10/27/2017

1

2017/18 Wheat Outlook 2017 Ag Econ In‐service Training

Dr. S. Aaron Smith, Assistant Professor,

Department of Agricultural and Resource Economics,

University of Tennessee

Overview

• Domestic (U.S.) Supply and Demand• Tennessee 

• Global Supply and Demand

• Price, Commodity Program Payments, and Crop Insurance 

• 2018 Price Outlook

10/27/2017

2

U.S. SupplyReduced Acreage

Wheat Production by Type, US

Source: National Association of Wheat Growers

10/27/2017

3

10/27/2017

4

0

10

20

30

40

50

60

70

80

90

100

1919

1922

1925

1928

1931

1934

1937

1940

1943

1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

Acres (millions)

U.S. Planted and Harvested Wheat Acres, 1919‐2017

Harvested Planted

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5

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1919

1922

1925

1928

1931

1934

1937

1940

1943

1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

U.S. Wheat Harvested‐to‐Planted Ratio, 1919‐2017

Avg 86.9%

StDev 5.5%

Max 95.4%

Min 66.4%

2016 87.5%

2017 81.7%

4144

48444546444545

4750

5856

4644

46

3939

475052

585861

52565757

474444

37

4444434339

42444543

5449

423838

4244

52565856

4852

58

66666263

5854

4949

55575151524949

514846

434341424543

4041454743

374141

434240

3633

15

16

16

17181718

2117

2020

2019

1415

14

1215

17

1717

1717

19

16

201920

14

1314

10

11121110

8

910

109

11

9

8

913

1013

15

14

1816

14

16

17

1716

1213

15

15

1413

1817

161918

1817

20

19

16

15151616

1414

1415

1314

13

14

12121213

13

12

11

5

5

7

6 5 4 4

3

2

2

4

34

3 33

22

2

22

3 3

4

3

3 2 2

2

12

2

1 12 2

2

23

2

2

3

4

3

2

33

3

4

5

5

3

4

4

6

64

33

3

3

3 3

4 4

33 2

33

4

3

4

4 43 3

33

3 22

3

3

31 2

1 12

2

2

0

10

20

30

40

50

60

70

80

90

100

1926

1929

1932

1935

1938

1941

1944

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

Acres Planted (millions)

U.S. Wheat Acres Planted, 1926‐2017

WINTER SPRING, (EXCL DURUM) DURUM

U.S. wheat acres planted are at the lowest point in the 

data set.

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6

Winter Yield = 0.4234x + 10.651R² = 0.94

Spring Yield = 0.3909x + 7.5883R² = 0.89

Durum Yield = 0.3548x + 7.7649R² = 0.78

0

10

20

30

40

50

601926

1929

1932

1935

1938

1941

1944

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

Yield (bu/acre)

U.S. Wheat Yields, 1926‐2017

Winter Spring Durum Linear (Winter) Linear (Spring) Linear (Durum)

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7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Production (Billion Bushels)

U.S. Wheat Production, 2006‐2017

OTHER STATES OKLAHOMA TEXAS KENTUCKY NORTH CAROLINA TENNESSEE VIRGINIA

ALABAMA ARKANSAS SOUTH CAROLINA GEORGIA MISSISSIPPI LOUISIANA FLORIDA

10/27/2017

8

456

306

657

976

863

743 718

590

752

976

1,181

960

0

200

400

600

800

1000

1200

1400

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Millions of Bushels

U.S. Marketing Year (June1 to May 31) Ending Stocks, 2006‐2017

TennesseeAcres, Yield, and Production

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9

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1980198219841986198819901992199419961998200020022004200620082010201220142016

Harvested

‐to‐Planted Ratio

Acres

Tennessee Wheat Acres Planted and Harvested, 1980‐2017

Planted Harvested H/P

Dyer

Polk

Carroll

Marion

Humphreys

Henderson

Montgomery

Lake

ChesterMeigs

AndersonJefferson

LoudonCannon

Unicoi

CheathamWashington

Pickett Hancock

Houston

Van Buren

SequatchieMoore

Hamblen

Trousdale

5,000 to 15,000

15,000 to 25,000

Acres Planted

0 to 5,000

25,000+

NA

Wheat Acres Planted In Tennessee, 2017 (FSA Certified)

10/27/2017

10

Polk

Carroll

Marion

Humphreys

Henderson

Montgomery

Lake

ChesterMeigs

AndersonJefferson

LoudonCannon

Unicoi

CheathamWashington

Pickett Hancock

Houston

Van Buren

SequatchieMoore

Hamblen

Trousdale

Weakley (3)22,203 acres

Robertson (2)38,183 acres

Dyer (5)18,399 acres

Gibson (1)45,299 acres

Haywood (4)20,855 acres

Tennessee Top 5 Planted Acres of Wheat, 2017 (FSA Certified)

Yield = 0.9365x + 31.238R² = 0.71

0

10

20

30

40

50

60

70

80

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Yield (bu/acre)

Tennessee Wheat Yield, 1980‐2017

10/27/2017

11

12

11

33

16

8

21

21

41

31

27

24

19

0 5 10 15 20 25 30 35 40 45

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Millions of Bushels

Tennessee Wheat Production, 2006‐2017

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U.S. DemandStable 

Wheat Characteristics and Use

• Hard Red Winter• High protein, strong gluten• Breads, buns

• Hard Red Spring• Highest in protein, medium‐strong gluten, blending wheat• Pizza dough, pan breads, yeast breads, buns, croissants

• Soft Red Winter• Medium‐low protein, weak gluten 

• Soft White (spring or winter)• Low protein, very weak gluten• Cakes, pastries, crackers, noodles, batters, flat breads

• Hard White• Medium‐high protein, medium‐strong gluten• Asian noodles, steam bread, yeast breads

• Durum• Pasta, macaroni, spaghetti

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13

0

500

1,000

1,500

2,000

2,500

3,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Millions of Bushels

U.S. Wheat Demand, 2006‐2017

Exports Domestic Consumption

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Days on Hand 81 48 105 177 133 122 109 88 136 182 194 166

0

50

100

150

200

250

U.S. Wheat Days on Hand [Ending Stocks/(Use/365)], 2006‐2017

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14

US Wheat Balance Sheet October 2017

2013/14 2014/15 2015/16 2016/17 Est.

2017/18 Projected

September

2017/18 Projected October

2017/18 Change From

Previous Month

Change 2016/17 to

2017/18Planted and Harvested Acres & Yield

Planted (Million Acres) 56.2 56.8 55 50.1 45.7 46 0.3 -4.1Harvested (Million Acres) 45.3 46.4 47.3 43.9 38.1 37.6 -0.5 -6.3U.S. Yield (bu/acre 47.1 43.7 43.6 52.7 45.6 46.3 0.7 -6.4

Supply (Million Bushels)Beg. Stocks 718 590 752 976 1,184 1,181 -3 205Production 2,135 2,026 2,062 2,309 1,739 1,741 2 -568Imports 173 151 113 118 150 150 0 32Total Supply 3,026 2,768 2,927 3,402 3,074 3,071 -3 -331

Use & Ending Stocks (Million Bushels)Food 955 958 957 949 950 950 0 1Seed 77 79 67 61 66 66 0 5Feed 228 114 149 157 150 120 -30 -37Exports 1,176 864 778 1,055 975 975 0 -80Total Use 2,436 2,015 1,951 2,222 2,141 2,111 -30 -111U.S. Ending Stocks 590 752 976 1,181 933 960 27 -221Foreign Stocks 6,524 7,243 7,887 8,247 8,736 8,892 156 645

Price and Stocks to Use RatioU.S. Avg. Price ($/Bu) $6.87 $5.99 $4.89 $3.89 $4.30-$4.90 $4.40-$4.80 $0.00 $0.75U.S. Stocks/Use 24.22% 37.32% 50.03% 53.15% 43.58% 45.48% 1.90% -7.67%

Global Supply & DemandTesting the theory you can’t get too much of a good thing

10/27/2017

15

0

100

200

300

400

500

600

700

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Millions of Acres

Wheat Acres Harvested, 1960‐2017 

ROW United States

World Wheat Yields by Country (bu/acre)

Country10‐Year Average

Yield2017/18 Yield Difference from 10 

Year Average

Argentina 43.6 46.5 2.9Australia 28.9 25.6 ‐3.3Canada 45.2 44.6 ‐0.6China 75.0 79.9 4.8European Union 82.1 84.3 2.2India 44.4 47.9 3.5Pakistan 40.6 43.1 2.6Russia 35.0 45.5 10.5Ukraine 51.9 59.8 7.9United States 45.8 46.2 0.4World 47.5 50.9 3.3

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16

Wheat Harvest Months

Country/Region Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

US

Canada

Mexico

Argentina

Brazil

EU

China

Middle East

Austrilia

New Zealand

Pakistan

India

Russia

Ukraine

South Africa

Source: Global Agricultural Monitoring ‐ https://cropmonitor.org/

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17

7.6 7.56.2

5.05.7 5.6 4.9 4.7

6.27.5 7.3 7.3

6.5 7.28.0

8.9 9.4 9.9

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Billions of Bushels

Global Wheat Production, Consumption, and Ending Stocks, 2000‐2017

Ending Stocks Production Domestic Consumption

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

bu/person/year

Global Wheat Consumption per Capita, 1960‐2017

10/27/2017

18

7%

6%

4%

4%

4%

75%

Top 5 Wheat Imports by Country, 2017/18 Marketing Year

Egypt Indonesia Algeria Brazil Bangladesh ROW

18%

16%

15%11%

10%

30%

TOP 5 WHEAT EXPORTERS BY COUNTRY, 2017/18 MARKETING YEAR 

Russia European Union United States Canada Australia ROW

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19

129 126

102

85

9491

79 76

97

114111

105

94

103

113

124127

133

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Days on Han

d

Global Days on Hand [Ending Stocks/(Consumption/365)], 2000‐2017

World Wheat Supply and Use (Million Bushels) 2017/18 (October)

Country / RegionBeginning

Stocks Production Imports Domestic FeedDomestic

Total Exports Ending Stocks

World 9,428 27,602 6,575 5,199 27,177 6,615 9,852

US 1,181 1,741 150 120 1,136 975 960

Foreign 8,247 25,861 6,425 5,079 26,041 5,641 8,892

Argentina 12 643 0 4 217 423 16

Australia 247 790 6 129 257 661 124

Canada 252 992 17 110 301 772 188

EU 385 5,550 239 2,076 4,712 1,047 414

Brazil 87 187 268 18 430 37 76

China 4,080 4,777 110 478 4,262 29 4,676

Sel. Mideast 479 716 669 184 1,478 27 359

N. Africa 509 667 1,042 80 1,656 25 536

Pakistan 159 963 1 33 933 22 168

Southeast Asia 228 0 950 283 887 38 253

India 360 3,615 129 184 3,674 18 411

Russia 398 3,013 18 753 1,598 1,194 637

Kazakhstan 146 514 2 77 254 276 133

Ukraine 65 974 1 129 367 606 67

ROW 838 2,461 2,974 541 5,013 464 835

10/27/2017

20

Price, Commodity Program Payments, and Crop InsuranceControl input costs and take advantage of opportunities when the market presents them as the low price environment is likely to continue

$7.77

$4.60

0

1

2

3

4

5

6

7

8

9

1919

1922

1925

1928

1931

1934

1937

1940

1943

1946

1949

1952

1955

1958

1961

1964

1967

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

Price ($/bu)

U.S. Average Farm Wheat Price, 1919‐2017

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21

10/27/2017

22

‐0.3

‐0.2

‐0.1

0

0.1

0.2

0.3

0.4

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May

Price ($/bu)

Average Monthly Deviation from the Marketing Year Average Wheat Price in Memphis, 2006‐2016

Commodity Program Payments (Wheat)

• ARC‐CO Payments• 2014: 7 Counties; payment rate $0‐$46.86 per base acre• 2015: 79  Counties; payment rate $0‐$52.26 per base acre• 2016: 86 Counties; payment rate $0‐$53.60 per base acre• Payments will decline in 2017 and substantially decline in 2018

• PLC Payments (Reference Price = $5.50)• 2014: $0 – $5.99 MYA• 2015: $0.61/bu – $4.89 MYA• 2016: $1.61/bu ‐ $3.89 MYA• 2017: $0.90/bu ‐ $4.60 MYA

****Payments are delayed one year… 2016 payments were received beginning Oct 1, 2017****

10/27/2017

23

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

Acres

TennesseeBase, Planted, and Insured Acres 

Base Acres FSA Planted ('14‐'16) NASS Planted ('14‐'16) RMA Insured ('14‐'16)

2014: 85,758 acres of wheat planted on generic base2015: 65,302 acres of wheat planted on generic base

RP, 2,053

YP, 336

YP‐CAT, 1,352

RPHPE, 4

SCOR, 10SCOY, 7ARP, 4 AYP, 11

AVERAGE ANNUAL NUMBER OF WHEAT INSURANCE POLICIES PURCHASED BY INSURANCE PLAN FOR CORN IN TENNESSEE, 

2014‐2016

RP, 236,027

YP, 15,048

YP‐CAT, 90,757

RPHPE, 46

SCOR, 1,089SCOY, 0ARP, 47

AYP, 82

AVERAGE ANNUAL NUMBER OF ACRES INSURED BY INSURANCE PLAN FOR WHEAT IN TENNESSEE, 2014‐2016

0

100

200

300

400

500

600

700

800

900

1,000

50% 55% 60% 65% 70% 75% 80% 85%

Number of Policies

Buy‐up

Revenue Protection Crop Insurance For Wheat by Buy‐up Level Purchased in Tennessee, 2014‐2016

2014 2015 2016

0

50

100

150

200

250

50% 55% 60% 65% 70% 75% 80% 85%

Number of Policies

Buy‐up

Yield Protection Crop Insurance For Wheat by Buy‐up Level Purchased in Tennessee, 2014‐2016

2014 2015 2016

Tennessee Wheat – Crop Insurance Summary

10/27/2017

24

2018 Price OutlookWhen supply exceeds demand prices…….. 

Tennessee Considerations for 2018

• June/July cash contracts have averaged $4.80 (min $4.66, max $4.97) since September 1st, so…

• Can your producers make money at these prices?

• Is there sufficient justification to a plant and wait approach?• i.e. cover crop and terminate vs. bringing the crop to harvest

• Can wheat be used as an aid to control weeds, mitigate erosion, improve soil health and/or maintain soil moisture?

10/27/2017

25

Wheat - Net Return Table ($/acre)Assumes Cost of Production of $403.90/acre

Yield (bu/acre)

45 50 55 60 65 70 75 80 85 90 95

3.00 (269) (254) (239) (224) (209) (194) (179) (164) (149) (134) (119)

3.20 (260) (244) (228) (212) (196) (180) (164) (148) (132) (116) (100)

3.40 (251) (234) (217) (200) (183) (166) (149) (132) (115) (98) (81)

3.60 (242) (224) (206) (188) (170) (152) (134) (116) (98) (80) (62)

3.80 (233) (214) (195) (176) (157) (138) (119) (100) (81) (62) (43)

4.00 (224) (204) (184) (164) (144) (124) (104) (84) (64) (44) (24)

4.20 (215) (194) (173) (152) (131) (110) (89) (68) (47) (26) (5)

Price 4.40 (206) (184) (162) (140) (118) (96) (74) (52) (30) (8) 14

($/bu) 4.60 (197) (174) (151) (128) (105) (82) (59) (36) (13) 10 33

4.80 (188) (164) (140) (116) (92) (68) (44) (20) 4 28 52

5.00 (179) (154) (129) (104) (79) (54) (29) (4) 21 46 71

5.20 (170) (144) (118) (92) (66) (40) (14) 12 38 64 90

5.40 (161) (134) (107) (80) (53) (26) 1 28 55 82 109

5.60 (152) (124) (96) (68) (40) (12) 16 44 72 100 128

5.80 (143) (114) (85) (56) (27) 2 31 60 89 118 147

6.00 (134) (104) (74) (44) (14) 16 46 76 106 136 166

2018 Price Projections

Source 2018 Price

CBOT $4.75

CBO $4.84

FAPRI $4.79

WASDE $4.40‐$4.80

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26

Price Considerations and Key Issues for 2018

• Global supply of wheat remains record large

• Trade • Competition for exports from Russia and Ukraine

• Huge unknown in trade policy/bilateral/multilateral trade agreements

• U.S. winter wheat acres planted?

• Global competition with other grains • Supplies of corn, sorghum, barley, and rice will compete with wheat

• Look for  continued low prices $4.00‐$5.00 per bushel

• Take advantage of marketing opportunities when they are presented

Thank you Questions?