Despite the worst drought since 1956, the U.S. Department of Agriculture (USDA) predicts that U.S. wheat farmers will produce a larger crop than last year and will stand ready once again to supply high quality wheat to the world.

In its monthly World Agricultural Supply and Demand Estimates (WASDE) released July 11, USDA lowered its 2012/2013 U.S. wheat production estimate for the second straight month to 60.5 million metric tons (MMT). However, that is still 12 percent greater than last year’s production and 2 percent above the five-year average.

A larger hard red winter (HRW) crop accounts for much of the total increase. In its first by-class estimates of the year, USDA estimated HRW production up 32 percent from last year to 28.1 MMT. The July WASDE indicates HRW production is on pace to become the largest crop since 2008/2009, exceeding the five-year average by 10 percent. As of July 15, 80 percent of the HRW crop is in the bins, ahead of the worst of the drought in most places.

USDA also expects hard red spring (HRS) wheat production to rebound in 2012/2013, despite the lowest planted area since 1983/1984. USDA forecasts HRS production at 11.8 MMT, up 9 percent from last year but 13 percent below the five-year average.

Greater yields in North Dakota, which produces about half of all HRS, will help offset the reduced acreage. USDA’s National Agricultural Statistics Service (NASS) expects North Dakota’s HRS yields will average 40 bushels per acre, up from 30.5 bushels per acre in 2011/2012. Most of the spring wheat production area is north of where other spring-related crops are suffering from heat and drought. Virtually all of the U.S. HRS crop has headed, and USDA’s latest conditions report shows that 65 percent of the crop in good to excellent condition with 27 percent in fair condition as of July 15.

After a year with the lowest durum production since 1988/1989, U.S. production including Desert Durum® (virtually all of which is irrigated) will increase 62 percent in 2012/2013 to 2.23 MMT according to USDA. Estimated harvested acreage in the top durum producing state, North Dakota, for 2012/2013 now stands at nearly double the 2011/2012 number, and yields are expected to improve from 25.5 bushels per acre to 31.0 bushels per acre, according to NASS.

USDA expects both soft red winter (SRW) and white wheat production to fall following above-average crops last year. SRW production will fall an estimated 6 percent from 2011/2012 to 11.7 MMT but remain 4 percent above the five-year average of 11.2 MMT. White wheat production will fall 18 percent from the 15-year high of 8.53 MMT reached in 2011/2012 to 7.03 MMT this year. If realized, white wheat would fall just below the five-year average of 7.08 MMT.

Although the U.S. wheat production outlook is positive, world weather conditions are affecting prices. Uncertainty about Black Sea wheat conditions and a rapidly declining U.S. corn crop have helped drive wheat futures sharply higher at a time when prices normally decline. Since June 1, the benchmark CBOT September SRW contract gained 40 percent, KCBT (HRW) increased 37 percent and MGEX (HRS) gained 33 percent.

As the corn crop declines, global wheat feeding will likely increase. Some analysts also predict quite a bit of volatility in this “weather market” and suggest that the market will not stabilize until the final impact of the drought becomes clear, probably by late August or early September.

For more from U.S. Wheat Associates, please visit http://www.uswheat.org.