Here's Why USDA's Wheat Production Estimate May Still Be Too High

As rains swept portions of the Corn Belt still parched and searching for rain, not every area of the country saw rain relief. USDA hinted at just how dreary the outlook is for the U.S. wheat, as the spring planted crop is suffering from too much heat and not enough rain.

“USDA put in their report a 3% abandonment on spring wheat, and man, I can't help but think that's going to be 25%,” says Kevin Duling of KD Investors. “And then the yields we’re getting on the stuff that farmers don't abandon, are not good.”

Duling says not only does he think USDA has U.S. production penciled in too high, but Western Canadian farmers are battling extremely dry conditions, which will eat into the spring wheat crop in Canada, as well.

“So, you have Canada's production too high, you have got the U.S. too high, so more cuts are coming. It's going to be really interesting to see what how this goes,” adds Duling.

USDA’s WASDE report this week raised the winter wheat production forecast by 4% compared to June, as other production areas in the Plains are seeing higher yields.  But the agency cut its durum wheat forecast by 46% and the other spring wheat production estimate by 41% from 2020

“I think the report kind of set the bar - for a certain degree - on the winter wheat, as well,” says John Payne, Author of ‘This Week in Grains and Oilseeds.’ And I think we saw an increase year over year for winter wheat by 100 million bushels. And on the KC wheat side, that was offset by losses from the spring wheat. So, we have a bumper crop or close to it on the on the KC and the Chicago side. And on the Minneapolis, we're losing it all.”

Payne says one of the key takeaways from the report was where wheat prices sit compared to other commodities.

“So, I think the market now looks at the potential for future acres,” Payne adds. “You look $6.50 July 22 KC wheat, and you kind of wonder who's going to be out there pushing increased acres when you have beans at $14 and corn in the $5 and $6 range. I think it was a takeaway from the market.”

Some areas of the Northern Plains and Pacific Northwest saw a break from the heat. Farmers in parts of Montana and North Dakota even saw some rain. But that moisture may evaporate quickly, as more record heat is forecast for areas of the Northwest next week.

“The wheat game is pretty well over,” says Duling. “It could rain for the next two to three weeks, and it wouldn't help the wheat crop much. So, to me, when it comes to the wheat crop that bed is made. The farmers harvesting spring wheat in the Northwest, I have a farmer that was getting 10 bushels an acre and other guys getting 12. The Northern Plains are going to follow that same line. And so, it's really, really going to be frustrating.”

Tale of Two Corn Crops

Payne says it’s a tale of two crops in the Corn Belt. The rains swept across several key corn producing states this week, but there’s still a deficit in the northwest pocket of the Corn Belt.

“We saw a sharp reduction in Illinois ratings last week,” says Payne. “It's tough for me to get too bearish on moisture, as far as yield goes, but I think we kind of look at a trendline yield in the eastern part of the Corn Belt, whether it be Ohio, Indiana, Michigan, Illinois, farmers I talk to in some of those areas are sitting on monster production.”

Monster production in some areas, with problems progressing in drought-stricken fields. It’s a matter of if the Eastern Corn Belt will make up for the struggles in the West.

“North Dakota, South Dakota, Western Minnesota, those are the areas that's are seeing switch overs from spring wheat to beans or corn in there. They're struggling mightily.”