With improved price trends, available capacity, and a potential uptick in U.S. ending stocks and 2024 production estimates to come, unique opportunities may arise to capitalize on the value of U.S. wheat. Though market conditions can be challenging to accurately predict, a constant is that the U.S. wheat farmer remains committed to growing high quality wheat on which customers around the world know they can rely.

Tyllor Ledford
Market Analyst
U.S. Wheat Associates

The United States (U.S) is home to vast and diverse wheat-growing regions. From semi-arid deserts to immense prairies and fertile plains, the varied climate supports the production of six unique wheat classes: Hard Red Winter (HRW), Hard Red Spring (HRS), Soft Red Winter (SRW), Soft White (SW), Durum, and Hard White (HW). Complementing the large growing regions, the U.S. maintains a sophisticated and dependable supply chain that can transport wheat from interior growing areas to the three primary export points in the Gulf of Mexico, the Great Lakes, and the Pacific Northwest to supply the needs of importers worldwide.

Over the last three years, U.S. wheat prices have been elevated, suffering from the impacts of drought throughout several wheat-growing regions, a tightening U.S. wheat balance sheet, and volatile disruptions in the world wheat market. As the U.S. Marketing Year (MY) 2023/24 moves into its second half, now is the time to take stock of the year so far and use available information to plan for Q4 of MY 2023/24 and the 2024 harvest. 

Six classes of U.S. wheat are grown across the country in a range of conditions. Source, U.S. Wheat Associates.

To fully understand the 2023/24 U.S. wheat supply and demand situation, we must go back to the autumn of 2022 when the 2023 winter wheat crop was planted. Elevated wheat prices at that time incentivized farmers to plant additional wheat acres. As a result, total U.S. wheat acres increased by 9% to 20.07 million hectares (49.6 million acres), the first increase since 2018 and the largest planted area since 2016.

Despite the persistent impacts of drought, the increase in planted area boosted U.S. wheat production to 49.3 MMT, a 10% increase from the year prior, though still 6% behind the pre-drought five-year average. Drought-inflicted yield declines and near-record abandonment of HRW fields severely reduced the final total U.S. wheat production. However, record yields were documented for SRW, coming in at 5.2 MT/ha (77.7 bu/acre), bringing production to 12.2 MMT, the highest SRW production since 2014. Likewise, HRS production exceeded initial expectations with final estimates at 12.7 MMT, marking a 5% increase from the year prior. 

EXPORT OUTLOOK

As of early January 2024, USDA’s most recent World Agriculture Supply and Demand Estimates (WASDE) forecasted U.S. wheat exports for MY2023/24 at 19.7 MMT, a 4% increase from the previous month following a series of large SRW purchases by China, though stilling sitting 5% below the year prior. Between Dec. 4 and 8, 2023, China purchased 1.12 MMT of SRW for delivery in 2023/24, supporting an 82% increase in SRW exports year over year. Likewise, HRS sales hovered 8% ahead of the year prior at 4.9 MMT, comprising 32% of the total U.S. wheat export sales. According to the Dec. 28, USDA weekly Export Sales Report, total known outstanding sales, and accumulated exports of all classes of wheat to date for the 2023/24 marketing year totaled 15.3 MMT, or 2% ahead of the 2022/23 pace.

Historic U.S. wheat planted area by class. Marketing Year 2023/24 data is estimated as of December 2024.
Source: USDA World Agricultural Supply and Demand Estimates.

Nonetheless, the positive export outlook for HRS and SRW fails to offset the reduced overall demand for U.S. wheat, driven again by lower supplies, high prices relative to competing supplies, and a subsequent decline in HRW exports. For MY 2023/24, HRW exports are estimated to reach 3.9 MMT, a 35% decrease from the year prior and 55% below the five-year average. These competitive headwinds are not isolated to wheat. Exports for all grains and oilseeds, face stiff competition from other world suppliers, with soybeans taking the largest impact due to South American competition in the Chinese market. According to USDA, for the week ending Dec. 28, 2023, export inspections for all U.S. grains (wheat, corn, and soybeans) were down 19% from the same period last year and 39% below the three-year average.

U.S. wheat historical beginning stocks, production, and exports. Marketing Year 2023/24 data are estimated.
Source: USDA World Agricultural Supply and Demand Estimates.

A LOOK AHEAD

Breaking the trend, market conditions in 2023 have helped U.S. wheat recover a more competitive position in the global market, and turned the market back to buyers. Since January 2023, average U.S. wheat free-on-board (FOB) export prices are down 22% across all classes and export points. Stiff price competition, primarily from the Black Sea, has weighed on U.S. and world wheat prices. Simultaneously, the decreased grain export volume has created surplus capacity at U.S. ports, dampening U.S. export basis levels and improving U.S. wheat competitiveness. As of the latest U.S. Wheat Associates (USW) Price Report, published Jan. 5, 2024, the average HRS export basis for the Gulf and Pacific Northwest sits 15% below the five-year average, while HRW and SRW sit 31% and 27% below the five-year average, respectively.

U.S. wheat commercial export sales from June 1 through December 28 in Marketing Year 2023/24 compared to commercial sales over
the same period in Marketing Year 2022/23. Source: USDA Federal Grain Inspection Service.

As we move into the latter half of MY 2023/24, year-end supplies come into sharper focus. USDA currently estimates U.S. ending stocks at 17.9 MMT, a 13% increase year over year and the first increase since 2015/16. The increase helps loosen the U.S. wheat balance sheet, though ending stocks still sit 14.2 MMT below the recent highs hit in 2016/17.

U.S. wheat historical ending stocks since Marketing Year 2014/15. Marketing Year 2023/24 data are estimated.
Source: USDA World Agricultural Supply and Demand Estimates.

Finally, looking forward to the 2024 harvest, the early season outlook remains cautiously optimistic. Throughout the summer and fall, moisture helped replenish dry soil in the U.S. Southern Plains, aiding in fall planting and supporting early-season growth and emergence, leading to a sharp reduction of U.S. winter wheat areas experiencing drought conditions. The last aggregate USDA Crop Progress Report, published on Nov. 27, 2023, put 50% of winter wheat in the good to excellent category, the highest since 2020. On Jan. 12 the first estimates for U.S. winter wheat plantings will be available, helping provide a better outlook for 2024/25 production.

One year ago, an estimated 65% of U.S. winter wheat was within an area experiencing drought conditions. As of January 2, 2024,
that percentage is down to 32%, adding potential to increase total production in the 2023/24 U.S. winter wheat crop.
Source: U.S. National Oceanographic and Atmospheric Administration and USDA.

It is important to keep in mind that there is much time between now and the 2024 U.S. harvest. With improved price trends, available capacity, and a potential uptick in U.S. ending stocks and 2024 production estimates to come, unique opportunities may arise to capitalize on the value of U.S. wheat. Though market conditions can be challenging to accurately predict, a constant is that the U.S. wheat farmer remains committed to growing high quality wheat on which customers around the world know they can rely.