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Summary of the U.S. Wheat Outlook (WHS-17c, March 13, 2017)

Core Content

This report provides an overview of the U.S. wheat market for the 2016/17 marketing year and outlines long-term projections through 2026/27. It highlights changes in supply, demand, exports, and prices, along with international developments and challenges in the futures market.

Main Points

U.S. Wheat Imports

• U.S. wheat imports for 2016/17 were reduced by 10 million bushels (bu) due to a slow pace of Canadian shipments and lower quality wheat.
• The reduction was distributed across all classes except Soft Red Winter wheat.
• U.S. all wheat imports are projected at 115 million bu for 2016/17.
• The U.S. dollar remains strong, and ample global wheat supplies keep export volumes stable.

U.S. Wheat Exports

• Exports for 2016/17 are projected at 1,025 million bu, unchanged from last month.
• Export sales have been strong, particularly through Gulf ports, despite delays in the Pacific Northwest (PNW) due to weather-related disruptions.
• The strong export performance is attributed to the grain handling industry's preparation for the river closure in the Columbia-Snake River System.

U.S. Wheat Ending Stocks

• Ending stocks for 2016/17 are projected at 1,129.3 million bu, down 10 million bu from the previous month.
• Despite the drop, ending stocks remain the highest since 1985/86, at 154 million bu above 2015/16 levels.
• By class:
  • Hard Red Winter (HRW): Reduced by 1 million bu
  • Hard Red Spring (HRS): Reduced by 8 million bu
  • Soft Red Winter (SRW): Reduced by 5 million bu
  • White Wheat (WW): Increased by 4 million bu
  • Durum: Unchanged

Domestic Use and Prices

• Domestic use for 2016/17 is projected at 1,246 million bu, with a slight decrease in feed and residual use.
• The all wheat midpoint price is unchanged at $3.80 to $3.90 per bu, with the midpoint at $3.85, the lowest since 2005/06.
• The 2017/18 season-average farm price is projected at $4.30 per bu, up $0.45 from the 2016/17 midpoint.
• By 2026/27, the all wheat farm price is expected to rise to $5.00 per bu, compared to $3.70 for corn.

Long-Term Projections

• Winter wheat planted area for 2017/18 is projected to drop by 4 million acres, the lowest in 108 years.
• Yields are expected to return to trend, decreasing by over 10 percent to slightly above 41 bu per acre.
• Total U.S. wheat production for 2017/18 is projected at 1,837 million bu, a 20-percent drop from 2016/17.
• Total supply is projected to decrease slightly to just under 3,100 million bu in 2017/18, a 9-percent year-over-year reduction.
• Domestic use is expected to remain stable or increase slightly through 2026, while exports will rise in line with global demand.
• Ending stocks are projected to decline from 993 million bu in 2017/18 to 656 million bu in 2026/27.
• The stock-to-use ratio is expected to fall from 0.50 to near 0.40, closer to the 5-year average.

International Outlook

• Global wheat production increased sharply in 2016/17, driven by record-high yields in Australia and Argentina.
• Australia's wheat production is expected to reach 35.0 million tons, with high yields in the eastern states (NSW, SA, VC) and slightly above average in Western Australia (WA).
• Argentina's wheat production is projected at 16.0 million tons, with revised higher yields as harvest results became available.
• World wheat supplies are expected to grow, leading to higher ending stocks of 249.9 million tons, up 1.3 million tons.
• Wheat trade is projected to reach a record high of 180.1 million tons for the international 2016/17 trade year.

Non-Convergence in HRW Futures Market

• Non-convergence between HRW futures and cash prices has reappeared, with basis levels remaining wider than normal.
• This issue is attributed to:
  • Abundant supply and lower protein content in HRW wheat.
  • Reduced export demand and ample low-priced feed grains.
  • Large inventories needing storage, which increased the value of physical storage beyond contract rates.
• Potential solutions include:
  • Adjusting storage rates.
  • Increasing wheat quality requirements.
  • Expanding delivery areas.
  • Requiring cash-settled contracts.

Upcoming Reports

• USDA-NASS will release Prospective Plantings and Grain Stocks reports on March 31, 2017.
• These reports will provide the first survey-based indications of spring wheat plantings and winter wheat stocks for the 2017/18 marketing year.

Key Information

• U.S. imports: Reduced by 10 million bu due to Canadian shipment delays and quality concerns.
• U.S. exports: Remain strong, supported by trade data and industry preparedness for disruptions.
• Ending stocks: Still high at 1,129.3 million bu, but expected to decline over the long term.
• International production: Australia and Argentina are major contributors to the increase in global supply.
• Non-convergence: A recurring issue in HRW futures markets, affecting price discovery and risk management.
• Future trends: Projected lower production and higher use will lead to a more normalized stock-to-use ratio and rising prices.