Wheat Outlook: U.S. Ending Stocks Raised; Lowest Acreage in 108 Years

    The Winter Wheat and Canola Seedings report revealed 2017 winter wheat seedings to be the second-lowest on record and the lowest since 1909. This results in an 8-million-bushel cut to 2016/17 seed use, now projected at 61 million. The Grain Stocks report informs updated domestic use estimates and, in combination with rising wheat prices, provides support for a 35-million-bushel reduction in 2016/17 feed and residual use.

    With no changes made to wheat production and all wheat trade projections, seed and feed and residual use adjustments underpin an increase in 2016/17 ending stocks, raised 43 million this month and remaining at the highest level since 1987/88.

    Domestic Outlook

    2016/17 U.S. Wheat Ending Stocks Raised; Feed and Residual Lowered

    With the release of three key USDA NASS reports this month, a number of U.S. all wheat and wheat by class balance sheet adjustments were made. Most notably, 2016/17 ending stocks are raised slightly more than 43 million bushels to 1143.4 million, the highest level since 1987/88, when ending stocks reached 1260.8 million.

    Higher ending stocks are projected, in part, based on reduced feed and residual use, down 35 million bushels to 225 million. The feed and residual reduction is attributable to slower than expected movement of lower-protein, mainly Hard Red Winter (HRW), wheat into feeding channels, which is itself due to abundance of corn and the rising relative cost of feed wheat.

    Marketing may have been slowed in recent weeks due to bitterly cold and snowy weather that is reported to have delayed rail car loadings; during weeks 46-52 of 2016 when grain rail traffic largely fell below 2014 levels.

    Seed use estimates for the current marketing year are updated this month and reflect winter wheat planted area for the 2017/18 marketing year, as reported in the NASS Winter Wheat and Canola Seedings report. With winter wheat planted area for 2017/18 projected at just 32.39 million acres, a 3.75 million acre drop year-to-year, seed use in 2016/17 is lowered 8 million bushels to 61 million.

    All wheat imports, exports and food use are unchanged this month.

    2017 Winter Wheat Seedings Lowest in 108 Years

    After consecutive years of low prices and sizable carryouts, U.S. farmers have opted to plant the second lowest number of winter wheat acres on record, and the smallest number in 108 years.

    Winter wheat sowings for the current marketing year (2016/17) were well below average and, at the time, the sixth lowest on record. With a 10 percent year-to-year decline, winter wheat sowing for 2017/18 are estimated at just 32.4 million acres.

    Grain Commentary

    Unable to display feed at this time.

    HRW plantings are reduced 3.3 million acres (12 percent) from 2016, to 23.3 million acres. Plantings in most HRW growing States are down and are record-low in Nebraska and Utah. Winter wheat plantings in Kansas alone are down 1.1 million acres.

    Other sizable year-to-year reductions in planted area are projected for Montana (down 350,000 acres), Oklahoma (down 500,000 acres) and Texas (down 500,000 acres).

    In the majority of reporting States, the wheat crop is reported to be in good to excellent condition at the end of December. However, in Kansas, a lack of moisture followed by a period of deep cold has reduced winter wheat condition ratings to below normal and far below last year.

    Just 44 percent of the winter wheat crop in the State is rated good (42 percent) to excellent (2 percent), in contrast to 96 percent rated similarly at the same time a year prior.

    Last year, the production-reduction effects of lower year-to-year HRW planted area were more than offset by record yields. Based on the conditions ratings to date, yields are not expected to repeat the same performance in 2017/18.

    2016/17 Winter Wheat Production, By Class

    Hard red winter (HRW) wheat production, forecast at 1,081.7 million bushels, is unchanged from December but up 251 million bushels from a year ago. Record-high HRW yields bolstered production in the 2016/17 marketing year, even as planted area declined from the prior year.

    Soft red winter (SRW) wheat production is forecast at 345 million bushels, unchanged from December, but down nearly 14 million bushels from last year due to a combination of lower harvested area and lower yields. White winter wheat production for 2016 is forecast to total 244.6 million bushels, up nearly 60 million bushels from a year ago.

    The planted and harvested areas, production, and yield for white winter wheat are as follows (hard white winter = HWW and soft white winter = SWW):

    2016    HWW    SWW

    Planted area (million acres)    0.515    3.016
    Harvested area (million acres)    0.474    2.908
    Yield (bushels/acre)    53.7    75.4
    Production (million bushels)    25.476    219.136

    2015    HWW    SWW
    Planted area (million acres)    0.48    2.934
    Harvested area (million acres)    0.422    2.812
    Yield (bushels/acre)    38.1    60.1
    Production (million bushels)    16.109    169.081

    Balance Sheet Changes

    For 2015/16, the balance sheet updates this month are limited to ending stocks for HRW and durum, based on new NASS data releases. These minor changes, documented in the Wheat Data section of the USDA ERS website, result in a slightly reduced beginning stocks estimate for 2016/17.

    With no changes made to all wheat production and imports, total 2016/17 supply is lowered by, 86,000 bushels, the amount equivalent to the change in carry-in. Ahead of the next USDA NASS Grain Milling report, no adjustments to marketing year or quarterly food use are made this month.

    Seed use is lowered 8 million bushels to 61 million on the basis of revised out-year winter wheat planted area expectations and seed use associated with the baseline out-year projections for durum and other spring wheat.

    Feed and residual use is lowered 35 million bushels this month to 225 million. Nearly 70 percent of the 2016/17 wheat crop has been marketed through November with limited reports of wheat use for feed, despite the HRW crop having lower protein levels which make the grain easier to incorporate into feed rations.

    When coupled with recent increases in cash prices which reduce the competitiveness of wheat as a feed ingredient relative to corn in regional cash markets where feeding is most likely to be observed, there is ample downward pressure on the feed component of the feed and residual category.

    Also, HRW exports have ticked up-relative to expectations-in recent weeks, increasing the importance of a non-feed outlet for the crop.

    In recognition of higher-than-normal proportion of #4 and #5 grade durum and vomitoxin (DON) levels in areas of the Northern Plains, durum feed and residual is raised 5 million bushels this month. These quality issues contribute to expectations that non-milling quality durum has or will make its way into livestock feeding channels.

    All Wheat Price Moves Upward

    Encouraged by higher cash prices, farmers are reported to be increasing marketings of their stored wheat crops. The season average farm price was raised by 10 cents this month to $3.80 per bushel. With the majority of the 2016/17 crop marketed to date, the price range is narrowed by a 15-cent increase on the low end and a 5-cent increase on the high-end.

    Loan Deficiency Payments Provide Support During Period of Low Wheat Prices

    When wheat prices posted at county elevators (e.g., posted county prices) fall below the county and classspecific marketing assistance loan rate announced annually each spring by the USDA, local growers are considered to be eligible to receive Loan Deficiency Payments (LDPs) on their wheat.

    With 2016/17 all wheat prices reaching decade lows in many regions, a number of producers have been able to benefit from government support, including the LDP program. This is the first time LDPs have been made for wheat since the 2010/11 marketing year. USDA reports that LDPs in the 2016/17 marketing year to date are $114.5 million and well short of the record-large $854.7 million in the 1998/99 marketing year.

    Posted county prices have been particularly low for HRW, and in the 2016/17 marketing year, LDPs to date have been confined to HRW. Payments have been made on a total of 551.2 million bushels of wheat with an average LDP of almost 19 cents per bushel. Per bushel payments (to date) are highest in Oklahoma, at near 26 cents per bushel.

    By far, the largest number of bushels receiving an LDP are found in Kansas. To date, about 271.5 million bushels of wheat or about 58 percent of the total volume of wheat produced in the State during the current marketing year has received and LPD.

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