Spring Rains Didn’t Cure Winter’s Sins

From my office in south-central Kansas, the skies are hazy from blowing wheat fields and there is a film of dirt that seems to cover everything outside. The winter wheat conditions continue to deteriorate throughout the heart of the hard red winter (HRW) wheat growing region. Prospects for the U.S. crop and global trade will create pricing opportunities for anyone who has wheat to sell this year or is looking to price wheat for next year.

Mounting Troubles for U.S. Crop

The southern plains have been in a drought for 18 months and will be harvesting the second poor wheat crop in a row. NASS released their first weekly crop progress report of the year on April 3^rd. U.S. winter wheat conditions are at 28% good to excellent. This doesn’t tell the whole story, however.

There is a sharp contrast between soft red winter (SRW) and HRW conditions. SRW conditions for Missouri, Indiana and Illinois are rated 75%, 69% and 56% good to excellent, respectively. HRW conditions for the top three wheat producing states – Kansas, Texas and Oklahoma – are rated 16%, 18% and 26% good to excellent, respectively. Even with the strong crop condition ratings for most of the SRW growing region, the HRW ratings are so bad that when you combine HRW with SRW the overall winter wheat conditions are the 2^nd lowest on record. It is also important to keep in mind how these wheat classes contribute to total production. HRW on average makes up 68% of total winter wheat acreage, whereas SRW makes up just 21%.

HRW conditions are much worse this year from several angles; there was no subsoil moisture going into planting, stands were uneven and spotty due to poor germination in dry soils, and there was little to no moisture for fall tillering. The lack of residue and wheat stand coverage created an ideal scenario for blowing fields throughout the southern plains. Insurance claims on the worst of the wheat fields are being submitted and insured out, which leads me to believe that abandonment is going to be much higher than average years. Not only will abandonment be higher this year, but production will be lower than normal for HRW leading to the lowest ending stocks since 2007.  

Hard Red Spring Wheat is also facing some challenges as much of the northern plains is covered in snow making seeding this month a challenge. Key spring wheat production states, North Dakota, South Dakota, Minnesota and Montana, have received 40 inches to 90 inches of snow this winter and spring, including another foot of snow that fell across much of North Dakota, South Dakota and Minnesota the first week of April. Producers will begin to consider switching acres away from spring wheat and into later-planted row crops such as corn or soybeans.

Tightening an Already Tense Global Market

The Russia-Ukraine War has already made global wheat supplies tight, and the U.S. – a residual supplier to the global market – will offer no relief. Adding to the tension are:

The Black Sea Grain Corridor and Ukraine’s ability to continue producing and exporting grain will continue to weigh heavily on world grain markets. Exports of grain out of Ukraine have fallen to half of pre-war levels. Rising insurance and export costs, along with continued logistical challenges as more major grain exporters leave Russia, will add to the supply chain constraints of moving wheat out of Russia and Ukraine.

The United States remains a residual supplier of wheat globally. U.S. Wheat exports are at the lowest levels since the early 1970s and will likely remain unchanged given our production prospects in the upcoming year. The tight domestic supply is making the United States the most expensive game in town.

Price Outlook May Be The Only Good News

I expect prices to remain elevated through winter wheat harvest. The biggest threat to wheat price is a large corn crop. The market will be closely watching the U.S. corn crop this summer. If the market feels comfortable with a large corn crop it is likely to drag wheat down with it. Even with lean export numbers, the United States continues to eat through our wheat inventory. Use war and weather headlines as pricing events. Pay attention to 2024 wheat prices as well for early marketing opportunities.