Wheat Outlook: U.S. Carryout Tightens on Higher Exports

    Wheat heads. Photo: Oklahoma State University

    Carryout for the 2019/20 marketing year is cut 25 million bushels this month to 940 million, the lowest since 2014/15 when ending stocks totaled 752 million. The all-wheat balance sheet is tightened on improved export prospects, now projected to reach 1 billion bushels.

    Exports are raised on the continued brisk pace of sales and additional marketing opportunities created by a reduced export outlook for Canada. The European Union is an increasingly formidable exporter with projected exports raised 1 million metric tons to 32 million, representing 17% of the global total.

    Depsite the month-to-month forecast boost, the U.S. remains the third largest wheat-exporting country representing 15% of global wheat exports, on par with the 2018/19 share.

    Domestic Outlook

    Domestic Changes at a Glance:

    • U.S. exports are raised 25 million bushels on improved export prospects attributed to rising demand from importing countries concurrent with reduced export forecast for key competitor Canada.
    • he latest USDA, National Agricultural Statistics Service (NASS) Flour Milling Products report confirms all-wheat food use is on pace to reach the current marketing year forecast of 955 million bushels.
      • Durum food use through the first seven months of the marketing year is trending ahead of last year’s pace.
    • Carryout for 2019/20 is lowered 25 million bushels to 940 million, the lowest since2014/15.
    • An update to the 2020/21 forecast for wheat, feed grains, and oilseeds will be released on Friday, February 21, as part of USDA’s Agricultural Outlook Forum.
    • On February 5, 2020, the Economic Research Service released updated farm income and wealth statistics through 2020.
      • After falling in 2019 on lower prices, wheat cash receipts are expected to rise in2020.

    Wheat exports rise on pace, expanded marketing opportunities

    The pace of U.S. wheat exports continues to surpass early season expectations, even as prices strengthen. During the 2019/20 marketing year U.S. wheat prices have at times come close to parity with the European Union and Black Sea, as in early September and late October when prevailing prices ranged between $182 to $190 per metric ton and $200 to $213, respectively.

    While the European Union and Black Sea export price series have largely been near parity with a recent convergence around $210 per metric ton, the comparable U.S. export price (hard red winter, 11.5%) has strengthened to between $216 and $223. Nonetheless, U.S. inspections continue to rise above 2018/19 levels and are now approximately 12 percent ahead of the same point last year and ahead of the 5-year average pace of sales.

    Growing global demand, particularly from Asia and Africa, has helped to fuel U.S. export sales. In recent months, reduced export prospects from key competitors including Argentina, Australia, and Canada have create additional marketing opportunities for U.S. wheat, even as European Union sales surge.

    Based on pace and trend analysis of U.S. wheat sales, 2019/20 all-wheat exports are raised 25 million bushels to 1.0 billion this month. If realized, this will be the highest level of U.S. exports since the 2016/17 marketing year when the season average farm price was $3.89/bushel, and well above the 5-year average volume of exports at 907 million bushels.

    Thus far in the 2019/20 marketing year, Mexico is the top destination for U.S. wheat (grain only) with the Philippines and Japan rounding out the top three. Through December of 2019, these three countries have accounted for 36 percent of U.S. wheat exports, about on par with the previous year. Italy has emerged as a top 10 buyer of U.S. wheat (largely durum).

    So far in 2019/20, Brazil remains out of the top 10; however, wheat grain exports to the country are up close to 65 percent relative to the same period in 2018/19. Mercosur trading block partner Argentina remains a formidable competitor for the Brazil market though the creation of a Tariff Rate Quota for 750,000 metric tons of wheat is generally viewed as favorable for U.S. prospects in the region.

    A new trade agreement with China, now in “Phase One”, is also viewed as being advantageous for U.S. agricultural commodity exports and, potentially, wheat. Exports of U.S. wheat to China are nearly 5 times greater through the first 7 months of the 2019/20 marketing year compared to the same period in 2018/19 when retaliatory tariffs (implemented in March 2018) all but curtailed wheat exports.

    However, at 194,062 metric tons through December, China imports of U.S. wheat represent about one percent of U.S. sales to date and are a fraction of wheat shipments to China in 2016/17 and 2017/18 when sales totaled 1.63 million metric tons and 0.931 million, respectively.

    Chinese purchases of 2019/20 U.S. wheat took place in October and November of 2019 and before the mid-January signing of the Phase One agreement. Subsequently, China has purchased wheat from France, Australia, and Canada, but not the U.S., contributing to uncertainty about how soon and whether this once significant import market could return as prominent destination for U.S. wheat.

    All-wheat food use unchanged, remains on pace to reach 955 million bushels

    On February 3, USDA, National Agricultural Statistics Service released the quarterly Flour Milling Products report, providing milling data through December 2019. Flour milling data for the first seven months of the 2019/20 marketing year indicate that trade-adjusted wheat food use is down the equivalent of roughly 3.7 million bushels from the same period in 2018/19.

    For the first four months of the marketing year, monthly food use forecasts trailed estimates from the same period in 2018/19. Starting in October 2019, monthly food use began to exceed 2018 values, partially offsetting earlier declines. If food use for the balance of the marketing year tracks with the last 5 months of the 2018/19 marketing year, usage for 2019/20 will be on pace to reach 955 million bushels.

    Recent strengthening of the monthly all-wheat food use forecasts, relative to the previous year’s estimates, is partly attributable to gains in durum use. In each of the first seven months of the 2019/20 marketing year, durum food use has exceeded the pace of use for 2018/19.

    Durum wheat ground for flour and semolina (pasta flour) in October-December 2019 was up 13 percent from the prior three months. In total, durum food use through December 2019 is slightly more than 1 million bushels ahead of use in 2018/19 and remains on pace to reach the current marketing year forecast of 80 million bushels.

    Wheat Price Holds Steady on Seasonal Price Improvement

    The majority of the 2019/20 wheat crop has been marketed (>80 percent) and recent price increases, which largely follow a seasonal pricing pattern, are not significant enough to budge the season average farm price from the current forecast of $4.55 per bushel.

    Full report.

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