ARLINGTON, VIRGINIA, U.S. — Attentive buyers may have noticed that recent stories about the world wheat market are starting to sound a bit different, the U.S. Wheat Associates (USW) said. The International Grains Council (IGC) predicts a 3% decline in world production for the 2016-17 marketing year. Australian farmers are concerned about dry conditions. Bad weather during winter and spring sowing is likely to reduce the harvest in Russia, Ukraine and Romania. Wheat production is expected to decline by as much as 40% in Morocco.
U.S. wheat farmers are also clearly acting on the market signals to grow less wheat. Farm gate prices are well below the cost of production at the same time U.S. export prices remain higher than competing sources. Total U.S. wheat planted area for 2016 could be down 9% from last marketing year according to the U.S. Department of Agriculture’s (USDA) Prospective Plantings report. The USDA also expects the trend of decreasing returns on wheat to continue in marketing year 2016-17.
While potentially bullish signals are buffered in part by the abundant global supplies and a favorable first U.S. crop conditions report, they may indicate the beginning of the end for the now three-year decline in U.S. wheat prices, USW said.
“For a buyer, it is much more reassuring to cover supply needs at incrementally lower prices than it is to be chasing a market that is heading up,” said Vince Peterson, USW vice-president of overseas operations. “These low prices are not sustainable, so this could be the best opportunity to make purchases of high-quality U.S. wheat at the lowest levels in what could be a long time.”
There are additional factors that may signal increased demand for U.S. wheat, including late season rain that significantly hurt wheat quality in Brazil and in its primary wheat supplier, Argentina. The USDA reported in January, that Brazil likely will have to increase imports and, depending on the supply of milling quality wheat in Argentina, U.S. wheat is still a viable option for its millers. When it turns to the U.S., Brazil buys HRW, usually in July and August.