It’s Wheat that Leads the Big Grain Rallies

(High Plains Journal) – The recent USDA planted acreage report pointed out how little wheat will be grown in the United States this year. According to the report, all wheat planted area for 2017 is estimated at 46.1 million acres, down 8 percent from 2016.

This is the lowest total planted area in the U.S. since records began in 1919. The 2017 winter wheat planted area, at 32.7 million acres, is down 9 percent from last year. Of this total, about 23.8 million acres are Hard Red Winter, 5.53 million acres are Soft Red Winter and 3.38 million acres are White Winter.

Area planted to other spring wheat for 2017 is estimated at 11.3 million acres, down 3 percent from 2016. Of this total, about 10.6 million acres are Hard Red Spring wheat. The intended Durum planted area for 2017 is estimated at 2.00 million acres, down 17 percent from the previous year.

It’s interesting how times have changed. Years ago the U.S. owned a large share of world wheat exports; from a high of 50 percent in 1973-74 to 30 to 40 percent from the 1982-83 growing season to 1995-96. However, over the most recent decade, U.S. wheat exports have moved lower, trending now at around 15 percent of total overall global exports.

This story isn’t new to you, I’m sure. “Wheat prices are doomed for lower prices” is likely what you’ve been hearing on every agricultural television or radio show over the past two or three years. However, one thing I do want to point out is how quickly that sentiment can change, and why it might finally change this summer.

As you know, wheat is grown all over the world. China, Russia, the United States, the European Union and Australia are the biggest players. Look at the accompanying chart that shows global wheat production paired with global use. I’d like to point out global use is indeed strong throughout the world, and that trend looks to continue. It may have been a blessing that global supplies were so sufficient for the past three years, to create ample carryout (ending stocks) levels.

Now look at the years where the vertical global wheat production bars did not meet the needs of the global wheat usage lines. Dry conditions in 1995 and 2003 made for smaller crops in Europe, and in 2003—because of drought conditions in Europe—the E.U. actually suspended wheat export licenses in an effort to conserve supplies.

Because of that, the U.S. then became viewed as a major immediate source of wheat for export. Again in 2007, adverse global weather conditions triggered wheat futures to rally. And remember this word: sukhovey? That was a term used to describe the extreme Russian drought in 2010-11 that caused a dip in production that year. And of course, in 2012, drought hit the U.S.

Looking at the chart, it seems over the past 20 years, every five years or so, a major wheat growing area in the world suffers a major blow to production. And, with as little wheat being grown in the U.S. this year, supplies could really become tight if the U.S. or another major growing region has a production setback.

The result would then be higher wheat prices. To me, it looks like we’re due for a weather issue somewhere in the world. But we’ll see what Mother Nature has to say about that.