By Stephanie Bryant-Erdmann, USW Market Analyst
In its November World Agriculture Supply and Demand Estimates (WASDE) update, USDA pegged global wheat production at 745 million metric tons (MMT), up 1 percent from 2015/16 and, if realized, the fourth consecutive record high. USDA also increased its estimate for global wheat consumption to 732 million metric tons (MMT), up 3 percent year over year and 5 percent above the 5-year average. In particular, wheat feeding is expected to increase 6 percent to 147 MMT. In the European Union (EU) and Canada, wheat damaged by excessive moisture is bolstering wheat feed usage, but in the United States, the Black Sea and even Brazil, the difference in price, or the spread, between corn and wheat is playing a key role.
USDA expects Canadian wheat feeding to increase 71 percent year over year to 4.5 MMT after excessive rain and, in some cases, snow caused significant harvest delays across Western Canada that reduced wheat and durum quality. According to the Canadian International Grains Institute (CIGI), 24 percent of this year’s Canadian Western Red Spring (CWRS) production, which accounts for 70 percent of Canadian wheat production, graded as Canadian Western (CW) Feed. This is triple the 8 percent of CWRS that graded as CW Feed in 2015/16. Excessive moisture also affected Canadian Western Amber Durum (CWAD). CIGI reported 50 percent of Canada’s durum crop graded as #4 or #5 CWAD, compared to just 19 percent in 2015/16.
USDA estimates the EU used 38 percent of its total wheat production for feed in 2015/16, and this year it expects that to rise to 40 percent. However, the total volume of feed wheat usage will be down compared to last year because the EU’s production was sharply lower. USDA estimates wheat feeding will decrease 5 percent year over year to 58.0 MMT, which is still 6 percent above the 5-year average.
Despite not having a designated “feed grade” for wheat, some wheat feeding occurs in the United States every year. It happens for many reasons that include its local availability, protein levels and even the preferences of the livestock rations manager. Price relative to corn is certainly a factor. Normally, wheat trades at a premium to corn but in the United States and Brazil that spread has flipped, with corn now at a premium to wheat. Wheat cash prices to U.S. farmers at U.S. Southern Plains local elevators averaged about 87 percent of corn cash prices in October, according to the USDA’s Agricultural Marketing Service Texas Hi Plains report. With corn trading at a premium to wheat at local elevators, wheat feeding is much more attractive this year. That is why USDA has increased its wheat feeding forecast in the United States to 7.08 MMT, up 71 percent year over year and 28 percent higher than the 5-year average.
On Nov. 4, Reuters reported Brazilian pork and poultry producers are increasing wheat in their rations because local Brazilian corn prices are $225/MT, compared to wheat at $178/MT. This price dynamic is expected to increase wheat feeding by 50 percent year over year. Brazil typically produces about half of its total wheat consumption. As a result, any increase in wheat feeding should result in an increase in wheat imports. USDA pegged Brazilian wheat imports at 6.6 MMT, which would make Brazil the fourth largest wheat importer in the world this year.
While world production continues to increase, milling quality wheat supply continues to erode. Unfavorable weather damaged quality in two major growing regions, pushing a larger than normal percentage of production into feed wheat channels. In countries where rains boosted yields, a reversed corn-wheat spread is encouraging lower protein, milling quality wheat into feed wheat channels, further constraining milling wheat supplies.
Please contact your local USW representative if you have any questions about current market conditions, U.S. wheat quality or the U.S. wheat marketing system.