ARC has further lowered its projected US ’17 wheat production amid ongoing declines in crop conditions, which projects yet further declines in HRS yield and enlarged abandonment than what NASS printed in its June acreage report. Total US ‘17 wheat production is pegged at 1,715 Mil Bu, down 595 Mil from last year and down 109 Mil from NASS’s June estimate. The loss of bushels will have a noticeable impact on 2017/18 US wheat end stocks.
Total wheat ending stocks will exist at/above 880 Mil Bu, which is large, but this is misleading. The issue for the US (and world) is the lack of high protein/high quality wheat inventory, and as drought expands in Canada & Australia, and as too much rain will fall across Germany, Poland & the Baltic Region, ARC wonders just where major importers will source high protein requirements. Combined US HRS, HRW and durum production is pegged at 1,136 Mil Bu, down 543 Mil Bu (32%) from last year and the lowest since 2011. Large old crop carryover stocks will partially buffer against yield loss, but combined HRW, HRS and durum stocks are expected to fall to 480 Mil Bu, vs. 820 Mil last year. Most importantly, high protein wheat markets will enter the 2018/19 crop year will very little carryover buffer – something that’s weighed on wheat market since 2015.
The US all wheat balance sheet is below, and ARC looks for the USDA to lower its end stocks forecast by 40-50 Mil Bu amid lower production. Exports are likely to be unchanged, as commitments to date (particularly HRW and white wheat) are better than expected. Still, SRW stocks, which are estimated at a record 280 Mil Bu, will account for some 30% of the total US wheat stocks, and so the US balance sheet as a whole will not be a major driver of US wheat prices. Rather, it’s the loss of high quality wheat in North America, and a sharp decline in major exporter production that will maintain support well above $5.00, basis spot CME futures. Note that Australian wheat production estimates are also being trimmed, and very little rain is offered to Australia’s wheat belt through the end of July. The global wheat market has dramatically tightened!
