Drought and Demand Drive the 2022 Wheat Outlook

The big-picture trend for U.S. wheat is clear. The U.S. continues to plant less and less wheat, which is combined with higher international competition.

“I know we are a small fish in a big global wheat pond,” says Jerry Gulke, president of the Gulke Group. “There’s a lot of wheat produced in the world and we’re not as significant as what we may think we are. We’re significant when there’s a shortage of wheat in the world.”

In 2021, all wheat acres totaled 46.7 million, which was a 5% increase from 2020. Wheat acres have been on a steady decline in the U.S. for the past decade. For instance, in 2008, all wheat acres equaled 65 million.

By 2030/31, USDA expects wheat acres to decrease to around 44.5 million acres, which would be below the recent five-year average of 46.7 million.

USDA expects this pattern due to weak relative returns that do not encourage shifting acreage out of other row crops and into wheat. In addition, neither domestic nor export demand are expected to significantly tighten the U.S. wheat balance sheet, nor do they provide significant price support.

As of mid-December, a significant portion of U.S. wheat acres are experiencing drought:

NASS will publicize its final 2021 crop results on Jan. 12, 2022, including the drought-stricken spring wheat crop, Gulke says.

“Canada recognized in early December their premium wheat crop stocks were higher than expectations,” he says. “The subsequent drop in CME futures could be telling us what may be realized in January in the crop south of the border in the U.S.”

Chicago wheat price started its bull run from the July harvest low with a post-harvest retraction before beginning its urgent up-move in an attempt to ration supply, Gulke says.

“While wheat lost $1 per bushel during the short pre- and post-Thanksgiving period, the 38% retracement at $7.80 needs to be put in perspective,” he says. “Previously, September 2020 Chicago wheat spent six years below $6.”

Rallies in wheat prices were easy to spark in the fall of 2021, adds Chip Flory, Farm Journal economist and host of AgriTalk. This is because:

– A short Russian 2021 wheat crop triggered supply-side management and export taxes.
– The U.S. and Canada saw a terrible 2021 growing season in spring wheat areas.
– Australia’s big 2021 crop turned into a bust when harvest-season rains turned much of the crop to feed-quality.
– U.S. wheat growers saw a less-than-ideal start to the 2022 hard red winter wheat crop.

“But ‘easy rallies’ take years to develop – especially in wheat,” Flory says. “After five years of building global wheat supplies starting in the 2013/14 marketing year, global stocks have tightened in two of the past three marketing years.”

With consumption expected to outpace production again in 2021-22, Flory says, tight global supplies of milling-quality wheat limit downside price risk and leave the market sensitive to supply-side shocks for at least two more crop years.

Domestically, the last time U.S. wheat stocks were under 600 million bushels, winter wheat futures traded just over $9. Both old- and new-crop soft red winter (SRW) futures traded above $8.50 in November.

“History, the “so-so” winter wheat crop conditions and a trend of tightening global stocks mean rallies approaching $9 in SRW futures are likely and should be rewarded with new-crop sales,” Flory says. “Don’t panic if futures retreat to near the $8 level before turning back to the upside.”

AgWeb

Tags: USDA, price, wheat, drought, U.S., acres