The wheat marketing year is now half over. While prices continue to be disappointing, wheat exports continue to do well, particularly white wheat and hard red winter wheat. USDA has projected that total U.S. wheat exports will be one billion bushels this marketing year (the marketing year is June 1 through the following May 31). While this total is slightly below last year’s export volume, it is significantly higher then exports in the 2015/16 marketing year (Figure 1).
White wheat exports are expected to exceed last year’s level, and in recent years have represented an increased share of total U.S. wheat exports (Figure 2). This has contributed to white wheat prices trading at a significant premium to other winter wheat varieties this fall. In other words, soft white wheat basis (the difference between the cash price for soft white wheat and the futures price for soft red wheat) has been stronger this year (cash prices higher relative to futures prices) then was the case the first half of the last several marketing years. Thus, while prices are disappointing, they are actually better for soft white wheat compared to most other classes.
Maintaining the soft white wheat premium (sustaining a stronger than average basis level) will require a continued aggressive export pace for soft white wheat through the second half of the marketing year. Figure 3 shows the actual cumulative exports on a weekly basis last year, compared to the average needed to reach the final export volume if the same amount was exported each week (the straight line). Notice that the actual export accumulation lagged the weekly average needed through the third and much of the fourth quarter last year. The pace then really picked up in May and the increased weekly volume the last few weeks of the year led to the final export number that was realized. This is a bit unique. The previous two years the actual accumulated exports tended to be either above or even with the weekly average needed to make the final export number.
Figure 4 shows the relationship this year. Notice that early in the year actual weekly export accumulations exceeded the weekly average necessary to reach USDA’s current white wheat export forecast. If we repeat the experience from last year, and weekly accumulations begin to lag in the next quarter, we could see some basis weakening (soft white wheat price premiums being reduced relative to other classes) because of concerns that USDA over-estimated actual white wheat exports. On the other hand, if the accumulated exports continue at or above the red line in Figure 4, the white wheat price premium will likely be supported in the weeks ahead. In order to match the “Weekly Average Needed” line, we need to export about 81,681 metric tons of white wheat a week. Watch the weekly export reports from USDA, and if we maintain levels near that you can have some confidence that current basis levels can be sustained. If we begin to fall below that for several weeks in a row, however, be prepared for the basis to weaken a bit (cash prices to fall relative to soft red winter wheat futures prices).