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WHEAT OUTLOOK
Highlights
–Wheat prices follow corn and soybeans
–Food use revised up this month
–Record world wheat production expected
–U.S. winter wheat planting nearly complete
–SRW outlook: Larger crop, higher exports than in 1996/97
The wheat futures market indicates rising wheat prices for the remainder of the 1997-98 marketing year (June-May). The price differential between the Kansas City March 1998 contract and December 1997 contract is about 12 cents per bushel, while the May-March differential is 8 cents. However, if foreign competition is larger and/or demand is weaker than the market expects, prices could sag.
For much of October and early November, lively prices for soybeans and corn have been supporting and even lifting the wheat market. However, prospects for U.S. wheat prices will eventually depend largely on export demand and prospects for the next year's crop.
Export Forecast Is Unchanged From Last Month; Food Use Up
U.S. exports are forecast unchanged from the October forecast at 1,075 million bushels in 1997-98, compared with 1,001 million last year. Although the weekly export pace since June has advanced relative to a year earlier, U.S. exports are 9 percent behind last year's level as of October 30, according to U.S. export sales. But outstanding sales are up, so commitments (exports plus outstanding sales) are down only about 4 percent. Year-over-year increases are expected in the third and fourth quarters, making up for lost ground in the first two. Export Inspections data indicated heavy shipments in September. However, the pace slowed considerably in October, dampening second quarter (September-November) export prospects.
Food use for 1997-98 is revised up 10 million bushels to 910 million due to higher-than-expected millgrind so far this season. Food use was 892 million bushels in 1996-97. Forecast ending stocks have been reduced to reflect the higher use.
The forecast range of season-average farm price is narrowed to $3.40-$3.70 per bushel, up 10 cents on the low end, based on relatively strong farm prices to date. The season-average farm price was $4.30 in 1996/97.
The USDA estimate for 1997 U.S. production is 2.53 billion bushels, up 11 percent from last year and the fifth largest on record. The U.S. average yield for all wheat hit a record high 39.7 bushels per acre due to generally favorable conditions in the southern and central Plains (despite the April freeze) and across the soft red belt. Output in Kansas topped 500 million bushels for the first time.
World Wheat Production And Trade Revised Up
World wheat production is forecast at a record 603 million tons, up 2.4 million from last month. However, the year-to-year decline in major foreign competitor production is still large, with combined production in the European Union (EU), Canada, Australia and Argentina down more than 19 million tons from a year ago.
This underpins the projected year-over-year increase in U.S. exports.
This month's forecasts of larger production in Russia, Australia, and Ethiopia more than offset a decline in Kazakstan. Harvest reports from Russia indicate a larger crop, including a significant increase in private sector production, boosting the wheat production forecast 2 million tons this month to 44 million. With increased production, Russia is expected to import less from Kazakstan, where dryness dropped its production forecast 1 million tons. Russia's forecast exports increased as well, leaving Russia a net exporter of wheat for the first time since the breakup of the USSR.
World wheat trade in 1997-98, at 97.1 million tons, is forecast up 1.15 million from last month and is slightly larger than last year. Increased imports by the EU and South Korea boosted the forecast. The European Union has purchased more high quality spring wheat and durum from the U.S. and Canada than expected because the EU durum crop was reduced by dryness in Spain and Southern France. In addition, rain at harvest across most of Northern Europe increased the amount of wheat with marginal bread baking characteristics. Italy and Spain have purchased more than expected U.S. and Canadian wheat for blending.
Large feed wheat supplies in Eastern Europe, Ukraine, and Russia are expected to exceed local demand and move into export channels, especially in Eastern Europe and Russia where reduced animal numbers limit the demand for feed wheat. Recent competitive freight rates have helped wheat sourced from the Black Sea win a larger than expected share of the feed grain market in South Korea, displacing U.S. corn. South Korea's wheat imports are forecast up over 1.0 million tons this month because of feed wheat purchases.
Also boosting 1997-98 world wheat trade prospects is an increase this month in Australia's crop, as timely rains increased production and export forecasts by 0.5 million tons. Although up from a month ago, Australia's 1997-98 production is still down over 6 million tons from last year's record.
U.S. Winter Wheat Planting Nearly Complete
Fall planting and plant emergence conditions for U.S. winter wheat have been good in most growing areas. Soils in most areas are favorably moist for both short and long-term needs. The only exceptions are portions of western North Dakota and eastern Montana, as well as a swath through the mid-section of Texas. As of November 2, three-quarters of the crop was in good or excellent condition, the same share as last year. Temperatures have been below normal in recent weeks, slowing early-season plant growth.
As of November 2, the 1998 winter wheat crop was 91 percent planted, compared with 93 percent last year and the same as the 1992-96 average. Emergence of the newly planted winter wheat crop was 80 percent, just below last year's 83 percent and 2 points above the 1992-96 average. Emergence is ahead of normal in several soft red wheat States.
Generally good planting conditions and relatively attractive new-crop (1998) futures prices at $3.80-$4.00 per bushel throughout the planting period bode well for wheat seeding this fall. The first forecast of winter wheat seedings will be released on January 13, 1998.
On the same day, USDA's estimate of December 1 wheat stocks will be released in the grain stocks report. The report will provide the first indication of second-quarter (September-November) use. Final production estimates for 1997 (in contrast to the preliminary estimates released on September 30) will also be released for all wheat classes in USDA's Crop Production-Annual.
SRW Outlook: Larger Crop, Higher Exports Than In 1996-97
Soft red winter (SRW) production is estimated at 484 million bushels in 1997, up 15 percent from 1996. Higher yields offset lower harvested acreage. Yields were excellent in most SRW producing States, hitting records in Ohio, Illinois, Missouri, Virginia, New Jersey, Michigan, Maryland, and Delaware. Incidences of scab and other diseases were reportedly much lower than last year, so quality is better.
Total SRW use in 1997 is forecast at 465 million bushels, up 13 percent from 1996. Higher exports account for the increase as higher quality supplies are bid away from feed buyers in the domestic market. As a result of the overall improved quality of SRW supplies, feed and residual use in 1997 is forecast to decline slightly, despite lower prices. With supplies outpacing use in 1997-98, ending stocks are expected to build to the highest level in 4 years.
Shipments to Egypt have been strong since the start of the marketing year. Egypt has emerged as the top U.S. SRW buyer in 1997-98, accounting for 61 percent of total SRW year-to-date exports and outstanding sales as of October 30. (SRW is used as a cheap bread wheat in countries like Egypt.) Exports to China and Mexico are sharply lower than a year ago. China is awash in its own record crop. Mexico also has a larger crop and is importing more hard red winter (HRW) instead of SRW.
Monthly SRW farm prices are running only about 10 cents per bushel below HRW prices, which is reasonable given the relative size and quality of the two crops. In 1995-96 and 1996-97, average discounts were 70-80 cents per bushel due to sharply smaller HRW crops. In those years, poor SRW quality also contributed to lower SRW prices.
November 12, 1997Economic Research Service
USDA, Washington, D.C.
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