Export Markets Offer a Silver Lining
Drought conditions in the Southwest rival the dust bowl of the 1930s. There is good news about the hard red winter wheat in these drought stricken regions. Yields will be lower, with projections citing a drop of 22% from last year, but the loss in volume will be made up for by interest in export markets.
Though the U.S. 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 lack of moisture sends the 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 Chad Weigand, USW Market Analyst. He notes that the average protein level currently stands at 13%, up from 11.8% last year and the average test weight is 80.6 kg/hl (61.3 lb/bu), up from 80.2 kg/hl (61.0 lb/bu) last year."
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 (WASDE) by 2.7 MMT from last month’s estimate. This means U.S. wheat exports will reach 31.3 million metric tons (MMT) in 2011/12. While that volume would be 11% below 2010/11 exports, it would also be 8% above the five-year average.
In addition, high moisture and delayed planting, the production forecast for Canadian spring wheat has been lowered to xxx.
"As a result, our export forecast increased, this is an indication the U.S. has wheat to sell and based on the quality of the HRW they feel it will be attractive to buyers overseas," says Steve Mercer, USW's director of communications.
Contrary to the USDA Crop Report, the Farmer Service Agency reps in North Dakota did their own survey after USDA and estimate 2 million unplanted acres. What we know for a fact: The yield is impossible to predict right now.
"The big impact will be with durham," Mercer says. "If you have durham 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 durham."
It's hard to tell by class what's going to happen, the only we can go by are the USDA numbers and it remains to be seen on the northern crop. The big number for us is the export number. Last year the world seemed to be full of wheat, but the demand wasn't high, but then the Russian drought hit. This year balances the prices out.
"The silver lining for U.S. farmers is a higher cash prices, and it looks like the United States will continue to be a world supplier," Mercer says.