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Wheat Outlook: Opportunity amidst chaos

Wheat has weathered the pandemic better than other grains. But will it last?

Heavy global wheat supplies dominated headlines earlier this year. But the COVID-19 pandemic had other plans for international wheat demand as winter wheat crops began emerging in the Northern Hemisphere. Weather has played a huge role in the price potential for wheat, both domestically and internationally. Here are a few factors to keep an eye on in the wheat markets this spring.

Fewer acres planted

Low domestic wheat prices are driving the lowest wheat acreage projections on record to be planted in 2020. Over 30.8 million acres of winter wheat were planted in 2020, second only to 1909’s total of nearly 29.2 million acres. At nearly 1.3 million acres estimated to be planted this spring, the durum crop is expected to be the third smallest on record. USDA projected spring wheat acreage at nearly 12.6 million acres in the March 31 Prospective Plantings report. 2020 acreage is expected to be about 70,000 acres smaller than the 2019 crop.

U.S. wheat production could top 1.8 billion bushels if crop conditions hold through the late spring months. It would be the fourth-smallest crop in the past 20 years. Small crops are increasingly becoming the norm for wheat production. The crop size of the last four years’ harvests have been among the six lowest crops in the past two decades.

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But a cold snap in the Southern Plains followed by hail in mid-April put wheat yields at risk for a production downgrade. These areas in Western Kansas and Oklahoma experienced an abnormally dry winter and could be at risk for dry weather as the winter crop matures. As of the May 3 Crop Progress report, only 55% of the winter wheat crop was in good to excellent condition, down 7% in the last three weeks. Last year’s crop was rated 64% good to excellent for the same reporting period. About 14% of the winter wheat crop was in poor to very poor condition, down from 8% a year ago.

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And soggy soils across the Northern U.S., particularly in Minnesota, Montana, and North Dakota, could limit spring wheat acreage as well. Planting is recovering after getting off to a slow start, with only 14% of the crop planted as of April 26.  Dry weather last week allowed planting to progress to 29% complete as of May 3. But 2020 spring wheat planting progress remains well behind the five-year average of 43% for the same period.


Wheat prices will likely continue to trade with weather forecasts. Cool, wet weather across Montana and the Dakotas could cause further delays to spring wheat planting progress, but the precipitation should insulate winter wheat crops from frost damage.

A late-season cold snap this weekend could inflict crop damage in the Central and Southern Plains and Midwest, especially in areas with dry soils that cannot shield the winter wheat crop from cooler temperatures. Dry soils will continue to be the most significant weather factor impacting the winter wheat crop as spring winds down and drought conditions persist in the Western Plains. For more weather information, check out USDA's Weekly Weather and Crop Bulletin.

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Global crop conditions

As the North American harvest season creeps up, markets will begin to focus increasingly on global production potential.

A dry spring across much of Eastern Europe has done little favors for the European Union’s yield projections. Mixed weather conditions in Ukraine led a USDA attaché to reduce 2019/20 estimates 6% lower from previous estimates to 1.01 billion bushels. USDA estimates pegged the crop at 1.1 billion bushels as of early April.

The French wheat crop conditions continued to fall as dry weather beleaguers European Union’s largest grain producer. French soft wheat crops were rated in 58% good to excellent condition as of April 20. Recent crop ratings were a drop from 61% the previous week and a far cry from last year’s score of 79% good to excellent in the same time frame.

In the U.S., markets have been fluctuating with weather forecasts as spring weather takes its toll on yields. Areas of Colorado, Kansas, and Oklahoma have been suffering drought conditions through winter. The dry conditions exacerbated the damage from cool temperatures to hard red winter wheat crops in Kansas, Nebraska, Colorado, and Oklahoma in recent weeks as 55% of winter wheat remains in good to excellent condition.

But there is still plenty of time left for the crop to recover. Recent estimates supporting a strong U.S. wheat crop pegged Oklahoma’s harvest at 96.5 million bushels. However, watch that forecast. Cooler temperatures across the Plains and Midwest this weekend could cause frost damage to both the hard and soft winter wheat crops.

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In the Southern Hemisphere, 2020/21 plantings are about to begin. Soil moisture levels remain at a relatively healthy stage across Australia, a stark contrast to drought conditions early in the year. A USDA attaché projects the 2020/21 wheat harvest to increase over 50% from last year on higher acres and better weather to 845.0 million bushels, with 532.7 million of those bushels going into the export pipeline.

Despite an ongoing drought in the north, Argentina’s 2020/21 wheat crop is expected to increase to a record-setting 771.6 million bushels, according to the Buenos Aires Grain Exchange. Over 16.8 million acres of wheat are projected to be planted in Argentina in the coming crop year, despite a 33% export tariff to raise cash to pay down international debts.

Export strength

U.S. wheat exports have been a source of strength in the 2019/20 marketing year, accounting for 51.3% of annual production this year. Gains in wheat exports year-to-date have been relatively marginal compared to previous years as evidenced when USDA cut projected 2019/20 exports by 15 million bushels to 985 million bushels in the April World Agriculture Supply and Demand Estimates (WASDE) report. Year to date exports total 2.44 billion bushels with a month remaining in the marketing year. 2019/20 exports have outpaced the average of the last five years by 6.3%.

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However, U.S. wheat exports have tapered off in the last six weeks. Since the coronavirus pandemic’s global onset in early March, exports out of the U.S. have dropped 16.8% from same period a year ago. If history is any indicator of seasonal buying patterns, 2018/19 sales in the last six weeks of the marketing year were 35.6% higher than the same period in 2017/18.

Hope for U.S exports could be on the horizon after Black Sea countries enacted export quotas amid concerns about domestic stockpiles during the pandemic. Kazakhstan only allowed 7.3 million bushels of wheat to be shipped in April to ensure domestic food price stability. Romania also enacted an export ban in April. However, the European Union’s second largest wheat exporter had already shipped nearly all its exportable wheat surplus prior to the announcement.

But the biggest impact was felt after two of the five largest exporters in the world, Russia and Ukraine, announced export restrictions and eventual bans.

Ukraine has neared its cap of 741.3 million bushels of exports in the 2019/20 marketing year, recording 690.7 million bushels of wheat exported as of April 24. Ukraine’s marketing year ends in June, though a ban will likely go into place within the next few weeks.

Russia placed a 257.2 million-bushel quota on its exportable wheat surplus, expected to last until harvest in June. But a weak ruble and strong global demand sapped up each bushel on the international market and Russia quickly closed off their wheat to the rest of the world.

With the limitations of the Black Sea export market, buyers in North Africa and the Middle East will likely add increased pressure to EU grain demand.

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The closure of the Black Sea wheat export market opens doors for other European wheat markets as well as the U.S. Demand from North African and the Middle East remains strong amid the pandemic, though with many of those countries reliant on oil income, there is a significant risk demand could be stunted as lower oil prices suppress cash flows for food.

Regardless, Saudi Arabia issued an international tender in recent weeks for 24.1 million bushels of wheat. The Saudis typically source wheat out of the Black Sea region, but as Russia and Ukraine begin to run out of exportable supplies, the Middle Eastern country may be forced to turn to France or the U.S. for grain.

With an estimated 1.4 billion bushels of wheat remaining in U.S. inventories as of March 1, 2020, the U.S. wheat export market could stand to benefit from the Black Sea’s closures if international demand overlooks a strong dollar in favor of availability.

Dollar strengthens

As the coronavirus pandemic infected international markets, investors searching for “safe-haven” assets flocked to stable currencies, particularly the U.S. dollar and Japanese yen. These currencies have strengthened as a result, making U.S. products a more expensive option for potential buyers in international markets.

As the coronavirus pandemic made landfall in the U.S., the dollar index began to tank amid inaction to prevent the virus’ transmission. Lockdown measures sent the dollar skyrocketing only to face a precipitous drop in the same 10-day period as Congress fumbled early efforts to pass an initial stimulus bill. The dollar has since backed off mid-March spikes, but the constant volatility has contributed to a 3.4% rise in the ICE Dollar Index since the start of the year.

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Meanwhile, currencies in less stable economies, such as Brazil, Argentina, and Russia, have weakened against the dollar. As Argentina’s wheat farmers make their 2020/21 growing plans, the Argentine peso has fallen 11.8% to the dollar since the start of the year. A 33% export tax on outgoing Argentine wheat shipments may deter farmers from planting more acres in 2021/22. But a weaker peso, strong international demand, and wheat availability may be outweighing the export tax. At 27.9 million bushels, April 2020 wheat exports were 10.5% higher than last April.

Availability may end up playing a larger factor in the attractiveness of U.S. wheat to global buyers than price. As economic uncertainty continues to plague global markets amid the COVID-19 pandemic, a stronger U.S. dollar may be here to stay until a vaccine is developed – or until another round of negative economic news sends it falling.

Lockdown impacts demand

The COVID-19 pandemic caused a spike in global wheat demand as global lockdown measures required more at-home cooking (and sourdough baking). Quarterly flour milling demand has decreased by 264,000 bushels to 232.2 million bushels of wheat since the last quarter of 2019. While such a shift is not unusual for seasonal consumption patterns, the most notable surprise was that first quarter wheat consumed for flour milling in 2020 surpassed Q1 2019 consumption by 7.4 million bushels or 3.28%.

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This can largely be attributed to the run on baked goods, pasta, and flour at the pandemic’s onset. While next quarter’s wheat consumption for flour milling may not be as high as third and fourth quarter consumption rates, expect it to higher than second quarter results in previous years as more global citizens cook at home amid COVID-19 transmission fears.

Closing thoughts

Global supplies – and a surplus of them – have been the main force driving wheat prices through the first part of the year. Export bans could help to tighten wheat flows in favor of U.S. wheat growers as the battle between global oversupply and availability will continue through harvest in the Northern Hemisphere this summer.

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Seasonal highs for U.S. wheat have typically occurred in early parts of the year over the last five years, with a moderate bump right before the U.S. winter wheat crop is harvested in early summer. With tightening global supplies ahead of harvest in the Northern hemisphere and an increase in consumer demand – as well as the need for global food stability – U.S. wheat producers could quickly become a bright source of profitability for the agricultural sector.

Don’t hesitate to take advantage of price rallies. The wheat complex has enjoyed more stability than corn and soybeans, but that may quickly change as harvest begins and the pandemic’s hallmark economic volatility persists.

Download a complete version of the outlook with extensive charts and analysis using the Download button at the end of this report.

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