Despite larger crop, smaller wheat supplies anticipated in 2018-19
The U.S.D.A. will provide its first official projections for 2018-19 U.S. and world wheat supply and demand in its May World Agricultural Supply and Demand Estimates report.
 

WASHINGTON — The U.S. Department of Agriculture at the department’s Agricultural Outlook Forum in Washington on Feb. 23 provided its first take on U.S. wheat supply-and-demand prospects for the 2018-19 crop year beginning June 1. The wheat forecasts, presented by Joanna Hitchner, an economist with the U.S.D.A.’s World Agricultural Outlook Board, suggested a slight expansion in area planted to wheat for harvest this year and a 98-million-bu increase in production from 2017. At the same time, the overall wheat supply in 2018-19 was forecast to be smaller than in the current year, and ending stocks were projected down 8% from the forecast for 2017-18. There were few surprises in the outlook, and analysts interviewed by Milling & Baking News agreed with the department’s basic outlook as a starting point.

The projections presented by Ms. Hitchner at the forum were preliminary. The U.S.D.A. will provide its first official projections for 2018-19 U.S. and world wheat supply and demand in its May World Agricultural Supply and Demand Estimates report. The May projections will be informed by survey-based wheat area forecasts that will be issued on March 29 in the U.S.D.A.’s annual Prospective Plantings report.

The U.S.D.A. forecast area planted to all wheat for harvest in 2018 at 46.5 million acres, up a half-million acres from 46 million acres in 2017. Last year’s all-wheat planted area was the smallest in records extending back to 1919. The forecast planted area for 2018 would be the second smallest on record. The recent five-year average wheat planted area was 52.8 million acres.

The forecast expansion in the all-wheat planted area from 2017 was issued despite winter wheat plantings for harvest this year being estimated at a 109-year low 32.6 million acres. The all-wheat forecast inferred a spring wheat area (other-spring wheat and durum combined) at 13.9 million acres, up about 4% from 13.3 million acres in 2017.

The U.S.D.A. forecast all-wheat harvested area for 2018 at 38.8 million acres, up 0.8 million acres from 2017 and compared with 43.9 million acres in 2016. The average wheat yield in 2018 was projected at 47.4 bus per acre, up from 46.3 bus per acre in 2017 but down from a record 52.7 bus per acre in 2016.

The U.S.D.A. forecast 2018 wheat production at 1,839 million bus, up 98 million bus, or 6%, from 1,741 million bus in 2017. The 2017 crop was the smallest since 1,606 million bus in 2002. The recent five-year average U.S. wheat outturn was 2,055 million bus.

With a 2018-19 carry-in forecast at 1,009 million bus (down 15% from 2017-18) and imports projected at 135 million bus (compared with a forecast 155 million bus for 2017-18), the 2018-19 wheat supply was projected at 2,983 million bus, down 93 million bus, or 3%, from 3,076 million bus in 2017-18. The recent five-year average wheat supply was near 3,040 million bus.

The U.S.D.A. projected 2018-19 domestic use of wheat at 1,127 million bus, up 10 million from the forecast for the current year. The U.S.D.A. projected food and seed use of wheat in 2018-19 at 1,017 million bus (955 million bus for food use and 62 million bus for seed use), unchanged from the forecast for 2017-18. The department projected feed and residual use of wheat in 2018-19 at 110 million bus, up 10 million bus from the forecast for 2017-18 but down 46 million bus from 2016-17.

The U.S.D.A. projected wheat exports in 2018-19 at 925 million bus, down 25 million bus from the forecast for 2017-18 and down 130 million bus from 1,055 million bus in 2016-17. The U.S.D.A. commented, “Lower U.S. wheat supplies and continued strong international competition will challenge U.S. wheat exports. The European Union is expected to have a larger crop, while Argentina is expected to continue to expand wheat area. Both Australia and Canada are expected to have ample exportable supplies with larger crops as they rebound from reduced 2017-18 yields. Though the Russian crop is expected to be down from the 2017-18 record, exportable supplies will still be abundant due to massive carry-in stocks.”

The U.S.D.A. projected total wheat disappearance in 2018-19 at 2,052 million bus, down 15 million bus from the forecast 2,067 million bus in the current year.

The U.S.D.A. projected the 2018-19 wheat ending stocks at 931 million bus, down 8% from 1,009 million bus as the forecast for 2017-18. The projected 2018-19 ending stocks would be the lowest since 752 million bus in 2014-15 but still would be above the recent five-year average of 902 million bus.

Steve Freed, vice-president, ADM Investor Services, Chicago, said the U.S.D.A. forecast for all-wheat planted area was “okay for now,” although he pointed out the market was surprised that the department raised its plantings projection from a year ago. As for harvested area, though, much may depend on how much planted area is abandoned.

Mr. Freed observed that while the northern Plains has been dry for much of the winter, the region now was receiving snow. Soil moisture must be replenished ahead of spring planting, no matter what the producer intends to seed. At the same time, dry conditions may argue for increased spring wheat plantings compared with corn or soybean plantings, as the latter crops require more moisture.

Mr. Freed said the U.S.D.A.’s production forecast at 1,839 million bus was a place to start and noted that Informa also had a wheat production forecast at around 1,839 million bus.

“Obviously, Mother Nature will have a huge impact on the final number,” Mr. Freed said. “If you look at all the U.S.D.A. U.S. and world numbers, you’ll find that no one is expecting big changes.”

On the demand side of the 2018-19 outlook, Mr. Freed said many analysts think feed and residual use will fall short of the 110 million bus forecast by the U.S.D.A.

Regarding the U.S.D.A. projection for 925 million bus in wheat exports in 2018-19, Mr. Freed said the big unknown was Russia, “the elephant in the room.” He noted both Russia and Europe have come out of the winter in “okay condition.” He said the U.S.D.A. forecast was a good place to start.

“No one today thinks exports will drop as low as 800 million bus, and no one expects exports to top the 2016-17 outgo of 1,055 million bus,” he said.

Paul Meyers, vice-president, commodity analysis, Foresight Commodity Services, Inc., said the U.S.D.A.’s forecast for wheat planted area was similar to his own, which he said was 46.6 million acres. At the same time, given strength in wheat futures during the past month, the market may pick up another half-million acres of spring wheat, Mr. Meyers said. He explained farmers are making their planting decisions now, and they may consider both price and the prospect of losses in yield in the Central Plains because of drought.

A few weeks back, Mr. Meyers prepared forecasts for 2018 wheat production. At the time, a forecast of 1,885 million bus seemed reasonable. But he since scaled back his expectations because of drought’s persistent grip on the Southwest and particularly western Kansas. He pointed out hard red winter wheat condition ratings for the date were the worst in years. Mr. Meyers suggested the U.S.D.A. also seemed to have taken into consideration, at least somewhat, the impact of drought in its wheat production projection at 1,839 million bus.

Mr. Meyers suggested actual wheat production may be between 1,825 million and 1,835 million bus.

He offered a caveat, however. Mr. Meyers pointed out it was typical for the U.S.D.A. to underestimate spring wheat yields in its February forecasts.

Mr. Meyers suggested 2018-19 wheat exports may be higher than the 925 million bus projected by the U.S.D.A., but for the time being, given record world wheat supplies even in the face of an expected decline in world wheat production from this year’s forecast record 758 million tonnes, “925 million bus probably is not a bad place to be.”

Mr. Meyers said the U.S.D.A.’s projection for U.S. 2018-19 wheat ending stocks seemed a bit low. He pointed out the wheat-corn price spread was wide and may widen, in which case the department’s forecast for feed and residual use of wheat at 110 million bus may prove to be too high. Mr. Meyers said a 950-million-bu ending stocks number may be more likely.