Increasing the Pie or Just the Slice?

Posted July 23, 2015

Yogi Berra once quipped: “Cut my pie into four pieces, I don’t think I could eat eight.” Which begs the question, what is the better choice: a larger slice of a smaller pie or a smaller slice of a larger pie?

For Kansas wheat farmers, the question bears more weight than just options for dessert. Here at home, the decision on whether to plant more or fewer acres of wheat depends on rotational requirements, water availability and – most importantly – price projections.

While no shake of the Magic 8 ball can predict what price farmers will receive for their wheat in future years, USDA does provide helpful resources for market predictions. The World Agricultural Supply and Demand Estimates Report, the WASDE for short, provides a month-to-month overview of the current year projections. For a more far-reaching view, however, USDA annually releases a long-term projections report that predicts global agricultural production and trade for the next 10 years, the most recent of which is USDA Agricultural Projections to 2024.

In the report, USDA projected two seemingly conflicting trends for Kansas wheat farmers. First, USDA predicted that the United States will continue to lose market share for world wheat exports, dropping from 17.8 percent in 2015/16 to 16.1 percent in 2024/25. Despite this loss in percentage, however, USDA projected that U.S. wheat exports will “rise slowly and steadily” from 1.02 billion bushels (27.7 MMT) in 2015/16 to 1.07 billion bushels (29 MMT) in 2024/25.

Smaller Slices

Global wheat exports - USDA ERS
Bringing back the question of pie. Should Kansas wheat farmers be concerned that the United States is expected to continue to lose part of their slice (market share) of the export pie?

In particular, the rise of the Black Sea exporters – Russia, Ukraine and Kazakhstan – are expected to continue gaining share of export markets, capturing up to 27 percent of world wheat trade by 2024/25. These highly variable, but less expensive supplies will likely continue to displace Kansas HRW wheat in geographically advantageous markets like Egypt, which USDA predicted will remain the world’s largest wheat importer at 386 million bushels (10.5 MMT) in 2024/25.

Larger Pie

Global wheat imports USDA ERS
But, USDA also projected the size of the world wheat pie will increase. USDA predicted overall world wheat trade will increase 16 percent, about 900 million bushels (24.5 MMT), reaching 6.61 billion bushels (180 MMT) in 2024/25. USDA does not attribute this upward trend to increased per capita consumption, rather to overall population growth and the rise of the middle class in developing countries.

The strongest economic growth – and therefore purchasing power – is expected to come from developing countries in the Middle East, Africa and Latin America. Many of the highest growing demand countries – Brazil, Indonesia, the Philippines, etc – have climates that are not conducive to growing sufficient wheat to feed their own growing populations.

For example, USDA expects Brazil to be the world’s third largest importer of wheat by 2024/25 at 283 million bushels (7.7 MMT). With Brazil’s domestic production limited and Argentina’s production predicted to struggle, steady growth in this market is likely to directly benefit Kansas HRW farmers.

Baking a Better Pie

Ultimately, Kansas wheat farmers have concerns other than smaller slices or larger pies. USDA does predict that crop prices, including for wheat, will bottom out in the next few marketing years than slowly rebound. And USDA also projected that growth in average crop yields will continue to slow even further in the next 10 years.

For Kansas, however, farmers have invested their dollars and time to help reverse these trends. Through the Kansas Wheat Innovation Center, Kansas farmers have made the single largest commitment to wheat research, which is working to advance breeding techniques, identify disease resistance and improve wheat quality. Nationally, Kansas wheat farmers help promote wheat’s role in the diet through the National Festival of Breads, Home Baking Association and the Wheat Foods Council. Membership in the National Association of Wheat Growers provides Kansas farmers a voice in calling for sustained funding for public wheat research and protecting crop insurance. Internationally, U.S. Wheat Associates works to maintain market share in developed countries and expand opportunities for Kansas HRW in the developing world.

All of these actions together not only save a slice for Kansas farmers, but also help bake an even better pie to entice the world’s consumers to come to the table.

Special thanks to U.S. Wheat Associates President Alan Tracy and Vice President of Overseas Operations Vince Peterson, whose presentations helped develop the logic for this report.

By Julia Debes