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WMR-Higher Demand Projected for Large 2020 Crops

By: Jim Peterson
Posted: Nov 03 2020

The 2020 U.S. durum wheat crop is nearly 30% larger than 2019 at 69 million bushels (mb).  All of the increase essentially came from Montana and North Dakota durum regions.   In both states, planted area increased by 25%, but harvested area increased more significantly, up more than 35% in Montana, and nearly 50% in North Dakota compared to 2019.  Yields were strong at 39 bushels/acre in both states, although down about 10% from the 2019 record.  

The durum crop is significantly improved in quality over 2019 which is supportive for demand.  Total demand is projected at 119 mb, up 10% from 2019.  The domestic use number of 89 mb, up substantially from 66 million last year needs a bit of clarification, as it includes food use, seed use and feed/residual use.  In 2019, the feed/residual was a -21 mb and is merely an accounting adjustment.  If we look solely at food use, that is projected to hold at 86 mb for a second straight year, and a historic high.  The strong pasta sales in the U.S., with more at-home isolation or at-home work policies due to COVID-19, is keeping domestic mill grind brisk.

On the export front, USDA is anticipating a nearly 30% decline compared to 2019, to just 30 million bushels.  This is lower than the current market realities however, with mid-October export sales at 20 mb already, slightly ahead of the year ago pace.  Italy is the dominant buyer with nearly 60% of the sales. Sales to North African region have been lacking to-date, but if sales materialize before Lake freeze-up, USDA will likely have to revise the current export projection.

Ending stocks for U.S. durum by June 2021, are projected to decline to 37 mb, down by one-third from June of 2019, but still near 5-year averages.  This will be a tempering factor in price responses in the market, but projections for world supplies and stocks are more supportive to prices.  World durum ending stocks by June 2021 are projected to reach a 6-year low, and prices in the EU market have a much firmer tone.  Likewise, Canadian ending stocks are projected to fall to less than 30 mb by June of 2021, down more than 60% from June of 2019.  U.S. producer prices for durum have bounced off of their harvest lows, but remain below early summer highs.  Hopefully U.S. prices can garner more support from tighter world fundamentals, as the marketing year unfolds.

The 2020 U.S. hard red spring (HRS) wheat crop is estimated at 530 mb, slightly larger than the 520 mb produced in 2019.  Higher production was supported by a record national yield, and an increase in harvested acres, even though planted acres were lower.  North Dakota had a sharp reduction in planted acres, down 1 million acres or 15% from 2019, due to a switch in western areas to more durum, and challenges with overly wet soils and a delayed planting season in eastern areas.  U.S. HRS plantings were down 3% overall with Montana HRS acres up 14%, South Dakota acres up 20% and Minnesota down 1% from 2019.  Despite the June drought in key parts of the region, the national yield reached a record of 48.6 bushels per acre, up from 48.3 in 2018 and 2019, the previous record. Supplies of HRS remain robust in 2020, due to 3 strong production seasons, and the largest beginning stocks in more than 20 years at 280 million bushels.

Total demand, according to the latest USDA report, is projected to reach 582 mb, up 5% from a year ago, and also above the 5-year average.  Higher domestic use at 312 million bushels is the largest factor in the demand increase.  Within that projection, domestic food use is pegged at 261 mb, down marginally from 265 a year ago, as higher protein levels in hard red winter trim some HRS domestic mill use.  Feed use is up sharply to 35 mb, compared to just 5 million bushels, likely due to continued feeding of portions of the lower quality 2019 crop earlier this summer. 

Exports of HRS are projected to hold nearly steady with a year ago at 270 million bushels.  A very large Canadian crop will continue to keep competition for higher protein export demand keen, but the current U.S. HRS export sales pace, is in contrast to the steady projection.  As of mid-October, U.S. sales stand at 162 mb, 16% higher than a year ago.  Very robust sales to the Philippines, Japan and China, along with numerous other markets in Asia have led to the strong start.  The sales pace has slowed recently, due to high rail freight costs, and tight export handling space for near term positions in the Pacific Northwest, due to the strong export programs for corn, soybeans and wheat, driven by sales to China.  

Local HRS producer prices have rallied off of their harvest lows during the month of October, supported by the strong early season export sales, and prices are currently near the peak levels of the last crop year.  World fundamentals offer a more price constructive situation this year, but a factor which is holding HRS below it’s typical price premium to other classes of wheat is the larger, relative supplies.  This may help bring additional demand for HRS as the marketing year unfolds however, as some non-traditional buyers seek out the tremendous value opportunity in the excellent quality 2020 crop.  

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