Wheat Outlook: U.S. Stocks Raised 20 Mln Bushels on Reduced Exports

All-wheat ending stocks for 2017/18 are raised 20 million bushels this month, following a 25 million bushel reduction in exports and a 5 million bushel increase in food use.

U.S. exports of hard red winter wheat are reduced 10 million bushels on strengthening competition and rising cash prices linked to concerns about the expanding drought in key production regions.

White wheat exports are lowered 15 million bushels on the slowing pace of sales. Competition from Canada in key Asian markets remains strong, and Argentina is proving to be a formidable competitor in Brazilian and African wheat markets.

The United States has also lost market share to France in Morocco. Global supplies of wheat are plentiful and the U.S. share of global trade continues to fall. U.S. exports in 2016/17 were more than 100 million bushels above the current forecast for 2017/18.

Domestic Outlook

Domestic Changes at a Glance

  • The latest USDA-NASS (National Agricultural Statistics Service) Flour Milling Products report indicates greater-than-expected wheat for food use through the first 7 months of the marketing year.
    • Use between June and December is approximately 6 million bushels above the same period from a year prior.
  • U.S. exports are trimmed by 25 million bushels to 925 million based on sluggish sales and expectations of increased exports from major global suppliers including Argentina, Canada, and Russia.
    • Based on the pace to date, U.S. exports of hard red winter wheat and white wheat are trimmed 10 million and 15 million bushels, respectively.
  • All-wheat ending stocks are raised 20 million bushels to 1,009 million on net decreased use.
  • The U.S. season average farm price is unchanged at $4.60 per bushel; the range is narrowed to $4.55- $4.65.

Winter Wheat Weather Woes

With the last significant precipitation occurring about 4 months ago, drought in the Southern Plains is intensifying, causing further deterioration in the condition of winter wheat (as well as rangeland and pasture). Some sections of the winter wheat belt did receive snow recently.

However, the USDA Weekly Weather and Crop Bulletin indicates that much more moisture is required to reverse the effects of multiple weeks of limited to nonexistent precipitation in parts of Kansas, Oklahoma, and Texas.

In Kansas and Oklahoma, topsoil moisture was noted as very short to short on 79 and 93 percent of acres, respectively. In Texas, a recent freeze combined with low moisture to damage small grain fields and reduce grazing opportunities for livestock. In Colorado, some wet snow fell on cropland in January.

However, winter wheat is reportedly stressed due to windy conditions and a general lack of moisture. On February 3, the Drought Monitor Snow Depth chart showed zero protective snow coverage on the majority of winter wheat planted acres across the United States.

The Drought Monitor further showed that between January 30 and February 6, the proportion of the United States experiencing D2-D4 level drought rose from 17.2 to 18.4 percent, with the drought concentrated in the Southern Plains (winter wheat belt) and the Northern Plains (key spring and durum growing region).

Concerns about effects of persistently dry conditions in the Midwest and Southern Plains on winter wheat production have helped to support wheat cash and futures price rallies in recent weeks. Cash prices for #1 HRW (Ordinary) in Kansas City, Portland, and Texas Gulf Export terminals rose between 4 and close to 7 percent from December to January, while the March Kansas City wheat contract traded above the 200-day moving average for the first time since August 2017.

All-Wheat Food Use Lifted 5 Million Bushels to 955 Million

On February 1, USDA-NASS released the quarterly Flour Milling Products report, providing milling data through December 2017. With 7 months of flour milling data for 2017/18 available, calculated trade-adjusted wheat food use is up slightly more than 6 million bushels, relative to the same period the previous year. Total food use for all 2016/17 was estimated at approximately 949 million

bushels, which makes it the second year in a row that wheat food use has fallen, despite a growing U.S. population. There is some recovery in the current marketing year with only December use below the same month in 2016.

The drop was anticipated and followed a push to mill wheat earlier in the marketing year and subsequent to the late summer/early fall price rally. The rally was spurred by perceived tight supplies of high-protein wheat, for which millers bid up prices as they worked to secure stocks.

Even with the December dip, if the last 5 months of the marketing year track with last year’s usage, total wheat food use for 2017/18 is on pace to equal 955 million bushels.

The estimate of wheat grain used for food is largely based on reduced extraction rates for the second quarter of the marketing year. Lower extraction rates during this period imply that relatively more wheat is required to produce a similar volume of flour, compared to the same period a year prior. Accordingly, the increase in wheat food use does not necessarily indicate an increase in consumer demand for wheat-containing products.

U.S. Exports Lowered on Strengthening Cash Prices, Dollar and Slowing Sales Pace

U.S. exports on both a marketing-year and trade-year basis are lowered this month to 950 million bushels and 25 million metric tons, respectively. Rising prices for U.S. hard red winter wheat, in particular, have reduced the U.S. competitive position in world wheat markets, and the pace of exports has recently slowed.

In particular, the U.S. share of the Moroccan market has declined, while France has increased its shipments to that country. U.S. shipments to Brazil have tapered off as neighbor Argentina—with abundant, low-cost wheat—assumes a larger share of the market. Argentina is also challenging the United States in Sub-Saharan Africa and Southeast Asia markets.

All-Wheat Price Holds Steady

The majority of the 2017/18 wheat crop has been marketed, and recent price increases—which largely follow a seasonal pricing pattern—are not sizeable enough to budge the season average farm price (SAFP) from the current $4.60.bushel forecast. The all-wheat SAFP range, however, is narrowed to $4.55 per bushel on the low end and $4.65 on the high end.

Full report.

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