U.S. Wheat Exports Are Weathering This Bear Market

Marketing year 2014/15 has turned into a perfect storm of bearish factors for U.S. wheat exports. Global wheat supplies are even larger than first expected, U.S. prices remain higher than the competition and protein is limited. The abundant supply of corn and soybeans has added price pressure to all grains and, to complicate matters, the U.S. Dollar Index (USDX) hit a 12-year high last week, making U.S. agricultural products even more expensive for overseas customers. Despite the challenging context, the United States will still be the largest single supplier of wheat in the world this year as customers concerned with consistent quality and reliable supply find value in our production. 

 

U.S. wheat futures started to decline in June 2014 due to typical harvest-time pressure and a forecast for record global supplies. In its updated World Agricultural Supply and Demand Estimates (WASDE) report released March 10, USDA estimated global production reached a new record of 725 million metric tons (MMT) this year, well above its initial May 2014 estimate of 697 MMT. Almost every major wheat producing country harvested more wheat than first projected. However higher yields came at the expense of quality in many regions. 

 

In July 2014, the U.S. Dollar Index (USDX) started a steady climb that has not stopped, increasing a bearish outlook that helped push futures down nearly 30 percent since the beginning of the marketing year. The FOB price of hard red winter (HRW) 12.0 protein from the Gulf on March 6 was $82 per metric ton (MT) less than a year earlier. U.S. farmers hoped that the sharp decline in price would help stimulate demand — and many of them have sufficient cash flow to hold some wheat from the market for better prices. Even though U.S. farm gate prices remain relatively low, export prices are still more expensive relative to competing supplies. On March 6, the USDX hit its long-term high when it closed at 97.6. The index has increased 21 percent since July 18, 2014, which is effectively an additional price premium for U.S. wheat. 

 

The bearish factors have held U.S. wheat export sales back to 21.8 MMT as of Feb. 26, compared to average sales at this date over the last five years of 25.6 MMT. Yet global demand for wheat continues to grow at a remarkable pace. That is why USDA has not changed its current U.S. wheat export projection of 24.5 MMT in two months even in the face of these market factors. 

 

There are 10 weeks remaining in marketing year 2014/15. We note for buyers that locking in such excellent value for the quality U.S. wheat they need remains attractive, as it has for much of this marketing year.