The balance sheet for wheat continues to tighten. According to USDA’s latest World Agricultural Supply and Demand Estimates, released June 12, projected production for the 2013-14 U.S. wheat crop was increased by 23 million bushels due to higher yields for hard red winter wheat in the southern and central Plains states and in the South’s and Midwest’s soft red winter wheat production, but use was also increased.
"The report is a little bit friendly toward the wheat market," says Randy Martinson, executive vice president with Progressive Ag in Fargo, N.D. "USDA increased exports which caused a decline in ending stocks and raised the price by 10 cents."
The major surprise in the report was a 0.5-bu. increase in the average wheat yield from May’s report to 44.6 bu. per acre. "That threw everyone for a loop," says Martinson, particularly since southern Plains producers are still battling drought and producers in the northern Plains are struggling with late planting.
The nation’s spring wheat crop has been slow to get planted. Martinson estimates that in North Dakota between 500,000 and 750,000 acres of soft wheat, somewhere between about 3 and 6 percent of the state’s total crop, will not get planted this year. North Dakota is one of the top-two wheat-producing states in the country.
USDA’s projected price range for the 2013-14 season-average farm price for all wheat increased by 10 cents on both ends of the range to $6.25 to $7.55 per bu. Despite the increase, the price is well below the expected record annual average price $7.80 per bu. for 2012-13.
USDA increased its estimate for exports by 50 million bushels due to strong early season sales and a worsening outlook for overseas wheat production. Ending stocks were reduced 11 million bushels to a projected 659 million bushels, a five-year low.
"U.S. stocks are comfortable," notes Martinson. "Three years ago the stocks-to-use ratio was about 45%, which means there was about half a year’s use in inventory. Now the stocks-to-use ratio is about 30 percent. The 2013-14 stocks-to-use ratio is projected at about 29 percent." A stocks-to-use ratio near 20 percent is considered a balanced market.
Martinson expects wheat prices to decouple from corn prices this fall and predicts a range for spring wheat prices of about $7.65 to $8.50 per bushel. However, he cautions that until wheat prices begin trading on their own, weaker corn prices could drag wheat prices lower.
World Supplies Tighten
USDA lowered projected world wheat supplies for 2013-14 by 5.6 million tons due to lower overseas production. World production is currently projected at 695.9 million tons, down 5.2 million tons from last month with reductions in Ukraine, Russia, and the EU-27 due to persistent areas of dry or wet weather.
Along with production, USDA lowered global wheat consumption for 2013-14. World ending stocks for 2013-14 at a projected 181.3 million tons were lowered 5.1 million tons from last month, and are now slightly above 2012-13 ending stocks.
The U.S. wheat market is heavily dependent on wheat exports, notes Martinson. "We need to export about 30 to 50 percent of our wheat crop," he says. While emerging issues in Europe could spell more exports for the United States, problems have surfaced on this side of the Atlantic as well.
The discovery by Oregon State University scientists in May of genetically modified wheat on an eastern Oregon farm has threatened to choke off exports to Japan, South Korea, and Taiwan, where genetically modified crops have been banned, as well as to Europe, where EU officials are preparing to test incoming shipments.