The USDA’s first U. S. crop supply and demand estimates for the 2017/18 marketing year show that producers may have reacted to lower prices by planting 8.2 million fewer acres of wheat and corn, and 7 million more acres of soybeans and cotton. Total net reduction for eight major crops and CRP is 3.9 million acres.
Hard red winter wheat planted acres declined from 26.5 million to 23.3 million, while all U.S. winter wheat planted declined from 36.1 million acres to 32.4 million. All wheat planted acres are estimated to be down 4.2 million acres from last year.
The USDA estimates 2017 U.S. wheat production to be 1.84 billion bushels, compared to 2.3 billion bushel in 2016 (USDA Outlook Forum 2017). Total 2016/17 U.S. wheat supply was 3.41 billion bushels. With estimated beginning stocks of 1.14 billion bushels (February World Agricultural Supply and Demand Estimates) and production of 1.84 billion bushels, the 2017/18 U.S. wheat supply would be 2.98 billion bushels, 430 million bushels less than last year.
With lower supplies, the USDA projects the average annual U.S. wheat price to increase from $3.85 to $4.30.
To date, for the 2016/17 wheat marketing year (June 1 through May 30), Oklahoma and Texas wheat prices have averaged about 60 cents less than the average of U.S. prices. The 10-year average difference between Oklahoma’s average price and the U.S. price is minus 10 cents.
The reason for the 60-cent lower price, rather than the average 10 cents, may be explained by the fact that the hard red winter wheat stocks-to-use ratio has increased from 27 percent to 59 percent, while the hard red spring wheat stocks-to-use ratio increased from 30 percent to 33 percent.
The spring wheat May futures contract price is currently 87 cents higher than the hard red May futures contract price. This difference mostly reflects the protein premium.
The USDA estimates that 2017/18 U.S. wheat ending stocks will be 905 million bushels. Ending stocks for the 2015/16 wheat marketing year were 976 million bushels. The 2015/16 average price was $4.89. The USDA estimate for 2017/18 is $4.30.
WHEAT FOR FEED
A reason for an estimated price of $4.30 with 905 million bushels ending stocks, and $4.89 with 976 million bushels, may be because some analysts project 2017/18 world wheat ending stocks to be higher than in 2015/16, and about the same as in 2016/17.
The world’s wheat situation has a relatively large impact on U.S. prices (46 percent of U.S. wheat use is for exports). For U.S. prices to dramatically increase, world wheat stocks must decline.
About the only way to reduce current U.S. wheat stocks is to sell it as feed, which will require less corn. Corn planted acres are estimated to be 4.3 percent lower than last year. The USDA’s 2017/18 corn supply and demand estimates show ending stocks declining to 2.2 billion bushels. Five-year average ending stocks are 1.4 billion bushels.
The USDA’s 2017/18 marketing-year estimates indicate that U.S. wheat producers have, and will, plant less wheat. Indications are that foreign planted acres may be slightly less, but not enough to result in significantly lower production. U.S. and world wheat yields are expected to be less than last year.
Lower U.S. planted acres are a beginning for higher prices. What is required for higher prices is significantly lower foreign wheat production.