Morton Sosland

For all who think about the future of grain-based foods and developments that might significantly affect the outlook, hardly anything is more important than the current level of wheat prices and what, if anything, may surprisingly prompt a change. This is the second season of national average prices under $5 per bushel, which is sharply below the recent past and has caused a sizable decrease in ingredient costs. It is widely agreed that the bottom has been reached for this crop season, leaving the question of whether this means the market is ready to register more than a moderate rebound from history-making lows. While weather and its impact on production are usual questions in looking ahead, the present situation brings into sharp focus export business and the possibility that a surprise could occur to cause much larger foreign shipments of the price-depressing domestic supply.

Exports of wheat and wheat products have been below 900 million bushels for three crop years in a row beginning in 2014-15. This is sharply reduced from the outgo exceeding 1 billion bushels in nearly every season of the prior 40 years. The record outgo in 1981-82 was nearly double the current pace (1,771 million versus 875 million). While large crops, especially of lower grade feed wheat, have weighed on prices, nothing has been more negative than this export drag. Thus, the average farm price of wheat for this season is estimated by the Economic Research Service at $4.50 per bushel, compared with $4.90 in 2015-16 and $5.90 in 2014-15. The nearby peak was $7.77 in 2012-13, a comparison strikingly defining how wheat has moved recently.

In seeking to understand what may reverse the weakness in exporting, hardly anything is more instructive than contrasting American exports with global trade. The latter is near the all-time record of 6 billion bushels that first was reached in 2013-14. This compares with 3.7 billion in 2000-01. That 62% expansion in this century’s world trade contrasts with the 18% fall in U.S. exports. The result is that U.S. shipments of wheat and products currently account for a dismal 13% of global trade, contrasted with 29% in 2000-01 and the all-time high of 50% in 1973-74.

The situation of one area explains this shattering loss of market by the U.S. export wheat business. That area is the Black Sea region, primarily made up of Russia and Ukraine. It was domestic shortages of wheat in that region and the decision of its then Communist leaders to import that led to the explosion of U.S. exports and prices in the 1970s. Now four decades later the region’s grain production has recovered to be in line with the potential of this vast land mass with a longitude not too different from the most productive American regions. Yes, it is positively amazing that the region that once was the world’s largest wheat importer has been transformed by national political and economic actions into the world’s leading exporter. Suffice it to note that Russia and Ukraine combined are likely to export 35 million tonnes of wheat in this 2016-17 season, accounting for 22% of world trade, contrasted with the 13% U.S. share.

In trying to fathom what could transform the current U.S. wheat situation from a market dominated by abundant supplies and lagging demand, all that is needed is to look at the carryover forecast at this season’s end. The E.R.S. ending stock projection is 1,029 million bushels, which marks the first time since 1988, or in 30 years, that the U.S. ending wheat stocks will have exceeded 1 billion bushels. That carryover is up just 50 million bushels from a year ago, meaning that it would not take much of a demand rise to lead to a carryover reduction. Sure, expanded wheat feeding could do that. But it is exports where the shift may occur to cause a carryover decrease and its inherent hint of bullishness.