The price of US wheat has recently tumbled due to record production of the grain. Some decades ago, the United States served as the top exporter of wheat, but now the country provides less than 10% of the grain globally.
The United States as a Major Wheat Exporter
Since the early 1960s, exports of US wheat swung sharply. A bullish trend was observed until the 1981/82 (July-June) international trade year, when wheat exports hit a high of approximately 48 million metric tons. However, this upward trend reversed as exports plunged to 23 million metric tons in the international trade year 2002/03.
The share of the United States in terms of wheat exports has fluctuated from a high of 50 percent in trade year 1973/74 to around 30 percent to 40 percent during 1982/83-1995/96, and between 20-30 percent in the next decade. Over the last ten years, exports stood above 30 million metric tons only three times. While global wheat exports are growing, the US share of wheat exports is declining.
Higher Global Wheat Supply and Price Decline
Other countries, even those which once were top export customers of the United States have increased their own wheat output and have become exporters themselves. Nations such as Canada, Russia, and China are surpassing the United States when it comes to wheat production, regardless of the fact that the US is exporting nearly 50 percent of its wheat crop every year.
The increasing global wheat output, together with the strength of the USD against other currencies, have led to a slump in US wheat prices.
In North Texas, wheat is forecasted to bring in revenues of approximately $11 million for this year in Wichita County—significantly lower compared to the $15 million revenue that it brought last 2013. According to Texas A&M University Agrilife Extension Service grain marketing economist Mark Welch, these losses can partially be attributed to the massive harvests of other foreign producers.
Since wheat is relatively easy to grow in different climates, several countries which were once dependent on the United States’ wheat exports have decided to cut down on costs and produce their own.
Wheat Chart Analysis
Based on the chart below, US wheat has been bouncing around between the399.09 and 428.31 levels since July 18. On July 18, the price tested the 428.31 level and eventually broke down. During this session, the USDA released a Kansas wheat harvest report that surpassed the 454 billion bushel estimate of the agency. Moreover, this also marked the 6th largest harvest on record for Kansas. Having said that, the downward move of wheat was unsurprising, given the fact that the supply ramped up once again.
In yesterday’s session though, the market is trading in the green as the US dollar is broadly lower compared to other currencies due to the downbeat US nonfarm payrolls data. The nonfarm productivity in the United States plunged 0.5 percent during the second quarter, thereby dampening optimism regarding the strength of the domestic economy and prospects of a Fed rate hike.
US wheat and other products become more competitive in global markets if the value of the dollar is weak, as seen in the 1971 to 1974 wheat price surge that coincided with a major depreciation in the greenback.
Although wheat is currently trading in the green for two consecutive sessions because of the weaker US dollar, it is too early to tell if the rally will continue as there is a significant amount of resistance at the 428.31 level. Now, if the greenback continues to show weakness and the price of wheat successfully breaks out to that barrier, we can definitely go much higher.
On the other hand, if the US dollar regains its strength against other major currencies, there will be a lot of pressure on the crop market. Furthermore, the United States’ 8 percent share of global wheat exports may drop even lower on the back of a stronger USD.