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Economic Research Service Wheat Outlook Summary (December 14, 2017)

Core Content Overview

This report outlines the 2017/18 global and U.S. wheat outlook, highlighting production forecasts, trade dynamics, and price trends. It also discusses the shifting influence in wheat price discovery and the impact of global competitors, particularly Canada and the European Union, on U.S. exports.

Main Points

Global Production Forecast

• The 2017/18 global wheat production is forecast to reach a record high of 755.2 million tons, up 3.5 million tons from the previous month.
• Foreign wheat production is projected to increase by 17.1 million tons, surpassing last year's levels.
• The U.S. share of global wheat exports has declined significantly, from 40-45% in the 1970s to 13% in 2015-16, with a rise in exports from Russia and Ukraine.

U.S. Wheat Outlook

• U.S. exports for 2017/18 are forecast at 975 million bushels, a 25 million bushel reduction from the previous month due to increased competition from Canada.
• U.S. ending stocks are raised to 960.3 million bushels, up 25 million bushels from the previous month.
• The 2017/18 season-average farm price for wheat is $4.60 per bushel, with the price range narrowing to $4.50–$4.70 per bushel.

Price Discovery

• The U.S. remains dominant in wheat price discovery, but the Paris futures market has gained influence since 2010, especially due to supply shocks in the Black Sea region and Russia's export ban.
• The Chicago Mercantile Exchange (CME) still leads in volume, but Euronext Milling Wheat in Paris is becoming more significant as a pricing benchmark.

Canadian Wheat Production

• Canadian wheat production is raised to 30.0 million tons (1.07 billion bushels), a 3.0 million ton increase.
• Canadian spring wheat output is expected to be the second-highest in 20 years, contributing to the country's growing competitiveness in high-quality wheat markets.
• The increase in Canadian supply intensifies competition with U.S. exports, particularly in spring wheat and milling-quality segments.

International Trade Dynamics

• World wheat trade is forecast at 183.8 million tons, an increase of 1.6 million tons from the previous month.
• U.S. exports are reduced to 26.0 million tons, down 0.5 million tons, due to strong Canadian supply and competition from other regions.
• Canada's exports are increased to 22.0 million tons, up 1.0 million tons, as its output rises.
• Russia and Ukraine are expected to see increased export activity, further impacting global trade dynamics.

Wheat Consumption and Stocks

• Global wheat domestic consumption is forecast to rise by 2.1 million tons to 742.1 million tons.
• Global ending stocks are expected to increase slightly by 0.9 million tons, or 0.3%, due to higher consumption.
• U.S. ending stocks are raised, while foreign ending stocks increase less due to U.S. growth not being part of the foreign forecast.

Regional Highlights

• Indonesia is expected to increase wheat imports, mainly low-quality wheat from Ukraine and Russia, to meet animal feed demands.
• Brazil and China also show increased wheat imports, though China's imports are expected to be slightly lower year-over-year.
• European Union wheat imports are forecast to decline, reflecting higher production and lower demand.
• Bangladesh is reducing wheat imports due to rising rice imports.

Key Information

• Next report release is scheduled for January 17, 2018, featuring Crop Production, Grain Stocks, and Winter Wheat and Canola Seedings reports.
• Canadian spring wheat is expected to reach 22.2 million tons, the highest in over 50 years.
• Drought conditions are affecting U.S. winter wheat production, with 20% of the area experiencing drought.
• U.S. winter wheat is rated "good" to "excellent" at 50% of the crop, down from 58% a year earlier.
• U.S. winter wheat production is expected to decline, increasing the share of spring wheat in the total wheat output.
• Wheat price trends are influenced by global supply and demand, with milling-quality wheat enjoying a premium.

Summary of U.S. Wheat Supply and Utilization (2017/18)

Conclusion

The U.S. wheat market faces increased competition from Canada and the EU, particularly in the high-quality segment. Global wheat production and trade are expected to reach record levels, with the U.S. maintaining a dominant role in price discovery but facing challenges in export competitiveness. The report underscores the importance of monitoring supply, demand, and price trends in the global wheat market for strategic planning and policy decisions.