Wheat Outlook: U.S. Export Prospects Improve

Hand full of mature wheat heads. Photo: K-State Research and Extension - Creative Commons

The 2020/21 forecast for U.S. all-wheat exports is raised 25 million bushels this month concurrent with a 10-cent cut in the season-average farm price (SAFP) and lower production outlooks for several key competitors, including the European Union, Argentina, and Kazakhstan.

Improved U.S. price competitiveness in global markets is attributable to a sharp decline in the U.S. corn SAFP, lowered 25 cents this month, and to increased exportable supplies following an increase in 2020/21 wheat production, raised 14 million bushels this month to 1,838 million.

Domestic Outlook

Domestic Changes at a Glance:

  • Based on the USDA-National Agricultural Statistics Service (NASS) August Crop Production report, U.S. production of all wheat in 2020 is raised 14 million bushels from the July forecast to 1,838 million bushels.
  • If the current forecast is realized, the 2020/21 harvest will be the smallest since 2017/18 and down 4 percent from last year. The all-wheat yield is raised 0.4 bushels per acre this month to an average of 50.1 bushels.
  • The September 30 Small Grains Summary will contain the next update of 2020/21 wheat production by class.
  • The USDA, NASS Flour Milling Products report, released on August 3, indicated significantly reduced wheat food use in the final 2 months of the 2019/20 marketing year, relative to the period immediately following widespread stay-at-home orders because of COVID-19.
  • In contrast, during the same period, durum food use for the 2019/20 surged to nearly 86 million bushels.
  • Carryout for the 2020/21 marketing year is trimmed 17 million bushels this month to just over 925 million bushels and is the lowest level since 2014/15 when ending stocks totaled 752.4 million.
  • The season average farm price (SAFP) for 2020/21 wheat is lowered 10 cents per bushel to $4.50, partially on a 25-cent drop in the corn SAFP.

Winter Wheat Production Lowered on Yield Decline

Winter wheat production for the 2020/21 marketing year is lowered about 2 percent from the July forecast on a reduced outlook for yields. The winter wheat average yield is projected at 51.1 bushels per acre, down 0.9 bushels from the July 1 forecast.

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While record-high yields are forecast for Montana, Oklahoma, and South Dakota, these gains were offset by forecast yield declines in several other winter wheat-producing States. Most influentially, in Kansas—where approximately one-quarter of the 2020 crop was grown—month to-month average yields dropped by 2 bushels per acre to 46 bushels on persistent dryness.

Yields in Colorado, which were already at 7-year low as of July 1, were further lowered to a scant 30 bushels per acre as of August 1 while that State deals with widespread drought. Winter wheat harvested area is unchanged this month and remains at 23.44 million acres.

Based on updated yield projections released in the August USDA, NASS Crop Production report, winter wheat production for the 2020/21 marketing year is forecast at 1,198 million bushels, down from 1,304 million in 2019.

By class, hard red winter (HRW) wheat production was lowered 2 percent from the July 1 forecast to 695 million bushels, more than 137.8 million bushels below the 2019/20 HRW production estimate. Since 2007/08, HRW production has fallen below 700 million bushels only one other time in 2018/19, when dryness caused yields to drop to 39.1 bushels per acre.

As of August 1, 2020, soft red winter (SRW) wheat production is forecast at 277 million bushels, a decline of 1 percent from the previous forecast.

2019/20    HRW    SRW    HWW    SWW
Planted area (million acres)    22.458    5.201    0.434    3.066
Harvested area (million acres)    17.292    3.733    0.386    2.916
Production (million bushels)    833.181    239.166    19.954    211.702

2020/21
Planted area (million acres)    21.498    5.633    0.401    3.018
Harvested area (million acres)    15.959    4.265    0.348    2.867
Production (million bushels)    695.365    276.882    14.558    211.557

Note: HRW=hard red winter wheat; SRW=soft red winter wheat; HWW=hard white winter wheat; SWW=soft white winter.

Other Spring and Durum Wheat Yields Lifted on Timely Moisture

Other spring wheat and durum production is concentrated in the Northern Plains States where timely rains have recharged soil moisture and helped to lift yield and production forecasts. As of August 9, key other spring and durum wheat-growing States—North and South Dakota were reported by NASS to be near surplus topsoil moisture levels.

Based on conditions as of August 1, 2020, other spring wheat production is estimated at 577 million bushels, of which 530 million bushels are hard red spring (HRS) wheat. Yields for the other spring wheat crop are projected to be record high at 49.0 bushels per acre.

As of August 9, 2020, roughly 15 percent of the 2020/21 harvest was complete, slightly behind the 5-year average pace of 25 percent. The September Small Grains Annual report will provide the next update for other spring and durum production.

Durum production for the 2020/21 marketing year is estimated by NASS at 61.790 million bushels and up 11 percent from the previous forecast. Production gains are attributable to significant yield gains for Montana and North Dakota, where timely rains helped to lift yields per acre by 4.0 and 5.0 bushels per acre, respectively, from the previous projection.

The all-durum wheat yield forecast is 42.8 bushels per acre, a 4.3 bushel per acre increase for the July forecast, but down nearly 3 bushels from 2019.

2019/20    HRS    HWS    SWS    Durum
Planted area (million acres)    12.012    0.143    0.505    1.339
Harvested area (million acres)    11.027    0.138    0.495    1.175
Production (million bushels)    521.557    11.831    28.992    53.557

2020/21
Planted area (million acres)    11.502    0.164    0.534    1.500
Harvested area (million acres)    11.117    0.158    0.520    1.444
Production (million bushels)    529.683    12.750    35.052    47.802

Note: HRS=hard red spring wheat; HWS=hard white spring wheat; SWS=soft white spring wheat.

Wheat Food Use Revisions Reflect New Consumption Patterns

On August 3, 2020 USDA, NASS released the latest Flour Milling Products report, which contained evidence of emergent consumption patterns. The May 2020 edition of the report, which provided data through March 2020, revealed a surge in wheat food use as consumers stocked up on staples at the beginning of stay-at-home orders aimed to reduce the spread of COVID-19.

In contrast, the latest version showed that after the initial spike, flour milling declined precipitously and largely corresponded with greatly reduced spending on food eaten away from home.

The NASS data indicate that food use in the second quarter of the calendar year had fallen off significantly (down 6 percent) from the first quarter. Wheat flour production totaled 219 million bushels in April-June of 2020 versus 233 million in the first 3 months of 2020 and compared with 225 for the second calendar year quarter of 2019.

The drop in quarterly food use reflects a sharp decline in use in April after a surge in March, which was then followed by a tepid increase as spending on food eaten away from home slowly increased. The drop in wheat food use had been expected by industry as was reflected in the last adjustment to the figure.

At 961.8 million bushels, food use for the 2019/20 marketing year is down fractionally from the previous estimate of 962 million.

The food use estimate for June shows a continuation of the pattern of weak consumption in the new marketing year. At slightly more than 75.8 million bushels, June food use is about 1 million bushels below last year’s estimate and nearly 2 million bushels below the 5-year average. Further, the weak June food use data reveals the continuation of the trend of weaker-than-normal food use that began in April.

Based on the most recent data and expectations that spending on food service will remain below pre-COVID-19 levels for at least the first half of the marketing year, wheat food use in the out year is lowered 4 million bushels to 960 million.

Unlike the monthly all-wheat food use estimates—which demonstrated a high degree of variability through the first six months of 2020—durum food use consistently strengthened through the last several months of the reporting period. Through the end of February 2020 and before the imposition of stay-at-home orders in March, durum food use was running about 1.5 million bushels above the 2018/19 use pace.

As with all-wheat food use, durum food use surged in early March but unlike the all-wheat food use figure, durum use has remained far above the normal pace though the end of the most recent reporting period. At 85.6 million bushels, durum food use is record-high for the 2019/20 marketing year and 5.6 million above the 2018/19 estimate.

Durum wheat, and specifically the durum-derived semolina, are key ingredients in pasta products. Many pasta products are shelf-stable, inexpensive, and easy to prepare, making them an understandably popular food option during the current economic downturn and corresponding pandemic.

Industry news sources such as Food Business News (FBN) and Supply Chain Management Review (SCMR) have documented the increase in U.S. pasta sales in recent months with FBN reporting that in the first month of stay-at-home orders, some manufacturers were shipping up to 30 percent more branded pasta products than for the same period a year before.

SCMR recently reported that even when restaurants began to reopen towards the end of May, overall demand for spaghetti increased, leading to a resumption of empty shelves, or stockouts at supermarket stores that had first occurred in the early weeks of stay-at-home orders.

SCMR further notes that shortages were reported throughout June as home-based spaghetti consumption remained elevated even as food service spending and restaurant dining increased.

All-Wheat Exports for 2020/21 Lifted on U.S. Expanded Opportunities

While several competitors in global wheat markets had wheat production forecasts reduced this month, production and exportable supplies for the U.S. are raised month to month. Most notably, production for the European Union (EU) was lowered 4.0 million tons which supports a 1.5-million-ton reduction in projected exports.

The EU is a key exporter of wheat to North Africa, a region that is poised be regain its status as the top wheat-importing region in the world in 2020/21. Increasing demand in this region, at a time when EU supplies are stretched, increases opportunities for U.S. wheat export sales.

In addition, the expanded tariff rate quota for non-Mercosur (southern hemisphere common market) wheat in Brazil, is expected to support expanded U.S. wheat shipments, primarily for HRW wheat. U.S. wheat sales to China have also ticked up in recent months in accordance with the Phase One agreement between the two nations.

Based on the pace of sales to date and emergent prospects in global markets, U.S. exports are raised 25 million bushels to 975 million this month. If realized, this would be the highest volume of wheat exports since 2016/17 when U.S. exports sales topped 1,050 million bushels and very competitive prices created a cost advantage for U.S. wheat.

U.S. Wheat Price Slips on Falling Corn Price

After a late March/early April price rally, U.S. HRW wheat futures have been level to lower and moved in relation to corn futures. Cash wheat prices have followed a similar pattern with prices in most markets and across most classes declining between April and July—an indication of the strong influence of corn prices on wheat.

For example, in April the Kansas City (KC) cash price for 13 percent protein HRW averaged $6.48 per bushel; in July, the average price had fallen to $5.88 per bushel. Little domestic price support can be found in global wheat markets, where prices have trended lower in recent weeks and are reflection of still-record high global wheat stocks.

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