Wheat Outlook: Global Supplies Tighter on Reduced Australian, Russian Production

This month, 2018/19 all-wheat production for Australia and Russia is collectively lowered by 2.5 million metric tons. These cuts more than offset a slight production increase for the U.S. and help to tighten the global all-wheat balance sheet. At 260.2 million metric tons, global ending stocks are now 5 percent below last year’s record-large carryout.

Growing global use, fueled by expanding demand for wheat, contributes to balance sheet tightness and provides support for maintenance of the U.S. export figure at 27.9 million metric tons (1,025 million bushels), despite sluggish first quarter exports.

Domestic Outlook

Domestic Changes at a Glance:

  • On September 28, USDA, National Agricultural Statistics Service (NASS) released the 2018 Small Grains Summary and the Grain Stocks reports.
    • The Small Grains Summary indicated all-wheat production for 2018/19 is up 7.7 million bushels from the previous estimate.
      • All classes, except soft red winter (cut 6.2 million bushels), saw production increases.
    • Supplies are lifted a further 5 million bushels on increased imports-raised on the brisk pace of imports of hard red spring and durum wheat from Canada.
    • The Grain Stocks report indicated 2018/19 first quarter ending stocks were 2,378.7 million bushels.
      • June-August disappearance totaled 646.2 million bushels, up 21 percent from the year prior.
    • Record-large corn supplies are expected to weigh on wheat feed and residual use for the balance of the marketing year.
      • 2018/19 all-wheat feed and residual use is cut 10 million bushels, totaling 110 million.
    • Carryout for the 2017/18 marketing year is revised downward by slightly more than 1 million bushels. Carryout for the 2018/19 marketing year is raised about 21 million bushels.
    • Seed use estimates by class and by quarter are reverted to the 2015/16 marketing year.
    • Revised by class by quarter estimates are available in the “historical tables” on the USDA, ERS Wheat landing page.
  • On September 30, 2018 the United States Trade Representative (USTR) announced that Canada, the United States, and Mexico had concluded negotiations on a new trade agreement, to be called the “United States-Mexico-Canada Agreement (USMCA). A key achievement of the negotiations is the agreement to fair treatment for quality requirements for wheat and other agricultural products.

Production by Class

The USDA, NASS Small Grains Summary provided updates to spring wheat and durum estimates for the 2018/19 marketing year, both are raised slightly to provide a net 7.7 million bushel increase in all-wheat production from the August estimate and an 8% increase year-to-year.

With the final 2018 production figures now published, year-to-year production shifts are more clear. Key hard red winter (HRW)–growing States, including Kansas, Oklahoma, and Colorado, produced less wheat in 2018, on both reduced harvested area and lower yields.

Soft red winter (SRW) wheat production is slightly lower than for 2017 on lower yields, despite an increase in harvested area. Aggregate white wheat production is up about 4 percent from 2017 on higher soft white winter (SWW) production which offsets declines in hard white winter (HWW) wheat production.

Yields in the Pacific Northwest were up significantly from 2017 and contribute to a more than 4 bushel per acre lift in aggregate SWW yields and a near 14 million bushel increase in production.

2018    HRW    SRW    HWW    SWW
Planted area (million acres)    22.92    6.07    0.56    2.98
Harvested area (million acres)    16.95    4.47    0.49    2.84
Yield (bushels/acre)    39.07    63.89    39.40    76.46
Production (million bushels)    662.25    285.56    19.35    216.79

2017    HRW    SRW    HWW    SWW
Planted area (million acres)    23.42    5.73    0.58    2.94
Harvested area (million acres)    17.64    4.31    0.52    2.81
Yield (bushels/acre)    42.53    67.66    45.45    72.29
Production (million bushels)    750.33    292.15    23.72    203.22

The Small Grains Summary provided updates to spring wheat and durum production forecasts. Hard red spring (HRS) wheat production for 2018 is up more than 200 million bushels, largely on vastly improved yields—up 7.5 bushels per acre from the drought-affected yields of 2017.

Two million more acres of HRS were planted in 2018 compared to the prior year and an improved harvested-to-planted ratio also contribute to the dramatic, 53 percent–increase in production.

Durum wheat, which is largely grown in the same Northern Plains region where HRS wheat production is concentrated, did not experience a surge in planted area. Rather, slightly less durum was both planted and harvested in 2018. However, yields improved by a sizable 22 bushels per acre from the 2017 estimate, lifting durum production by 13 million bushels year to year to 77.3 million which compares to the 54.7 million bushels harvested in 2017.

Balance Sheet Estimates Reflect Production and Stocks Updates

The combination of back-year and current marketing year updates to stocks, production, and seed use results in several changes to the all-wheat balance sheet this month. Most notably, production for the 2018/19 marketing year is raised 7.7 million bushels. This increase combines with a 5 million–bushel lift to projected imports and a slight reduction in carry-in from the 2017/18 marketing year, to boost all-wheat supplies by 11.3 million bushels.

NASS-reported first quarter ending stocks imply 21 percent greater disappearance June-August of 2018, relative to the same period in 2017. However, wheat feed and residual use is lowered on expectations of reduced feed use based on record-setting supplies of corn, raised 39 million bushels this month.

Additionally, sorghum supplies were raised 25 million bushels this month on a production increase that led to an equivalent increase in the sorghum feed and residual projection which further downward pressure on the wheat feed and residual figure.

Grain News on AgFax

Cash grain prices in the heart of the hard red winter wheat belt continue to show premiums of more than a dollar for wheat, relative to corn and sorghum, essentially pricing wheat out of the regional feed market. The 10 million–bushel cut to all-wheat feed and residual use is charged to HRW and SRW, both lowered 5 million bushels to 40 and 45 million bushels, respectively.

The all-wheat export projection is unchanged this month and remains at 1,025 million bushels. Strong global consumption and expectations for slower-pace exports for competitor countries (especially Russia) preserves the U.S. all-wheat export forecast at the current level, despite slow sales through the first quarter and much of September.

Sales have picked up recently and for the week ending 9/27/2018; HRW exports are nearly equivalent to this week a year ago. However, there is much ground to make up and HRW exports are lowered 10 million bushels to 365 million due to the lagging pace of trade to date.

White wheat exports are increased 10 million bushels. Australia, a major competitor in the international white wheat market, is projected to have the lowest exports in nearly a decade—the result of a prolonged drought that has sapped production. A recent frost event is anticipated to have further damaged the crop.

Reduced production has put upward pressure on Australian wheat prices, reducing the country’s competitiveness in international wheat markets, and opening opportunities for the U.S. to service greater demand for white wheat in Asian markets.

All-Wheat Price Unchanged, Range Narrowed 20 Cents

The 2018/19 season average farm price (SAFP) is unchanged at the midpoint but narrowed 10 cents on the high and low end to $4.80 and $5.40 per bushel. The midpoint price is $5.10 per bushel and compares to the 2017/18 SAFP of $4.72.

Full report.

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