Wheat Outlook: U.S. Production Cuts Offset by Gains for EU, Russia

Texas A&M AgriLife Communications photo by Kay Ledbetter

Challenging weather has impacted the 2019 wheat production forecast for several key exporting countries. In the U.S., early winter weather cut into harvested area estimates, lowering all wheat production by more than 1 million metric tons. Ongoing dry conditions have led to further production cuts for Argentina and Australia, down 0.5 and 0.8 million metric tons, respectively.

However, an improved outlook for 2019 wheat production in the European Union (up 1.0 million metric tons) and Russia (up 1.5 million) more than offset reduced production elsewhere. Aggregate global production is raised about 0.3 million metric tons this month and supports a one million metric ton increase in projected global exports for 2019/20.

Domestic Outlook

Domestic Changes at a Glance:

  • On November 1, USDA, National Agricultural Statistics Service (NASS) released the quarterly Flour Milling Products report, which provides flour production data through the first 4 months of the 2019/20 (June/July) marketing year.
    • Through September, estimated food use fell below the pace expected to achieve the 960 million bushels forecast. Based on current and projected use, food use for 2019/20 is cut 5 million bushels to 955 million, on par with the 2018/19 use.
  • Wheat by class production estimates released in the September 30 Small Grains Annual report were updated in the November 8 Crop Production report.
    • On lower other spring wheat and durum production, all wheat production is lowered nearly 42 million bushels for the 2019/20 marketing year.
  • For 2020/21, USDA is projecting all-wheat planted area at 45 million acres.
    • Based on the current 2020/21 planted area projection, seed use for the 2019/20 marketing year is lowered 7 million bushels to 61 million.
  • Reduced 2019/20 domestic use (food and seed) is offset by lower production resulting in a net 30-million-bushel reduction in ending stocks.
  • Despite a tightening balance sheet, lackluster demand and limited prospects for price improvement support a 10-cent-per-bushel reduction in the all-wheat season average farm price to $4.60 per bushel.

Delayed Harvest Contributes to Collective 42-Million-Bushel Cut to Other Spring and Durum Wheat Production

USDA, NASS released revised estimates of spring wheat production in the November 8 Crop Production report—an update to the usually “final” production forecast published in the late September Small Grains 2019 Summary report. Significant late season precipitation, including deep snow and freezing temperatures in the Northern Plains halted harvest in a number of other spring and durum wheat-producing States and necessitated a re-survey.

Based on the re-survey of spring wheat farmers, other spring wheat (principally hard red spring wheat) area harvested estimates were reduced from the September 30 Small Grains Annual report for all surveyed states except Washington. In combination with lower projected yields for South Dakota, other spring wheat production is lowered more than 6 percent from the previous estimate.

As with other spring wheat, late season weather events prohibited harvesting of a sizable portion of the U.S. durum crop, compelling USDA, NASS to resurvey famers. Based on the re-survey results, durum production is lowered about 4 million bushels and nearly 7 percent from the previous estimate. U.S. durum production for 2019/20 is currently forecast at 53.8 million bushels, the lowest since 2006, when slightly less than 53.5 million bushels of durum were harvested.

On both reduced durum and other spring wheat production, U.S all wheat production is lowered 42 million bushels to 1,920 million, a 2 percent cut from the previous forecast. Unharvested area is a component in USDA, NASS’ estimates of on-farm stocks, previously reported in the September 30 Grain Stocks report. The revised forecast for spring wheat production results in an update to the September 1 grain stocks, now forecast at 2,343.6 million bushels. Stocks are reduced in proportion to reductions in production of hard red spring, white spring, and durum wheat.

Wheat Food Use Lowered on Lethargic Pace; Below-Average Extraction Rate

The November 1 release of the USDA, NASS Flour Milling Products report facilitated the calculation of monthly grain-equivalent wheat for food use through September 2019. The report indicated that flour production through the first 4 months of the 2019/20 marketing year were weaker than previously expected and supportive of a 5-million-bushel-cut to the all-wheat food-use estimate.

In each month of the new marketing year, monthly food use estimates were below those for the corresponding month, a year prior. For 2018/19, aggregate food use was just shy of 955 million bushels. Based on the pace to date, food use will have to accelerate in coming months to be on par with the prior year’s forecast. From June through September, monthly wheat flour extraction rates have trended below both last year’s average and the 5-year average rates.

Were extraction rates to rise to parity with 2018/19 levels, the aggregate food use figure for 2019/20 is likely to face further downward pressure. The next Flour Milling Products report will be release in early February 2020.

Exports Hold Steady at 950 Million Bushels

The U.S. all-wheat export figure for 2019/20 is unchanged this month and remains at 950 million bushels. The U.S. export pace to date is off to a faster start than last year with total commitments (accumulated exports and outstanding sales) up 11 percent from the same point in 2018 based on improved price competitiveness and abundant exportable stocks.

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This pace is especially notable in light of the near month-long closure of a major artery for wheat exports out of the Pacific Northwest. For most of September, barge traffic along the Columbia-Snake River System was halted while the U.S. Army Corp of Engineers replaced a cracked sill at the Bonneville Dam.

Tight supplies among competitors, including Argentina, Australia, and Russia, have also aided U.S. exports prospects as prices for these nations have trended higher. However, expansion of U.S. exports during the balance of the marketing year are inhibited by multiple factors, including expectations for sustained exports from Russia, expanding shipments from Argentina as a large (though recently shrinking) wheat crop is harvested, and a maintained and robust pace of exports from the European Union and the Ukraine.

Wheat Balance Sheet Projections to 2029 Released

All-wheat planted balance sheet projections for marketing years 2020/21 to 2029/30 were released in the late October publication of the USDA Agricultural Projections to 2029 tables. For the outyear, 45 million acres of wheat are projected to be planted, based on market information available as of early-October.

Using this planted area forecast and a standard wheat seeding rate per acre, by class estimate, seed use for the 2019/20 marketing year is projected at 61 million bushels, down 7 million from the previous estimate. Possible revisions to the 2019/20 seed use estimate will be evaluated with the release of the USDA, NASS Winter Wheat and Canola Seedings report in mid-January.

Balance sheet projections for the full 10-year projection period are available on the USDA, Office of the Chief Economist website. A companion piece to the USDA Agricultural Projections to 2028 (last year’s long term projection tables) was released in late October on the USDA, Economic Research Service website. This internationally-focused report features commentary on the rationale behind projections for major row crops, including wheat.

Wheat Price Inches Lower, Despite Tighter Balance Sheet

The all-wheat season average farm price (SAFP) is lowered 10 cents this month to $4.60 per bushel on weaker-than-expected seasonal price recovery. In recent weeks, wheat prices have improved from seasonal lows and generally improved across all classes. Hard red spring wheat and durum prices were aided by expectations of a forthcoming cut to other spring and durum production.

However, the Grain Stocks report revealed abundant stocks of spring wheat and tempered potential price recovery efforts. With the majority of the 2019/20 wheat crop marketed by the end of October, significant monthly price recovery is needed in order to substantially improve the all wheat SAFP.

Wheat Price Inches Lower, Despite Tighter Balance Sheet

The all-wheat season average farm price (SAFP) is lowered 10 cents this month to $4.60 per bushel on weaker-than-expected seasonal price recovery. In recent weeks, wheat prices have improved from seasonal lows and generally improved across all classes. Hard red spring wheat and durum prices were aided by expectations of a forthcoming cut to other spring and durum production.

However, the Grain Stocks report revealed abundant stocks of spring wheat and tempered potential price recovery efforts. With the majority of the 2019/20 wheat crop marketed by the end of October, significant monthly price recovery is needed in order to substantially improve the all wheat SAFP.

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