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August WASDE takes the wind out of wheat prices

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Higher world wheat production and ending stocks resulted in a one-day, 19 cent price decline. Since the price peak on July 5, cash wheat prices have declined about $1.26. At this writing, the Northern Oklahoma wheat price is $3.66, and the Texas Panhandle price is $3.93.

In the August WASDE (World Agriculture Supply and Demand Estimates), 2017/18 marketing year world wheat production was projected to be 27.3 billion bushels, the second highest on record. For 2016/17, the wheat marketing year world production was a record 27.7 billion bushels.

For 2017/18, foreign wheat production was projected to be a record 25.6 billion bushels compared to last year’s record of 25.4 billion bushels. United States wheat production was projected to be 1.74 billion bushels compared to 2.31 billion bushels for the 2016/17 marketing- year. The five-year average is 2.16 billion bushels.

World wheat ending stocks were projected to be a record 9.6 billion bushels compared to a 9.2 billion bushel record last year. The five-year average is 8 billion bushels.

MORE BAD NEWS

Additional negative price news: Russian wheat production projections were increased 196 million bushels to 2.85 billion bushels. The Ukraine production projections were increased 92 million bushels to 974 million bushels. And, Kazakhstan’s production projections were increased 34 million bushels to 514 million bushels. The five-year average productions are 2.08 billion bushels for Russia, 860 million bushels for the Ukraine, and 480 million bushels for Kazakhstan.

The total projected production increase for these three hard wheat producing countries was 322 million bushels. Additional production is expected to result in increased exports from Russia, the Ukraine, and Kazakhstan and reduced demand for U.S. hard red winter wheat. For the period June 1 through August 3, U.S. hard red winter wheat export sales are 13 percent less than the same period in 2016.

This WASDE’s estimate of world wheat production and ending stocks may kill the hope for significantly higher prices between now and July 2018. For prices to increase, something must happen to lower world production and ending stocks.

For all practical purposes, the odds of significantly lower wheat production in the northern hemisphere (about 85 percent of world production) are very low.

In the southern hemisphere, Australian wheat production is already projected to be 33 percent less than last year. Argentina’s production is projected to be slightly higher than last year. These two countries produce about 6 percent of the world’s wheat production.

The bottom line is that significantly more wheat is available than is needed, and this excess wheat may keep wheat prices near current levels.

The other problem is that for Oklahoma and Texas wheat prices to reach $5.50, world wheat ending stocks need to be about a billion bushels lower than currently projected. The odds of this happening before July 2018 are about 20 percent.

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