Wheat Outlook: U.S. Imports Lowered 10M Bushels on Slow Canadian Shipments
U.S. Census data, now available through January 2017, indicates a slow pace of shipments from Canada-in part due to low quality-results in cuts to U.S. imports for most classes of wheat including Hard Red Winter, Hard Red Spring, Durum, and White Wheat. After an aggregate 10-million-bushel (bu) reduction, U.S. all wheat imports for 2016/17 are projected at 115 million bu.
The still-strong U.S. dollar and ample wheat supplies in almost all major wheat-exporting countries anchor U.S. exports at the current projection, unchanged from last month.
Higher projected 2016/17 wheat production for Australia and Argentina, two major U.S. trade competitors, further expands the record-high world wheat supplies.
2016/17 Imports Lowered, Few Balance Sheet Updates
Minimal changes to the all wheat balance sheet are made this month. Key market reports, due out at the end of March, will provide details on third-quarter stocks and implied domestic use, including seed use associated with planting the 2017/18 wheat crop.
U.S. Bureau of Census trade data indicate a slower pace of imports than previously projected, resulting in a 10 million bushel trim to the 2016/17 all wheat import figure, with cuts distributed across all classes except Soft Red Winter wheat.
Maintained Strong Pace of Exports Supports Current Projection
With another month of trade data available, the pattern of consistently stronger wheat exports in 2016/17, is affirmed. The pace of export sales continues to support the current 2016/17 projection of 1,025 million bushels (bu).
USDA-Economic Research Service estimates of monthly wheat grain and product exports through January are, on average, nearly 18 million bu (grain equivalent) larger than during the same period in the previous year. Sales between September and January have been particularly strong and are up nearly 80 million bu (grain equivalent) over the same 5-month period in the previous marketing year.
Notably, U.S. wheat exports surged despite December closures and ongoing delays at inland and coastal ports in the Pacific Northwest (PNW). Closures were due to heavy rains and severe sea conditions which have included large amounts of debris in the water and waves of significant height.
Further, BNSF Railway reports that blizzards and avalanches in February disrupted grain rail transportation from the Midwest to the PNW.
In mid-December, the U.S. Army Corp of Engineers began a 14-week long closure of the Columbia Snake River System to make repairs to the navigational locks that support a significant volume of commercial river traffic. The Pacific Northwest Waterways Association states “the Columbia Snake River System is the number one U.S. wheat export gateway, moving 50 percent of the nation’s wheat for export to overseas markets.”
In light of the importance of this system and related closures, the strong pace of U.S. wheat exports is even more remarkable and indicative of preparations made by the grain handling industry in advance of the extended river closure.
However, port gridlock has recently been reported at PNW ports with up to 60 vessels awaiting loadings. Congestion at PNW ports is encouraging the use of alternative ports, especially those located in the Gulf Region.
For example, for the week ending February 23, 2017, all Gulf ports moved more than 2.3 times the volume of wheat shipped via the Pacific Region. For the same week 1 year prior, total wheat shipments from the Pacific Region were more than 60 percent greater than total loadings from all Gulf ports.
U.S. wheat exports for 2016/17, in aggregate, were unchanged this month. However, the pace of shipments, as indicated by U.S. Census Bureau trade data, provide support for four class shifts. Hard Red Spring (HRS) is raised 5 million bu on strength of exports primarily leaving out of Gulf Ports.
SRW exports are also raised 5 million to 90 million, though are still well-below the 5-year average export volume of 180 million bu. White wheat (WW) exports are lowered 5 million bushels based on the observed pace of exports to date that have been impacted by slow port loadings out of the PNW.
Durum exports are also lowered 5 million bu to 20 million. The slowed pace of durum exports is attributed to quality concerns and weather-related transportation challenges that have affected movements from durum-producing regions in Northern Plains.
All Wheat Ending Stocks Lowered, Remain Highest Since 1985/86
After accounting for reduced projected imports, all wheat ending stocks are reduced by 10 million bushels (bu) to 1,130 million bu. Even with the cut, 2016/17 ending stocks are 154 million bu higher than in 2015/16 and remain the highest since 1985/86.
By class, reduced imports and shifting exports have ending stocks implications. Specifically, HRW ending stocks are reduced by 1 million bu, HRS is reduced by 8 million, SRW is reduced by 5 million, WW is raised 4 million and durum ending stocks are unchanged.
The current all wheat stocks-to-use ratio at 0.50 is virtually identical to last year’s figure, and compares to the 5-year average of 0.35. The relatively-high ratio associated with the 2016/17 crop is primarily attributable to sizable production and carry-in which lifted total supply to 3,400 million bushels, the highest volume since the late 1980s.
Expectations of reduced production in 2017/18 and of modestly increasing use, as described in the recently-released transcript for the “Grains and Oilseed Outlook” speech, delivered at the February USDA Agricultural Outlook Forum–are expected to lower the stocks-to-use ratio to near 0.40 and move the ratio closer to average.
Conditions in Key HRW-Growing States Reflect Warmer and Drier Winter Weather
Record-high HRW yields for the 2016/17 marketing year were achieved through near-ideal growing conditions. Above-average proportions of the Colorado, Kansas, Nebraska, and Oklahoma crop were rated as “good” to “excellent” through much of the growing season.
For 2017/18 winter wheat, conditions have been drier and warmer in key HRW growing areas. Expanded dryness and drought conditions in these States are captured by the U.S. Drought Monitor and visible in the figures below where shading represents abnormally dry to extreme drought conditions.
The effects on the emerging winter wheat crop are reflected in reduced year-to-year conditions ratings. Specifically, the proportion of the wheat crop rated “good” to “excellent” in Colorado, Kansas, Nebraska, and Oklahoma for the week ending March 3 (week 8) is lower by 5, 16, 15, and 25 percent, respectively, as compared to the same week in 2016.
Key NASS Reports Due Out on March 31
USDA-National Agricultural Statistics Service (NASS) will release both the Prospective Plantings and Grain Stocks reports on March 31. Prospective Plantings provides the first survey-based indications of producers’ anticipated spring wheat plantings for the 2017/18 marketing year.
Estimates of winter wheat planted area, by class, and durum plantings will also be reported along with an all wheat planted area estimate for 2017/18. All Wheat
Midpoint Price Unchanged
The all wheat price remains forecast at a range of $3.80 to $3.90/bu. At $3.85 per bushel, the midpoint season average price is the lowest since 2005/06 when farm-gate prices averaged $3.42 per bu. Wheat price discovery is aided by the futures market; as a futures contract expires, the expiring contract price typically converges to the cash price.
Through the marketing year, cash and futures prices tend to move in similar directions, providing indications of underlying market conditions. Multiple times since July 2016, the HRW futures contract price and the cash price at various delivery points have failed to converge.
I recently attended a Farm Credit Director Development program in Charleston, South Carolina, where Dave Kohl presented an agricultural economic update. I thought his presentation was exceptional. He described agricultural