Wheat Outlook: U.S. Carryout Rises on Lowered Use Prospects

Texas A&M AgriLife Communications photo by Kay Ledbetter

Following the release of key USDA, National Agricultural Statistics Service (NASS) reports and U.S. Census trade data through August, this month the 2019/20 U.S. all-wheat feed and residual use is cut 30 million bushels and U.S. exports are trimmed 25 million. Through the first quarter of the 2019/20 marketing year, U.S. wheat exports lagged behind expectations despite a marked decline in export prices through early September.

After bottoming out in the first week of September, U.S. export prices have steadily risen and outpaced modest growth for comparable Black Sea and European Union (EU) export prices. Lowered forecasts for U.S. exports and feed and residual contribute to a 29-million-bushel increase in U.S. carryout and help to support a 10-cent reduction in the all-wheat season average farm price projection compared to the previous month.

Domestic Outlook

Domestic Changes at a Glance:

  • On September 30, USDA, National Agricultural Statistics Service (NASS) released the2019 Small Grains Annual Summary and the Grain Stocks reports.
    • The Small Grains Annual Summary indicated all-wheat production for 2019/20 isdown 18.5 million bushels from the previous estimate while up 4 percent from theprevious year. A re-survey of respondents who previously reported unharvestedacres in several Durum and spring wheat producing states will be conducted andany changes will be reported in the November 8 Crop Production report.
  • Supplies are further cut on reduced imports, lowered 15 million bushels on the slower-than-expected pace of imports to date.
  • The Grain Stocks report indicated 2019/20 first quarter (June-August) ending stockswere 2,384 million bushels, down slightly from the same time last year.
    • First quarter disappearance, at 680 million bushels, is lower than expected andsupports a 30-million-bushel feed-and-residual reduction.
    • Fourth quarter stocks for 2018/19 are revised upward about 8 million bushels.
  • With reduced use more than offsetting net lower supplies, carryout for the 2019/20marketing year is revised upward nearly 30 million bushels to 1,044 million.
  • The 2019/20 all-wheat season average farm price forecast is lowered 10 cents thismonth to $4.70 per bushel.

While Up from 2018, Small Grains Report Lowers 2019 U.S. All-Wheat Production from Previous Forecast

As reported in the USDA, NASS Small Grains Annual Summary, the current estimate for 2019 U.S. all-wheat production stands at 1,962 million bushels, up 4 percent from the 2018 total. Yields, currently estimated at an average for all-wheat at 51.6 bushels per acre, are up 4 bushels per acre from 2018. Area harvested for grain in 2019 is down 4 percent from the previous year to 38.1 million acres.

Winter wheat production is projected up 10 percent year-to-year, while other spring wheat and Durum are down 4 percent and 26 percent, respectively. Year-to-year changes in all-wheat production by State reflect class changes over the same time period (fig. 3). For example, the key areas of winter wheat production including Colorado, Kansas, Oklahoma, and Texas are up more than 10 million bushels each in 2019 and consistent with the year-to-year expansion in aggregate hard red winter wheat production (up 26 percent).

In contrast, production for spring wheat and Durum is forecast down in 2019 on production cuts of at least 5 million bushels in key States of North Dakota, South Dakota, and Minnesota.

The Small Grains Annual Summary typically provides a final estimate of marketing year production. However, when producers were surveyed in early September, a significant proportion of other spring and Durum wheat acres were unharvested due to heavy rains and even snow in the Northern Plains.

NASS reports that, as of the week ending September 20, 90 percent of the spring wheat crop had yet to be harvested. Fully 16 percent remained unharvested in Montana, while a further 11 percent had yet to be harvested in North Dakota. NASS will re-survey respondents who previously reported unharvested area and, if needed, will publish revised Durum and other spring wheat production estimates in the November 8 Crop Production report.

The September all-wheat production estimate is lower than the earlier August forecast and reflective of the effects challenging weather had on yields in the last few weeks of cultivation. The most significant month-to-month production cut is for soft red winter wheat, lowered 7.1 percent and more than 18 million bushels from the August projection of 257.5 million bushels. In the key soft red winter wheat production States, including Illinois, Indiana, Michigan, Missouri, and Ohio, persistent wet conditions lead to widespread yield deterioration as the crop neared harvest.

Multiple Balance Sheets Revisions Following Release of New Production, Stocks, and Trade Data

This month, the combination of back-year and current marketing year updates to stocks, production, trade, and seed use results in several changes to the all-wheat balance sheets for 2018/19 and 2019/20. For 2018/19, balance sheets adjustments are limited to updated seed use by class estimates and revisions to June 1 Stocks. Seed use for 2018/19 is lowered to 58.8, down from the previous estimate of 59.6 million bushels.

Grain News on AgFax

Stocks for the last quarter of the 2018/19 marketing year are increased by about 8 million bushels. NASS reports that on September 1, 2019, 2.38 billion bushels of wheat were stored in all positions. A larger proportion than average was held on-farms; at 776 million, on-farm wheat stocks are up 23 percent from the same time a year prior.

Increased carry-in for the 2019/20 marketing year helps to offset the effects of lower 2019 production and reduced imports. For the current marketing year, imports are trimmed based on the slower-than-expected pace through August (largely from Canada). The Grain Stocks report also revealed ample domestic stocks were located in the Northern Plains—where U.S. production of other spring and Durum wheat is concentrated. Accordingly, the all-wheat import forecast for the balance of the marketing year is lowered 15 million bushels to 120 million.

June-August (first quarter) total disappearance for the 2019/20 marketing year is estimated at 680 million bushels—a 7-percent increase over the first quarter of the 2018/19 marketing year. While higher year-to-year, the total estimated disappearance is lower than the prior projection and supportive of reduced-use, particularly for feed and residual use. This month, feed and residual use is cut 30 million bushels on sluggish disappearance, as well as reduced production, which correlates with a lower residual estimate.

Further, despite a 20-cent-per-bushel increase in the corn season-average farm price, corn use for feed and residual is raised 125 million bushels this month. This is an indication of strong demand for this major feed grain and relative price insensitivity. Expanded use of corn in feed rations likely offsets demand for wheat—even in locations like Central Kansas, where the wheat-to-corn price ratio is generally supportive of wheat feeding, but stocks of corn are ample.

The 30-million-bushel cut to feed and residual use is allocated to hard red winter and soft red winter wheat, both lowered 15 million bushels from the previous forecast.

The all-wheat export projection is lowered 25 million bushels this month to 950 million. U.S. Census Bureau trade data revealed export sales in the first quarter that were slightly behind the expected pace. Formidable competition from the European Union and Black Sea inhibit the expansion of U.S. wheat sales. U.S. export prices at the Gulf have risen steadily since falling to near-parity levels with these two competitor countries in early September.

A strengthening U.S. dollar and rising ocean freight rates create further headwinds for the U.S. share of global wheat markets. Production cuts for Australia and Canada and an associated reduction in the forecast for Australian exports are not expected to provide a significant lift to U.S. prospects.

Australia and the U.S. compete in white wheat markets, particularly in Asia. The signing of the U.S.-Japan Trade Agreement is expected to help the U.S. maintain its competitive position in the region by lowering tariffs on U.S. goods to equivalent levels with countries participating in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The pace of white wheat exports in the first quarter suggest maintenance of the current white wheat export projection of 190 million bushels. In September, the discovery of cracked concrete at a navigational lock on the Columbia River halted some regional wheat barging operations and is likely to have temporarily slowed the pace of white wheat exports out of the Pacific Northwest.

All-Wheat Price Lowered 10 Cents on Weak Price Recovery

The 2019/20 season average farm price (SAFP) is lowered 10 cents to $4.70 per bushel on weaker-than-expected seasonal price recovery. Last month, the SAFP was lowered a full 20 cents on amplified season price declines that continue to linger despite a sluggish spring wheat harvest. Premiums for high protein wheat are expected; however, with a sizable share of the 2019/20 wheat crop already marketed, the impact of protein premiums on the SAFP is muted.

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