What Winter Wheat Seedings May Be Telling Us

On a January USDA WASDE report packed with moving parts one of the most interesting turned out to be Winter Wheat Seedings. Yes, Quarterly Grain stocks numbers and US/Global ending stocks projections got their fair share of attention as well, but the surprise decline in Winter Wheat seedings might just have a deeper message to the world of agriculture. What is it and what does this mean going forward?

As a whole the trade was looking for winter wheat acreage to hold constant or be marginally lower year over year. According to the USDA however winter wheat acreage is down almost 2.8 million acres from last year to 36.6 million acres. This represents a 7% decline from last year, a 14% decline since 2014 and the lowest winter wheat acreage since 2010. This potentially sets the US up for the lowest winter wheat crop since 2002.

Large global supplies a strong US$ and a very competitive export market have left big stockpiles of wheat in the US with the USDA projecting ending stocks at 941 million bushels. Large supply and lackluster demand has kept wheat prices under pressure for some time. The large drop in winter wheat seeding could be in no small part due to increasing global production and competition as the US has continuously struggled to gain global export market share, especially with a strong US$. These factors have led wheat prices to 5-year lows as of last week.

The bottom line is that with wheat prices under so much pressure, and with the lack of any real optimism in sight producers decided to cut back. So, this could be setting wheat up for better prices down the road, especially if there were a major production issue somewhere. Maybe more importantly, this significantly larger than expected drop in winter wheat acreage may be giving clues as to what acreage intentions might look like for the next growing season.

If producers are willing to cut winter wheat acres due to low price and poor profitability what might this say about row crop acres for the upcoming US growing season? As low prices have put pressure on producer’s profit margins, in many cases running negative profit margins, producers are faced with the task of optimizing efficiency. In doing so producers need to look at every acre and decide if it has potential to be profitable. Could this mean that some of the more marginal ground may get left unplanted? Sure, maybe even likely, but how much?

The surprise drop in winter wheat acreage certainly could be supportive for wheat prices down the road, especially if there is a major production issue somewhere. But, there may be more meaning here too. Could the drop in acreage be hinting toward a drop in acreage for the summer growing season as well? There is still time for corn, wheat and soybeans to “buy acreage” with higher prices but given current price levels we might be in for a surprise when we get to the Prospective Plantings report in March.

Source: Ted Seifried,

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