2019 Outlook: Wheat Poised to Absorb Soybean Acres

November 28, 2018 04:00 AM
For the 2017/18 growing season, U.S. wheat acres dipped to a 100-year low. But that’s likely to change for next year.

For the 2017/18 growing season, U.S. wheat acres dipped to a 100-year low. But that’s likely to change for next year. An improving profit picture and production advantages will likely make wheat an attractive option versus soybeans.

“Before the wet fall in the Southern Plains, I was anticipating a 5% to 10% increase in wheat acres for 2019,” says Arlan Suderman, chief commodities economist for INTL FCStone. “Now I think we’ll end up with a 2.5% increase in overall wheat acres.”

This drop in acres is two-pronged. First it will hinge on 2019 soybean acres, he says. 

“The current dynamics suggest we need to lose a significant amount of soybean acres for 2019 because we’re overproducing soybeans,” he says. “Corn can’t take all those acres. So, wheat will likely take some of those acres, particularly in Northern Plains.”

The second reason is the extremely wet weather the Southern Plains faced this fall, which delayed harvest of summer row crops and the planting of double-crop wheat acres. 

For the 2019/20 marketing year, USDA forecasts 51 million acres of all wheat in the U.S. That compares to nearly 48 million acres in 2018 but is dramatically lower than the 56 million acres planted five years ago and the nearly 64 million planted in 2008.

Even if wheat is sowed later than normal, that shouldn’t dramatically reduce production, says Kim Anderson, agricultural economist with Oklahoma State University Extension.

“It can be better to put wheat in the ground late because you can kill all the weeds that come early,” he says. “The crop is made in March/April timeframe—not now.”

Global Oversupply Weighs on Prices

Wheat ranks third among U.S. field crops in planted acreage, production and gross farm receipts (behind corn and soybeans). On a global scale, the U.S. comes in fifth in wheat production. The European Union tops the list, followed by China, India and Russia. 

“For wheat, Russia is the alpha male,” Anderson says. “They control the market, by having transportation and production advantages to just about everyone.”

For example, North Africa is a major wheat-importing region. “It costs Russia 41¢ to ocean freight wheat to Algeria or Egypt, while it costs us 82¢ and Argentina 82¢. It costs Australia even more than that. We don’t get a market until Russia runs out of wheat.”

In 2017, Australia and the U.S. had poor wheat crops, but wheat prices showed no reaction. “The world didn’t know it because Russian production has increased so dramatically,” Anderson says. 

“The U.S. is the world’s residual supplier of wheat,” Suderman adds. “The world generally doesn’t come to us until they’ve used up other alternatives.”

For the last year, oversupply has been the big story on a global scale. Because of the burdensome supply of wheat, Suderman expects the Black Sea region’s wheat acres will be closer to average in 2018, after a massive crop in 2017.

“As a result, its exportable supplies are expected to dry up shortly after the first of the year, sending more export business to the United States in the first half of 2019,” he says.

Smaller wheat crops in Europe, Australia and other countries should support wheat prices in the next few years, according to the 2018 U.S. Baseline Outlook compiled by Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri. For the 2017/18, the farm wheat price averaged $4.73. But through 2023/24, the average wheat farm price should stay above $5.11.

Source: FAPRI

High Protein Wins the Game

This year, wheat prices were driven by quality.  “We came into 2018 marketing year with extremely big shortage of milling quality wheat—especially high-protein wheat,” Anderson says. 

As a result, grain companies offered high bids to acquire high-protein wheat to blend with poor-quality 2017 and 2016 wheat supplies. 

“Some farmers saw a $1 increase in basis due to a protein and quality premium,” Anderson says. “We’ll have that same in 2019.”

For the upcoming year, Anderson encourages farmers to focus on production practices that achieve high-quality wheat.

“You’ll make money with managing costs and producing a quality product,” he says. “The world has an excess of poor-quality wheat and a shortage of milling quality wheat. If you don’t have quality, you don’t have a market.”

What one word would you use to describe the wheat market in 2019?

“Improving.” –Arlan Suderman, INTL FCStone

“Quality.” –Kim Anderson, Oklahoma State University Extension.


Top 10 U.S. Export Markets for Wheat*

  1. Japan
  2. Mexico
  3. Philippines
  4. South Korea
  5. Taiwan
  6. Indonesia
  7. Iraq
  8. Nigeria
  9. Thailand
10. Guatemala
*by volume

The U.S. share of the global wheat market has also been declining over the past 20 years as the European Union and Russia have increased production. Between 2001 and 2005, the U.S. share of global wheat exports averaged 25%--by 2016/17, the U.S. share slipped to about 15%.

More stories from the 2019 Outlook series:

Bull-Bear Outlook 2019: Headwinds Ahead For Grain Marketing Plans

Bu​ll-Bear Outlook 2019: A New Reality For Grain Markets

2019 Outlook: Corn Markets Hinge On Acreage Battle

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Spell Check

Western, NE
11/29/2018 09:20 AM

  Wheat is the most geopolitical sensitive crop in the world. The United States already has a surplus. Why encourage adding to that? The Dakotas need to raise alternative crops such as canola or hemp since that's legal there now. The US, for mostly political/religious reasons, is the supplier of last resort. You can rest assured that Russia and former Soviet countries will purposefully undercut US prices to maintain market share. Wheat prices are already in the tank, why add to the surplus further depressing prices? That mentality is so ingrained in the trade, we could have absolutely no wheat and STILL have depressed prices.

North Central , KS
11/29/2018 10:00 AM

  I am a subscriber to Saudermans weekly market report. I think his comments of increased wheat acres is not accurate. This fall here lead to a drawn out harvest due to wet weather, that also lead to a lot of wheat acres not being planted. The wet weather also lead to some poor planting conditions for those that did get wheat in. We do have much more moisture for the wheat this winter but I think we will see a decrease in acres and production. However I don’t know if that will lead to a price rally unless we need more wheat domestically, Zorcon is correct when noting that Russia is a big player in the global demand and market for wheat.

Auburn, IN
11/29/2018 02:21 PM

  Sure glad everyone has it all figure out for next year , guess I will plant all beans since everyone else is planting wheat


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