, leading durum producers, including the United States and Canada, experienced hot weather and dry conditions that drastically cut production. Worldwide, beginning stocks of durum, according to Stratégie Grains, are 7.9 MMT, 1.6 MMT less than 2021/22. However, unlike last year, durum production estimates outside the E.U. and North Africa look good.

European Union

According to Stratégie Grains, a European research analyst, production across the European Union (E.U.) is seen falling to historically low levels due to dry weather. Stratégie Grains cut its E.U. durum production forecast by 600,000 MT between May and July. Stratégie Grains now forecasts production at 7.0 MMT, 9% behind 2021/22; if realized, this would be the lowest durum production since 1997.

Italy is by far the largest European durum user. Demand is pegged at 6.1 MMT. It produces a sizeable domestic crop but is experiencing a severe drought this year. An extremely dry winter and spring followed by hot weather since late spring has left the growing area parched, leading to the worst conditions in 70 years. The Italian government this month declared a state of emergency.

Heat is On in Europe

According to Coldiretti, an Italian agricultural lobby, the country’s durum and “common” wheat production this year is expected to fall 15% as the drought slashes yields. The Italian Millers’ Industrial Association expects durum production to fall 10% to 3.5 MMT.

Italian durum production, estimated at 3.4 MMT, is expected to fall 2.6 MMT short of total demand. According to USDA sales data, for the 2022/23 marketing year, which began June 1, U.S. durum sales to Italy are up 124% compared to the same time last year.

United States

According to the USDA June Acreage Report, in the U.S., durum wheat planted area increased by 34% to 1.98 million acres (801,277 hectares). In the USDA’s July WASDE report, durum production in 2022/23 is forecast at 2.1 MMT, more than double 2021/22. Exports are expected to increase twofold to 800,000 MT.

The latest Crop Progress Report, published by USDA on July 18, rated 80% of North Dakota’s wheat good or excellent, while Montana reported 50% good or excellent. North Dakota and Montana together account for 93% of the durum wheat grown in the U.S.

USW chart showing U.S. durum production, stocks and export sales

More Durum, More Sales. USDA’s first forecasts of U.S. durum production and exports in marketing year 2022/23 are up significantly. The market will be watching conditions closely from now until harvest.

Canada

Canada, usually the largest durum exporter globally, saw sluggish durum exports in the 2021/22 season. Western Canada experienced a devastating drought in 2021, which slashed yields and cut production by 53%. According to Statistic Canada, durum exports were 60% behind their 2020/21 pace through February, the latest data available.

This year looks different. Statistics Canada projects a 75% increase in supply. Canadian production is forecast at 5.52 MMT in 2022/23 due to increased seeded area and improved yields. Exports are also expected to increase 72% to 4.3 MMT.

Mexico

Durum production dominates Mexico’s total wheat production. USDA’s Foreign Agricultural Service in June 2022 dropped its forecast of Mexican wheat production slightly to 3.26 MMT for 2022/23. This change was based on information from industry and official government sources, reflecting unfavorable weather conditions and other factors. Mexico’s total durum and wheat exports are forecast at 850,000 MT.

Global Demand

Global demand for durum wheat is projected to increase 1.0 MMT to 32.9 MMT in 2022/23. As a result of the lower domestic production in many countries, global trade for durum is projected to increase 1.5 MMT to 7.4 MMT in 2022/23.

Stratégie Grains forecasts durum E.U. imports from non E.U. members to be 2.4 MMT, 1.0 MMT more than last year. Imports to Morocco are expected to increase 400,000 MT to 1.1 MMT.

Outlook More Optimistic

The tight ending stocks and a poor European harvest kept durum prices initially high at the start of 2022/23. Now increased planted acres and a positive outlook for the upcoming harvest have created an optimistic outlook for the North American durum crop and potentially easing export prices. However, another year of tight supplies and unknown variables, especially weather, between now and harvest could mean price fluctuations for the marketing year ahead.

The weekly Price Report, published by U.S. Wheat Associates, shows price indications, including durum wheat. USW also publishes annual crop quality data, including for durum wheat. The 2022/23 U.S. durum crop quality will be reported this fall.

Photo of durum kernels to illustrate durum production story

U.S. Durum Production is in North Dakota and Montana where Northern Durum is grown and shipped from Great Lakes and Pacific ports; Desert Durum® is grown primarily under contract in the desert Southwest and shipped via the Gulf or West Coast.

*Supply and demand estimates for durum wheat including world production, beginning stocks, EU-specific highlights, Italy, and Morocco, are based on Stratégie Grains’ July 15, 2022, Durum Report.

By USW Market Analyst Michael Anderson

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Harvest and Much Improved Conditions Pressure U.S. Soft White Market

Volatility remains the key word when looking at wheat prices, and the soft white (SW) market is no exception.

From their rapid increase following the severe drought in 2020/21 and the Russian invasion of Ukraine in March 2022, U.S. wheat futures have declined recently and were down more than 4% on July 5, hitting a multi-month low. While SW does not trade on a futures exchange, as a soft wheat, it reflects the CBOT soft red winter (SRW) futures price that settled July 5 at $8.07, the lowest level since February 18, before the invasion. On July 6, the July contract SRW contracted slipped further, falling below $8.00/MT.

New Crop Arriving

The U.S. SRW and hard red winter (HRW) wheat harvests are underway, helping push futures and SW prices down as the market takes in news about crop conditions and yield potential. An additional bearish factor is improved crop conditions boosting confidence for this year’s hard red spring (HRS) crop.

Abundant moisture and cooler temperatures this growing season have benefited the SW crop but also slowed crop progress, causing a slight delay in this summer’s harvest.

More SW to Come Slightly Late

One wheat trader shared an anecdote about harvest timing from a Washington-based wheat farmer. Each year the farmer looks to when a specific type of flower blooms to indicate when harvest will start. Usually, the flowers bloom around mid-June, and wheat typically matures about three weeks later. But this year, the flowers did not bloom until the end of June, so the farmer expects to start harvest around July 15.

This look ahead at the new SW crop also helps to explain the quick run-up in SW export prices in May when “old crop” stocks were being drawn down and in June when the price started to turn toward a middle ground.

U.S. soft white wheat futures prices over time

Moderating SW Prices. As the harvest of a much improved and potentially high-yielding U.S. SW wheat crop draws near, new crop prices have come down to a level similar to prices in August 2021. Source: USW.

Buyers of SW around the world are all too familiar with the impact of drought and heat on 2021 SW production and functional characteristics, as well as export prices. This year things are different.

“Much Better” Production

The U.S. Drought Monitor keeps statistics comparing changes in drought status from year to year. A recent comparison map (below) shows significant improvement in the Pacific Northwest SW and white club production region, as well as in much of the U.S. HRS and northern durum production region.

U.S. Drought Monitor map from June 2022 showing changes in drought status from June 2021 to June 2022

Source: U.S. Drought Monitor.

In an interview with the Moscow-Pullman Daily News, Glen Squires, chief executive officer for the Washington Grain Commission, highlighted the volatility and numerous factors that fueled and then decelerated the SW wheat market. Weather, he emphasizes, is a key part of what is behind the market right now.

“Our wheat production in the Pacific Northwest is supposed to be a much better this year,” Squires said. “If the estimates are accurate, we could have 20 million bushels (544,366 metric tons) over our five-year average. So that plays into (the market volatility) a little bit.”

Buyers can monitor U.S. Wheat Associates (USW) Harvest Reports for weekly updates on harvest progress and initial crop quality data and follow more news about the 2022 harvest through state wheat commissions and regional USW office updates.

By USW Market Analyst Michael Anderson

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Export Bans Contrast with U.S. Wheat’s Commitment to an Open, Transparent Market

Consumers and suppliers both appreciate uniformity, the ability to purchase a reliable product that is available when needed. Customers of U.S. wheat know that dependable people grow and supply reliable wheat, which marks the difference between the U.S. wheat market and some competing suppliers.

Freedom to Trade

Free trade has been upheld in U.S. commerce since the country’s founding. The Export Clause, in Article I, Section 9, Clause 5 of the U.S. Constitution, states, “No Tax or Duty shall be laid on Articles exported from any State.” The framers of the constitution, eager to throw off the history of colonial rule, made it a policy that goods from the U.S. would be available to markets worldwide, and no elected official would tell them otherwise.

However, farmers have fought for uninhibited trade.

When the Soviet Union invaded Afghanistan in 1980, President Carter cut off U.S. grain exports to the Soviets. In the aftermath of the grain embargo, more stringent laws such as the export sales reporting and contract sanctity law were passed that doubled down on the freedom of commerce.

Protectionism Rising

Despite the sincere efforts by the World Trade Organization (WTO) to keep international markets open, some countries remain quick to block exports when markets become uncertain. Covid-19 and the global shutdowns that followed showed a pattern of export bans from major commodity producers. Russia’s recent invasion of Ukraine has also had a reverberating effect on the grain markets. Many would-be suppliers have instead banned or restricted the sale of their wheat, creating a supply worry and once again proving that not all markets remain reliable.

When countries implement wheat export bans claiming to protect their domestic market it creates uncertainty and higher prices for buyers. Putin’s war with Ukraine pushed already increasing world wheat prices to spike to more than a decade high in March, and prices remain elevated.

Putin’s war with Ukraine pushed increasing world wheat prices to spike to more than a decade high in March, and prices remain elevated. The latest USDA Supply and Demand Report expects Ukrainian wheat exports to fall by nearly half year-over-year from 19.0 million metric tons (MMT) in 2021/22 to 10.0 MMT in 2022/23. This 9.0 MMT reduction is almost the equivalent of all the wheat Turkey is expected to import in 2022/23. Russia’s unprovoked invasion has interrupted Ukrainian commercial sales and added uncertainty to the market.

India abruptly halted commercial wheat exports on May 13, catching the wheat market off guard. The immediate suspension has moderated somewhat since then. Still, the government’s promise to fulfill export shortages caused by Russia’s invasion of Ukraine was an unexpected and costly blow to the market.

Intervention Expands

Other countries have weighed the use of export-curbing measures. Argentina’s president in May urged its legislature to increase export taxes to protect domestic prices from “surging international prices.” Kazakhstan applied a quota on wheat, including durum, soft wheat, and wheat flour, from April 15 to June 1. Belarus imposed an export ban on grains from late 2021 to early 2022.

And Russia, with a very large wheat crop now expected, has not stopped its protectionist wheat export tax that only increases the cost for buyers. Russia also imposed export bans on countries in the Eurasian Economic Union (EEU), which comprises former Soviet countries. The ban is in place from Mid-March to August 31, 2022.

When countries implement wheat export bans, they often claim to be protecting their domestic market. But the actual effect is higher prices for every buyer. Export bans also create uncertainty. India’s sudden export ban is a prime example.

“We bought wheat from traders and moved it to ports,” said a wheat trader caught off guard by India’s export ban. “Our intention is to fulfill export commitments, but we can’t overrule government policy. Therefore, we don’t have any option but to declare force majeure*.”

Buyers expect reliability, and that requires suppliers to have dependable partners. U.S. wheat farmers and their export supply chain partners, with government support, strive to be that dependable partner to world wheat buyers.

By Michael Anderson, USW Market Analyst

*Force Majeure is a provision in a contract that frees both parties from obligation if an extraordinary event directly prevents one or both parties from performing.

Header photo courtesy of Adams Farms LLC in Oklahoma, June 2022

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Scenes From A Variable but Smaller Kansas Wheat Crop

The anxiously awaited Hard Winter Wheat Tour sponsored by the Wheat Quality Council that ended May 19, confirmed that persistent drought will cut the yield potential of the 2022 Kansas wheat crop to its lowest level since 2018. The 83 participants scouting the crop estimated the average yield potential at 39.7 bushels per acre (52.71 kilograms per hectoliter) compared to the average tour estimate of 47.4 bu/ac (62.66 kg/hl) between 2016 and 2021 (there was no tour in 2020).

Still, the hard red winter (HRW) and hard white (HW) crop potential is quite variable across Kansas. The photos taken by participants shared here show the wide range of crop conditions. Timely precipitation and cropping patterns made a significant difference, even in extremely dry southwestern Kansas. Jennifer Latzke, editor of Kansas Farmer magazine, reported this observation from the tour on May 18.

The tour participants also estimated total production from the scouted area at 261 million bushels. That is less than USDA’s most recent estimate of Kansas wheat production, even though the tour yield estimate was slightly higher than USDA’s estimate of 39.0 bu/ac.

Higher Abandonment

“The participants agreed that there will be more fields abandoned than USDA has estimated,” said U.S. Wheat Associates (USW) Market Analyst Michael Anderson. USW Assistant Director, West Coast Office, Tyllor Ledford, joined Anderson as tour scouts this year.

Photo shows T. Ledford in a field estimating Kansas wheat crop.

USW Assistant Director, West Coast Office, Tyllor Ledford scouted a Rooks County, Kansas, wheat field on May 17, 2022, the first day of the Hard Winter Wheat tour.

“Some fields have wheat plants that are so short, they likely will not be, or cannot be, harvested,” Anderson said. “The more experienced participants had a keen sense that making an insurance claim would be the best decision for those fields with questionable potential. I have to say, however, that during the tour, our group saw only isolated fields like that.”

Neighboring Crops Also Stressed

Kansas Wheat’s report from the last day of the tour included the following update on crop conditions in Nebraska, Colorado and Oklahoma.

Dry wheat field from Pratt County showing drought in Kansas Wheat Crop

Photo from a #wheattour2022 Tweet on May 18, 2022.

The USDA estimate for the Nebraska wheat crop is ­­36.9 million bushels, down from 41.2 million in 2021. The estimated yield average is 41 bu/ac. USDA expects the Colorado crop at 49.6 million bushels, down from 69.6 million bushels last year. However, Colorado Wheat Executive Director Brad Erker estimated the state’s crop at 40.1 million bushels, based on a yield of 28.6 bu/ac, with a 30% abandonment rate. Oklahoma reported that the state’s production is estimated at 60 million bushels, down from 115 million bushels last year, with 25 bu/ac yield.

This Week’s Snapshot

The Wheat Quality Council (WQC) is a coordinated effort by breeders, producers and processors to improve wheat and flour quality. WQC executive director Dave Green said that this tour and a Hard Spring Wheat tour scheduled later this year are important to make connections within the wheat industry. He said another goal is to “describe the wheat as well as we can at the current point in time, not knowing what will happen over the next few weeks.”

Harvest is still more than three weeks away. Any potential rain, or lack of it, to come will affect final yields. In addition, even very thin fields may be harvested. As Kansas Farmer editor Latzke wrote: “At $13 per bushel, every bushel … counts.”

Domestic and overseas wheat buyers can continue to monitor 2021 progress for most U.S. wheat classes by subscribing to the USW Harvest Report posted on the website every Friday.

 

Close up of super dry soil and wheat in a field showing drought in Kansas wheat crop

The obvious effects of the deep drought are clear in this Tweet on May 18 from Clay Patton.

 

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War is Just the Latest Factor Behind Higher World Food Prices

Low-income consumers in import-dependent countries will face the greatest hardships as the unprovoked Russian invasion of Ukraine and other factors push world food prices higher. That is one conclusion from a USDA Foreign Agricultural Service (FAS) analysis released in April. U.S. Wheat Associates (USW) is a cooperating partner with FAS export market development programs.

Bullish Since Late 2020

The FAS analysis looked at factors that affected world food prices in late 2020. They include increased demand led by China, drought-reduced supplies, tighter wheat, corn and soybean stocks in major exporting countries, and high energy prices that have raised farm production costs. The report said Russia’s attack on Ukraine has disrupted Black Sea agricultural exports, pushing prices even higher, and exacerbating high energy and fertilizer costs.

Chart showing world food prices near record levels

China is one of the leading countries ramping up imports, with import volume doubling in 2020/21 as State Trading Enterprises helped replace and rebuild aging government reserves. Demand for feed-quality wheat also surged.

Protecting Domestic Supplies

In addition, the report stated that world food prices were up in part because 11 countries had implemented export bans for products ranging from wheat, wheat flour, barley, rye, corn, and oilseeds, to lentils, fava beans, and pasta. That list includes Russia, which had already imposed an export tax in 2021. And in early May, the potential impact of a severe heatwave in India brought rumors its government was contemplating some export restrictions.

Interestingly, the FAS report acknowledged that global wheat production was adequate in 2020/21 and only one percent below consumption requirements in 2021/22 on an aggregate level.

Related to wheat supply, USW President Vince Peterson recently offered a more nuanced observation of the situation for the world’s wheat buyers.

“The bottom line for wheat-dependent importers in the short term is not necessarily a supply-shortage crisis, but rather an economic-financial crisis caused by having to pay much higher prices in the current market scenario,” Peterson said. “It is also a logistical challenge for the world to efficiently move the wheat supplies to places where they are most deficit.”

Lower Exportable Supplies

And yet, major exporters’ stocks in 2021/22 are forecast to be at their lowest levels in 10 years, putting upward pressure on global prices.

Chart shows U.S. wheat prices in relation to annual supplies among wheat exporting countries.

USW agrees that higher world food prices affect the poorest countries and households the most.

“It is so sad to think of more people being pushed into food insecurity around the world, but that is happening,” said Mike Schulte, executive director of the Oklahoma Wheat Commission and chair of the USW and National Association of Wheat Growers Food Aid Working Group.

Schulte’s comment came as USW and NAWG welcomed recent news that the U.S. government will provide more funding for food assistance to countries in need and help cover food aid transportation costs.

“Wheat has long been the most often donated commodity for food aid programs, and wheat growers are ready again in this crisis to help ease the hunger,” Schulte added.

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