Wheat Outlook for 2018-2019 and Preliminary 2019-2020 Projections

By Dr. Todd D. Davis, Extension Grain Marketing Specialist

The November World Agricultural Supply and Demand Estimates (WASDE) tends to resolve most of the supply uncertainty in grain markets as the yield estimates for corn and soybeans become more accurate, and the market understands supply for the remainder of the 2018-19 marketing year.

For wheat, the supply estimates have been mostly finalized by October with adjustments in January’s final projections for the crop-year.  USDA projects the 2018 wheat yield at 47.6 bushels/acre, a 1.3-bushel increase over 2017, on 39.6 million harvested acres. USDA projects total wheat production at 1.88 billion bushels. The larger wheat crop is off set by a smaller carry-in and reduced imports with supply projected to increase by 45 million bushels from 2017-18 (Table 1).

USDA projects wheat use to increase by 195 million bushels from the 2017-18 marketing-year. Food use and seed use are both projected to increase slightly from the previous year.  Feed use is projected to increase by 60 million bushels to 110 million bushels. The estimate might be aggressive given the supply of corn.  

USDA projects exports to increase by 124 million bushels. As of November 11, wheat exports have lagged last year and the five-year-average export pace. As a result, USDA may lower the export projections and add to stocks.

However, the current projections are for wheat stocks to decline by 150 million bushels to 949 million bushels (Table 1).  The stocks-to-use ratio would fall below 50% for the first time since 2014-15.  The smaller quantity of stocks would support higher wheat prices, with the U.S. marketing-year average (MYA) farm price estimated at $5.10 per bushel, which is a $0.38/bushel increase from last year.

USDA is basing the prospect of stronger exports because of smaller wheat crops in the Former Soviet Union (FSU), European Union (EU), and Australia. The combined production loss for those countries is 1.3 billion bushels (Figure 1). The U.S. serves as the residual supplier and may benefit from additional exports in 2018-19.

USDA released the preliminary USDA Agricultural Projections to 2028 on November 2, 2018. These long-term projections are used for budgeting and making policy decisions (like the next Farm Bill) to determine the benefit and costs of alternative policies. The projections are entirely based on statistical models and do not incorporate any survey information from farmers. However, the forecasts provide an initial guess on 2019 planted area for wheat and competing crops.

USDA projects 2019-seeded area to increase by 3.2 million acres due to soybean acres switching to corn or wheat. USDA assumes average abandonment and trend-line yields; therefore, the 2019 wheat crop is expected to increase by 176 million bushels to over 2 billion bushels. The smaller carry-in and reduced imports would offset the larger crop. The net impact on supply is a small increase from 2018-19.

Use is projected to increase by 39 million bushels with most of the increase from exports.

Wheat could absorb increased area if yields are near trend and if use remains strong. The projections suggest that stocks would decline slightly in 2019. USDA projects the 2019 MYA farm price at $5.20 per bushel, which is a $0.10 per bushel increase from 2018 (Table 2).

Table 2. Preliminary Wheat Balance Sheet for the 2019-20 Marketing-Year.

In summary, after consecutive years of reduced area, the wheat market has whittled away at the large stocks from the 2016 marketing year. The prospect of an increase in planted area in 2019 (weather permitting) combined with above-trend yields could increase stocks by a larger than projected amount. Regardless, the July 2019 wheat futures contract has provided pricing opportunities this fall to protect wheat margins. A weather scare in spring 2019 could provide another opportunity to price 2019 wheat.