Wheat Outlook: U.S. Balance Sheet Unchanged, Australian Production Raised

    The U.S. 2016/17 all-wheat supply and demand estimates are unchanged this month. The season average price remains at $3.70 per bushel, with the range narrowed from 40 cents to 20 cents. Several key USDA National Agricultural Statistics Service reports are due out next month and include Grain Stocks, Winter Wheat and Canola Seedings, as well as final estimates of 2016/17 production figures.

    A sharp increase in wheat supplies in Australia is expected to intensify the competition facing U.S. exports during the latter part of 2016/17. Despite strong export commitments, U.S. wheat export prospects are unchanged, reflecting increased competitor supplies and the slowing pace of sales. With global consumption projected only slightly higher, global ending stocks rise, putting additional downward pressure on wheat prices.

    Domestic Outlook

    2016/17 U.S. Wheat Balance Sheet Unchanged from November

    December is a quiet month for the U.S. wheat balance sheet. Ahead of the January release of USDA NASS’s Crop Production, Grain Stocks, and Winter Wheat and Canola Seedings reports, 2016/17 supply and use categories are unchanged. Slight adjustments to the by-class breakouts for imports and exports are made and are reflected in updated quarterly and annual projections.

    Based on current prices and wheat marketings to date, the season average farm price range is narrowed from 40 cents to 20 cents this month. The low and high end of the range are now $3.60 and $3.80 per bushel, respectively.

    Winter Wheat

    In January, USDA NASS will release the Crop Production 2016 Summary which will provide final wheat production estimates for the 2016/17 marketing year. NASS will also release its first official projections of winter wheat by class and desert Durum seeded area for 2017. Last year’s January Winter Wheat Seedings report (name now changed to Winter Wheat and Canola Seedings) indicated planted area was projected to decline by 7 percent from 2015.

    For 2017/18, another year-to-year reduction in winter wheat planted area is anticipated and underpins a year-over decline in the all-wheat planted area projection released in the USDA long-term agricultural projections, available here. These early-released baseline projections peg all wheat at 48.5 million acres, down from 50.2 million acres in 2016. The 2016/17 planted area was itself down 4.8 million acres from the 2015/16 projection.

    Year-to-year declines are largely attributable to relatively low wheat prices, which are anticipated to persist through the 2017/18 marketing year before recovering some to $4.30 per bushel in 2018/19.

    Prices for Hard Red Winter (HRW) wheat in the 2016/17 marketing year have been lower than the year prior and are reflective of below-average protein levels. Lower protein levels are often associated with high-yielding crops.

    Indeed, despite lower year-to-year planted and harvest area, HRW wheat production reached 1.082 billion bushels, more than 30 percent larger than 2015/16. Near ideal weather conditions greatly benefited the crop’s development and boosted HRW yields to record highs for the 2016/17 marketing year.

    As the new winter wheat crop heads into dormancy, the proportion of the 2017 crop rated “good” to “excellent” is higher than at the same time in 2016 and above the 5-year average. Crop ratings have been steady for several weeks, unlike the previous season when the proportion of the 2016 crop rated “good” to “excellent” rose steadily through the fall.

    In contrast to last year, much of the nation’s winter wheat production belt, which is concentrated in the nation’s midsection, has recently experienced dry conditions. The USDA Office of the Chief Economist estimates that approximately 27 percent of winter wheat production is within an area experiencing drought. Sections of the High Central Plains, have been particularly affected by dryness.

    Based on the pace of trade to date, imports of Soft Red Winter (SRW) are raised 4 million bushels to 36 million. HRW and White wheat imports are unchanged this month and remain at 7 million and 8 million bushels respectively. HRW exports are raised 5 million bushels to 395 million, also based on the pace of trade to date.

    In November, U.S. Census Bureau data indicated a 288,693 metric ton shipment of U.S. HRW was destined for Morocco, with numerous smaller allotments to other countries contributing to HRW inspections of 725,902 metric tons. November inspections followed a strong showing in October, when 830,150 metric tons of HRW were inspected. In November 2015, just 431,725 metric tons of HRW were inspected ahead of export.

    Spring Wheat and Durum

    No production changes are made to Spring or Durum wheat this month. Slight adjustments to imports and exports are made and include a 2-million-bushel reduction to Hard Red Spring (HRS) and Durum imports, now projected at 40 and 34 million bushels, respectively.

    Reduced imports of Durum reflect the pace of trade and expectations of lower imports of Canadian Durum, stemming from quality issues related to vomitoxin contamination. HRS exports are unchanged at 295 million bushels, more than 40 million bushels higher than the 2015/16 figure. Durum exports are reduced by 5 million bushels to 25 million.

    Season Average Farm Price Unchanged, Range Narrowed

    The wheat season average price is unchanged this month and remains at $3.70 per bushel at the midpoint. The price range is narrowed from 40 cents to 20 cents and is $3.60 on the low end and $3.80 on the high end. USDA NASS monthly price data indicates that the current crop all-wheat price is closely following the 2015 price pattern.

    In October, strengthening HRS prices pulled the all-wheat price up as the HRW price remained level and near an average of $3.00 per bushel. Wide carrying charges in Kansas City wheat futures continue to support HRW holding; low cash prices have not provided a strong incentive to move wheat.

    Full report.

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