The wheat market presented an unexpected turn of events in the USDA's September 2023 Small Grains Summary. The journey of wheat production in the United States during this year's growing season was characterized by turbulence, marked by persistent drought conditions throughout the winter and spring in the Southern and Central Plains, as well as a hot and dry period in the Northern Plains during the peak heading season in summer. To put things in perspective, the abandonment rates for winter wheat in the Plains reached levels not seen since the Dust Bowl of the 1930s.

However, the situation took a more positive turn with heavy snowpack in the Upper Midwest during the winter and late spring showers in the Plains. These climatic factors played a crucial role in sustaining hopes for the 2023 U.S. wheat harvest, perhaps more so than initially anticipated by the market. The USDA's data for hard red winter wheat (601 million bushels) and other spring wheat (505 million bushels) exceeded all estimates put forth by pre-report analysts. Furthermore, production figures for soft red winter wheat (449 million bushels) and durum wheat (59 million bushels) also fell within the upper range of pre-report expectations. The total wheat production for 2023 saw a 4% increase from the August 2023 forecasts. While it cannot be characterized as a bumper crop, the 2023 U.S. wheat harvest defied the market's somber expectations for most of the summer.

The final tally for 2023 U.S. wheat production reached 1.812 billion bushels, representing a surprising 10% increase compared to the previous year's crop size. These additional bushels hold the potential to rejuvenate U.S. wheat exports, which, as of late September 2023, were on track to reach their lowest levels since the 1971/72 marketing campaign. The prevailing anticipation of a diminished crop had contributed to lower-than-expected usage rates from March 1 to September 1. This was a predictable outcome, as consecutive years of wheat shortages had eroded the price competitiveness of U.S. wheat on the global market, resulting in reduced export volumes.

Additionally, the substantial wheat exports from Russia and the return of Ukraine's grain via humanitarian corridors had alleviated global supply concerns earlier in the fall. Although the dry growing conditions in Australia, Canada, and Argentina are expected to tighten global wheat supplies later in the year, Black Sea wheat remained dominant in the global market through late September.

Despite a smaller global wheat crop this year, the overarching factor of reduced global wheat consumption has exerted substantial downward pressure on prices. This effect has persisted even as dry weather conditions caused losses in 35% of global exportable wheat supplies sourced from Canada, the U.S., Australia, and Argentina.

Looking ahead, as peak winter wheat sowing activities get underway in the coming months, the implications of the better-than-expected 2023 wheat harvest, which translate to lower prices, could potentially discourage U.S. farmers from expanding their winter wheat acreage in the upcoming 2024 growing season. Although hard red winter wheat stocks in the Plains remain tight, the significant harvest of soft red winter wheat further east may lead to fewer farmers opting for wheat cultivation in the summer harvest next year.

In contrast to earlier reports from farmers during the summer, it now appears that U.S. wheat growers may not find the price incentives they had hoped for to justify expanding their acreage in 2024. This unforeseen development could shape the landscape of U.S. wheat cultivation in the coming year.