Temporary price pressure awaits new buyers
The number of wheat acres seeded was lower than expected, but the staple crop’s first quarter use was not as good as anticipated, either, according to USDA’s Jan. 10 reports.
Short-term, softer demand will have a dampening effect on prices. "Short term, we have ample wheat supplies," explains Frayne Olson, a North Dakota State University ag economist. "World wheat stocks were also higher."
USDA increased world carryout stocks to 185.4 million metric tons (MMT), up from the December estimate of 182.8 MMT. This was mostly due to larger U.S. supplies, according to USDA’s World Agricultural Supply and Demand Estimates (WASDE) report.
Olson thinks wheat prices will fall further before bottoming out. But long term, there is some positive news. "The decline in wheat seedings was a surprise," he says.
At 41.89 million acres, winter wheat seedings were 3% below the previous year, according to USDA.
Only hard red winter (HRW) wheat seedings increased. The 2014 HRW seeded area is forecast at 30.1 million acres, up 2% from 2013, with producers in Colorado, Montana and North Dakota planting significantly more acres. At the same time, Kansas, Oklahoma and South Dakota saw reduced acreage.
Soft red winter (SRW) acres were 16% lower than a year ago at 8.44 million acres. Also, durum wheat seedings were 6% lower. "The decline in soft red winter wheat was fairly significant," Olson says, adding that the drop means producers in the eastern Corn Belt are planning to plant other crops, likely soybeans.
As of Dec. 1, quarterly wheat stocks totaled 1.46 billion bushels, down 12% from a year ago. USDA’s Grain Stocks report shows wheat use for September through November down 6% for the same period a year ago at 407 million bushels.
Price Potential. USDA raised the carryout forecast for wheat to 608 million bushels, up from December’s estimate of 575 million bushels. Despite the larger carryout, USDA also increased its estimate for 2013/14 wheat prices to $6.80 per bushel.
USDA lowered its estimate for feed use by 60 million bushels, which was partially offset by a 25-million-bushel gain in exports.
If Canada can’t resolve its logistics issues and start moving its record-large wheat crop from the prairie provinces to Canadian or U.S. ports, it’s possible world buyers could look to the U.S. for more supply.