When we started 2017, spring wheat prices were dealing with more supply than what it was originally expecting. Before we dig into really what happened in 2017, let’s refresh our memories of what happened leading up to this past year.
More Spring Wheat Than Expected
Ever since the bumper crop of 2013, the market has slowly been working its way through stocks of higher quality wheat coming out of Canada.
More specifically, Canada ended 2013/14 with almost 8.7 million tonnes of wheat (or at least that wheat which was not durum). The stocks-to-use ratio that year in Canada was 33%.
After that though, the wheat carryout (and stocks-to-use ratio) started to drop to
• 6.13 million tonnes in 2014/15 (with 23% stocks-to-use ratio)
• 4.08 million tonnes in 2015/16 (with 17% stocks-to-use ratio)
• 4.97 million tonnes in 2016/17 (with 21% stocks-to-use ratio)
The reason for the bump last year was because of a significant dip in exports.
The United States produced a good spring wheat crop in 2016/17 (more on this later but we did a deep dive on the lopsided wheat trade game between Canada and the US in early November).
Back in 2013/14, the opposite of what was happening in the US the carryout of US hard red spring wheat sat at just 169 million bushels (or 4.6 million tonnes if you’re using GrainUnitConverter.com). After that, this happened to hard red spring wheat carryout in the United States.”
• 212 million bushels (or 5.77 million tonnes) in 2014/15
• 272 million bushels (or 7.4 million tonnes) in 2015/16
• 235 million bushels (or 6.4 million tonnes) in 2016/17
With more than 10 million tonnes of spring wheat available in North America going into the 2017/18 crop year, this had a negative effect on prices.
And so, prices sucked as 2017 crept along.
And thus, 2017/18 acres dropped from their long-term averages.
Lower 2017/18 Spring Wheat Production (But Not Really)
At the start of 2017 in our Grain Markets Forecast, I said,
“We don’t expect wheat prices to improve too much in 2017, but there will be short-term rallies that will certainly prove profitable. This means selling into strength and making incremental sales as the price goes up – getting greedy will burn you, and you’ll be kicking yourself later (perhaps you are already after missing making sales in November / December?)”
The best prices in the first five months of 2017 weren’t seen until some weather/planting premium started to get priced in, in May. We explored what spring wheat prices did at this time a year ago in a recent GrainCents piece.
As spring wheat prices traded sideways over the first half of 2017, there wasn’t that much interest in planting spring wheat in 2017, relative to the longer-term averages.
According to Statistics Canada in June, a little under 15.8 million acres of spring wheat got seeded in Canada. That was up about almost 400,000 acres from 2016/17 acres but about 8% – or nearly 1.4 million acres – below the five-year average of 17.16 million acres.
StatsCan then said that the final harvested spring wheat number was about 15.65 million acres. That’s up about 8% from last year but still 7% below the five-year average.
In the US, just 11 million acres of spring wheat was seeded, down 5% and 11% from 2016/17 and five-year average respectively.
Harvested area of U.S. spring wheat was much lower than 2016. With 10.16 million acres of US spring wheat combined, that was 16% below the five-year average and nearly 10% below last year’s total.
From a production standpoint in the U.S., drier conditions in major spring wheat production areas meant lower yields. More specifically, American spring wheat yields dropped 13% year-over-year to 41 bushels in 2017/18.
This meant that just 11.3 million tonnes of total spring wheat were harvested.
This included 10.5 million tonnes or 385 million bushels of hard red spring wheat. That’s down nearly 22% from last year’s harvest, and 26% form the five-year average.
Back in Canada, we noted previously in GrainCents that we were expecting a much larger Canadian spring wheat crop than what Statistics Canada initially estimated in August of 20.1 million tonnes.
And they didn’t disappoint, as StatsCan came out with a very bearish 22.5 million tonnes of spring wheat production in the Great White North.
Thus, there’s still a fair amount of spring wheat in the pipeline. More specifically, the USDA is currently forecasting that there will still be 157 million bushels (or 4.27 million tonnes) of hard red spring wheat available in the US by the end of the 2017/18. If realized, that’s a drop of 33% year-over-year.
So why aren’t prices higher in the US? Lower exports don’t help. Currently, the USDA is forecasting 17% less hard red spring wheat exports in 2017/18 than the year prior.
Comparably, the Ag Canada is expecting 5 million tonnes of non-durum wheat to still be available by the end of 2017/18. The good news is that Canadian non-durum wheat exports are expected to climb 10% year-over-year to 17.2 million tonnes.
What Now for Spring Wheat Prices in 2018?
With more information flying at farmers than ever, it’s difficult to get all of your insight in one place to help you make actionable decisions on your grain. That’s why FarmLead introduced GrainCents, a subscription service dedicated to telling farmers when to sell or hold their spring wheat and other crops.
Also, we provide regular price analysis and a deep-dive into the major (and minor) factors impacting your crop every day. In GrainCents right now, there are 5 different factors that we have identified as either bullish, bearish, or noise for spring wheat prices.
With this insight, we help you identify windows to get the best price possible for your crop.
We also identify in GrainCents what percentage you should be sold on your 2017/18 old crop spring wheat, as well as where your sales should be on your 2018/19 spring wheat crop.
And next week, we’re giving our GrainCents chickpeas subscribers a special report that is worth more than an annual subscription to the service on its own.
We’re unveiling our 2018 spring wheat market outlook exclusively to our GrainCents readers.
Inside this report, we’re going to discuss the critical factors that will affect your spring wheat sales in 2018. More importantly, we’re going to begin to set our schedule for potential selling opportunities so that we can capture the best price possible in the year ahead.