The Unforeseen Challenges of Kansas Farmers
Despite being part of the breadbasket of America, Kansas farmers are now facing an unprecedented crisis. An ongoing drought has severely damaged winter wheat crops to the extent that many farmers are forgoing their harvest altogether. Some have even resorted to employing crop-killing chemicals, aiming to increase their insurance payouts. This unfortunate turn of events has also led to the transformation of once productive wheat fields into grazing lands for cattle.
The scenario is reflective of the hardship experienced in 1989, when Kansas farmers left 28% of their wheat crop unharvested due to adverse conditions. Today, that figure may surpass the previous record, with predictions indicating that Kansas farmers could leave up to 19% of their crop untouched, a stark increase from the 10% last year and 4% in 2021.
The Impact on US Wheat Production and Stocks
The repercussions of this situation on the US wheat production and stocks are severe. The abandonment of a significant portion of winter wheat crops leads to a drastic reduction in US wheat production, pushing stocks to their lowest in 16 years. According to the US MSF, the forecasted abandonment rate of 33% is the highest since World War I.
Furthermore, USDA’s weekly Crop Progress report states that only 64% of U.S. spring wheat has been planted, lagging behind the 5-year average of 73%. Although the condition of crops deemed good or excellent has risen by 2% to 31%, the overall situation is still bleak.
Shift in Grain Supply Chain: The US Turns to EU Wheat
In an unexpected shift, US processors are now looking towards European wheat to meet their demands. A case in point is the flour milling company Ardent Mills, which recently purchased seven batches of Polish and German wheat. With Kansas wheat prices being $100/t higher than the EU and freight costs from Northern Europe to Florida at only $20-30/ton, the logic behind this move is clear.
The current offer for Polish wheat with a protein content of 12.5% on Euronext stands at €221/t. Considering the inclusion of a premium of €9/t, the equivalent is $250/t FOB Poland. In contrast, HRW hard red winter wheat trades at $310/t, which amounts to $350/t FOB US Gulf. Consequently, European grains prove to be more cost-effective for US companies, even considering the additional shipping costs.
The Future of US Wheat Imports
As the US continues to grapple with a poor wheat harvest, experts predict an increase in wheat imports, particularly from Europe. This is evident from the fact that Ardent Mills, based in New York, has secured its feedstock needs through the end of 2023, thanks to European supplies.
In January 2023, a notable 32.7 thousand tons of Polish wheat were delivered to the US, a trend not seen in the past decade. With the Kansas wheat harvest anticipated to be the worst since 1957, yielding only 4.84 million tons, it is clear that European wheat suppliers will continue to play an essential role in meeting US demand in the foreseeable future.