Wheat Outlook: Global Trade Cut on Russian Restrictions, Reduced U.S. Exports

    On April 2, 2020, the Government of the Russian Federation imposed a 7-million-metric ton quota on total exports of wheat and other grains until June 30, 2020. This binding restriction combines with strengthening Black Sea prices to reduce the 2019/20 wheat export forecast for Russia by 1.5 million tons to 33.5 million. Surging domestic wheat prices and a relatively strong dollar have also created headwinds for U.S. exports, lowered 0.4 million tons to 27.1 million.

    The European Union (EU) and Australia are the only major wheat exporters whose exports are raised month-to-month. On reduced competition from Russia and continued competitive prices, EU wheat exports are raised 1.5 million tons to 33.5 million. Australia’s exports are increased 0.3 million tons to 8.5 million on a stronger than expected export pace.

    Domestic Outlook

    Domestic Changes at a Glance:

    • U.S. exports are lowered 15 million bushels to 985 million on the recently slowing pace of U.S. international sales and increasingly competitive prices for the European Union and other key exporting nations.
    • U.S. all-wheat feed and residual use is trimmed 15 million bushels on lower-than-expected second and third quarter disappearance, an increasing wheat-to-corn price ratio, and increased availability of corn because of greatly reduced ethanol demand.
    • Resulting ending stocks are increased 30 million bushels to 970 million on reduced use.
    • Despite a lower stocks-to-use ratio, the season average farm price is raised 5 cents to $4.60 per bushel.
      • Recently, cash and futures prices for wheat—the principal food grain grown in the U.S—have surged, the result of the COVID-19 pandemic which is attributed with creating a surge in retail sales.
    • The USDA-NASS Prospective Plantings report estimates 2020/21 all-wheat planted area at 44.7 million acres.
      • If realized, this will be the lowest all-wheat area planted since records began in 1919. Winter wheat sowings are at a 109-year low but comprise a constant share of all-wheat sowings at about 70 percent of total.

    U.S. Export Pace Slows on Strengthening Prices

    Prices for all major wheat exporters, including the U.S., have found strength in recent weeks, while prices for other commodities, such as corn, have seen sharp declines. Domestic price support has been attributed the lower-than-expected U.S. all-wheat sowings revealed in the NASS March Prospective Plantings report, as well as a reported spike in retail sales of bread and flour, even as institutional sales are estimated to have declined.

    In late March, trade rumors of export restrictions-and the ultimate imposition of quotas for Ukraine, Russia, and Kazakhstan grains in early April, fueled concerns about reduced availability of wheat in international markets and lent further support to export and futures price gains. Rising wheat prices across the global marketplace have not enhanced the competitive position of the U.S. and the pace of sales in recent weeks has slackened, leading to a 15-million-bushel reduction in the 2019/20 export forecast.

    Elsewhere in the world, Russian quotas and a brisk pace of EU exports have led to an equalization of shares of global exports for these two nations.

    Feed and Residual Lowered on Smaller-than-Expected Q3 Disappearance and Rising Wheat Prices

    On March 31, USDA, National Agricultural Statistics Service (NASS) released the latest Grain Stocks report. Partly based, on third quarter disappearance that was below previous estimates, the 2019/20 all-wheat feed and residual estimate is cut 15 million bushels to 135 million.

    Grain News on AgFax

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    At 135 million bushels, the 2019/20 feed and residual estimate is still well-above last year’s 90 million and below the 10-year average of 155 million bushels. Historically, wheat feed and residual grows (shrinks) as wheat becomes more (less) competitively priced, relative to corn.

    This month, the season-average farm price (SAFP) for corn dropped 20 cents per bushel to $3.60 while the all-wheat SAFP rose 5 cents per bushel to $4.60, boosting the wheat-to-corn price ratio to 1.28, up from 1.19 the previous month. In addition to increasing divergence between these two prices, an unprecedented drop in gasoline consumption and associated reduction in ethanol demand—caused by COVID-19, supports expanded corn feed and residual use and expectations that wheat use in feed rations will be displaced.

    Surge in Retail Sales of Wheat Products Expected to Mostly Offset Reduced Foodservice Demand

    Since the beginning of March, shoppers have reportedly increased their purchases of a variety of staple groceries, including bread, flour, and other wheat-containing products (Rabobank). Ahead of the traditional Easter baking season, industry sources report that mills were well-positioned to meet the seasonal surge in demand (Sosland Market Focus).

    However, as the COVID-19 pandemic spread across the U.S. and more families chose to shelter in place, an increasing volume of wheat-based food products were being demanded at the retail level.

    Sosland Milling and Baking News (Ingredient Week) reports that manufacturers of packaged goods (snacks, crackers, cookies) expected as much as a 15 to 20 percent increase in retail demand. In addition, in March sales of “family flour”—flour that is sold mainly to home bakers—were reported to have sharply increased with “flour shelves cleared of every brand, every type and every size” according to a Midwest miller and reported by Sosland. More recently, as the initial panic buying surge has eased, sales of pan breads have been above average, but lower week-to-week (Sosland Market Focus).

    While millers have worked to fill orders and meet the super-seasonal surge in retail demand, institutional food service demands—such as from schools and restaurants—are thought to have fallen off by 30 to 50 percent, by some estimates. However, the cut in food service sector flour demand has also been described as a “moving target” by milling experts that varies regionally.

    The net effect of increased retail demand for wheat-based foods and reduced food service demand is presently expected to result in limited, if any, changes to USDA’s current U.S. wheat food use estimate.

    The 2019/20 projection of 955 million bushels will be re-assessed in May, following the publication of the Flour Milling Products report, which will provide milling data through the end of March and offer a quantitative indication at the early effects of the COVID-19 virus on demand for wheat-based foods.

    Record Low U.S. All-wheat Sowings Forecast to Total Just 44.7 Million Acres

    The NASS March Prospective Plantings report provides the first survey-based estimates of producers anticipated other spring and durum wheat plantings, as well as revised winter wheat seedings. For the 2020/21 marketing year, farmers intend to plant less wheat in aggregate than any other time since at least 1919 when U.S. wheat production records began.

    All-wheat planted area is down about 1 percent from the 2019/20 marketing year to 44.7 million acres based on year-to-year reductions in winter wheat (down 1 percent), other spring (down 1 percent), and durum (down 4 percent). These estimates compare to the USDA 2020/21 projections presented at the USDA Grains and Oilseed Outlook Grains at the February 2020 USDA Agricultural Outlook Forum, which projected U.S. all-wheat planted area at 45.0 million acres.

    Compared to the NASS Winter Wheat and Canola Seedings report, issued January 10, 2020, U.S. winter wheat sowings are estimated at 30.8 million acres—a slight decline from the previous forecast and the second-lowest winter wheat planted area on record.

    Hard Red Winter (HRW) wheat sowing are forecast down to 21.7 million acres from 22.5 million in 2019/20. Soft Red Winter (SRW) acres, which had fallen to 5.2 million acres in 2019/20, are estimated to rebound in 2020/21 to 5.7 million. Winter white wheat is expected to shed acres year to year; NASS forecasts the total of hard and soft white winter wheat at 3.42 million acres for 2020/21, down from 3.54 million acres in 2019/20. Winter wheat planted area in Nebraska and Utah are forecast to be record low.

    Other spring wheat sowings are estimated down 1 percent from the previous year to 12.6 million acres. Hard red spring (HRS) sowings are forecast at 11.9 million acres compared with 12.01 million in 2019/20. Hard red spring sowings in North Dakota—where more than 50 percent of the 2019/20 HRS crop was grown—are expected to decline by 9 percent.

    Durum wheat for 2020 is estimated to fall to 1.29 million acres from 1.34 million in 2019. About half of durum wheat grown in the U.S. was sown in North Dakota in 2019; for 2020 durum plantings in the State are forecast to be record low.

    The USDA, NASS Prospective Plantings report collected survey data from farmers during the first 2 weeks of March. During this period, spring wheat futures prices and corn prices tracked closely, with wheat prices averaging about a $2 per bushel above the Chicago Mercantile Exchange (CME) futures contract price (Yellow #2) for corn.

    After the close of the NASS data collection period in mid-March, the corn price began a steady decline as an increasing share of the U.S. population began to shelter in place and reduce driving—thereby reducing gasoline demand for corn ethanol-blends. While corn prices fell, the spring wheat contract began to strengthen on speculative buying, fueled by a surge in domestic retail sales for wheat-based food products.

    Spring wheat planting in the Northern Plains typically begins in mid- to late April, however, famers’ ability to get into fields can be greatly affected by soil moisture which is a function of precipitation and evaporation. In the first week of April, a late-season storm dropped winter-like precipitation across Northern and Central regions of the U.S. including sections of the North Dakota and Minnesota.

    As of April 4, most of the Northern Plains was snow-covered. This snow must melt prior to planting the spring wheat crop and contributes to the risk of flooding in key Hard Red Spring wheat growing areas. Much of the spring wheat production area is in zones where there is a greater than 50 percent change of moderate to major flooding.

    Full report.

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