Wheat Outlook: Production Lifted, Exports Continue to Face Headwinds

This month’s USDA, National Agricultural Statistics Service Crop Production report provided revised winter wheat and desert durum production for 2019/20. On net, winter wheat is raised 6 million bushels on improved yields. Production gains help to offset the effects of lower carryin stemming from increased back-year exports and leading to reduced total supplies month-to-month.

New crop all-wheat feed and residual is increased by 50 million bushels on a sharp reduction in corn production and feeding. Prospects for 2019/20 exports are not improved from the previous month and remain at 900 million bushels. In 2019/20, recovery in European Union (EU) and Australia production and exportable supplies creates formidable competition for U.S. wheat in global markets.

On expectations for larger crops, Russia and Ukraine exports are both raised a million tons this month and further inhibit growth in U.S. exports in 2019/20.

Domestic Outlook

Domestic Changes at a Glance:

  • U.S. Census Bureau trade data through April indicate a brisk pace of old crop shipments in the fourth quarter and support a 25-million-bushel increase in the 2018/19 exports.
    • Estimated total exports for the fourth quarter or the 2018/19 marketing year exceeded expectations as the U.S. was able to capitalize on reduced exportable supplies from the Black Sea region and more competitive export prices.
  • Larger back year exports serve to lower 2018/19 ending stocks and carryin for the 2019/20 marketing year. Reduced carryin for 2019/20 is offset slightly growth in projected wheat production.
  • Winter wheat production for 2019/20 is raised 6 million bushels this month to 1,274.5 million on increased yields.
    • USDA, National Agricultural Statistics Service (NASS) lifted hard red winter (HRW) wheat production by more than 14 million bushels from the previous forecast, more than offseting lower projected production for soft red winter (SRW), down 6.3 million, and white winter wheat (down 1.8 million).
  • Other spring wheat production is unchanged from the May forecast and will be reevaluated following the end of June release of the Acreage report.
  • Forecast durum production for 2019/20 is cut slightly, down 194,000 bushels from the previous projection on reduced desert durum production reported by NASS for Arizona.
  • Carryin is reduced by more than production is increased, resulting in a net 19.2 million bushel reduction in supplies, relative to the May projection.
  • Total use for the new marketing year is raised 50 million bushels this month on a significant expansion of projected feed and residual use.
    • Wheat feed and residual use for 2019/20 is raised on sharp declines for both corn production and corn feed and residual, which in turn supports a 50-cent increase in the forecast season average corn price.
  • The tighter wheat balance sheet for 2019/20 and a significant increase in the corn price combine to lift the all-wheat season average farm price by 40 cents this month to $5.10 per bushel.

2019 Winter Wheat Production Nudged Higher on Improved Prospects for Hard Red Winter Wheat

This month, USDA, National Agricultural Statistics Service (NASS) released the second surveybased winter wheat production forecast for the 2019/20 marketing year. Farmer responses collected by NASS between May 25 and June 6 inform projections of winter wheat area harvested, yields, and production-by-State. In NASS’ June release of the Crop Production report, winter wheat yields for 2019 are projected at 50.5 bushels per acre, up from 50.3 bushels estimated in May and comparable to the 47.9 bushels per acre that farmers realized in 2018.

Winter wheat yields are improved in a number of key States—most notably, Kansas, where yields are estimated to have increased 1 bushel per acre from the May forecast. If realized, this will be the second-highest winter wheat yield on record for Kansas, behind 2016 when 57 bushels per acre were realized.

The projection for near record-high winter wheat yields is attributable to relatively mild, though wet, growing conditions that have become increasingly favorable as showers abated and weather has warmed. As of June 9, NASS reports that 64 of U.S. winter wheat acreage was reported to be in “good” to “excellent” condition, 26 percentage points above the same time in 2018.

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On June 12, the World Agricultural Outlook Board, Agricultural Weather and Assessments Group released their map of the U.S. vegetative health index (VHI) based on data provided by NOAA/NESDIS Center for Satellite Applications and Research. The VHI map clearly shows better VHI values across the broad winter wheat production belt and support NASS’ finding that the vast majority of winter wheat rated “good” to “excellent.”

Also visible is the emergent drought conditions in the Northern Plains near the Canadian border. A lower VHI in this key region of spring wheat production is also consistent with a slower-than-normal pace of planting.

Developmentally, the 2019 winter wheat crop is slightly behind last year’s pace with 83 percent of the crop headed as of the week ending June 9 compared to 90 percent in 2018 and a 5-year average of 91 percent. Winter wheat production for 2019 is currently forecast at 1,274.5 million bushels, up less than 1 percent from the May forecast and up about 90 million bushels (less than 1 percent) from 2018.

Net gains in winter wheat production, month-to-month, are supported by a 14-million-bushel increase in hard red winter (HRW) wheat production. Yield hikes in a key HRW-producing State, Kansas, along with yield gains for Oklahoma and Montana, help to support the increase. Based on improving yields, HRW production is up 2 percent from the May forecast to 794 million bushels.

For other classes of winter wheat, including SRW and both hard and soft white winter wheat, NASS projects production down month-to-month. Yield reductions are reported for States where SRW production is concentrated and include Missouri (down 5 bushels per acre from May), Ohio (down 6 bushels), Indiana (down 4 bushels), and Illinois (down 2 bushels).

Areas of concentrated SRW production have been beset by persistent rains and cooler-than-normal temperatures, reportedly resulting in delayed maturation and some crop stress, as evidenced by these month-to-month yield declines. Estimates for harvested area by class will be updated inthe late June Acreage report. SRW production is currently forecast at 258 million bushels and
down from production of 285 million in 2018. White winter wheat is currently forecast at 222 million bushels, down from 236 million harvested in 2018.

2018/19     HRW     SRW     White Winter     Total Winter
Planted area (million acres)     22.923     6.076     3.536     32.535
Harvested area (million acres)     16.947     4.469     3.326     24.742
Production (million bushels)     662.249     285.558     236.132     1,183.939

2019/20
Planted area (million acres)     22.407     5.55     3.547     31.504
Harvested area (million acres)     17.764     4.08     3.369     25.214
Production (million bushels)     794.395     258.302     221.754     1,274.451

Other Spring Wheat and Durum Production

In July, USDA-NASS will release its first projection of other spring wheat and aggregate durum production for the 2019/20 marketing year. Current projections are based on planting intentions reported in the March Prospective Plantings report and 10-year trend yields and harvested-to-planted ratios. Only desert durum production, which represents approximately 15 percent of all
Durum grown in the U.S., was updated in the June Crop Production report.

In this report, NASS indicated that production in Arizona is down sharply year-to-year and forecast at 3.978 million bushels or roughly 54 percent of the volume grown in 2018. Production gains for California where roughly 4 million bushels and partly offset declines in Arizona.

Based on the May-to-June reduction in desert Durum production, the aggregate Durum figure is trimmed slightly, down 194,000 bushels to 50.514 million. If realized, this will be smallest Durum crop realized since 2011 when farmers harvested 47.04 million bushels.

2019/20 All-Wheat Balance Sheet Tightened on Lower Carryin and Expanded Feeding

Ending stocks for the 2019/20 marketing year are lowered nearly 70 million bushels from the June forecast on expectations for lower carryout from the 2018/19 marketing year and increased domestic utilization. Most significantly, wheat feed and residual in the new marketing year is increased by 50 million bushels to 140 million. This increase is based on sharply lower corn production and an associated cut to corn feed and residual.

Wet conditions have plagued plantings in several key States during the 2019 corn planting window. For the week ending June 9, just 83 percent of the anticipated 2019 acreage of corn had been planted, far behind the 5-year average of 99 percent. Corn production for 2019/20 is forecast to decline 1.4 billion bushels to 13.7 billion, which if realized would be the lowest since 2015/16.

On reduced corn supplies, corn feed is lowered 300 million bushels, month-to-month, opening the door for more abundant marketing opportunities for feed wheat in strategic locations. Based on a significantly-tightened balance sheet, the corn price is raised 50 cents this month to $3.80 per bushel.

On support from the corn price, the wheat season average farm price (SAFP) is raised 40 cents to $5.10 per bushel. With the SAFP for both crops increasing, though with corn’s proportional and absolute increase being greater than wheat’s, the wheat-to-corn price ratio is improved month-to-month and reflective of more favorable conditions for wheat feeding.

Balance Sheet Adjustments for 2018/19

In early June, the U.S. Census Bureau released wheat export data through the April of the 2018/19 marketing year. This data, in combination with weekly exports inspections data informs a 25-million-bushel upward revision to the 2018/19 all-wheat export projection.

Now forecast at 950 million bushels, the pace of sales indicated by the data support the following revisions: HRW up 15 million bushels to 340 million, hard red spring (HRS) up 5 million bushels to 260 million, SRW up 5 million bushes to 130 million. Imports are unchanged in aggregate with very slight adjustments made for HRW (up 1 million bushels) and HRS (down 1 million bushels).

Increased utilization via expanded exports for 2018/19 result in lower ending stocks, down 25 million bushels to 1,101.8. With the vast majority of the 2018/19 wheat crop marketed, the slight adjustment to stocks does not affect the all-wheat SAFP.

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