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Wheat Outlook: U.S. Winter Wheat Production Down 25% from 2016

Ernst Undesser
From USDA May 15, 2017

Wheat Outlook: U.S. Winter Wheat Production Down 25% from 2016

USDA World Agricultural Outlook Board published the first 2017/18 wheat balance sheet in this month’s World Agricultural Supply and Demand Estimates.  Record-low winter wheat plantings combine with newly-reported harvested area and yield forecasts to indicate a sharp decline in winter wheat production.

Winter wheat production in 2017 is projected to fall 25 percent from 2016 and, in combination with projected year-to-year reductions in other spring and durum wheat, contributes to an all-wheat production forecast that is nearly 500 million bushels smaller than the prior year.

Despite expectations of significantly reduced production, U.S. exports are forecast to fall only 5 percent in 2017/18. Robust sales support this month’s increase of the 2016/17 export projection, now forecast at 1,035 million bushels, making the U.S. the top wheat exporter in the current marketing year.

Domestic Outlook

Summary of Balance Sheet Updates, Key Market Information

  • This month’s WASDE includes the first 2017/18 balance sheet.
  • All-wheat production for 2017/18 is projected 21 percent lower than for 2016/17.
  • Winter production, recently affected by adverse weather in the Eastern Plains, is projected down 25 percent from the previous year.
  • The first 2017/18 by class balance sheet will be published in the July 12 WASDE.
  • For 2016/17, U.S. wheat imports are increased 5 million bushels to 115 million, principally on the strengthening pace of hard red spring and durum imports.
  • U.S. 2016/17 food use is lowered 5 million bushels to 955 based on newly released flour production data.
  • The pace of U.S. exports of hard red winter wheat in March exceeded expectations, lifting total exports by 10 million bushels.
  • The U.S. 2016/17 all-wheat season average price is raised 5 cents at the midpoint to $3.90 per bushel.

U.S. 2017/18 Winter Wheat Production Sharply Down

The May 10, 2017 Crop Progress report from USDA National Agricultural Statistical Service (NASS) indicates sharply lower winter wheat production for 2017/18.  This is based on both lower harvested area and a return to more typical yields, following record-setting yields in the 2016/17 marketing year.

The NASS Prospective Plantings report, issued on March 31, revealed 2017 winter wheat planted area down 10 percent from 2016. This month, NASS’s survey-based forecast for lower harvested area in 2017 affirms expectations of a year-to-year drop and reveals harvested-to-planted area projections to be well below average.

Prospects for both lower harvested area and yields, currently projected at 48.8 bushels per acre as compared to 55.3 bushels in 2016, support the 2017 winter wheat production forecast at 1,246 million bushels, a year-to-year decline of 425,000 bushels.

As noted in the most recent USDA NASS Crop Progress report, as of May 7, winter wheat is 50-percent headed, slightly above the 5-year average of 46 percent and 5 points below last year’s accelerated pace.

Winter wheat in Kansas is 59-percent headed and compares to 70 percent in 2016. Overall, 53 percent of the winter wheat crop was reported to be in good-to-excellent condition on May 7, comparable to 62 percent rated similarly last year.

Recent weather events have largely ended dry conditions in the Plains and Midwest. However, extreme weather, including a late-April snowstorm, affected a sizable portion of the Eastern Plains section of the Hard Red Winter (HRW) wheat growing region.

While the full extent of the effect on yields and harvested area are unclear at this point, the portion of the crop rated good-to-excellent in both Kansas and Nebraska declined by 6 percent and 14 percent, respectively, between the week ending April 30 and the week ending May 7.

Other Spring and Durum 2017/18 Projections

In July, the USDA World Agricultural Outlook Board will release the first wheat by class projections for the new marketing year. Until then, projections are aggregated into winter, other spring, and durum categories.

Production for other spring and durum is based on the planted area indicated in the March USDA-NASS Prospective Plantings report and projected using the 10-year harvested-to-planted ratios by State and 1985-2016 yield trends by State, with exceptions for Arizona, California, and Idaho.

Based on this forecasting method and data, other spring and durum production are projected down 3 percent and 17 percent (respectively) in the new marketing year.

2017     Other Spring     Durum
Planted area (million acres)     11.308     2.004
Harvested area (million acres)     11.016     1.967
Yield (bushels/acre)     45.2     39.1
Production (million bushels)     497.877     75.978

2016     Other Spring     Durum
Planted area (million acres)     11.605     2.365
Harvested area (million acres)     11.303     2.893
Yield (bushels/acre)     47.2     44.0
Production (million bushels)     534.027     104.116

As noted in last month’s Wheat Outlook, growers intend to plant the fewest acres of other spring wheat since 1972.

Other spring planted area declines are significant for Colorado, Minnesota, North Dakota, Oregon, and South Dakota, while declines in durum planted area are most dramatic in North Dakota (down 310,000 acres) and Montana (down 90,000 acres).

Notably, in several of these States, soybean and pulses seedings are up, indicative of possible swapping of planted area across commodities.

2017/18 Supply and Utilization

Driven by reduced production, U.S. all-wheat supplies for the new marketing year are projected down nearly 9 percent from 2016/17, despite year-to-year increases in both carry-in and imports. Total use is trimmed by a smaller proportion than supply and is projected down just 2 percent.

Major use categories, including food, feed and residual, and exports, are level to slightly lower in 2017/18. At 955 million bushels, projected food use for 2017/18 is forecast to equal the current 2016/17 estimate, despite a growing U.S. population as this is due to lower per capita consumption of wheat food products.

Feed and residual for 2017/18 is projected 11 percent lower than 2016/17 and is consistent with expectations of a smaller crop and reduced competitiveness with continued abundant U.S. corn supplies.

Exports in the out-year are projected down 35 million bushels from the 2016/17 forecast of 1,035 million bushels and largely reflect preservation of the U.S.’s renewed competitive position in the global wheat marketplace.

Indeed, with this month’s export increase, the U.S. is projected to return to the top exporter position among world wheat exporters, and U.S. export sales momentum is anticipated to be sustained through at least the first half of 2017/18. Please see international section for additional coverage of global wheat markets.

Based on reduced supplies and lower ending stocks, the 2017/18 all-wheat season-average farm price (SAFP) is projected to rise 35 cents above the current 2016/17 mid-point season average farm price projection, to $4.25 per bushel.

While higher, the 2017/18 SAFP remains well below the 5-year average farm price of $5.88 per bushel and more than $3 per bushel below this period’s 5-year high of $7.77 per bushel, realized by farmers for the drought-affected 2012/13 marketing year.

Balance Sheet Adjustments for 2016/17

On May 1, USDA NASS released the quarterly Flour Milling Products report. With flour production data available through March, a complete picture of the third quarter of wheat food use for the 2016/17 marketing year was made clearer.

Notably, as millers have faced sizable premiums for limited supplies of high-protein HRW and Hard Red Spring (HRS) wheat, extraction rates have moved upward, while total use has declined. In each month of the current marketing year, the wheat flour extraction rate has been at least 77 percent and exceeded the 5-year average extraction rate in all but one month (June 2016).

In January and March, estimated extraction rates rose to 78 percent, the highest monthly rate calculated in the last 17 years. More efficient extraction of flour from available supplies of wheat have supported reduced total use.

Indeed, wheat for food use through the third quarter of the current marketing year is cumulatively down more than 7 million bushels relative to the same period in 2015/16. Above-average milling use in April and May will be required to reach the annual projection, in the absence of any upward revision to back-quarter use data.

Second-quarter flour use was adjusted slightly upward in the most recent report. Any revision to the third-quarter (marketing year) data will be evident in the next Flour Milling Products report, due out August 1.

This month’s downward revision to the food use projection, moves the figure below the 2015/16 estimate and, if realized, marks the second consecutive year of falling food use. A growing U.S. population notwithstanding, reduced per capita consumption of wheat, coupled with improved milling efficiency, compels a reduction in the 2016/17 food use projection this month.

Down 5 million bushels to 955 million, food use for 2016/17 is slightly more than 2 million bushels below the 2015/16 projection.

Tight supplies of high-protein HRW and HRS wheat have supported price premiums in recent months and helped to encourage expanded blending of average quality HRW wheat, where and when feasible.

Food use by class changes for the 2016/17 marketing year are as follows: HRW food use is raised 10 million bushels to 390 million, HRS wheat is lowered 10 million bushels to 250 million, and soft red winter is lowered 5 million to 150 million.

These adjustments bring proportional use into closer alignment with 5-year averages while recognizing the challenging situation millers are faced with: abundant supplies of lower quality wheat and scare supplies of relatively high priced, higher protein wheat.

Elsewhere in the 2016/17 balance sheet, exports are raised 35 million bushels this month to 1,035 million, after U.S. Census Bureau trade data indicated that the strong pace of exports has been maintained over the past 4 weeks, lifting outstanding sales well within range of the revised projection.

Shipments to Africa and China have been brisk and have benefited from the relatively low price of U.S. wheat, coupled with abundant supplies of lower quality grain. All 10 million bushels of the export increase are added to the HRW wheat total, now projected at 440 million bushels.

Recent Strengthening of HRW and HRS Prices Helps Lift All-Wheat Season-Average Price

Higher March 2017 prices for HRW and HRS wheat, as reported by NASS, were supportive of a 5 cent, month-to-month increase in the all-wheat SAFP in the May WASDE report. Now reported as a point estimate, the 2016/17 SAFP is forecast at $3.90 per bushel.

While higher, this price is still well below prices wheat farmers have received in the past several years. Further, net support for the season-average price masks some recent declines in cash prices for lower quality winter wheat.

Prices briefly fell below the HRW loan rates for counties in Kansas, where loans on 1.96 million bushels of HRW wheat are outstanding, as of April 30, 2017.

Full report.

Ernst Undesser
From USDA May 15, 2017