Supply, Demand, and Forecasts

by Sarah Miles, CFO, KeyLock SolutionsSarah photoBW

The USDA Wheat Outlook was published on May 14, 2015. The following are direct excerpts and/or summarized data from the report.

Total U.S. wheat use for 2015/16 is projected up 4 percent from the previous year on higher exports, feed and residual use, and food use. The 2015/16 exports are projected at 925 million bushels, up 65 million bushels from the previous year’s low level but still below the 5 year-average. Feed and residual use is projected up 20 million bushels on increased supplies. U.S. ending stocks are projected to rise 84 million bushels to 793 million, the highest since the 2010/11 crop year. The all wheat season-average farm price is projected at $4.50 to $5.50 per bushel. World wheat production in 2015/16 is projected to decline by 1 percent from the previous year’s record, although it is expected to be the second highest ever. Larger beginning stocks are forecast to more than offset the wheat output reduction. Increases in wheat use are expected to be modest, with feed use down and food use growing in line with population. Wheat stocks are expected to increase for the fourth year in a row. U.S wheat export prospects are projected to rebound from the 2014/15 level, the lowest since 2002/03.

Winter Wheat Production

The survey-based forecast of winter wheat production, at 1,472 million bushels, is up 94 million bushels from 2014. Expected harvested area is 33.8 million acres, up 1.5 million acres from last year as a higher harvest-to-planted ratio offset a lower planted area. The U.S. winter wheat yield is forecast at 43.5 bushels per acre, up 0.9 bushels from the previous year.

White winter wheat production for 2014 is forecast to total 203 million bushels, up 19 million bushels from a year ago. The planted and harvested areas, production, and yield for white winter wheat were as follows (hard white winter = HWW and soft white winter = SWW):

Projected 2014/15 Supplies Up Slightly This Month, But Down From 2013/14

The 2014/15 projected U.S. wheat supplies, at 2,766 million bushels, is up 5 million bushels from April because of higher imports of HRS based on import pace to date. Total projected imports for 2014/15, at 150 million bushels, are down 19 million bushels from 2013/14. Total supplies are down a projected 255 million bushels from 2013/14. Only HRS supplies are projected up year to year. HRS supplies are up because of higher production. Projected HRW supplies are down because of lower beginning stocks. Supplies of the other three classes are each down because of lower production. SRW production is down because of reduced area, while production of white and durum are each down due to lower yields.

Projected 2015/16 Utilization

Total U.S. wheat use for 2015/16 is projected up 87 million bushels from 2014/15 to 2,144 million bushels with both higher expected domestic use and exports. Food use is projected at 967 million bushels, up 7 million from the current year as consumption grows with population. Feed and residual use is projected at 180 million bushels, up from the 160 million bushels projected for 2014/15 as larger supplies and lower prices for wheat relative to corn favor wheat feeding this summer. Exports are projected at 925 million bushels, up 65 million bushels from 2014/15 as continuing large supplies in major world export competitor countries and relatively high U.S. prices are expected to limit U.S. exports below the 5-year average. Thus, ending stocks for 2015/16 are projected at 793 million bushels, up 84 million bushels from 2014/15.

2015/16 Price Range Projection

The 2015/16 season-average farm price range is projected at $4.50 to $5.50 per bushel. The midpoint of this range is below the $6.00 per bushel projected for 2014/15.

World Wheat Production Down on the Year, But Still Second-Highest Ever

World wheat production in 2015/16 is projected at 718.9 million tons, down 7.5 million tons from the 2014/15 record, and the second-largest wheat harvest in history. Foreign wheat production is projected to decrease more, by 9.2 million tons, with a projected increase in U.S. wheat output. Global wheat area is projected to be marginally higher, up just 1.0 million hectares (and 0.3 hectares for foreign area), despite lower wheat prices that were counterbalanced in various countries by good planting conditions, a switch away from oilseeds, and depreciation of many countries’ currency vis-à-vis the U.S. dollar (1 hectare = 2.47 acres). World wheat yields are projected to decline from the previous year’s record, but remain the third highest in history. On the whole, in the Northern Hemisphere wheat has fared very well, with indications of good-to-excellent vegetative health across large portions of the globe. The countries of the Southern Hemisphere are starting their planting period. U.S. exports in 2015/16 are projected at 25.5 million tons, up 2.3 million from the previous year, which was the lowest wheat export level since 2002/03, and a 16.2 percent share of world wheat trade, an increase of almost 2 percent from last year. Somewhat lower competition, especially from Canada, and higher domestic supplies are expected to support U.S. wheat exports.

USDA Wheat Baseline 2015-2024

This discussion summarizes analysis underlying the wheat projections for 2015-24. Details about projections for the U.S. macro economy, other U.S. crops, U.S. livestock, farm income, and U.S. and global agricultural trade can be found in the Agricultural Baseline Projections topic page.

The U.S. wheat sector faces many long-term challenges:

  • The long-term projections point to smaller U.S. wheat planted area compared to recent years. The smaller area is a continuation of a long-term trend, as wheat’s profitability relative to other crops, particularly corn and soybeans, has declined.
  • The sharp decline in U.S. domestic per capita food use of wheat since 2000—arising from changing consumer preferences—appears to have ended, or at least, slowed. In the future, U.S. total wheat consumption is assumed to grow at the same rate as the population.
  • Internationally, in addition to traditional global competitors (Canada, Argentina, Australia, and the European Union), Russia, Kazakhstan, and Ukraine have emerged as new competitors. The overall result in the projections is a smaller U.S. share of an expanding world wheat trade market.

Conclusion

The current wheat outlook is rather unsettling, with the United States share of global exports being on the decline, with supplies sharply up.

The report also indicates that current prices are being supported, in part, by unrealistic prospects. As shown following (see table 6), soft white wheat is faring better as of April 2015 price at $6.35/bu compared to hard and soft red, which ranges from $5.48 – $5.54. The current forecasted range for 2015/2016 is down to $4.50 – $5.50 per bushel.

Based on the projections, I have slightly tempered the estimated long-term price to $6.15/bu soft white wheat income for the purposes of the reconstructed income and expense statement for the market crop share scenario. My stabilized projection is at the lower end of the season average farm price for 2013/2014 estimated at $6.87/bu; however, is not considered a longer term sustainable rate at this time. Lentil prices are stable with the price of $0.265/lb applied herein; peas are also stable at $0.155/lb.