July 5, 2017

US wheat acreage at an alarming 100-year low

An alarm has been raised over the declining US wheat acreage, which has sunk to its lowest in over 100 years.

A research done by agricultural lender Rarobank said the number of acres planted to wheat in the US has declined "almost year after year over the last 35 years". It added that in the current season, the acreage has "hit the lowest point in more than 100 years, resulting in various key issues industry players should consider in their strategic planning".

One of these issues to consider is that a smaller US acreage base gives less supply cushion in case of a supply shock such as drought, which is currently being experienced in US spring wheat-growing areas.

Rabobank believes that end users are likely to see periods of difficulty in procuring desired volume and quality of US wheat, resulting in the periodic need for increased imports and alternative supply arrangements.

Increased imports, however, would result in longer supply chains and increased cost, it said.

"Given the very low US planted area, spreads between classes have the potential to more frequently exceed historic spread levels, placing additional difficulties on businesses involved in wheat", Rabobank said.

The smaller acreage base and inherently variable weather patterns in the Great Plains region, it said, also increase the probability of higher volatility of basis levels, "which can make effective hedging on futures exchanges more challenging".