A couple of prominent grain industry analysts believe the U.S. Department of Agriculture has overestimated the size of the U.S. hard red winter wheat crop.
If they’re right and the crop is smaller it won’t have a big impact on world wheat prices, but another factor might.
The USDA is forecasting 647 million bushels of production, which was right in line with average trade expectations heading into the release of a report containing the USDA’s first production estimates for 2018-19.
But not everyone is on board with that forecast.
Arlan Suderman, chief commodities economist with INTL FCStone, said the winter wheat crop is two to four weeks behind normal in the southern Plains.
“That means it is going to be going through the most sensitive part of its grain-fill period during the time we normally have a lot of heat moving in and heat is the number one factor that robs yield in wheat,” he said in a webcast analyzing the report.
Suderman is also forecasting a much higher abandonment rate than the USDA. He believes 19 percent of the hard red winter wheat crop will not make it to harvest.
For those two reasons the former Kansas wheat agronomist is forecasting 578 million bu. of production, 11 percent below the USDA’s number.
That sounds about right to Bruce Burnett, the director of markets and weather with Glacier MarketsFarm. MarketsFarm is owned by Glacier FarmMedia, which also owns The Western Producer.
Burnett is also forecasting a sub-600 million bu. crop.
He said part of the problem lies with the methodology used by the USDA.
“They tend to give the maximum credit to the crop,” he said.
The crop was behind normal development so crop forecasters had to use tiller counts on many plants this year instead of head counts during crop tours and that tends to cause yield overestimations.
Burnett also disagrees with the USDA’s forecast calling for a five percent abandonment rate for the Kansas crop, which he said is far too modest given the poor growing conditions.
He noted that a two million tonne decline in U.S. hard red winter wheat production will have little impact on global wheat prices due to burdensome supplies.
But when combined with dryness in some other key wheat-exporting regions of the world, it might start to lift prices.
In a recent edition of the MarketsFarm Daybreak newsletter, Burnett noted that it has been dry and warm in southern Russia, most of Ukraine and into Romania. If those conditions continue into June, it could have a big impact on yields.
It has also been dry in Canada and Australia, two other major wheat-exporting countries.
He expects wheat prices to appreciate in coming weeks as the market factors in the dryness concerns.
If the U.S. crop comes in well below the USDA’s estimate it will prop up the Kansas wheat futures contract and that will have a direct impact on Canadian farmers growing winter wheat or Canada Prairie Spring (CPS) wheat.
But a low-yielding U.S. hard red winter wheat crop could actually be bad news for growers of red spring wheat because low yields often correlate with high protein levels.
It would be the first high protein U.S. hard red winter wheat crop in three years.
“The necessity of pulling spring wheat into some of the milling blends is not going to be there like it has been the last few years,” said Burnett.
The protein spread between the Kansas and Minneapolis futures contracts that has recently been as high as $2 per bushel could fall back to the normal range of 35 to 50 cents per bushel. It has already declined to about 80 cents, said Burnett.