Wheat Market: Milling Quality Supply Much Smaller than Meets the Eye

    By all accounts, European wheat farmers are having a very challenging year, with yields and quality badly hurt by untimely rain. Not to worry, say many market watchers, the large global supply and reports of record yields in Russia will offset the European decline.

    While total supply gets the most attention, wheat’s real value is as a functional food ingredient, not as a bulk commodity. When you dig a bit deeper, the total supply of milling quality wheat is much different — and it is tightening.

    In the European Union (EU), Strategie Grains (SG) forecasts soft wheat milling output at 66 percent of total 2016/17 production, compared to 71 percent in 2015/16. USDA estimates the EU carried in 15.7 million metric tons (MMT) of wheat and will produce 147 MMT of wheat in 2016/17.

    This puts total supply at an estimated 163 MMT, down 5 percent from 2015/16. With the smaller total supply combined with the lower milling output percentage, SG expects the EU soft wheat milling supply to equal 91.4 MMT. If realized, this would be 15 percent or 16.6 MMT less than in 2015/16 when the EU soft wheat milling supply totaled 108 MMT.

    Russian wheat yields this year are definitely up. On Aug. 8, UkrAgroConsult estimated Russian yields were up 5 percent from 2015/16 at 2.42 metric tons per hectare (MT/ha). However, as farmers and market participants know, large yield potential often comes with lower protein content. SG estimates Russian milling wheat output will fall to 69 percent of total 2016/17 production, down from 73 percent in 2015/16.

    SG’s Russian 2016/17 wheat production estimate of 69.7 MMT would put total milling supply at 48.1 MMT, up 4.0 MMT from 2015/16. Still, the expected increase in Russian milling supply will only offset one-quarter of the 16.6 MMT decrease in European milling supply.

    Despite significant planted area reductions, Canada, the United States and Ukraine all expect to have large or record large crops. StatsCan forecast Canadian spring wheat production at 20.2 MMT on Aug. 23. The forecast is in line with 2015/16 production despite a 9 percent reduction in planted area last spring. U.S. spring wheat farmers also planted 9 percent fewer acres this year, but improved yield potential is expected to partially offset that so USDA pegs U.S. spring wheat production at 14.4 MMT, down 6 percent year over year.

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    Yet these high-yielding crops are not without their own challenges. Preliminary harvest data from USW, UkrAgroConsult and SG indicate winter wheat protein levels are down in the United States, Russia, Ukraine and the EU. Additionally, wet conditions are affecting the Canadian and some portions of the U.S. spring wheat harvest. So, while the yields are expected to be large, final quality results are not yet established.

    In order to meet world wheat food demand, at least 60 percent of the global supply needs to be milling quality, for this, it is a must to use a reliable milling machine coolant. The large U.S. carry-in stocks, which can either be used for blending or independently to meet customer requirements, provide buyers with some level of protection. However, that protection has a price. With prices at or below the cost of production, many U.S. farmers are storing their highest protein wheat instead of selling it.

    This is a strategy other farmers are following. UkrAgroConsult recently noted farmer storage of higher protein wheat is also increasing across Russia, Ukraine and Kazakhstan.

    Customers should keep an eye on the milling output percentages and harvest quality reports (the latest USW Harvest report is available at and take the opportunity to secure their needs before the market begins to adjust to the tightening supply of milling quality wheat.

    Your local USW representative is available to answer any questions about the current U.S. harvest, the U.S. marketing system or U.S. wheat quality.

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