There is just not a good way to sugarcoat the current wheat market conditions. The starting point for the 2017/18 wheat marketing year is in the tank. Good, bad, or ugly (forget the good — there isn’t any), current conditions must be documented in order to anticipate future possibilities.
Start with the fact that the market is offering between $3.47 and $3.74 for harvest delivered wheat in Oklahoma and Texas. These prices are based on forward contract basis, ranging from minus $1.07 (Selma, Okla.) to minus 90 cents (central and northern Oklahoma) to minus 80 cents (southern Oklahoma and the Texas Panhandle) and a KC July17 wheat contract price of $4.54.
The U.S. wheat stocks-to-use ratio (ending stocks divided by marketing-year use) has increased from 24 percent in 2013 to a projected 53 percent in 2016/17. This is the highest ratio since 83 percent in 1986/87.
Note that the U.S. stocks-to-use ratio declined from 83 percent in 1986/87 to 47 percent in 1987/88 and 29 percent in 1988/89 because world wheat production fell from 19.3 billion bushels in 1986/87 to 18.2 billion bushels for both the 1987/88 and 1988/89 marketing years.
The world wheat stocks-to-use ratio increased from 26 percent in 2012 to a projected 34 percent for 2016/17, which is close to the 35 percent ratio in 2001/02. World wheat ending stocks increased from 6.5 billion bushels to a projected 9.3 billion bushels, which is also a new record. U.S. 2016/17 hard red winter wheat ending stocks are projected to be 597 million bushels, compared to 446 million bushels for the 2015/16 marketing year, and 237 million bushels for 2014/15.
Another fact is that U.S. wheat exports have declined from 1.24 billion bushels in 1994/95 to a projected 980 million bushels for 2016/17. Russia, Ukraine, and Kazakhstan’s wheat exports have increased from 210 million bushels in 1994/95 to 1.96 billion bushels for 2016/17. Russia by itself is the No.1 exporter of wheat, and they are exporting hard red winter wheat with 12.5 percent protein.
The USDA January Seedings report indicated that U.S winter wheat plantings are 32.4 million acres, compared to 36.1 million acres in 2016/17 and 39.7 million acres in 2014/15. Hard red winter plantings are 23.3 million acres, down 12 percent from 2016/17.
Kansas’ planted wheat acres are the lowest since 1957. Oklahoma’s planted acres are the lowest since 1962, and Texas wheat acres are the lowest since 1972.
Reports indicate that a small reduction may occur in foreign wheat planted acres. U.S. hard red winter wheat producers have planted the crop with prices below the variable cost of production. Reports indicate that a higher percentage than normal of the plantings may be grazed, baled, or disked in order to plant summer crops. Average harvested acres are about 78 percent of planted acres.
The 90 day forecast for much of the hard red winter wheat area is for above average temperatures and average precipitation. Those conditions imply that wheat will come out of dormancy early and that moisture may limit yields. Current moisture and crop conditions indicate low odds of above average yields.
Spring wheat acres have not been determined, but are expected to be less than in 2016. Excess wheat stocks, significantly less U.S. planted acres, slightly lower foreign planted acres, average crop conditions, and relatively low prices set the stage for the 2017/18 wheat marketing year. Things will change before January 2018.
The next SWFP Wheat Scoops will address potential 2017/18 wheat marketing year prices.