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Wheat

wheat

Revised April 2012 by Gary Brester, professor, Department of Agricultural Economics, Montana State University, gbrester@montana.edu

 

Overview

Wheat is the third-largest field crop produced in the United States following corn and soybeans. In 2011, the United States produced 2.0 billion bushels of wheat. U.S. peak production of 2.5 billion bushels occurred in 1998 and again in 2008. The largest wheat producing states by volume in 2011 were:  Kansas (276.5 million bushels), North Dakota (200 million bushels), Montana (175 million bushels), Washington (168 million bushels) and Idaho (105 million bushels). The relative percentage of U.S. production among these four has been relatively stable for the past several years. 

World wheat production set a new record in 2011 of 25.5 billion bushels. The EU-27 countries are the largest wheat producers (5 billion bushels) followed by China (4.3 billion bushels), India (3.1 billion bushels), the Russian Federation (2.1 billion bushels), the United States (2 billion bushels), Australia (1 billion bushels) and Canada (0.9 billion bushels). Kazakhstan, Ukraine and Pakistan each produced almost as much wheat as Canada. U.S. wheat production represented almost 8% of the world total in 2011. U.S. ending wheat stocks totaled 845 million bushels in 2011. Over the past decade, U.S. ending wheat stocks varied between a low of 306 million bushels in 2007 and a high of 976 million bushels in 2009. U.S. ending stocks represent about 11% of world ending stocks (7.8 billion bushels) in 2011.

Production

U.S. wheat production is classified into five major classes: hard red winter, hard red spring, soft red winter, white and durum.  Each class has different end-uses, and production tends to be region-specific (Table 1). Hard red winter and hard red spring wheat account for 60% percent of production. These classes are primarily used to produce bread flour.  Soft red winter represented 23% of wheat production in 2011 and is used in the production of cakes, crackers, and cookies. White wheat accounted for 15% of production and is used in noodles, crackers and cereal products. White wheat is a relatively broad category that includes both soft and hard varieties, as well as spring and winter varieties. Durum wheat is used to produce pasta.

Table 1. U.S. Wheat Classes.

Class 2011 Production,
 in Bushels
Location Produced Uses
Hard Red Winter 780 million Great Plains (TX to MT) Bread flour
Hard Red Spring 398 million Northern Plains (ND, MT, MN, SD) High-protein blending
Soft Red Winter 458 million Eastern States Cakes, cookies, crackers
White 314 million WA, OR, ID, MI, NY Flour for noodles, crackers, cereals
Durum 50 million ND, MT Pasta

Winter wheat is sown in the fall and harvested the following summer.  The crop emerges shortly after seeding and then enters dormancy over the winter months.  Winter wheat resumes growth in the spring.  Winter wheat is often planted to take advantage of fall moisture which ameliorates problems of limited spring and early summer moisture.  It also matures earlier than spring wheat, so it is less subject to extreme summer heat in southern climates.  Spring wheat is planted where cold winter weather often harms winter wheat and in regions where there is usually adequate spring and summer moisture.  Spring wheat is sown in the spring and harvested in the late summer or fall.

Approximately 75% of U.S. wheat production is winter wheat.  Production of hard red winter wheat in the United States totaled 780 million bushels making this the largest wheat class by volume.  Over the past 5 years, production has averaged close to 1 billion bushels.  More than 398 million bushels of hard red spring wheat and more than 458 million bushels of soft red winter wheat were also produced in 2011.  The production levels of both are near their recent historical averages.  Durum production was about 50% lower than the preceding two years and near levels that existed in 2006.  Lower production was primarily the result of wet spring weather in Montana and North Dakota.

Prices

The price received by farmers for all wheat in 2011 averaged $7.44/bushel.  A record high price ($8.02/bushel) occurred in 2008.  Prices declined to $5.30/bushel in 2009 and $5.12/bushel in 2010.   Durum wheat prices average $5.80/bushel in 2011.  Hard red winter wheat prices ($7.04/bushel) and hard red spring prices ($8.38/bushel) were also near record levels.  Prices for soft red winter wheat ($6.79/bushel), all white wheat ($6.59/bushel), and durum wheat ($9.20/bushel) were also very strong.

Demand

Per capita wheat consumption has been declining for more than a century.  In 1879, wheat flour consumption was 225 pounds/capita.  Per capita consumption reached a low of 110 pounds in 1972.  Consumption rebounded to 146 pounds by 2000, as flour-based foods such as pizza became more popular and because of the advent of bread machines.  Over the past several years, however, per capita consumption of wheat flour has hovered around 134.5 pounds.

Exports

The United States exported 975 million bushels of wheat in 2011.  This represents almost one-half of U.S. production.  The largest destinations for U.S. wheat were sub-Saharan Africa (104 million bushels), Japan (79 million pounds), Mexico (73.5 million bushels), and the Philippines (45 million bushels).  While the U.S. continues to be the world’s largest wheat exporter, its share of world wheat exports has decreased over the past 20 years from around 33% in the 1990s to about 19% in 2011.

Imports

The United States imports only very small quantities of wheat.  In 2011, the United States imported 69 million bushels of wheat -- mostly from Canada.  In addition, the United States also imported the equivalent of 16 million bushels of wheat in the form of flour and wheat products.

Value Added Opportunities

Wheat is generally marketed as a commodity, but a variety of value-added, niche markets exist.  Organic food grains are increasingly important to some consumers.  In addition, specialty wheat varieties (such as Khorasan) can be more palatable to those who have moderate allergies to wheat gluten.  Finally, protein levels in both winter and spring wheat are important for food processors.  In some years, high protein levels (especially in spring wheat) are often rewarded by substantial price premiums.  Hence, higher protein varieties of spring wheat provide another value-added opportunity.

Competitive Analyses

U.S. wheat acreage continues to be pressured by a variety of factors.  Increased demand for corn, resulting from expanding ethanol production, has caused some wheat acreage in the Upper Midwest to be shifted to corn production.  On the other hand, world wheat prices are historically about 125% of the price of corn because wheat is used for livestock feed in many countries.  Hence, increases in prices caused by higher corn prices and reduced wheat acreages are a positive factor for future U.S. wheat production.  Nonetheless, these small acreage changes in the United States have little impact on world prices given that U.S. wheat production is only 8% of the world total and less than 20% of world trade.  In addition, it appears that Eastern Europe is developing infrastructure that could make it a larger competitor in world wheat markets.  Whether institutions and property rights can also be developed commensurate with infrastructure improvements will likely be the deciding factor for growth in this regions.

As wheat acreage has declined, exporters and export customers are increasingly concerned about securing future supplies.   Hence, three new unit train loading facilities are currently being constructed in north central Montana.  Coupled with the recent deregulation of the Canadian wheat marketing sector, it is likely that more Canadian wheat will be imported into the U.S. to take advantage of elevation and transportation logistics.

Finally, feed grain and soybean yields continue to increase because of new technologies – especially those related to genetic modification with respect to insects, disease, and weed control.  Such genetic engineering has not occurred to date in the wheat sector.  Of course, the primary factor for this resistance has been consumer concerns.  Nonetheless, if yield increases and cost reductions within the U.S. wheat sector do not keep pace with production alternatives, the U.S wheat industry will likely contract in the future.
 

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