Drought conditions in the Southwest may rival the Dust Bowl of the 1930s, but there is good news about the market position for hard red winter wheat in these drought stricken regions. While yields will be lower, with projections citing a drop of 22% from last year, the loss in volume will be made up for by interest in export markets.
Though the United States has experienced record wheat yields in previous years, the protein quality wasn’t there, requiring handlers to blend to achieve the levels in demand. This year, as a lack of moisture sends wheat into distress, the plant produces higher levels of protein, a commodity characteristic in high demand in Asian markets.
“While hard red winter supplies will decline, initial quality samples show improvement in this year’s crop,” says U.S. Wheat Associates, Inc. (USW) market analyst Chad Weigand. The average protein level currently stands at 13%, up from 11.8% last year, he notes, and the average test weight is slightly higher as well.
As a result, the U.S. Department of Agriculture (USDA) increased its U.S. export forecast in its July World Agricultural Supply and Demand Estimates by 2.7 million metric tons from last month’s estimate. This means U.S. wheat exports will reach 31.3 million metric tons in 2011/12. While that volume would be 11% below 2010/11 exports, it would also be 8% above the five-year average, USW reports.
“High moisture and delayed planting, have lowered the production forecast for Canadian spring wheat,” says Steve Mercer, USW’s director of communications. “As a result, our export forecast increased; this is an indication the United States has wheat to sell and, based on the quality of the hard red winter wheat, they feel it will be attractive to buyers overseas.”
Mercer notes that the big impact will be with durum wheat: “If you have durum to sell, you’re going to be in good shape this year. The demand remains strong, and supplies will be stressed. There’s already a huge premium for durum.”
Meanwhile, contrary to the USDA Crop Report, the Farmer Service Agency representatives in North Dakota did their own survey and estimate 2 million unplanted acres.
What we know for a fact: Wheat yield is impossible to predict right now, but the silver lining for U.S. farmers will be higher cash prices.