The recent winter freeze in the US Great Plains is likely to have caused considerable damage to the planted hard red winter wheat crops in the region, raising concerns of lower production in a year that is set to see wheat ending stocks at seven-year lows, analysts said.
Hard red winter wheat accounts for about 40% of total US wheat production and is grown primarily in the Great Plains -- Kansas, Colorado, Oklahoma, Texas, South Dakota and Nebraska -- where extremely low temperatures in February with insufficient snow cover are likely to have caused winterkill in the crops, according to analysts.
Nearly 30% of the hard red winter wheat belt saw temperatures below the damage threshold. Though there are no estimates as of now, analysts fear considerable damage to the wheat crop.
"It is simply too hard to assess damage until crop breaks dormancy in the coming weeks," said Arlan Suderman, chief commodities economist with StoneX group. "All we know is that it was a high-risk event."
The concerns of a shortage drove the recent price rally in US wheat prices on the Chicago Board of Trade. The front month wheat futures contract touched $6.83/bushel Feb. 24 -- the highest in more than a month. The contract, however, shed some gains and was trading back at $6.5/bu on March 4.
Eyes on weather
Weather will be a factor in how the wheat progresses over the next few months, as the crop was already stressed under drought conditions, analysts said.
Dryness is another issue for US winter wheat growth as following persistent drought conditions earlier, top soil moisture levels were recorded 20%-60% below normal over most of the Plains, according to National Weather Service data.
"Significantly warmer weather that returned to the hard red wheat areas are expected to prevail in March, so additional winterkill damage is not expected," said Kyle Tapley, senior agricultural meteorologist with weather agency Maxar. "However, the dryness may remain a concern across western portions of the wheat belt with below normal rainfall in the forecast for the second half of March," he added.
Winter wheat goes dormant during peak winter season after growing tiller (stems), on which leaves emerge during the fall. The growing point of the tiller remains under soil during dormancy, and winter freeze happens when temperatures under the soil become cold enough to kill that growing point, which then results in the tiller dying, said Suderman.
The plant can develop a new tiller in spring if it survives the cold event. However, the new tiller won't have quite the yield potential of the fall developed tiller, he added.
In a worst-case scenario, if larger winter wheat areas are affected by the freeze, US farmers may replant the fields with a spring crop such as soybean, corn, or sorghum, depending on soil type, moisture, and location, Suderman added.
Supplies seen tightening
The US is one of the world's biggest wheat producers. The country is likely to produce 1.83 billion bushels (49.8 million mt) of wheat in 2021-22 (July-June), more or less steady on the year, according to US Department of Agriculture's recent Grains and Oilseeds outlook.
US wheat year-end stocks for 2021-22, however, are seen shrinking 17% on the year to a seven-year low of 698 million bushels, while domestic use is projected higher on increased feed and residual use due to higher corn prices.
"Significant freeze damage would tighten up those supplies, while supporting prices, particularly with wheat feeding expected to increase," said Suderman.
The tighter balance sheet supported USDA's 2021-22 season-average farm price at $5.50/bu, 50 cents higher from 2020-21.
Lower production in the US, against the backdrop of export restrictions from Russia could tighten wheat supplies in the world markets as well.
Russia recently confirmed it will impose a "floating tax" on its wheat and other grain exports starting June 2, adding to trade measures taken earlier, including an export quota and taxes that came into effect from Feb. 15 and will run through June 30.
The export quota and tax, along with a floating tax, is expected to make Russian wheat exports expensive going forward, according to analysts.
According to S&P Global Platts Analytics, following Russia's grain export restrictions, spring wheat area in the country is set to drop by 2% to 12.15 million hectares in 2021-22 (July-June), bringing the production estimate over 3% lower on the year to 82.6 million mt.
"The Russian wheat curbs have already dramatically impacted the world market. The taxes essentially increase Russian wheat prices," said Suderman. "The tax structure discouraging spring wheat planting in Russia will further tightens world supplies, sending more export business to Europe and to the US," he added.
