MIGHT US WHEAT BECOME AN IMPORTANT GLOBAL SOURCE IN 2023?
Well, maybe not a major source, but at least more important than it has been in recent years.
US wheat exports have been on the decline for decades. USDA estimates for the 2022/23 marketing year show US exports at only 21 mmt, representing 10% of the global trade, down from over 26% just 12 years ago. Since soaring to levels not seen in over a decade following the Russian invasion of Ukraine almost exactly 1 year ago, global wheat prices have levelled off near, or just below pre-invasion prices. Here in the US, Chicago soft red winter wheat futures scored all-time highs last Spring at just over $14.65 per bu. compared to the current price of $7.00. KC hard red winter wheat came within $.05 of their all-time highs of $13.85, before backing off to their current levels just over $8.00. Last year’s price surge wasn’t lost upon the US farmer during last fall’s wheat planting season. After years of decline, US winter wheat plantings jumped 11% over the previous year to nearly 37 mil. acres, the highest in 8 years. In the US, winter wheat typically accounts for nearly 70% of the nation’s production. As winter moves towards Spring in the Northern Hemisphere the US winter wheat crop will be breaking dormancy in the coming weeks. Once the crop breaks dormancy, the next few months will become the most moisture sensitive timeframe in yield determination. Currently 57% of the US winter wheat belt is experiencing some degree of drought. While this is historically elevated, it’s well below the peak of 75% in Nov-22, and below the 72% from February of last year. Moisture during April and May will be crucial in US winter wheat yield determination.
Also as we move into March, grain prices will become increasingly sensitive to negotiations to extend the Black Sea Grain Initiative. This agreement between the UN, Turkey, Russia, and Ukraine is set to expire Mch.19th after it was extended in Nov-22. Since the deal was first agreed upon last summer it has been effective in bringing Ukrainian grain to the global marketplace while reducing the potential of global famine. It’s also been a major contributor to the price retracement. According to the Joint Coordination Centre since the BSGI was implemented last August roughly 22 mil. tons of Ukrainian crops have been shipped through the Black Sea through mid Feb-23. In addition Ukraine claims to have an additional 30 miI. tons of grain stored in silos awaiting export. Ukraine continues to blame Russia for purposely stalling the vessel inspection process, resulting in over 140 ships awaiting inspections in Turkish ports. These stall tactics have enabled Russia to absorb a great share of the global trade as a result of their record 2022 wheat production.
000's Acres
20,000 25,000 30,000 35,000 40,000 45,000 50,000
Source: USDA Planted Harvested % Acres Harv. US Winter Wheat Acres
40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90%
WHEAT PRODUCTION POTENTIAL Wheat production potential from the Black Sea region will likely be down considerably this coming year compared to recent past. With the ongoing war, both Russia and Ukraine face a scarcity of labour and inputs needed to maximize production potential. Ukraine’s most recent 2023 wheat production estimate at 17.4 mmt is down from 21 mmt in 2022, and roughly half of the 33 mmt crop harvested in 2021. In Russia most 2023 production forecasts are near 85 mmt, down from the 100 – 105 mmt produced in 2022. A recent 2023 production estimate is just below 80 mmt. The USDA is still holding their 2022 Russian wheat forecast at 92 mmt. Elsewhere in the world, a number of red flags appear to be popping up that could impact 2023 production. Moisture deficits across much of Spain, France, and Italy have grown in recent months, as have areas across Northern Africa. Australia has produced a record crop 3 years running, I’d bet against a 4 peat in 2023. This leads me back to US production potential in 2023. With the area of crop in drought trending lower I believe an uptick in yield is likely. Assuming a 48.5 bpa yield, still historically conservative, along with a rebound in the percentage of acres harvested, our forecast for US winter wheat production is just over 1.40 bil. bu. (38 mmt’s) up 27% from last year and the largest crop in 7 years. Some of the added supplies will likely find their way into feed rations. Corn production in the southwest US plains (heavy cattle country) was crippled
8 | ADMISI - The Ghost In The Machine | Q1 Edition 2023
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