US. Early supply, demand estimates for the 2017 wheat crop

28.11.2016

Each month, the Office of the Chief Economist at USDA issues the World Agricultural Supply and Demand Estimates (commonly referred to as the WASDE report). This monthly publication breaks down the latest estimates of fundamental factors that affect major commodity markets. The first official estimates for 2017 crops from USDA will be in the May 2017 WASDE.  Following is look forward to what might happen with the 2017 crop using the WASDE categories.

Area Planted, Area Harvested, Yield per Acre.  In 2016, U.S. winter wheat farmers planted the lowest wheat acreage in over 100 years, 36.137 million acres. The last time acreage was this low was 1913 (33.608 million acres).  With the continued decline in wheat prices, planted acres of winter wheat in the U.S. will likely be lower in 2017 than 2016. Winter wheat harvested acres in 2016 were 30.222 million, 83.6% of the area planted. Over the last 10 years, the average harvested to planted percentage is 80.5%.  A return to a normal harvested to planted ratio in 2017 is another factor that would lower winter wheat acres for grain in 2017.

The average U.S. winter wheat yield in 2016 was a record 55.3 bushels per acre.  Since the early 1930s, the average winter wheat yield in the U.S. has increased by about ½ bushel per acre per year.  Based on this trend, the expected trendline, or normal, yield in 2016 was 49.3 bushels per acre. The trendline yield estimate for 2017 winter wheat is 49.8 bushels per acre, down 5.5 bushels per acre from 2016.

Supply = Beginning Stocks + Production + Imports.  Carryover stocks in the U.S. to begin the 2017/18 marketing year (June 1, 2017) are currently estimated at 1.138 billion bushels, up 162 million bushels over the year before. That represents a stocks to use ratio of 50%. This is the highest wheat stock estimate and highest stocks to use ratio since the late 1980s.  With lower planted acres and/or a normal harvested to planted percentage and normal yields in 2017, winter wheat production in 2017 will likely be lower than 2016.  The U.S. normally imports about 120 million bushels of wheat per year. With adequate domestic supplies, that is not expected to change in 2017. Larger carry-in will likely offset a smaller crop leaving total supply little changed for the marketing year.

Demand = Domestic Use (Food + Seed + Feed and Residual) + Exports + Ending Stocks.  Food and seed use varies little from year to year while feed and residual is growing about 10 million bushels per year. Exports, despite large supplies held by foreign competitors and a strong dollar, are up.  With supply steady and use up slightly, look for ending stocks in the 2017/18 marketing year to be down slightly compared to 2016.

Average Farm Price.  Lower ending stocks should be positive for prices, but the change in the stocks to use percentage will likely be small.  My outlook is for wheat prices in 2017 to be marginally higher than 2016.  Much will depend on wheat production prospects in other nations.

2017 Wheat Marketing Plan. Even if prices are marginally higher in 2017, with normal yields it will be challenging to make a profit off wheat.  First, it is important be as efficient as possible with every input, lowering the cost to produce each bushel.  Second, it is important to know what those costs are per bushel in order to calculate a breakeven price and evaluate marketing opportunities.


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