Wheat Outlook: Russia’s Export Projection Raised While U.S. Exports Trimmed

    With the pace of sales slowing in recent weeks, U.S. exports for 2017/18 are trimmed 15 million bushels to 910 million. The cut comes as data on shipments of Russian wheat exports reveal a continued surge through March and into April.

    This pace exceeds the already high expectations for Russian exports for the 2017/18 marketing year. Raised 1 million metric tons this month to 39.5 million, Russian exports are forecast to set a new volume sales record and to firmly establish the country’s position as the world’s top wheat exporter.

    Into 2018/19, Russian exports are projected to decline to 36.5 million metric tons, though the nation’s status as the globe’s top exporting nation remains intact. While U.S. volume exports are slightly up in 2018/19, the European Union is projected to export more wheat, second only to Russia.

    Domestic Outlook

    Domestic Changes at a Glance:

    • Wheat production for 2018/19 is projected at 1,821 million bushels, up 81 million bushels from the 2017/18.
      • USDA, National Agricultural Statistics Service (NASS) forecasts winter wheat production at 1,191.5 million bushels, down 6 percent from 2017/18, based on both reduced yields and a lower harvested-to-planted ratio, despite year-to-year growth in area planted to winter wheat.
      • Other spring and durum production in the new marketing year are projected at 558.3 and 71.5 million bushels, respectively.
      • Desert durum production is forecast to expand by 725,000 bushels in 2018/19 due to sizable yield recovery and expanded plantings for the California crop.
    • The all-wheat yield for 2018/19 is up fractionally to 46.8 on projections of proportionately higher yielding wheat classes being produced (primarily hard red spring), even with a reduction in the winter wheat yield.
    • Despite increased production, year-to-year, total supplies in 2018/19 are projected lower than 2017/18 on lower carryin and imports.
    • Total use for the new marketing year is projected up 3 percent on expanded food, feed and residual, and export use.
    • Ending stocks are forecast to reach a 4-year low in 2018/19 of 955 million bushels, 115 million below the revised 2017/18 carryout estimate.
    • Reflecting a tighter balance sheet, the all-wheat season average farm price (SAFP) for 2018/19 is $5 per bushel, at the midpoint of the projected range of $4.50 to $5.50 and 30 cents above the current 2017/18 midpoint SAFP.
    • For 2017/18, food use is raised 8 million bushels, less than one-tenth of 1 percent to 963 million based on updated milling data from USDA, NASS indicating higher-than-expected wheat food use through March.

    Dry Conditions Drive Winter Wheat Production Down in 2018

    This month, USDA-NASS released the first survey-based winter wheat production forecast for the 2018/19 marketing year. Projections of winter wheat area harvested, yields, and production-by-State inform expectations of year-to-year reductions across each category.

    The previously published all-wheat production forecast for the new marketing year, released at the Agricultural Outlook Forum in February, reflected winter wheat production that was a function of both trend yields and a slightly below-trend harvested-to-planted ratio. The below-trend ratio reflected the dry and droughty conditions in the winter wheat-growing belt.

    Expectations of drought impacting winter wheat production have been borne out in this NASS 2018/19 winter wheat production forecast. If realized, the 1,191.5 million bushel U.S. winter wheat crop will be 6 percent below the 2017 estimate and the lowest since 2002. See figure 3 for by-State changes in forecast winter wheat production.

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    Much of the key U.S. winter wheat production area remains subject to dry to drought conditions, despite some modest, scattered improvements in conditions in the preceding weeks.

    The U.S. Drought Monitor indicates that Kansas, Oklahoma, Colorado, and Texas are still affected by a lack of moisture, and the USDA, World Agricultural Outlook Board reports that approximately 36 percent of winter wheat production is within an area experiencing drought.

    Soil moisture levels that are below average are reflected in crop conditions that are well below the previous year’s figure. For the week ending April 29, 33 percent of the winter wheat crop growing in the 18 reporting States was rated “good” to “excellent,” compared to 54 percent rated similarly for the same week in 2017.

    Thirty-seven percent of the 2018 winter wheat crop was rated “very poor” to “poor,” compared to 13 percent in 2017. In addition, much of the 2018/19 crop is behind average maturity pace. Between 2013 and 2017, 30 percent of the winter wheat crop in the 18 reporting States had headed by week 17 (week ending April 29).

    Just 19 percent of the winter wheat crop was reported to have headed in the most recent USDA, NASS Crop Conditions report.

    Maturity was well behind in Kansas, with just 2 percent of the crop headed, compared to 41 percent in 2017 and the 5-year average of 24 percent. In Oklahoma, 35 percent of the crop had headed by week 17, a sharp decline from the 74 percent headed in 2017 and the 5-year average of 60 percent.

    In Texas, USDA, NASS reports that small grains have not shown much damage from a mid-April freeze event, and winter wheat is 70 percent headed. Heading in Texas is ahead of the 5-year average of 60 percent, but behind last year’s 76 percent.

    Despite maturity that is nearly matching last year’s progress, the condition of the Texas crop continues to suffer. For the week ending April 29, fully 61 percent of the winter wheat crop was rated “very poor” to “poor.” The Southern Plains Regional NASS Field Office reports that some Texas winter wheat producers are cutting wheat for hay based on the poor crop conditions.

    For the 2017/18 marketing year, Texas contributed about 5 percent of the total U.S. winter wheat crop.

    Oklahoma is projected to produce 52.0 million bushels of winter wheat in 2018, a sharp decline from the near 100 million produced in 2017. Reduced production in the State is partially due to a dramatic reduction in harvested area, down 900,000 acres year-to-year to 2.0 million, and a sizable trim to yields-projected, down 8 bushels per acre to 26 bushels.

    Gains in harvested area for Kansas help to offset losses in these and other key winter wheat-growing States. Kansas is set to harvest 7.3 million acres of winter wheat, which compares to 6.95 million in 2017.

    Potential production gains are tempered greatly by a sizable reduction in projected yields— down 11 bushels per acre, based on farmer and objective yield surveys. If 37 bushels per acre yields are realized, they will be on par with winter wheat yield from 2015 and 9 bushels per acre above the 2014 estimate.

    Other Spring Wheat and Durum Production

    In July, USDA-NASS, will release its first projection of other spring wheat and durum production for the 2018/19 marketing year. Current projections are based on plantings intentions reported in the March Prospective Plantings report and 10-year trend yields and harvested-to-planted ratios.

    Since U.S. farmer planting intentions data were collected in early March, Statistics Canada has subsequently released the Canadian plantings intentions report indicating farmer expectations to plant a near-record area of spring wheat and more durum in 2018.

    In the 2017/18 marketing year, the United States imported above-average volumes of these wheat classes from Canada. Increased demand for Canadian wheat supported farm prices and expectations of robust returns in the new marketing year. The planting window for other spring and durum in the Northern Plains is open until mid-June.

    With just 30 percent of the 2018 U.S. spring wheat crop reported to have been planted as of the week ending May 6, according to NASS, farmers may have capacity to adjust planting strategies to accommodate evolving market conditions.

    Balance Sheet Adjustments for 2017/18

    For the 2017/18 marketing year, supply is unchanged this month, while adjustments to use result in a net 6 million bushel increase in ending stocks. Based on the flagging pace of exports in recent weeks, U.S. wheat exports are trimmed by 15 million bushels to 910 million.

    During April, U.S. wheat prices generally rose on concerns that the persistent drought conditions in the hard red winter growing region would dampen production prospects. Elsewhere, the pace of key competitors’ exports accelerated, resulting in a 1 million metric ton increase in projected Russian exports to 39.5 million.

    Exports from Canada are also raised 300,000 metric tons to 22.8 million. On an international trade year (July/June) basis, U.S. exports are reduced 500,000 metric tons to 24.0 million.

    In contrast to the trend of recent years, U.S. food use is raised 8 million bushels this month to 963 million. Consecutive USDA, NASS Flour Milling Products reports provide ample evidence of increased wheat flour use.

    Further, rising extraction rates support the notion that the gains in wheat use are attributable to growth in flour production and, hence, consumer demand as opposed to reduced million efficiency.

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    Estimated extraction rates are 77.4 percent between December and March, up from 77.2 percent in the preceding 3 months. Based on NASS data, the third quarter wheat flour use was the strongest since at least 1989/90.

    With data on flour production through March 2018 available, indications are strong that demand will remain robust through the fourth quarter (March-May).

    Typically, seasonal wheat use for flour surges in the fourth quarter, due in large part to increased grilling activities that complement bakery products (e.g., bun) use. The fourth quarter typically includes an extra day or two, which accounts easily for a 1–2 percent quarter-to-quarter increase in food use.

    Further, Easter—a traditional roll, cookie, and cake-consuming holiday—was later this year (April 1), providing a boost to March use as families prepared for the holiday.

    Finally, U.S. Bureau of Economic Analysis data indicate that real personal consumption expenditures, driven by rising incomes, have steadily been increasing and have supported growth in food service and accommodations expenditures. Wheat food use tends to increase as expenditures on food eaten away from home rise.

    Accordingly, the recent lift in wheat food use can, in part, be explained by increased demand for food services such as meals eaten at fast casual restaurants. The restaurant industry is projecting sustained, moderate growth through 2018, which in turn supports the revised 2017/18 food use estimate at 963 million bushels, as well as the updated 2018/19 food use forecast, currently pegged at 965 million.

    Total Wheat Use Projected to Rise in 2018/19

    Despite expectations for slightly elevated production (up 81 million bushels) in 2018/19, compared to 2017/18, U.S. wheat supplies are projected to decline nearly 50 million bushels on both smaller carryin and reduced imports.

    Expectations of increased domestic production of hard red spring wheat are projected to reduce import demand for supplementary supplies from Canada. Forecast use for 2018/19 is projected to rise based on increased food and feed and residual use. A smaller corn crop and expanded wheat production contribute gains in feed and residual use.

    At 120 million bushels, the 2018/19 forecast is up 50 million from the 70 million bushels estimated for the 2017/18 marketing year. While higher, a feed and residual forecast of 120 million bushels is still well below the 5-year average of 143 million bushels.

    Total use is also boosted by improving prospects for U.S. exports, up 15 million bushels in the new marketing year to 925 million. The United States will face significant competition in global export markets in 2018/19 as several key competitors are projected to expand production.

    In contrast, U.S. production is forecast to decline, and hard red winter wheat—for which the U.S. has a competitive production advantage—will constitute a smaller proportion of the harvest than in recent years.

    Overall, increased use more than offsets reductions in supply, increasing tightness in the balance sheet via a 115 million bushel reduction in year-to-year ending stocks.

    The net effect of the balance sheet adjustments is to create support for an increase in the season-average farm price (SAFP), currently projected at $5 per bushel, at the midpoint for the 2018/19 all-wheat crop. If realized, this will be a 30 cent gain over the 2017/18 SAFP and the highest farm price since 2014/15.

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