On Thursday morning, USDA gave us several sets of new wheat data in its Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports. The reports included projected state-by-state production for winter wheat (but not spring wheat), the first WASDE supply-and-demand balance sheet for the U.S. for 2018-19 and the first global supply-and-demand figures for the 2018-19 marketing year.
That's a lot of grist for the mill, as my grandfather used to say.
As you probably know, there are eight major categories of wheat grown in the U.S., as defined by the National Agriculture Statistics Service (NASS) statisticians -- four winter classes planted the previous fall and four spring planted classes. These are lumped together into five categories for supply-and-demand purposes (HRW, HRS, SRW, white and durum), but only three categories in other reports (winter, other spring and durum).
Since several of these are virtually indistinguishable in the field, it can be a real challenge to get the correct production and use in the correct bucket. It is hard enough, in fact, that USDA's Economic Research Service (ERS) doesn't even try to put out a by-class supply-and-demand balance sheet for new crop until July. They get a little help on the hard red spring, hard white spring and soft white spring wheat from the June Planted Acreage report, scheduled for Friday, June 29. But that doesn't stop them from putting out their all-wheat S&D balance sheet in May.
I'm emphasizing these class differences here because they make a huge difference in the export market and in the average price-received calculations. The world is awash with generic wheat. The WASDE report put expected June 1 world wheat stocks at 270.46 million metric tons (mmt) with a stocks-to-use ratio of 36.36%. That means that, with zero production anywhere in the world, we could still go four months before running out.
The initial forecast for 2018-19 calls for carryout of 264.33 mmt, a still burdensome 35% stocks-to-use ratio. Since the U.S. is a high-cost producer and has high freight costs to big import buyers such as Egypt, larger world stocks typically limit U.S. exports and keep pressure on cash prices.
However, all wheat was not created equal and neither is its distribution. The higher-protein wheat needed for quality bread is in short supply. U.S. and Canadian spring wheat often has 14%-15% protein, but the Northern Plains drought limited U.S. production last year, and U.S. HRS ending stocks are projected to be only 195 million bushels (mb) on June 1. Hard red winter wheat (HRW) can get to 13%-14% protein and can substitute for spring wheat, particularly if stressed. But 11%-12% HRW is more common.
Also, note that most of the HRW crop in the U.S. is grown in states that have been under drought stress this year. An index we use at my firm has condition ratings 50 points below last year on a 500-point scale for the five principal HRW production states.
USDA went with a 37-bushel-per-acre (bpa) average yield for Kansas in its May report and only a 26 bpa yield for Oklahoma. The crop may have higher protein, but there isn't going to be much of it out there. While winter wheat production at 1.191 billion bushels (bb) is only down 77 million from last year, HRW production at 647 million would be down 103 million from a year ago. SRW production, which competes more directly with those global stocks, is expected to be up about 23 mb from last year.
To summarize, WASDE has U.S. ending stocks for 2019 shrinking modestly to 955 mb from 1.070 billion in the current season. They figure the average cash price received by producers will be $4.70 per bushel in 2017-18 and rise to $5 per bushel for 2018-19. Those are the midpoints of their forecast ranges and are weighted by marketings per month. They also mask significant differences in prices depending on the class of wheat you produce.
This past year, the national average has been dragged sharply higher by prices for HRS wheat, where ending stocks have been shrinking to the tightest levels in four years. For 2018-19, the HRW will get a scarcity boost and maybe some protein premiums. The SRW or white wheat producer is seeing cash average prices that are a lot less attractive than those national averages.
As mentioned earlier, there will be no WASDE by class S&D projections until July. We have taken some liberties with spring wheat production assumptions and created a balance sheet, which has ending stocks of 975 mb. That's pretty close to the 955 mb released by ERS Thursday morning.
Note, however, that HRW stocks will drop sharply because of the drought, with a modest rebuild from four-year lows in HRS. The HRW number could end up above 400 mb if the final crop is a little larger than the May estimate (not uncommon).
The SRW problem is likely to continue unless world stocks get a lot tighter than currently forecast, or Chicago futures and basis (and rail rates) drop hard enough to allow SRW to work into the Southeast feed market in place of corn.
Alan Brugler can be reached at email@example.com
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