wmeubank@ocp.kcmo.com
PRUDENTIAL SECURITIES, INC.
One New York Plaza, New York, New York
(March 24, 1997)
WHEAT:
Total wheat plantings usually are a little easier to estimate than corn in the spring because the bulk are in winter wheat that is sown the previous fall. Thus, the market already has a strong handle on the approximate size of winter wheat plantings. The USDA currently projects 1997/98 winter wheat plantings, which usually is two-thirds of total wheat plantings, at 48.3 million. This year however, spring wheat planting is expected to be delayed due to the excessively wet and frozen soils still covered with heavy snow. Since November, the Northern Plains have received more than 125% of normal precipitation, much of it snow, and is in danger of flooding during the spring thaw. If so, farmers would be delayed in planting spring crops, including wheat. Spring wheat plantings are the unknown quantity in determining 1997/98 total wheat acreage.
Thanks to the Freedom to Farm Act, farmers are able to react to economics
this year rather than artificial government programs that have prevented
wheat farmers from planting more economically viable crops such as soybeans
or canola. This year, the price economics leans strongly toward canola
instead of wheat. In North Dakota, for example, new-crop cash values and
production costs indicate that canola can return $90 per acre before fixed
costs at average yields, while durum wheat returns $64 per acre and spring
wheat only $54 per acre. Although farmers will most likely switch acreage
to canola from spring wheat, it is unclear to what degree this will occur.
Working against the pure economics of the situation is the tradition of
planting spring wheat, especially considering that responding to total
planting flexibility is something that farmers have been unable to do since
1985. Although the market is concerned that current excessive soil moisture
conditions will delay spring wheat plantings, those same conditions could
easily turn into a favorable situation for the developing crop, thus providing
even more incentive for farmers in this normally arid region to not switch
to an alternative crop. Indeed, a similar situation occurred last year
when spring wheat seeding was delayed about two weeks, yet U.S. farmers
still planted nearly record acreages that produced the third-highest yield
in 11 years. However, an important factor in last year's planting enthusiasm
was that wheat futures were $2 per bushel higher than they are now.
We believe spring wheat plantings will not be curtailed due to planting
delays, and producers will not make a major switch to canola. Rather, farmers
will regard the excessively wet conditions as favorable, and will plant
spring wheat according to their traditional patterns. We forecast spring
wheat plantings at 18.8 million acres and durum plantings at 3.3 million
for a total 1997/98 U.S. planted wheat figure of 72.0 million acres. The
trade expects total wheat plantings between 69.9 million (Sparks Commodities)
and 72.5 million acres.
If the March 31 Planting Intentions report shows total wheat acreage above
71.5 million acres, then the trade will push new-crop values lower. Ultimately,
this type of price action could potentially limit upside sales opportunities
that should develop later in April. If the USDA report is close to (or
below) the low end of estimates, it would be price-friendly. However, as
the crop year comes to a close, old-crop contracts will come under harvest
pressure. Thus, even a friendly report will be hard-pressed to move the
market substantially higher.
Tom Levis
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