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The Paris futures market has gained influence in wheat price discovery, but Chicago remains the leader

Wednesday, October 18, 2017

Until recently, the United States led the world in the pricing and trade of wheat. But over time, a substantial share of world wheat exports shifted to Russia and Ukraine (collectively, the Black Sea region) and the European Union. At the same time, U.S. wheat futures (contracts for the purchase/sale of wheat at a given price on a future date) prices are being supplanted by new price benchmarks that more closely track supply and demand conditions in the Black Sea region and the European Union. While the Chicago Mercantile Exchange Soft Red Winter Wheat futures contract is the most active wheat futures market in the world, futures trading volume has grown substantially for the Euronext Milling Wheat contract traded in Paris. Rising volume indicates a market may be more important for price discovery, the process by which markets determine the value of wheat through trades between willing buyers and sellers. A new study by economists at ERS and Montana State University estimated the relative proportion of price discovery in the Chicago and Paris futures markets between 2008 and 2013. Findings suggest that while U.S. futures markets remain dominant in wheat price discovery, the Paris futures market has gained influence since 2010, moving from a 9-percent share of price discovery to nearly 25 percent. This chart appears in the October Amber Waves article, "Wheat Price Discovery Remains Concentrated in the United States, but Shifting to Europe."

Rail disruptions following Hurricane Harvey nearly halt grain deliveries to Texas Gulf ports

Friday, September 29, 2017

On August 25, Hurricane Harvey made landfall on the Texas coast, bringing record levels of rainfall to the Houston metropolitan area and nearby counties. Rainfall totals in some areas of Texas exceeded 50 inches. Not surprisingly, the resulting widespread flooding reduced rail service along the Gulf Coast and all but halted regional grain exports through the first week of September. Interruptions in grain transportation in the Gulf region have the potential to be particularly impactful on shipments of the U.S. wheat crop. The Federal Grain Inspection Service reports that an average of 46 percent of total U.S. wheat exports ship from Gulf ports in Texas and Louisiana. For the week ending August 31, there were virtually no wheat inspections reported for Gulf ports due to the shutdown of rail and port operations. For the week ending September 7, no wheat was inspected for export at either South Texas or East Gulf ports, while North Texas inspected a relatively modest 50,318 metric tons of hard red winter wheat, down from 160,512 metric tons for the same week in 2016. Wheat export inspections are anticipated to accelerate as rail service that provides access to Gulf loading facilities is restored. Although some railroad repairs may take months, others are expected to be restored more quickly. This chart appears in a special article in the latest Wheat Outlook newsletter released in September 2017.

France, Germany, and the United Kingdom lead the EU in wheat production, but new member states are leading in growth

Tuesday, September 5, 2017

The European Union (EU) is the largest wheat producer in the world. Within the EU, France, Germany, and the United Kingdom are the largest wheat producers. Wheat production in the most important wheat producing nations has been relatively steady since 2006, and these countries have not experienced a very large increase in average output or percentage of EU output. A number of smaller wheat-producing countries, however, have increased wheat output substantially over the last 10 years. These nations include many of the EU’s Eastern European new member states: Poland, Romania, the Czech Republic, Bulgaria, Hungary, and Slovakia. The increases have been particularly pronounced in the Baltic States of Lithuania, Latvia, and Estonia, which increased wheat output by more than 100 percent, since 2006. These countries moved from a 1.3 percent share of EU-28 wheat output in 2006 to a 4.3 percent share in 2016. These increases in the Baltic States are generally due to both increases in area planted to wheat and gains in yield per acre. This chart appears in the ERS Wheat Outlook newsletter released in August 2017.

Spring wheat conditions near record lows in the Northern Plains due to drought

Tuesday, July 25, 2017

Hard Red Spring (HRS) wheat (the largest class of spring wheat) is predominately grown in the Northern Plains of the United States. This key production region, which includes Montana, North Dakota, and South Dakota, has been greatly affected by a lengthy dry spell that has plunged the area into varying levels of drought, ranging from abnormal dryness to exceptional drought. On July 9, widespread drought conditions were noted for both North and South Dakota as well as Eastern Montana, and the proportion of the HRS crop rated “good” to “excellent” was just 36 percent, 10 percent, and 11 percent, respectively. Challenging weather conditions have reduced projected yields, now forecast at 39 bushels per acre, and contribute to a 22 percent year-to-year decline in HRS production for the 2017/18 marketing year. Expectations for a small harvest have helped to rally spring wheat prices in recent weeks and supports this month’s 50 cent increase in the 2017/18 all wheat price. This chart appears in the ERS Wheat Outlook newsletter, released in July 2017.

Wheat production in 2017/18 expected to fall sharply

Friday, June 9, 2017

USDA published the first 2017/18 marketing year wheat balance sheet in this month’s World Agricultural Supply and Demand Estimates. Record-low winter wheat plantings combine with newly-reported harvested area and yield forecasts to indicate a sharp decline in winter wheat production. Low prices—especially for hard red winter wheat that qualified millions of bushels for loan deficiency payments—appear to have turned a number of growers away from wheat and toward crops such as soybeans, pulses, and corn in the new marketing year. Down 25 percent from 2016/17 to 1,246 million bushels, winter wheat production is the lowest since 2002. Other spring and durum wheat harvests are also forecast to be down year to year, leading to a projected total wheat production of 1,820 million bushels. If realized, total wheat production for 2017/18 will be nearly 500 million bushels or 21 percent lower than in 2016/17. In addition to low plantings, a late April snow storm affected large portions of the hard red winter wheat belt, lowering crop condition ratings in affected States, though the full extent of the weather event on winter wheat production is unclear at this time. This chart appears in the ERS Wheat Outlook Newsletter, released in May 2017.

Contrasting area planted records projected for soybeans and wheat

Monday, May 1, 2017

The latest projections for crop area plantings in 2017 indicate contrasting records for soybeans and wheat. Soybean plantings for 2017 are projected to reach 89.5 million acres, a new record-high. In contrast, forecast wheat plantings of 46.1 million acres would be a record low, if realized. Taken together, these planted area projections indicate that many farmers are switching from wheat to soybean production in several key wheat-growing States, including Kansas, Michigan, Nebraska, North Dakota, Oklahoma, South Dakota, and Texas. Since 2011, soybean acreage in these seven States has expanded by one-third, while wheat area has contracted. Farmers are likely responding to the higher prices and potential returns associated with soybeans, after multiple years of wheat prices trending lower. For the 2016/17 marketing year, the projected midpoint season-average farm-gate price for soybeans was $9.55 per bushel, slightly higher than the 2015/16 average of $8.95 per bushel. The all-wheat price for the 2016/17 marketing year is projected at $3.85 per bushel, more than a dollar below the 2015/16 season-average price and the lowest since 2005/06. This chart appears in the ERS Wheat Outlook report released in April 2017.

Wheat producers are eligible to receive loan deficiency payments as prices drop

Wednesday, February 8, 2017

When wheat prices posted at county elevators fall below the annual county and class-specific marketing assistance loan rate, producers become eligible to receive loan deficiency payments (LDP). An LDP is a direct payment to farmers that covers the difference between the current local price and the pre-determined county loan rate. A 2016/17 marketing year drop in the price of all wheat has made producers eligible to receive government support from the LDP program, provided they meet basic requirements. Producers are not required to sign up ahead of time to be eligible. This is the first time that LDPs have been made for wheat since the 2010/11 marketing year. USDA reports that LDPs in the 2016/17 marketing year to date are $117 million. Payments have been made on a total of 560 million bushels of wheat with an average LDP of almost 21 cents per bushel. Per bushel payments (to date) are highest in Oklahoma, at near 26 cents per bushel. The State with the largest number of bushels to receive an LDP is Kansas. To date, about 271.5 million bushels of wheat or about 58 percent of the total volume of wheat produced in the State during the current marketing year has received an LPD. This map appears in the ERS Wheat Outlook report released in January 2017.

Per capita wheat flour consumption declines along with other starches

Monday, November 28, 2016

After peaking in 1997, per capita wheat consumption has trended downward, falling from146.8 pounds per person to 133.0 in 2015. With the U.S. population growing at a faster rate than projected wheat food use for the 2016/17 marketing year, per capita wheat consumption is on track to decline again in 2016. Reduced per capita wheat food use in the U.S. has been attributed to rising consumption of gluten-free or multi-grain products and diet trends, such as the Atkins diet, that encourages reduced consumption of carbohydrates. These same changes in consumer taste and preferences created downward pressure on use for other plant-based starches such as potatoes. Over the past two decades, per capita potato consumption has fallen by an average of 1.6 pounds per year and compares to annual per capital declines of 0.7 pounds for wheat. This chart is drawn from the ERS Wheat Outlook report released in November 2016.

Retail price of flour fluctuates with farm price of wheat

Thursday, September 1, 2016

Retail prices for minimally processed foods tend to fluctuate with farm prices for the agricultural commodities used in their manufacture.?Prices for wheat and other grains and oilseeds have risen due to a variety of factors including, most recently, the 2012 drought. Prices for flour in retail stores are up as well. Grinding 1.37 pounds of hard red winter wheat produces 1 pound of all-purpose white flour and wheat middlings that may be used in other food products or animal feed. Over 2011 and 2012, as the farm value?the cost of the wheat in a pound of flour?rose from 10 to 14 cents (a 40-percent increase), the average retail price for all-purpose white flour rose from 48 to 52 cents per pound (an 8.3-percent increase).?The farm share of the retail price of flour simultaneously increased from 20 to 26 percent. More information on ERS?s farm share data can be found in the Price Spreads from Farm to Consumer data product, updated March 20, 2013.?

Even large commodity price increases result in modest food price inflation

Thursday, September 1, 2016

Farm-level commodity prices are far more volatile than food prices, as costs for marketing inputs such as packaging, processing, and transportation mitigate commodity price volatility on supermarket shelves and restaurant menus. Corn, wheat, and soybeans are the three most important field crops to the U.S. food supply. The average farm price of these crops, weighted by total production, regularly rises or falls by over 10 percent from year to year. On average, food prices have become less volatile in recent decades, as food price inflation averaged 8 percent per year in the 1970s, but only 2.8 percent per year since 1990. Commodity prices, alternatively, have grown somewhat more volatile over time. However, large changes in major commodity prices have relatively small impacts on food prices. In 2007-08, the average production-weighted price of these crops increased by 50 percent, while food prices rose 5.5 percent. Similarly, in 2010-11, the crop prices rose 31 percent and food prices increased 3.7 percent. This chart appears in the Food Price Outlook topic page on the ERS website, updated April 17, 2013.

Wheat production costs vary widely across U.S. farms

Thursday, September 1, 2016

There is wide variation in wheat production costs on U.S. farms based on differences in cropping practices, yields, and costs of land, labor, and capital assets across wheat-producing regions. USDA?s 2009 Agricultural Resource Management Survey found that 97 percent of the country?s farms could have covered all their operating costs (shortrun costs of planting, growing, and harvesting) with the 2009/10 season average price of $4.87 per bushel if they had been able to attain the yields they expected at planting (as reported in the survey).? Under the same price and yield assumptions, about 77 percent would have covered both operating and ownership costs (repair costs, annualized depreciation and interest costs, property taxes, and insurance) and 34 percent would have covered total costs (operating and ownership costs, as well as the opportunity costs of unpaid labor and land rental, and general farm overhead).? However, during 2009/10, only 79 percent of wheat farms were able to cover their operating costs with the yields they actually harvested. The relatively high share of farmers not covering these shortrun costs is attributed, in part, to yield losses in the Southern Plains, where crops were adversely affected by severe weather during 2009/10. This chart can be found in U.S. Wheat Production Practices, Costs, and Yields: Variations Across Regions, EIB 116.

Record world wheat crop pressures U.S. prices

Thursday, September 1, 2016

World wheat production is forecast at a record 711.4 million tons in 2013/14 (June/May marketing year), 2 percent above the previous record outturn in 2011/12. The average per hectare yield is forecast at 2.9 percent above the previous record.? A record crop in Canada, along with larger harvests in Australia and the Black Sea exporters (Russia, Ukraine, and Kazakhstan) are major contributors to the outlook for the increase in global wheat output. World wheat trade is also forecast to reach a record 154.3 million tons in 2013/14 as increased supplies in major wheat producing and exporting countries?including Canada, Australia, and the Black Sea exporters?puts downward pressure on wheat prices. U.S. wheat prices are also under pressure because falling U.S. corn prices following the rebound in the 2013/14 U.S. corn crop have led to reduced demand for feed wheat.? U.S. season average farm prices are currently forecast in the range of $6.65 to $7.15 per bushel, the midpoint of that range down more than 11 percent from the 2012/13 record of $7.77.? This chart is based on data and analysis provided in Wheat Outlook: December 2013.

Contract changes improve convergence of futures and cash prices for soft red winter wheat

Thursday, September 1, 2016

Futures markets play an important role in price discovery (determination of prices through the interaction of market supply and demand) for major agricultural commodities, and provide a tool for growers, traders, and processors to mitigate risk. For futures markets to perform these functions effectively, the price of a commodity held in a futures contract must match (or ?converge?) with its price in the cash?or spot?market when the futures contract expires.? During 2005-2011, cash and futures prices for soft red winter (SRW) wheat failed to converge to the generally acceptable ?basis??or difference between the cash price and futures price?of plus or minus $0.10/bushel. At times the basis exceeded $1.00/bushel.? In response, the futures exchanges modified their SRW contracts to better align contract terms with changes occurring in cash markets for factors including storage rates, major delivery locations for SRW, and quality specifications. Following these changes, cash and futures market prices for SRW have moved closer together, improving the effectiveness of futures contracts in determining prices and as a tool to manage risk. This chart is based on Recent Convergence Performance of Futures and Cash Prices for Corn, Soybeans, and Wheat, FDS-13L-01, released December 30, 2013.

U.S. wheat market share projected to continue to slip

Thursday, September 1, 2016

Although global and U.S. wheat exports are projected to rise over the next decade, the U.S. share of the world market is projected to continue to decline because of competition from other exporters. Global demand for wheat is expected to expand, driven primarily by income and population growth in developing country markets, including Sub-Saharan Africa, Egypt, Pakistan, Algeria, Indonesia, the Philippines, and Brazil. The number of major exporting countries has, however, expanded in recent years from the traditional wheat exporters--the United States, Argentina, Australia, Canada, and the European Union--to include Ukraine, Russia, and Kazakhstan. Although variable, the wheat export volume of those three Black Sea exporters together now rivals that of the United States. Low production costs and new investment in the agricultural sectors of the Black Sea region have enabled their world market share to climb, despite the region?s highly variable weather. Competition from the Black Sea region, as well as from traditional exporters, has resulted in a decline in the U.S. share of expanding world exports from an average of about 39 percent in the first half of the 1980s to an average of about 20 percent over the last 5 years. Find this chart and additional analysis on the Wheat topic page.

Mixed picture for recent returns to production of U.S. field crops

Thursday, September 1, 2016

Estimates of U.S. crop returns per acre reveal large differences in crop profitability across commodities and over time during 2010-13. Returns to crop production are defined as the gross value of production less total economic costs. Total economic costs include operating costs such as seeds, fertilizer, and pesticides; the capital recovery cost for machinery and equipment; and the costs?known as opportunity costs?of employing land, labor, capital and other owned resources that have alternative uses. While returns to total economic costs for corn, soybeans, rice, and peanuts were positive, on average, for the 2010-13 period, average returns for other major crops were negative.? For most crops, changes in farm prices and the gross value of production per acre, rather than changes in production costs, have driven returns to total economic costs. Lower prices contributed to reduced returns for corn, soybeans, wheat, sorghum, and peanuts in 2013, while price and yield increases improved returns for oats and rice.? The negative returns over total economic costs for some crops indicate that that those producers realized a lower rate of return to their land, labor, and capital than the benchmark rates of return used in ERS commodity cost and returns accounts; returns over operating costs alone were positive for all crops throughout the period.? This chart is based on data found in Commodity Costs and Returns.

Recent evidence suggests that farmers continue to adopt no-till on more cropland

Thursday, September 1, 2016

Farmers have choices for how they prepare the soil; reduce weed growth; incorporate fertilizer, manure and organic matter into the soil; and seed their crops, including the number of tillage operations and tillage depth. Tillage practices affect soil carbon, water pollution, and farmers? energy and pesticide use. No-till is generally the least intensive form of tillage. Approximately 35 percent of U.S. cropland (88 million acres) planted to eight major crops had no-till operations in 2009, according to ERS researchers who estimated tillage trends based on 2000-07 data from USDA?s Agricultural Resource Management Survey (ARMS). Furthermore, the use of no-till increased over time for corn, cotton, soybeans, rice and wheat, the crops for which the ARMS data were sufficient to calculate a trend. While a more recent estimate of nationwide use of no-till by all major crop producers is not available, based on the results of recent surveys of wheat producers in 2009 and corn producers in 2010, it seems likely that no-till?s use continues to spread, albeit at a much reduced pace among corn producers. This chart is found on the ERS topic page, Soil Tillage and Crop Rotation, and in the ERS report, Agriculture?s Supply and Demand for Energy and Energy Products, EIB-112, May 2013.

Market fundamentals have been the primary driver of recent wheat price spikes

Thursday, September 1, 2016

U.S. wheat prices have spiked and then fallen along with prices for other commodities over the last 5 years, leading to questions about how factors such as market fundamentals, macroeconomic events, and increased commodity index trading have contributed to these price swings. Recent ERS research measures the relative contribution of different factors to observed price changes during 1991-2011. Findings show that market-specific shocks related to supply and demand for wheat, such as drought impacts on consecutive Australian wheat harvests in 2006-07 and a Russian ban on wheat exports in August 2010, were the dominant cause of price spikes in the three U.S. wheat futures markets. Fluctuations in the global economy associated with broadbased demand shocks such as the Lehman Brothers Holdings, Inc. bankruptcy, were relatively less significant, and there is little evidence to suggest that increased commodity index trading activity contributed to recent price spikes. Find this chart and more analysis in Deconstructing Wheat Price Spikes: A Model of Supply and Demand, Financial Speculation, and Commodity Price Comovement.

A majority of cash grain, cotton, and peanut farms are covered by crop insurance

Thursday, September 1, 2016

Most farms specializing in cash grains, cotton, and peanuts reported farmland covered under a Federal crop insurance policy in the 2009 Agricultural Resource Management Survey. Farms with other specializations participated in Federal crop insurance, but to a lesser degree. About a third of tobacco farms had insured land, as well as 20 to 30 percent of farms specializing in hogs, dairy, or fruits, vegetables, and tree nuts. Hog and dairy farms often grow crops to feed their livestock, and these crops are eligible for Federal crop insurance. This chart is found in Changing Farm Structure and the Distribution of Farm Payments and Federal Crop Insurance, EIB-91, February 2012.

Ukraine an important exporter in several agricultural markets

Thursday, September 1, 2016

Over the last 15 years, Ukraine has emerged as a major supplier to world markets for several agricultural commodities, including wheat, corn, sunflower oil, and rapeseed.? Wheat is a traditional export, with annual shipments varying with crop size. For 2013/14 (July/June marketing year), Ukraine?s wheat exports are forecast at 10 million tons, or about 6 percent of world wheat trade.? During the last decade, Ukraine?s corn production and exports have expanded, with 2013/14 (October/September) exports forecast at 18.5 million tons, making Ukraine the world?s third-largest corn exporter.? Robust production growth is also behind Ukraine?s emergence as the world?s dominant supplier of sunflowerseed oil, with 2013/14 (September/August) exports forecast at nearly 4.1 million tons, or about 57 percent of global trade.? Ukraine has also become a significant exporter of rapeseed, with 2013/14 (July/June) exports forecast at about 2.2 million tons, or 16 percent of world trade. Despite recent political developments in Ukraine, so far there is no evidence of significant shipping disruptions that might alter the 2013/14 Ukraine export forecasts. Find additional analysis Wheat Outlook: March 2014, Feed Outlook: March 2014, and Oil Crops Outlook: March 2014.

U.S. farm prices of major field crops are forecast to decline for 2014/15

Thursday, September 1, 2016

Current USDA forecasts show declines in U.S. average farm prices for major U.S. field crops?corn, soybeans, wheat, and cotton?of 4 to 19 percent in 2014/15. For corn, soybeans, and wheat, this would be the second consecutive year of declining prices. Soybean prices are forecast to decline the most in 2014/15, based on an expected record U.S. crop, combined with ample supplies from Brazil and Argentina. U.S. corn prices are forecast to fall 10 percent in 2014/15, after a 35-percent decline in 2013/14, also based on a large U.S. corn crop forecast and competition from other exporters like Brazil, Argentina, and Ukraine. U.S. wheat prices are forecast to decline about 4 percent in 2014/15, despite the forecast for smaller U.S. supplies, due to adequate supplies from both traditional and Black Sea wheat exporters. Although smaller cotton crops are forecast for China and India?the top two global producers?a larger U.S. crop is expected to lead to a fifth consecutive year of rising global cotton stocks and a 12-percent drop in U.S. prices in 2014/15. Find additional analysis in the current ERS outlook newsletters: Feed Outlook: July 2014, Oil Crops Outlook: July 2014, Wheat Outlook: July 2014, and Cotton and Wool Outlook: July 2014.

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