A.G. EDWARDS & SONS, INC.
One North Jefferson, St. Louis, Missouri
314-955-3050
(March 9, 2000) WHEAT: A majority of the winter wheat belt has finally received some measurable precipitation in the last several weeks. These rains were essential because in many areas wheat either never went into dormancy or came out much sooner than normal on account of much warmer-than-normal temperatures. The much-needed moisture resulted in slight improvements in the condition ratings for Kansas (41% good-to-excellent, G-E) and Oklahoma (61% G-E), but conditions remain poor in Texas (9% G-E) and could prompt significant abandonment. With wheat development perhaps 2-3 weeks ahead of schedule, the crop is at risk from an early spring cold snap.
Weather will be the number one factor influencing price direction for the next several months. Despite recent rains, a large percentage of wheat in the southern Plains is still in poor condition. Lower plantings in the U.S. has been an issue the last several seasons, but this has largely been offset by excellent weather and record yields worldwide. Prices would likely strengthen if a major producing region such as the southern Plains develops crop problems. However, we cannot be overly optimistic with large carryover stocks in the U.S. overhanging the market.
U.S. wheat normally accounts for 10%-12% of the entire world crop. Using USDA's February estimates, U.S. 1999-00 carryout wheat stocks as a percentage of total world stocks stands at 21.3%. In the following chart we plot this percentage against the 20-year average, +/- one standard deviation and the seasonal average price for U.S. wheat. The chart indicates that for much of the 90's, the U.S. stocks percentage was consistently around 10% and this was accompanied by relatively strong seasonal average prices.
U.S. Ending Wheat Stocks As A % Of World Ending Stocks
However, after the 1995/96 season prices began a downward slide. This corresponded with a rise in the share of U.S. wheat stocks on the world market. This period was characterized by exceptional crops produced in the U.S., but lackluster exports. Consequently, prices suffered. This was due in part to a stronger dollar and global economic turmoil that hampered importing nations' purchasing power. Also during this period, our primary export competitors harvested large crops, but were much more successful selling their wheat overseas, and clearing their inventories either through export subsidies or simply cutthroat pricing. This trend has spelled disaster for U.S. wheat prices. We believe that if the winter wheat crop runs into problems, prices will get a boost, but upside potential will be limited as long as U.S. exports continue to languish and carryout supplies remain burdensome.
Dean Nosker