Wheat Outlook: U.S. Production Trimmed 20.5 Mln Bushels; Exports Unchanged

    Wheat Heads. Photo: Oklahoma State University

    Despite a slight increase in projected hard red winter wheat production, U.S. all wheat production is lowered 20.5 million bushels this month to 1,739.2 million. Drought-affected durum and other spring wheat production forecasts are lowered again this month. Food use is cut for both 2016/17 and 2017/18, based on data from the August 1 USDA-National Agricultural Statistics Service (NASS) Flour Milling Products report, and is consistent with declining domestic per capita consumption.

    U.S. wheat exports are unchanged this month and remain at 975 million bushels. Foreign wheat supplies and trade are expanded on increased production in Russia, Kazakhstan, and Ukraine. Production for Russia is raised 5.5 million tons this month to a record-setting 77.5 million tons.

    Domestic Outlook

    Domestic Highlights

    • All wheat production for 2017/18 is lowered 20.5 million bushels from the July forecast to 1,739.2 million bushels.
    • Total area harvested is unchanged at 38.1 million acres.
    • All wheat yield is lowered 0.6 bushel per acre on lower durum and other spring yields, more than offsetting a slight 0.3 bushel per acre increase for winter wheat.
    • At 50.5 million bushels, durum production is down 51 percent from 2016, on both lower harvested area and yields.
    • Other spring wheat production is lowered 21 million bushels this month to 401.6 million bushels, on a 2 bushel per acre reduction in projected yields.
    • U.S. imports are increased 10 million bushels on reduced production and demand for high-protein wheat from Canada.
    • Wheat supplies are reduced by about 10 million bushels.
    • Food use for 2016/17 is lowered slightly more than 6 million bushels on use implied by the August 1 Flour Milling Products report.
    • Reduced food use for 2016/17 and tighter supplies of high-protein U.S. wheat support reduced food use in 2017/18, now projected at 950 million bushels.
    • Exports are unchanged this month, largely on the strong pace of sales-to-date, despite increasing competition from global wheat exporters, including Russia.
    • All wheat ending stocks are lowered about 5 million bushels to 933 million, down 251 million bushels from 2016/17.
    • The all wheat price is unchanged this month and remains at a midpoint of $4.80 per bushel.
    • Historical wheat balance sheets by class and by quarter for marketing years 1973/74 through 2016/17 are now available on the ERS Wheat Data landing page.

    U.S. Wheat Production Trimmed, Now Projected To Be Smallest Harvest Since 1973

    With no harvested area adjustments made this month, refinements to yield projections for all major wheat classes result in a net 20.5 million bushel reduction of 2017/18 U.S. all wheat production.

    As reported in the August USDA-NASS Crop Production report, all wheat production is forecast at 1,739 million bushels. If realized, this will be the smallest wheat harvest in 44 years; in 1973, farmers harvested 1,710 million bushels.

    Ongoing drought conditions in Montana, North Dakota, and South Dakota continue to plague other spring and durum wheat yields, far offsetting yield improvements in areas of the Pacific Northwest. At 38.3 bushels per acre, other spring wheat yields are 9 bushels per acre lower than in 2016 and fractionally above the most recent low of 37.7 bushels per acre that farmers realized in 2011.

    While the 2017/18 other spring wheat yield projection is relatively low compared to recent marketing years, it is far from reaching a record-low. The record-low other spring wheat yield—a meager 8.4 bushels per acre—was realized during the early Dust Bowl days in 1931. During the Dust Bowl years (1931-39), other spring wheat yields averaged just 10.5 bushels per acre.

    Like other spring wheat, a significant portion of durum is cultivated in the Northern Plains and has seen yields wilt in the abnormally hot and dry summer months. From July to August, NASS reduced the U.S. durum yield by 3.7 percent, with sizable declines for both Montana (down 6 bushels per acre month-to-month and down 24 bushels compared to 2016) and North Dakota (down 3 bushels per acre month-tomonth and down 17 bushels relative to 2016).

    Improved Yields in Pacific Northwest Help To Lift Winter Wheat Production

    Winter wheat production is marginally raised this month to 1,287 million bushels, a 1-percent increase over the July projection. Despite the increase, winter wheat production for 2017/18 is 23 percent lower than for 2016/17.

    Winter wheat harvested area is unchanged this month and remains at 25.76 million acres, down from 30.22 in 2016. Based on the Crop Production report from USDA-NASS, the winter wheat yield improved by 0.3 bushels per acre from the July forecast and is now projected at 50.0 bushels per acre.

    Improving yields in the Pacific Northwest, as well as Colorado and Ohio, contribute gains to the all winter wheat yield forecast. Yields in Kansas, Montana, and Oklahoma are unchanged this month.

    The modest, month-to-month yield and production improvement for aggregate winter wheat is supported by increased production for each winter wheat class. This month, hard red winter (HRW) output is raised 870,000 bushels to 758.4 million. Soft red winter (SRW) production is lifted 1.2 million bushels to 306.8, on a slight yield increase.

    Grain Commentary

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    2016/17    HRW    SRW
    Planted area (million acres)    26.59    6.02
    Harvested area (million acres)    21.86    4.98
    Production (million bushels)    1,081.69    345.23

    2017/18    HRW    SRW
    Planted area (million acres)    23.82    5.61
    Harvested area (million acres)    18.09    4.44
    Production (million bushels)    758.37    306.12

    At 222.6 million bushels, aggregate hard and soft white winter wheat (HWW and SWW) production is up 3 percent from the July forecast though 23 million bushels lower than in 2016. Improving conditions in major white wheat production States, including Oregon and Washington, support the production gains.

    2016/17    HWW    SWW
    Planted area (million acres)    0.515    3.016
    Harvested area (million acres)    0.474    2.908
    Production (million bushels)    25.476    219.136

    2017/18    HWW    SWW
    Planted area (million acres)    0.469    2.946
    Harvested area (million acres)    0.409    2.823
    Production (million bushels)    18.807    203.836

    Durum Production Takes Another Hit as Drought Persists

    The effects of the Northern Plains drought have been felt keenly in major durum-producing States. In 2016, Montana and North Dakota combined to produce nearly 90 million bushels of durum, representing 86 percent of all durum grown in the United States. The most recent Crop Production report reveals worsening yield prospects since July.

    Production in Montana and North Dakota is projected to be 53.2 million bushels lower in 2017 than the previous marketing year. In total, Montana and North Dakota are projected to produce just 36.5 million bushels of durum wheat in 2017, approximately 72 percent of total U.S. durum production, compared to 76 percent in July.

    Aggregate durum production is down 12 percent from the July 1 forecast and down 51 percent from the 2016 estimate. With significant reductions noted for the two major durum-producing States, the U.S. all durum yield is lowered 3.7 bushels from the July forecast, to 27.2 bushels per acre, and compares to the approximate 44 bushels per acre farmers realized for the 2016/17 marketing year. Area harvested is unchanged from the June 30 USDA-NASS Acreage report.

    Other Spring Wheat Yields Lowered

    Other spring wheat harvested area is unchanged since the June Acreage report and remains at 10.497 million acres. The next scheduled revision for U.S. wheat production by class is on September 29 and will be released in the NASS Small Grains Annual report.

    This month, the other spring wheat yield was revised downward and reflects persistent drought conditions in the Northern Plains region. Month-to-month, the other spring yield for Montana is lowered 4 bushels per acre to 26 bushels.

    In North and South Dakota, yields are both lowered 2 bushels per acre to 36 and 32 bushels per acre, respectively. Each of these three States is reporting double-digit percentage yield declines from last year’s levels.

    Expectations of lower yields month-to-month and year-to-year are based on worsening conditions of the spring wheat crop noted in the USDA-NASS Crop Progress report. Since early May, the proportion of the spring wheat crop that rated poor to very poor has generally increased in Montana, North Dakota, and South Dakota.

    Yield declines in these key States are partially offset by a 5 bushel per acre yield increase for Oregon. On net, the U.S. other spring yield is lowered 2 bushels per acre this month to 40.3 bushels. If realized, this will be the lowest other spring yield since 2011, when yields were 37.7 bushels per acre. Declining yields contribute to a 22 million bushel, month-to-month reduction in other spring wheat production.

    At 401.5 million bushels, other spring wheat production is 132.5 million bushels lower than for 2016; however, it is not record-low. At 388.9 million bushels, the 2002/03 other spring wheat crop was 13 million bushels below the current 2017/18 projection.

    Food Use Updates Made for 2016/17 and 2017/18

    Following the release of the USDA-NASS Flour Milling Products report on August 1, a full picture of wheat food use for the 2016/17 marketing year was made possible. Through much of the 2016/17 marketing year, estimated food use (in grain-equivalent bushels) was below recent back years.

    Rising extraction rates assisted millers to make more efficient use of wheat inventories, which served to extend supplies of milling-grade wheat. Lower average protein levels for the 2016/17 HRW crop supported premiums for the high-protein HRW that millers required for flour production and created incentives to maximize efficient usage of the choice wheat.

    Since 2014/15, total wheat food use has been on the decline. In 2014/15, U.S. food use was estimated at 958 million bushels and associated with 134.7 pound per capita flour consumption. In each subsequent year, both aggregate food use and per capita consumption have declined. In 2016/17, wheat food use is estimated at 949 million bushels and 131.7 pounds per capita consumption.

    In recent years, population growth in the United States has not been enough to offset declining per capita consumption, the result of changing taste and preferences. Based on the multiyear trend, wheat food use for the 2017/18 marketing year is not projected to expand significantly and is lowered 5 million bushels this month to 950 million.

    This year’s HRW crop is showing improved protein levels; however, at 11.4-percent average protein (to date), it is still below the long-term average of between 12-and 12.5-percent protein. The high-protein hard red spring (HRS) crop, which can be used to boost protein levels in the mill grind, is projected to be much smaller this year.

    Relative to last year’s mill grind proportions, we expect a higher share of HRW in the blend and reduced use of HRS. Imports of high-protein wheat from Canada, where dry conditions are also affecting production, are expected to help augment domestic supplies.

    Imports are raised 10 million bushels this month to 150 million, largely based on expectations of increased use of Canadian wheat for domestic milling. Although aggregate U.S. exports are unchanged from the July projections, demand from the milling sector for a drought-reduced crop is expected to pull some volume of select classes of wheat away from the export market.

    For example, exports of HRW wheat are lowered 5 million bushels this month in anticipation that more high-quality HRW will be used domestically. Exports of HRS are also lowered 20 million bushels to 270 million, based on a smaller crop size and demand for high-protein spring wheat from the domestic milling sector.

    In contrast, exports of white wheat are projected 25 million bushels higher this month, to 185 million, on the extraordinary pace of exports thus far in the new marketing year.

    2017/18 Prices Unchanged

    The season average farm price (SAFP) for all wheat is unchanged from the July projection and remains at $4.80 per bushel. The SAFP range is also unchanged at $4.40/per bushel on the low end and $5.20/per bushel on the high end. Rising premiums for high-protein wheat have tempered in recent weeks; prior gains were captured in last month’s 50-cent increase to the midpoint price.

    Market expectations of a significant Russian crop, raised this month to a new record-high, has provided some downward price pressure in exports markets and tempered futures prices in the U.S. market.

    Full report.

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