Larger Wheat Supply Pressures Prices

January 14, 2014 01:58 AM
Larger Wheat Supply Pressures Prices

Fewer acres than expected were seeded to wheat, but first-quarter disappearance of wheat was not as good as anticipated, according to the Jan. 10 crop reports released by USDA. Short-term, softer demand will have a dampening affect on wheat prices.

"Short-term, we have ample wheat supplies," says Frayne Olson, agricultural economist with North Dakota State University in Fargo. "World wheat stocks were also higher."

USDA increased world carryout stocks of wheat to 185.4 million metric tons, up from December’s estimate of 182.78, primarily due to large supplies in Canada, according to USDA’s January World Agricultural Supply and Demand Estimates.

Olson thinks wheat prices will fall further before bottoming out.

Wheat Seedings Unexpectedly Fall

"Longer term there is some positive news for wheat," says Olson. "The decline in wheat seedings was a surprise. I was expecting to see a slight increase in winter wheat seedings."

Seedings of winter wheat of 41.89 million acres were 3 percent below the previous year, according to USDA’s Wheat Seedings report released Jan. 10.

Only hard red winter (HRW) wheat seedings increased. The 2014 HRW seeded area is forecast at 30.1 million acres, up 2 percent from 2013, with producers in Colorado, Montana and North Dakota planting significantly more acres. At the same time, though, producers in Kansas, Oklahoma and South Dakota reduced acreage.

Area seeded to soft red winter (SRW) of 8.44 million acres was 16 percent lower than a year ago, while durum wheat seedings were 6 percent lower.

"The decline in soft red winter wheat was fairly significant," says Olson. The drop in SRW wheat seedings, compared with last year, means producers in the eastern Corn Belt are planning to plant other crops, most likely soybeans.

Quarterly Wheat Stocks Dwindle But Carryout Up

Quarterly wheat stocks as of Dec. 1 totaled 1.46 billion bushels, down 12 percent from a year ago. Indicated use of wheat for the September–November period of 407 million bushels was 6 percent less than the comparable period a year ago, according to USDA’s Grain Stocks report.

At the same time, USDA raised the carryout forecast for wheat to 608 million bushels, up from December’s estimate of 575 million bushels, according to the WASDE report. Despite the larger carryout, USDA also increased its estimate for 2013-14 wheat prices to $6.80 per bushel, up from December’s $6.65.

USDA also lowered its estimate for feed use by 60 million bushels, which was only partially offset by a 25-million-bushel gain in exports, according to WASDE.

If Canada can’t resolve its logistic 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 United States for more supply—similar to what occurs when South America’s transportation system becomes overwhelmed, experts note.



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