2024/25 Wheat Balance Sheet Outlook

As we prepare for the release of the USDA Wheat by class balance sheets, I wanted to take some time to share what I am currently playing around with from a US balance sheet perspective, the impact that could have on prices moving forward, and a few consumer and producer strategies I would consider deploying.

Before I get too deep into the balance sheets, I want to call out a few assumptions and observations that I am making.

First, the assumptions that I am using for the Russian production are between 80-83mmt and exports are between 44-46mmt. There is obviously a ton of variability around these estimates today, and that is part of the reason the market is so jacked full of risk premium – what if the crop ends up at <75mmt? 

Second, I am bullish US Wheat production this year vs the USDA estimates. I believe that the USDA estimate for Kansas at ~267m bu is too low and that the Kansas Crop tour abandonment of ~20% was too high. My Kansas production number is above 300m bushels. I also think that the soft wheat crop will be slightly larger than the USDA estimate. At this point, there is little concern with weather in the Dakotas, so I am currently leaving my spring wheat estimates close to the USDA values.

Third, with the Russian crop issues there will be some business to move back to the US, but it is likely to be the second half of the marketing year before any large changes occur. Russia will export the crop that they have initially and will continue to be the supplier to the world. When things get tight later in the marketing year is when fireworks could occur. 

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    All Wheat:

    USDA All Wheat Balance Sheet Estimate

    This year, all wheat balance sheet is set to see a year of growing supply , growing demand, and a build in carryout’s.

    The growing supply is largely driven by an increase in HRW production after two years of back-to-back droughts.

    On the demand side, I am forecasting a large increase in exports, mostly driven by HRW exports due to a smaller Russian crop. I am also forecasting for a material decline in wheat feeding due to elevated wheat/corn ratios as we go into harvest. 

    Hard Red Winter Wheat:

    June Hard Red Winter Wheat Balance Sheet Estimate

    The HRW balance sheet is where the largest changes will occur this year. After two years of drought, the primary growing regions have seen a return to more normal moisture and crops. As I mentioned above, I am slightly bullish production vs the USDA based on outcomes of other crop tours, conversations that I have had with producers, and the wheat that I have seen. 

    On the demand side, the single largest change YoY is a return in exports. This is also the area with the most potential volatility. The 82M bushel increase I am forecasting YoY is the assumption that with the crop issues in Russia, the US wins back the business in Central and South America that we lost over the last year. At this point, I do not believe that we will price into the large importers in Africa, but there has been some talk of this among market participants. 

    From an ending stocks perspective, if this situation plays out, we are likely to see a large increase in HRW ending stocks and a ~59% S/U ratio. This 59% S/U ratio also gives the balance sheet some wiggle room in case the Russian situation is worse than my current estimates. In order to hold the balance sheet flat YoY, we would need to see exports increase by ~100M bushels more than I am currently looking at. 

    Price wise, if this situation plays out, I believe we are likely to see harvest lows somewhere in the $6.10-$6.30 range this fall (KWZ24). 

    On the coverage side, I like the idea of layering in some producer sales up here. KWZ24 is currently trading around $7.50/bu and unless the Russian crop ends up being significantly smaller than current estimates, we are likely to see that number set back. On the consumer side, I like optionality at these levels. Calls, collars, call spreads all make some sense depending on your risk tolerance and ability to spend premium. 

    Final Note: The Russian crop size could have a very large impact on the US HRW balance sheet. Right now, it seems like most balance sheet forecasts are in the 80-83mmt range, but there are some below 80mmt. If their production ends up significantly below 80mmt, my export number is likely too low, which will raise the floor for US prices. 

    Soft Red Winter Wheat:

    June Soft Red Winter Wheat Balance Sheet Estimate

    No huge changes YoY are expected on my SRW balance sheet. As I noted in the first few paragraphs, I am slightly bullish on SRW production. The yields coming out of Illinois have been better than originally anticipated and the crop looks good overall. Yes, the continual rail is having an impact, but I don’t think I am at the point where I am ready to start discounting production yet. 

    On the demand side, I am looking at less wheat into the feed channel. This is driven by the impact of higher wheat/corn ratios due to the Russian concerns. Typically, if we feed wheat in the US it occurs around June/July, and right now the wheat/corn ratios are not letting that be priced in. Also on the demand side, I am reducing US exports by 30mbu YoY. 

    From an ending stocks perspective, I am looking at a year of growth in the SRW wheat category with the carryout moving from 123M bushels to 149M bushels. If realized, this will bring our S/U ratio up to 43%. 

    On the price side of things, If this balance sheet plays out, I believe that prices will see harvest lows somewhere in the $5.90 – $6.20/bu range (WZ24).

    My thoughts on coverage are similar for SRW and HRW. On the producer side, I would like the idea of making sales around these levels. On the consumer side, I like the idea of deploying optionality with prices as high and as volatile as they are. 

    Hard Red Spring Wheat:

    This early in the growing season, there is not too much to say about my HRS balance sheet. The weather thus far in the Dakotas has been good, the Canadian crop looks like it’s in good shape, so I don’t think there is a significant production concern, yet anyways. 

    On the demand side, I left the HRS balance sheet roughly flat YoY. That may change as we move forward, but this is where I am starting. 

    From a carryout perspective, I am forecasting a slight increase in carryout, but a roughly flat S/U ratio. 

    Pricewise, if this situation plays out, we could see prices trend downward to the $6.50-$6.75/bu range as we approach harvest. 

    Housekeeping:

    Nothing in this post constitutes a buy or sell offer. All information is meant for educational use and are simply observations and opinions that I see in the markets. These observations and opinions are subject to change at a moment’s notice. If you are interested in trading and or hedging commodities, please carefully consider the risks and consult a registered professional.