Wheat Outlook: Weaker U.S. Prices Help Improve Export Prospects

The season-average farm price (SAFP) forecast for 2019/20 all-wheat is lowered 20 cents per bushel on a 10-cent-per-bushel reduction for the corn SAFP and lower wheat price expectations for the remainder of the market year. A nearly 60-million-bushel month-to-month expansion of projected 2019/20 all-wheat production puts additional downward pressure on the all-wheat SAFP.

A lower price outlook helps to enhance the U.S.’s competitive position in global wheat markets, especially as reduced production and exportable supplies are forecast for the EU, Kazakhstan, and Russia. Production for these key competitors is collectively lowered 3.5 million tons this month and creates additional, though limited, opportunities to expand U.S. sales in the new marketing year.

Domestic Outlook

Domestic Changes at a Glance:

  • U.S. all-wheat supplies are increased this month on a near 60-million-bushel increase in all-wheat production.
    • The USDA, National Agricultural Statistics Service (NASS) August Crop Production reported increased production for both winter wheat and other spring wheat while forecast Durum production is reduced by about 1 million bushels.
  • The USDA, NASS Flour Milling Products report, released on August 1, indicated lower-than-expected flour use in the fourth quarter of the 2018/19 marketing year.
    • Based on NASS flour production data and U.S. Bureau of Labor Statistics Census trade data, net food use for the 2018/19 marketing year is estimated at 954 million bushels.
    • Prospects for food use for the 2019/20 marketing year are dimmed and the forecast is lowered 5 million bushels to 960 million.
  • All-wheat feed and residual for the new marketing year is increased 20 million bushels to 170 million this month on a more favorable wheat-to-corn price ratio and increased supplies.
  • U.S. export prospects are improved based on an increase in exportable supplies which corresponds with production cuts for major competitor exporters.
    • The forecast for lower U.S. wheat prices also supports expanded export sales.
  • With increased production only partly offset by increased use, carryout for the 2019/20 marketing year is raised 14 million bushels to 1,014 million, while up month-to-month, ending stocks for the new marketing year are 5.4 percent lower than for 2018/19.
  • A 10-cent-per-bushel reduction in the SAFP for corn combines with burdensome stocks to move the 2019/20 all-wheat price down 20 cents this month, to $5.00 per bushel.

Yield Boosts for both Winter and Other Spring Wheat Lift All-wheat Supplies

The August 12 Crop Production report indicated month-to-month yield improvements for both winter (raised 1.4 bushels per acre) and other spring wheat (raised 2 bushels per acre) which helped to lift associated production and offset a yield decline of 0.6 bushels per acre for Durum.

Month-to-month yield gains in key winter wheat producing States including Colorado (up 2 bushels per acre), Kansas (up 3 bushels per acre), Montana, and Oklahoma (both raised 2 bushels per acre), were influential in raising the U.S. winter wheat yield projection. Other spring wheat yields were projected level to up month-to-month in every reporting State except South Dakota.

In a key hard red spring-growing State, North Dakota, the August other spring wheat yield is fully 3 bushels per acre above the July forecast.

On net, all-wheat production for the new marketing year is raised 59.2 million bushels pegging the 2019/20 harvest at 1,980.2 million and about 95 million bushels above last year’s figure. Year-to-year, all-wheat production is up roughly 5 percent despite a 1.2 million bushel reduction in projected harvested area.

August Flour Milling Products Report Reveals Sluggish Fourth Quarter Use, Supports Cuts for 2018/19 and 2019/20 All-wheat Food Use

After showing strength in the early months of the 2018/19 marketing year, monthly food use estimates regularly fell below use figures from the year prior.

Based on successive shortfalls for monthly food use, the annual food use was trimmed 5 million bushels in both March and May ahead of the final 5.42 million bushels cut in August. At 954.6 million bushels, the 2018/19 food use estimate is nearly 10 million bushels below the 2017/18 estimate.

A number of factors are thought to have contributed to the sharp decline in year-to-year food use including above-average extraction rates and reduced demand for bakery products in spring and into early summer. For 2018/19, the average extraction rate is 77.3 percent, on par with the 2017/18 year’s figure and above the 5-year average of 77.1 percent.

Cool weather is associated with improved extraction rates; generally cooler-than-normal weather during many months of 2018/19 are hypothesized to have contributed to more efficient milling.

Milling efficiency may also have been aided by the closure of a number of older, less efficient mills which resulted in the shifting of flour production to, in some cases, newer and more efficient mills. Milling efficiency is also aided by continuous production. Concentrating flour production among a smaller number of mills may also have assisted in reducing mill down-time and contributed to efficiency gains.

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Finally, the cooler weather inhibited consumer demand for grilled hotdogs and hamburgers-a hallmark of warmer weather and a stimulus to flour demand. According to Milling and Baking news, in the 52 weeks ending June 16, 2019, hamburger and hot dog buns sales were down 2.3% from the previous year.

In addition, a late spring bun recall affected millions of buns baked under 18 brand names by Flower’s foods is suspected of reducing consumer demand.

For 2019/20, normal temperatures and precipitation levels are expected for the balance of the marketing year, reducing weather’s impact on milling efficiency and flour/bakery product demand. Population growth helps to preserve food use at a slightly elevated number from the 2018/19 figure while expectations of stable to improving milling efficiency temper volume gains.

With the realization of lower-than-average protein levels for the 2019/20 hard red winter wheat crop, proportionally more hard red spring wheat is forecast to enter the mill grind as compared to the previous marketing year and relative to the 5-year average.

Lower production and strong cash prices are expected to temper demand for soft red winter (SRW) wheat in the mill grind and contribute to a slight year-to-year decline in proportional and absolute SRW wheat use in the mill grind. Food use for white wheat and durum wheat are expected to be on par with 2018/19 levels.

Feed and Residual Use Lifted Again on Abundant Supplies, Favorable Prices

The August Crop Production report revealed a sizable jump in 2019/20 wheat production (up nearly 60 million bushels) with a more modest increase in corn production (up 26 million bushels). In response, projections for both wheat and corn prices were lowered, 20 cents and 10 cents, respectively.

With the wheat SAFP falling by a larger amount that the corn price, the wheat-to-corn price ratio is increasingly supportive of wheat feeding. Accordingly, wheat feed and residual is increased a further 20 million bushels this month to 170 million.

While this represents a sizable month-to-month increase in wheat feed and residual, the 20 million bushel addition contributes less than one-half of one percent to combined feed grain and wheat feedings in the new marketing year.

All-wheat Monthly Price Reflects Abundant Old and New Crop Supplies

USDA, NASS reported the national all-wheat price for the first month of the 2019/20 marketing year is well below the comparable prices from a year earlier. At $4.81 per bushel, the June USDA, NASS all-wheat price is 36 cents below the June 2018 all-wheat price and 37 cents below the 2018/19 SAFP.

New crop marketing through July typically averages around 40 percent. A later-than-normal harvest may have reduced the marketed share this year; however, it remains that the recent drop in prices weighs on SAFP prospects and supports a sizable month-to-month reduction.

Now forecast at $5.00/bushel, the all-wheat SAFP for 2019/20 is 16 cents below the final 2018/19 SAFP, but remains above the 5-year average of $4.93/bushel.

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