U.S. Wheat Production May Be Seeking Equilibrium
By Stephanie Bryant-Erdmann, US Wheat Associates, Market Analyst
One of the first principles taught in any economic class is that free markets will always search for equilibrium where supply equals demand. This principle appears to be at work in USDA’s 2016/17 winter wheat seeding report released Jan. 12, which reported U.S. farmers planted 7 percent fewer acres of winter wheat for 2016/17.
USDA estimates U.S. farmers planted 36.6 million acres (14.8 million hectares) of winter wheat with reductions for hard red winter (HRW) and soft red winter (SRW), classes that face competitive headwinds this year from an ample global wheat supply and the strongest U.S. dollar in 12 years. USDA assessed HRW planted area at 26.5 million acres (10.7 million hectares), down 9 percent from 2015. Planted area in Kansas, the number one HRW-producing state in the United States, of 8.50 million acres (3.44 million hectares), is down 8 percent from 2015, and USDA believes Nebraska farmers planted a record low amount of winter wheat at 1.28 million acres (518,000 hectares), a 14 percent decline from the prior year. Rain that delayed soybean harvest prevented some wheat seeding, but low farm gate prices also contributed to the HRW planted area decline.
U.S. farmers also planted five percent fewer SRW acres for 2016/17. Total SRW planted area of 6.72 million acres (2.72 million hectares), fell due to declines in southern states, where excessive, untimely rains at harvest hurt crop quality and resulting income from wheat the last three years. Increases in the northern SRW states of Indiana, Ohio and Wisconsin partially offset the loss.
Despite a slower than average planting pace, white wheat planted area increased to 3.43 million acres (1.39 million hectares), up one percent from 2015/16. Idaho, Oregon and Washington, which produce nearly all of the exportable white wheat, are experiencing the third year of drought conditions. USDA’s National Agricultural Statistics Service (NASS) reported heavy rains in December brought much needed precipitation to the region, though not enough to officially end the drought.
Hindered by poor weather, winter wheat seeding in other areas of the world also fell in the third and fourth quarters of calendar year 2015. In Ukraine, agricultural consultancy UkrAgroConsult estimates a 13 percent decline in planted wheat area to 14.8 million acres (5.98 million hectares) due to severe drought during the summer and fall months. This forced farmers to abandon winter wheat planting. Ukraine, on average, produces 20.4 million metric tons (MMT) and is the sixth largest wheat exporter, globally.
India, the world’s second largest wheat producer and consumer — behind China in both categories — is in the third year of drought conditions after receiving 14 percent less rainfall than average during its monsoon season. Reuters recently reported that dry fields reduced winter wheat seeding in India by 6 percent compared to the previous year, down to 69.7 million acres (28.2 million hectares). Dry conditions also affected winter wheat sowing in Russia, where farmers planted an estimated 40.3 million acres (16.3 million hectares), down three percent from the year prior.
In its January World Agricultural Supply and Demand Estimate (WASDE), USDA said it expects global wheat consumption’s steady growth to continue, reaching 716 MMT in 2015/16. With a record 735 MMT now safely in the bins, endings stocks will also reach a new record of 232 MMT, signifying the gap between world supply and demand.
Today, the world has plenty of wheat. However, as we have seen before, weather, on-farm decisions and continued consumption growth will eventually pull the market closer to equilibrium. In the meantime, the U.S. wheat store is always open and your local U.S. Wheat Associates (USW) representative stands ready to assist you.