Wh(e)at's Going On?
Declining US wheat acres are at a 100-year low, which creates challenges and opportunities.
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US wheat acres have declined almost year after year over the last 35 years, and in the current season, they have hit the lowest point in more than 100 years, resulting in various key issues industry players should consider in their strategic planning:
- A smaller US acreage base gives less supply cushion in case of a supply shock—drought, for example, which is currently being experienced in US spring wheat growing areas.
- End users are likely to see periods of difficulty in procuring desired volume and quality of US wheat, resulting in the periodic need for increased imports and alternative supply arrangements.
- Increases in imports, however, result in longer supply chains and increased cost.
- Changes in wheat supplies and quality (e.g. protein content) increase the volatility of price spreads between wheat classes, while escalating protein premiums for end users.
- Given the very low US planted area, spreads between classes have the potential to more frequently exceed historic spread levels, placing additional difficulties on businesses involved in wheat.
- The smaller acreage base and inherently variable weather patterns in the Great Plains region also increase the probability of higher volatility of basis levels, which can make effective hedging on futures exchanges more challenging.
Where to go from here
Stephen NicholsonSenior Analyst - Grains & Oilseeds Read more