WHEAT YEARBOOK March 30, 1998 March 1998, WHS-1998 Approved by the World Agricultural Outlook Board --------------------------------------------------------------------------- WHEAT YEARBOOK is published annually by the Economic Research Service, U.S. Department of of Agriculture, Washington, DC 20036-5831. This release contains only the text of the WHEAT YEARBOOK -- tables and graphics are not included. Printed copies of this Yearbook are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock #WHS-1998, $21. ERS-NASS accepts MasterCard and Visa. --------------------------------------------------------------------------- Contents Summary Wheat Supplies To Remain Steady in 1998/99 Outlook for 1998/99 Winter Wheat Acreage Unexpectedly Down 4 Percent in 1998/99 Box: What's the Trend in U.S. Wheat Yields? U.S. Wheat Supplies and Use Likely Unchanged in 1998/99 World Wheat Production Likely to Decline in 1998/99 Conservation Reserve Program Update Situation and Outlook for 1997/9 Prices Weaken Under Weight of Large U.S. Winter Crop--U.S. Yields Record High U.S. Wheat Exports Expected Up in 1997/98, But Share of World Trade Remains Below 30 Percent World Supply and Trade up in 1997/98 Wheat by Class, 1997/98 HRW Supplies Expand, HRS Contract in 1997/98 ERS Wheat Information: How To Get It Fast and Often Special Articles The Growth in U.S. Wheat Food Demand Genetic Transformation: A New Tool for the Improvement of Wheat Noodle End-Use Characteristics for Wheat in East and Southeast Asia List of Tables Situation Coordinators Mack Leath and James Barnes (202) 694-5300 Principal Contributors Dennis Shields (Domestic) Mack Leath (Domestic) Edward Allen (International) James Barnes (Special Articles) Jenny Gonzales (Statistics) Editor Diane Decker Layout, Text Design and Graphics Wynnice Napper Approved by the World Agricultural Outlook Board. Summary released March 5, 1998. The Wheat Outlook and the text of the Wheat Yearbook may be accessed electronically. For details, call ERS Customer Service (202) 694-5116. The United States Department of Agriculture (USDA) prohibits discrimination in its programs on the basis of race, color, national origin, sex, religion, age, disability, political beliefs and marital or familial status. (Not all prohibited bases apply to all programs). Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact the USDA s TARGET Center at 202-720-2600 (voice and TDD). To file a complaint, write the Secretary of Agriculture, U.S. Department of Agriculture, Washington, D.C., 20250, or call 1-800-245-6340 (voice) or (202) 720-1127 (TDD). USDA is an equal opportunity employer. Summary The Wheat Yearbook presents preliminary projections for 1998/99 that were released at the 1998 Agricultural Outlook Forum. U.S. Wheat Supply To Remain Steady in 1998/99 Wheat planted acreage in 1998 is forecast to total about 68.5 million acres, down 2.5 million acres from last year. With trend yields, wheat production is expected to decline about 9 percent. Larger beginning stocks will offset the expected decline in production, leaving the supply virtually unchanged from the current marketing year. Preliminary forecasts peg both domestic use and exports up slightly in 1998/99. Ending stocks could be down slightly, and the average price received by farmers will likely be about the same as in 1997/98. Wheat farmers responded to lower prices and unfavorable planting conditions, particularly in Montana, by reducing winter wheat plantings 4 percent from a year earlier to the lowest level since 1973. Spring wheat plantings may fall too, as farmers evaluate the relative profitability of competing crops. Strong prices for durum will lead to an expansion of durum area in 1998. For 1997/98, U.S. wheat supplies rebounded to 3,060 million bushels, the highest since 1990/91. Total disappearance is forecast to rise about 3 percent from 1996/97, with the increase coming from higher domestic food use and an improved export picture. The higher forecast food use will offset lower seed use, with feed and residual down slightly. The season average farm price is projected to range between $3.40 and $3.50 per bushel. U.S. exports in 1997/98 are forecast up 7 percent from the previous year's low level. Through February, U.S. wheat exports trailed year-earlier levels because of increased competition, especially from Canada. However, during the remainder of the year U.S. exports will benefit from reduced competition. This issue contains three special articles: "The Growth in U.S. Wheat Food Demand," "Genetic Transformation: A New Tool for the Improvement of Wheat," and "Noodle End-Use Characteristics for Wheat in East and Southeast Asia." Outlook for 1998/99 Winter Wheat Acreage Unexpectedly Down 4 Percent in 1998/99 Winter wheat plantings were down 4 percent from a year earlier to their lowest level since 1973. Spring wheat plantings may fall too, as farmers evaluate the relative profitability of competing crops. Current strong prices for durum will lead to an expansion of durum area in 1998. USDA will release its first official forecast of U.S. 1998 production on May 12. U.S. Winter Wheat Area Seeded Lowest Since 1973 Planted winter wheat area for 1998/99 is estimated at 46.6 million acres, the lowest since 1973. Hard red winter (HRW) and white area are each down 5 percent from a year earlier, while soft red winter (SRW) is up 2 percent. Apparently, farmers pulled back from planting some wheat to make room for other crops, possibly soybeans and feed grains in the central Plains, or to increase the amount left fallow. Poor weather prevented some planting in Montana, but these acres may be planted with spring wheat or barley in April/May. HRW wheat area seeded is estimated at 32.5 million acres, down 5 percent from last year (fig. 1). Virtually all HRW States planted less wheat, with Oklahoma unchanged. Area in Kansas is down 700,000 acres from last year and the lowest since 1988. Plantings are particularly low in Montana and Nebraska. Heavy winterkill the last 2 years and good returns for corn and soybeans in South Dakota have reportedly reduced incentives to plant winter wheat. Declines in white winter wheat are similar to HRW. Area seeded is estimated to total about 4 million acres in 1998. Idaho's area is the lowest in almost 25 years, and Washington and Oregon are also down. Planting started later than normal in Washington because moisture was needed. However, since mid-September, conditions have been very favorable and excellent stands have been reported. Oregon wheat is in mostly good condition with adequate soil moisture. SRW wheat seeded area is estimated at about 10.1 million acres. A number of soft red winter States are registering gains in planted acreage, meeting market expectations. Total seedings are above 1997 because of increases from Arkansas up through Missouri into Illinois. Area is also up in Kentucky and Tennessee. Many SRW farmers had a successful harvest in 1997 after enduring several disease-plagued seasons. Crop conditions are generally good in the Midwest, but dry conditions slowed germination in some areas. Area is down in a number of southeastern States due to poor planting conditions and late soybean harvests. Spring Wheat Acreage Prospects Producers of durum and other spring wheat will be surveyed in March to determine prospective plantings for 1998. Current prospects point to lower seedings than the 22.6 million seeded in 1997. Current farm price relationships for the various classes of wheat favor the shifting of some area from "other spring" into durum production (fig. 2). Soil moisture supplies and the condition of the winter wheat crop will influence planting decisions in Montana. Mix of Major Field Crops To Change in 1998 Expectations concerning the relative market prices for corn, soybeans, and other field crops during 1998/99 will also affect planting decisions in the spring wheat area of the Northern Plains. The average farm price for soybeans has weakened relative to prices received for wheat and corn during the 1997/98 marketing season (fig. 3). Problems with scab in the spring wheat area in recent years may lead to new crop rotations in an effort to break the life cycle of the disease. Concerns about scab would favor soybeans because corn is a host plant for the disease. However, weather conditions this spring will determine the extent of the decline, with dry weather likely to encourage producers to persevere with wheat and not risk alternate, more drought-susceptible crops. Prospects for corn and soybean acreage in 1998 were discussed at the 1998 Agricultural Outlook Forum. Continued relatively strong price prospects for corn are expected to boost corn plantings to 81.5 million acres. Soybean planted acreage is expected to reach a record 71.5 million acres, up from last year's 70.9. If these acreage prospects are realized, soybean acreage in 1998 would surpass wheat acreage (fig. 4). BEGIN BOX-- What's the Trend in U.S. Wheat Yields? Yield growth is crucial in determining future crop supplies, which influence the long-term price outlook. After declining in 3 of the last 4 years, U.S. wheat yields hit a record 39.7 bushels per acre in 1997, spurring interest in the potential for additional gains. The U.S. average yield for corn has a clear upward long-term trend. But for wheat, identifying the yield trend at the U.S. level is more elusive and depends on the time period chosen for analysis. This analysis estimates the U.S. wheat yield from an examination of individual State trends. Using the same time period for all States when estimating the U.S. wheat yield trend may not be appropriate if trends vary by State. Instead, different time periods that appear to best reflect current linear trend yields are chosen for each State. Individual State trends are then weighted by an average of harvested area (1995-97) and aggregated into a U.S. wheat yield total. U.S. wheat yields increased sharply from the mid-1950s to the early 1980s as short and semi-dwarf varieties were developed and adopted. The shorter height enables plants to respond to increased fertilizer use and other production practices without lodging (i.e., falling over) before harvest (Dalrymple, 1988). Additional genetic improvements, such as early maturity and disease resistance, as well as improved production practices, also contributed to higher yields. But since the early 1980s, there has been a noticeable slowdown in overall U.S. wheat yield growth. Some would even call it a stall. The modest overall upward trend in U.S. wheat yields is generally true for both spring and winter wheat, although growth rates vary. Also, there are differences within the winter wheat classes. Because winter wheat yield is dominated by hard red winter (accounting for 60 percent of total winter production in 1997), relatively flat yields in the last 15-20 years in each of three major hard red winter States--Kansas, Oklahoma, and Texas--have limited gains in total winter wheat yields. During the same period, soft red winter wheat has had modest yield growth while white winter yields in the Pacific Northwest have gained steadily. Looking closely at several key wheat-producing States reveals differences among States and classes. Hard Red Winter A 20-year period appears reasonable for representing the current long-term yield trend in Kansas. During 1978-97, trend yield growth in Kansas was just 0.04 bushels per acre per year. Prior to this, yield gains were much larger, and likely related to the adoption of short-stemmed varieties. Actual average yields in Kansas during this period have deviated sharply from the trend line. Only 5 percent of the year-to-year variation in yields is explained by the passage of time (which captures improvements in technology and management). Other factors such as weather likely explain much of the variability in Kansas wheat yields around its trend line. Oklahoma average yields trended downward during the 20-year period due to a series of unfortunate weather problems, mostly drought and freeze. So instead of a 20-year trend, a 10-year average (excluding the disastrously low years of 1995 and 1996) is used as Oklahoma's contribution to the overall U.S. wheat yield trend. Soft Red Winter Yield growth in most SRW States appears to be well represented by a very long time trend of almost half a century. For example, yields in Ohio and Indiana have gained about 0.7 bushel per acre per year since 1949. Illinois yield growth has been 0.6 bushel, while Missouri's gain has been 0.5 bushel. A much larger portion of the yield variation is explained by time in these States, ranging from 63 percent in Illinois to 82 percent in Ohio. This suggests that the yields are influenced to a lesser extent by other factors like weather, although this may be less true in recent years. Spring Wheat Spring wheat yields (i.e., non-durum) in North Dakota have increased about 0.2 bushel per acre per year, using a 30-year trend. Durum yield growth in North Dakota in the last 30 years has been much slower, just 0.04 bushel per acre. Prior to 1968, yield gains were much higher in both classes. The relationship between yield and time is weak in both cases, with time explaining only 7 percent of the yield variation for hard red spring and only 3 percent for durum. Low and variable rainfall likely explains a larger portion of the yield variations. White Wheat Yield growth of white wheat in the Pacific Northwest is the strongest and most observable of all the wheat classes. Similar to soft red winter States, yield growth in the Pacific Northwest is well represented by a trend since 1949. Over this period, State average yields have increased 1.1 bushels per acre per year in Idaho, 0.9 bushel in Oregon, and 0.7 bushel in Washington. Moreover, the relationship with time is very strong, with 93 percent of the yield variation explained by time in Idaho, 87 percent in Oregon, and 78 percent in Washington. Results Indicate Stronger Trend Yields Based on aggregating the individual State yield trends, the total U.S. wheat yield trend is 0.2-0.3 bushel per acre per year. This is sharply higher than the 15-year national trend of 0.02 bushel, and compares with the 20-year national trend of 0.2 bushel. References Dalrymple, D.G., "Changes in Wheat Varieties and Yields in the United States, 1919-1984," Agricultural History, Volume 62, number 4, 1988, pp 20-36. END BOX Outlook for 1998/99 U.S. Wheat Supplies and Use Likely Unchanged in 1998/99 Given acreage expectations and trend yields, total wheat supply available in 1998/99 will be about the same as in 1997/98. Larger beginning stocks will offset production declines resulting from lower seeded area. Total demand for U.S. wheat is expected to grow slightly in 1998/99, based on small increases in exports and food use. Winter Wheat Conditions Unseasonably mild temperatures prevailed over the major winter wheat-producing States during early 1998. Winter rains provided adequate soil moisture in the Southern Plains, but conditions have been generally dry in the central and Northern High Plains. Some snow accumulated on winter wheat fields in Montana, Wyoming, and South Dakota, but the majority of the fields had poor to very poor cover. In the Northwest, the crop is in generally good condition due to mild wet weather. In the Southeast, saturated soils have caused ponding in fields, delayed chemical and fertilizer applications, and drained nutrients from the soil. The Corn Belt has had mild temperatures that melted snow, causing muddy fields and leaving winter-planted crops uncovered. Some producers are concerned about the effects of the mild weather on insects and disease during the upcoming growing season. In early March, Texas reported that 58 percent of the wheat crop was in good to excellent condition. Small grain condition in Arizona was reported as 1 percent fair, 87 percent good, and 12 percent excellent. Kansas reported on March 2 that the winter wheat crop is breaking dormancy and 77 percent of the crop was rated good to excellent condition. Overall Wheat Supplies in 1998/99 About Unchanged Wheat planted acreage in 1998 is forecast to total about 68.5 million acres, down 2.5 million from last year. Assuming a return to trend, yields would fall 1.7 bushels per acre below last year and average about 38 bushels per acre. U.S. wheat production is expected to decline about 9 percent due to fewer planted acres and the lower yield. However, larger carryin stocks will offset the expected decline in production, leaving the supply virtually unchanged from the current marketing year. Domestic Use and Exports Domestic use of U.S. wheat is expected to increase slightly in 1998/99. Food use is expected to continue a modest expansion, reflecting population growth and further increases in per capita use of wheat and wheat products. Feed and residual use is expected to be unchanged in 1998/99, as wheat prices are expected to remain high enough to prevent an increase in wheat feeding. Exports are also projected to be up slightly from this year. The prospects for U.S. exports and world trade are discussed in greater detail in the following sections. Little Change Expected in Ending Stocks and Prices Ending stocks are forecast at 652 million bushels in 1998/99, only 22 million below this year. A stocks-to-use ratio of 27 percent provides little reason to change price expectations from the current marketing year. As a result, the price received by farmers is projected to average about the same as in 1997/98. Outlook for 1998/99 World Wheat Production Likely To Decline in 1998/99 World wheat production in 1998/99 is likely to decline because it will be difficult, especially in China, to match last year's yields. Wheat prices on international markets have generally declined from April 1996 through the beginning of 1998, but futures prices indicate fairly flat prices into the summer of 1998. Winter wheat in the Northern Hemisphere was planted last fall, and several important producers reportedly reduced planted area, while others increased it. World wheat production in 1998/99 is likely to decline because it will be difficult, especially in China, to match last year's yields. Northern Hemisphere growing conditions have been generally favorable for winter wheat, but most of the weather that determines yields has not yet occurred. Production Prospects in India India harvests most of its wheat crop in March-May, providing the first major wheat harvest of the new marketing year. Unusual late rains delayed plantings in some regions. However, irrigation water supplies are excellent, and crop conditions in most areas are good. While India's wheat production in 1998 is likely to be large, it is questionable whether it will match the record 68.7 million tons produced in 1997. While the size of the crop and rate of consumption will determine eventual imports, stocks are relatively tight, and it appears likely that India will remain a net importer as was the case for the last 2 years. Eastern Europe reports reduced wheat area planted in most countries. Excessive rain and cold temperatures curtailed wheat seedings in Romania, Bulgaria, and Serbia, while dryness hampered planting in Hungary. In Poland, area planted is reportedly unchanged from a year earlier, but there are some concerns about winterkill. In the NIS (Newly Independent States, also referred to as the former Soviet Union), wet conditions delayed wheat seedings, and wheat area is reportedly down in Ukraine. However, in Russia wheat area appears to be basically unchanged, and since the fall, conditions have been favorable. In China, dry conditions created planting problems in some regions, but the government continued to stress wheat area as part of the "Governor's Grain Bag Policy," and it is likely that large wheat plantings have been maintained. But, with normal weather for the rest of the growing season, it will be difficult to match the record yields of last year which resulted from exceptionally favorable growing conditions. However China's 1998/99 wheat production turns out, the large buildup of government-owned stocks during 1997/98 and slow consumption growth will provide a cushion, giving the government flexibility about when and how much wheat to import in 1998/99. Plentiful Production Prospects for North Africa and the EU Timely rains aided wheat seeding in North Africa, and crop conditions are reportedly much better than a year ago. Improved production prospects in North Africa likely mean a drop in imports by North Africa in 1998/99. In late February, Coceral reported that EU winter wheat plantings increased less than 1 percent. Rains and flooding reduced wheat plantings in the Iberian Peninsula, but that was more than offset by increased area in France, Germany, and the United Kingdom, where generally very good crop conditions are reported. A return to trend would boost EU yields above last year, increasing production. This in turn could provide the basis for increased exportable supplies. Moreover, a return to normal quality and increased durum production make it likely that EU wheat imports will drop in 1998/99. Price-Responsive Exporters Expected To Drop Area U.S. winter wheat producers dropped plantings because wheat prices were not attractive compared with feed grain and oilseed prices. Canada and Australia are expected to follow suit unless wheat prices increase compared with other crops. Since U.S. wheat farmers planted last fall, soybean prices have dropped more than wheat prices because of the large South American soybean harvest. However, vegetable oil prices have been supported by reduced palm oil supplies, so prices for oil-rich crops like canola have actually increased. This means that canola area in Canada could increase at the expense of wheat. Planting for the next wheat crop in Australia does not begin until May and June, so relative prices are likely to change. But given current ratios, wheat area would be expected to continue to decline, especially in Australia because of more favorable returns from sheep. Global Wheat Trade May Be Fairly Stable World trade in 1998/99 is expected to be little changed from this year's forecast. Imports by Latin America and the Middle East are expected to continue increasing in response to economic growth. Moreover, India and Eastern Europe can swing between being net importers or exporters, but in 1998/99 are more likely to be on the net importer side, boosting world demand. This will be offset by reductions in North Africa due to expected larger crops. The uncertain outlook for Asia will determine whether world trade rises or falls in 1998/99. China's imports in 1998/99 are a source of great uncertainty, with prospects for reduced production, but large stocks. However, China's imports in 1997/98 are forecast at historically minimal levels, so they are unlikely to decline much, and could increase significantly. A significant portion of China's 1998 winter wheat crop was planted in dry soils, making spring moisture conditions critical. However, China's slow growth in wheat consumption and the large gain in wheat stocks from the record 1997 crop mean large wheat imports are unlikely. Some Southeast Asian countries are likely to reduce imports. Indonesia is a key unknown, with imports depending on whether consumer subsidies are maintained. India is expected to remain a net importer. For the major exporters, area is expected to decline, but production is likely to be up because of larger crops expected in the EU. Thus, the United States is expected to continue to face intense competition in world markets. Outlook for 1998/99 Conservation Reserve Program Update USDA accepted for enrollment or re-enrollment into the Conservation Reserve Program 5.9 million acres of the 9.5 million acres offered by landowners in the 16th general signup of the program. Acreage accepted in the 16th signup will be enrolled in the program on October 1, 1998. About 4.8 million acres are currently under CRP contracts that expire on September 30, 1998. On January 29, 1998, Agriculture Secretary Dan Glickman announced that USDA will accept 5.9 million acres (table 2) of environmentally sensitive farmland into the Conservation Reserve Program (CRP). The goal of the program is to enroll the most environmentally sensitive land, keeping productive farmland in production, and being fair to taxpayers in attempting to maximize environmental benefits in relation to the level of Federal program expectations. The new enrollment has the potential to bring the total acres in the CRP up to 29.9 million acres on October 1, 1998. The actual number of acres enrolled on that date will differ because of changes that occur through continuous signup. As of December 1997, about 28.8 million acres were in CRP, and about 4.8 million of these acres are subject to contracts that will expire September 30, 1998. Acreage accepted in the 16th general signup include about 2.0 million acres were previously enrolled under contracts that expired September 30, 1997, about 1.9 million acres are currently subject to contracts that expire September 30, 1998, and about 2.0 million acres are "new lands" that will be enrolled in the CRP for the first time. The Northern Plains and Mountain regions will have the largest share of acres enrolled in the program on October 1, 1998 (fig. 6). The statutory maximum number of acres that can be enrolled in the program at any one time is 36.4 million. Thus, the CRP can accommodate future enrollment entering through the continuous signup process and the Conservation Reserve Enhancement Program (CREP). The continuous signup process encourages producers to enroll certain eligible land in selected high priority practices, such as conservation buffers anytime during the year. CREP will be used by States to specifically target significant conversion of eligible farmland to resource conserving uses in State-designated high priority problem areas. It is estimated that acreage enrolled in the Conservation Reserve Program will decline by about 2.3 million acres, freeing up that many acres to be planted in 1998 compared with the 1997 crop year (table 3). A few States will have fewer acres to plant in 1998 because CRP participation increased in 1998, most notably about 525,000 acres in North Dakota. The biggest decline in CRP acreage is in Minnesota, falling by about 450,000 acres in 1988. From a regional perspective, only in the Northern Plains and Mountain States will CRP acreage be higher in 1998. The Corn Belt loses the most CRP acres, followed by the Lake States and the Southern Plains regions. Table 3 provides a regional comparison. Situation and Outlook for 1997/98 Prices Weaken Under Weight of Large U.S. Winter Crop--U.S. Yield Record High U.S. wheat production, spurred by favorable weather in the southern and central Plains States, rebounded in 1997 to the highest level since 1990. Prices are expected to drop substantially below 1996/97 levels. U.S. Wheat Supplies Up Sharply, Prices Down Total U.S. wheat production in 1997 is estimated at 2.53 billion bushels in 1997/98, up 11 percent from 1996/97. With larger beginning stocks and steady year-over-year imports, the U.S. wheat supply in the 1997/98 (June-May) marketing year is forecast to rise 11 percent, marking the first increase in 4 years. Under the weight of larger supplies and lackluster early-season demand, futures prices for wheat sunk to 3-year lows during the summer of 1997 after temporarily spiking in April following a freeze in the Southern Plains. Cash wheat prices in Kansas City dropped $1.08 per bushel during the last 3 weeks of June as harvested area expanded and growing conditions improved in the central Plains. In addition, USDA's June 30 Acreage report confirmed what the market suspected--that farmers had planted more spring wheat than indicated in the March Prospective Plantings. Although prices rallied in late summer due to production uncertainties in the Southern Hemisphere, they drifted mostly lower throughout the fall as prospects improved from early season expectations, particularly in Australia, and as traders in both Argentina and Canada aggressively sold wheat. While the lower-than-expected winter wheat seedings temporarily lifted futures prices in January, cash and futures prices have suffered from lackluster export demand and favorable growing conditions for the new U.S. crop. The farm price slipped to $3.45 per bushel in December, and averaged around $3.35 in January-February. Prices will remain sluggish in the coming months in the absence of fresh export demand or a serious weather-related change in crop conditions. There will be continued pressure on cash and near-term futures prices as carryout stocks remain large compared with recent years. Ending stocks are projected to total 674 million bushels, the highest since 1990/91. The season-average farm price in 1997/98 is forecast at $3.40 - $3.50 per bushel, significantly below the $4.30 received by farmers in 1996/97, and the record $4.55 in 1995/96. Despite the year-over-year decline, the average farm price is strong relative to the current stock level. For example, ending stocks were more than 100 million bushels lower in 1992/93 and 1993/94, but prices averaged only about $3.25 per bushel. Winter wheat production accounted for about 75 percent of the total U.S. output in 1997/98 and totaled 1.883 billion bushels. With the exception of a mid-April freeze that hit portions of Texas, Oklahoma, and Kansas, weather conditions were extremely favorable during the remainder of the growing season,. Because of favorable weather, winter wheat yields surged 21 percent above the average for the 1996/97 crop. The improved yield potential in 1997 led producers to harvest a larger percentage of planted area. An estimated 86 percent of the seeded winter wheat area was harvested for grain in 1997/98, up from about 76 percent the year before. The greatly expanded winter wheat output was partially offset by lower production totals for durum and "other spring" wheat. The spring wheat crop declined sharply in 1997, despite higher-than-expected harvested area. Generally dry weather in the Northern Plains from mid-May through June led to below-average yield prospects. The average yield was 29.9 bushels per acre for "other spring" wheat (i.e., excludes durum), down more than 5 bushels from 1996 and the lowest since 1989. Despite the relatively large planted acreage (19.4 million acres of other spring wheat, the second highest in modern times following 1996's 20.0 million acres), HRS production dropped to 501 million bushels due to sharply lower yields. The fluctuating moisture situation in the Northern Plains during the summer of 1997 also wreaked havoc with U.S. production of durum wheat, the main ingredient for pasta. Farmers harvested only 86 million bushels of durum in 1997, 26 percent below a year earlier and the smallest in 4 years. Domestic Use Holds Steady in 1997/98 Total disappearance of U.S. wheat in 1997/98 is forecast to increase about 3 percent from 1996/97, with most of the increase coming from an improved export picture. Exports are forecast up 7 percent in 1997/98. Domestic use is projected to be unchanged at 1.3 billion bushels as increases in food use will offset projected declines in both seed use and feed and residual use. Food use is projected up for the third consecutive year, reflecting continued growth based on population increases, income growth, and changing dietary habits. Seed use is projected to be down about 7 million bushels in 1997/98, reflecting the smaller seeded area for winter wheat as well as the projected decline in spring wheat area. Feed and residual use is projected to decline about 5 percent in 1997/98. First-quarter feed and residual was the highest since 1990/91. Larger supplies and lower prices encouraged greater use of wheat in livestock rations in the Southern Plains during summer. The forecast annual use was reduced in January when the higher-than-expected stocks indicated that feed and residual use of 287 million bushels in the first 6 months was lower than previously forecast. The preliminary calculations of a second-quarter feed and residual use of -110 million in 1997/98 would be the largest amount of wheat "found back" since September stocks data have been collected. The forecast annual feed and residual of 300 million bushels implies that feed and residual use in the final 6 months of the marketing year will be close to zero. Ending Stocks Highest Since 1990/91 U.S. ending stocks are forecast at 674 million bushels, up 52 percent from a year earlier. CCC-owned stocks are projected at 93 million bushels so most of the ending stocks will be "free" stocks accessible to the market. Current futures price relationships between old-crop and new-crop futures provide adequate incentives for holding old-crop stocks and carrying them forward into the new marketing year. Producers appear to be in no hurry to liquidate current holdings at current price levels. Situation and Outlook for 1997/98 U.S. Wheat Exports Expected Up, But U.S. Share of World Trade Remains Below 30 Percent U.S. exports in 1997/98 are forecast up 7 percent from the previous year's low level. Through February, U.S. wheat exports trailed year-earlier levels because of increased competition, especially from Canada. However, during the remainder of the year U.S. exports will benefit from reduced competition. U.S. 1997/98 Wheat Exports Are Up from Last Year's Low Level U.S. wheat exports are forecast to reach 29 million tons (July/June), up from 27 million a year earlier, but well below the 10-year average of 34 million. Last year was the first time since 1986/87 that July/June exports slipped below 1 billion bushels. During the first months of 1997/98 U.S. wheat exports faced some of the same competition as during the end of last year. High prices in 1996 encouraged wheat producers in Australia and Argentina to increase area, and favorable growing conditions produced record large crops. Significant quantities were still being exported during the harvest period for the U.S. 1997 wheat crop. Moreover, the severe winter of 1996/97 left a bigger than normal portion of Canada's 1996 production to be shipped in the spring and summer of 1997. The intense competition that slowed U.S. exports in the second half of 1996/97 continued into the first part of 1997/98. So despite increased supplies, U.S. exports during the summer of 1997 were less than the year before and less than the previous 10-year average. Moreover, Canada continued to sell its new crop aggressively in the September/November quarter, and although U.S. exports increased, as is normal, the increase was less than usual. Second-quarter exports in 1997/98 were lower than in 9 of the previous 10 years. This left the pace of U.S. exports in the first half of 1997/98 well behind the previous year. U.S. wheat exports during December/February 1997/98 have moved at a faster pace than a year ago, when tight U.S. supplies limited shipments, and importers turned to Southern Hemisphere suppliers. However, preliminary third-quarter shipments are less than in 8 of the last 10 years. Although ample U.S. supplies are available for export, larger than expected production in Australia and Argentina have provided stiff competition, with Argentina's prices well below comparable U.S. prices for most of the winter. The annual export forecast implies that U.S. wheat exports in the fourth quarter will continue to run well ahead of last year's dismal pace, but slower than in most other years. Egypt has solidified its position as the largest importer of U.S. wheat. According to U.S. Export Sales, as of February 26, Egypt had commitments (shipments plus outstanding sales) for 4.7 million tons of U.S. wheat, up 69 percent from a year ago. So far this year, Egypt has become the destination for 20 percent of U.S. exports. Japan is a steady buyer, with its commitments of 2.9 million tons, about the same as last year. Pakistan has used U.S. government financing and taken 2.2 million tons of U.S. wheat so far, almost doubling last year's pace. The EU has increased purchases of U.S. wheat by almost 50 percent because of tight durum supplies and a need to import high quality wheat. Tunisia and Morocco have also increased purchases from the United States. U.S. sales to Latin America are down 27 percent. Mexico has reduced imports because of a larger crop and increased stocks. In much of the region food use of wheat appears to be growing only slowly. Brazil has imposed phytosanitary restrictions on U.S. wheat, driving U.S. shipments to zero. Combined with restrictions on sales to Iran, this has left the United States completely out of two of the world's four largest wheat markets. The EEP program remains suspended, and PL-480 funding is reduced, leaving GSM credit guarantees as the most important government program to help U.S. wheat exports in 1997/98. Situation and Outlook for 1997/98 World Wheat Production Up Sharply, Global Stocks Building in 1997/98 Large crops in China, India, the NIS, Eastern Europe and the United States are boosting forecast world wheat production in 1997/98 by 27 million tons. Meanwhile, global consumption growth is expected to slow to less than 8 million tons. Drought in North Africa has caused increased imports, maintaining the level of world wheat trade. Sharply higher ending stocks are expected in China and the NIS. World Wheat Production Tops 600 Million tons in 1997/98 World wheat production in 1997/98 is forecast at a record 609 million tons, and because harvest is complete in almost all areas, the forecast is unlikely to change much. Production is up 4.6 percent from last year, the third consecutive global increase. Wheat prices during planting in most countries were down from a year earlier, but remained relatively high. This was reflected in global area, which declined slightly, but remained 3 percent above the 10-year average. Increased yields more than made up for the slight reduction in area. The average world wheat yield for 1997/98 is forecast up 0.13 tons per hectare from last year's record, the largest year-to-year increase since 1990. Generally favorable weather contributed to record yields for three of the four largest wheat producers--China, India, and the United States. China is forecast to have produced 124 million tons of wheat in 1997/98, more than 20 percent of the world total. Increased support prices and administrative controls through the "Governor's Grain Bag Policy" resulted in a small increase in area. Exceptionally good weather, including unusually dry harvest conditions, boosted yields over 4 tons per hectare, up 11 percent from the previous year's record. The 13.4-million-ton increase in China's wheat production is the largest in USDA's data base that goes back to 1960, and comes on top of a record crop. India, Pakistan, and Brazil are other major importers with record yields in 1997/98. However, in Pakistan and Brazil, area planted was down enough so that production did not reach record levels. In Eastern Europe and the New Independent States (NIS, the former Soviet Union) wheat production increased dramatically, up 32 and 26 percent from a year earlier, as above normal rains over most of the region boosted production but reduced quality. The 16.7 million ton increase in NIS wheat production is actually larger than the increase in China, but follows a particularly bad year, so area and yield remain below those reported before the breakup of the Soviet Union. Wheat production declined in North Africa because of drought, and production was off in the EU because of dryness in some areas and excess rain in others. In Canada, Australia, and Argentina area and production declined. While reduced prices led to lower area, adverse weather in Canada and Australia reduced yields. However, timely rains in Australia limited the damage done by very dry early-season growing conditions. Above normal rainfall in Argentina helped boost wheat yields to a forecast record, partly offsetting the sharp drop in area. The major exporters (United States, EU, Canada, Australia, and Argentina) all started 1997/98 with higher stocks than the year before, but production changes in 1997/98 generally left importers (except North Africa) with increased wheat supplies, and exporters (except the United States) with reduced supplies. World Wheat Trade Up Slightly in 1997/98 Despite increased importer supplies, slow consumption growth, and reduced foreign exporter supplies, world wheat trade is forecast up slightly to 98.2 million tons. Drought in North Africa is causing a sharp, 2.6-million-ton increase in imports by Algeria, Morocco, and Tunisia. Iraq is expected to increase wheat imports by 1 million tons as the oil for food agreement with the UN extends throughout the year and begins to function on a more routine basis. Pakistan is expected to increase imports by almost 1 million tons because of critically low stocks. The EU is increasing wheat imports 0.6 million tons because of tight durum supplies and the need to import high quality wheat to blend with local supplies. Brazil is expected to be the world's third largest importer at 5.7 million tons. Despite increased production, Russia is also supporting world trade by maintaining wheat imports from Kazakstan. Most of the above increases in imports are offset by countries with reduced import prospects. Iran's imports are expected to drop 1.8 million tons in 1997/98 to 5.0 million, because exceptionally large imports the previous year built up stocks. Increased production is dropping China's and Eastern Europe's forecast imports. Imports are forecast down for Turkey because of a large crop and a sharp rise in the import tariff. Egypt is forecast to remain the world's largest wheat importer in 1997/98, at 7.2 million tons, but consumption and imports are expected to grow slowly after a sharp increase the year before. For Japan, imports of 6.2 million tons are expected to be little changed from last year. World Wheat Ending Stocks Expected Up Mightily in 1997/98 Modest growth in forecast world wheat consumption is contributing to increasing stocks. In 1997/98 global consumption is forecast to increase 1.3 percent, slower than world population growth. Global ending stocks are forecast up 24 million tons to 133 million, an increase of over 20 percent. However, much of the buildup is expected in China and the NIS, where comprehensive stocks data are not available, so it is impossible to verify the size of the increases. In China, stocks are forecast to increase 12 million tons to 36 million, while consumption increases 1 million. The effect of these huge wheat stocks on world trade and prices is difficult to determine. In the NIS wheat ending stocks are expected to more than double in 1997/98, reaching 15 million tons. However, this is a rebound from exceptionally low levels, and remains less than half the stocks in 1993/94. Reportedly, a significant portion of the increased stocks are of low quality wheat held by production units in poor storage facilities. Eventually this wheat is more likely to be used as feed or wasted, than to enter bread-wheat marketing channels. Wheat by Class HRW Supplies Expand, HRS Supplies Contract in 1997/98 Larger HRW supplies and lower prices have led to higher use, particularly for domestic food and exports. However, ending stocks are forecast to be the largest since 1990. HRW Crop Rebounds from Freeze Weather conditions were extremely favorable during the winter wheat growing season, with the exception of a mid-April freeze that hit portions of Texas, Oklahoma, and Kansas. Although many fields sustained considerable damage from the mid-April freeze, especially where there was no snow cover for protection, weather after the freeze was nearly ideal for the wheat plants to recover. Consequently, yields and harvested areas were record high. The freeze-damaged States accounted for almost three-quarters of projected HRW production in 1997. The 1997 crop is testimony to the resiliency of the wheat plant. The U.S. winter wheat yield reached a record 45 bushels per acre, up nearly 7 bushels from the May 1, 1997 forecast, and up nearly 8 bushels from 1996. The Kansas crop was 506 million bushels, topping the 1990 record of 472 million. HRW beginning stocks for 1997/98 (June 1) were estimated at 143 million bushels, the lowest in at least 20 years. But with production increasing sharply, total HRW supplies are forecast to climb to 1.26 billion bushels, about the same as in 1993/94 when carryin stocks were substantially larger. Lower protein in the HRW crop added upward price pressure on premiums for higher-protein wheat. According to the Kansas Agricultural Statistics Service and the Kansas Grain Inspection Department, the average protein content of Kansas wheat was 11.8 percent, compared with 13.3 percent in 1996 and the 10-year average of 12.3 percent. Larger HRW supplies and lower prices have led to higher use, particularly for domestic food and exports. HRW food use is projected to increase almost 20 percent in 1997/98. Exports are projected to be up 38 percent from 1996/97. However, ending stocks are forecast to be the largest since 1990. HRS Output Declines, Constraining Domestic Use and Exports Generally dry weather in the Northern Plains from mid-May through June resulted in below-average yield prospects. The average U.S. yield for HRS was 28 bushels per acre in 1997/98, down from 32 bushels the year before. The HRS crop did not decline to the extent observers expected earlier in the season because of an increase in area during the planting season. According to the June 30 Acreage report, farmers planted 19.4 million acres of "other spring" wheat, up from the 17.8 million acres reported in the March 1997 Prospective Plantings report. Area had been expected to drop from the sharply higher 1996 level. However, another HRS price run-up last year--due mostly to the mid-April freeze in the Southern Plains and Kansas and widespread flooding in the Red River Valley--apparently provided farmers sufficient incentive to increase plantings above their March intentions. Delayed spring planting in the Northern Plains, where a large portion of the U.S. spring wheat crop is grown, contributed to April-May price fluctuations. Chilly temperatures and extremely wet field conditions following spring storms and snowmelt, especially in the Red River Valley, slowed spring wheat planting in the region. By May 11, farmers had planted only 33 percent of the spring wheat crop, compared with the 5-year average of 56 percent. But by early June, planting progress pulled even with the 5-year average as dry conditions persisted across the region beginning in mid-May. Smaller HRS supplies and higher prices have led to lower domestic use and exports. Estimated food use is projected to be down 13 percent in 1997/98. Exports are expected to decline 23 percent. Ending stocks are forecast to increase 37 percent as price premiums discourage use and farmers market the crop slowly. Larger SRW Crop, Higher Exports Than in 1996/97 Soft red winter (SRW) production was 484 million bushels in 1997, up 15 percent from 1996 and the largest since 1990. 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 the previous year, so quality is better. Although overall wheat prices are lower than in the past few years, higher yields and better quality have reportedly improved income prospects in the soft red belt. Total SRW use in 1997 is forecast at 465 million bushels, up 13 percent from 1996. Higher exports account for most of the increase as higher quality supplies are bid away from feed buyers in the domestic market. Because 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. 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 66 percent of total year-to-date exports and outstanding sales as of February 26, 1998. Egypt and other developing countries use SRW as a bread wheat when world market prices are competitive for that class. Exports of SRW 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 have been running only about 7 cents per bushel below HRW prices during the first 8 months of the marketing year. In 1995/96 and 1996/97, average discounts were over 40 cents per bushel due to sharply smaller HRW crops. In those years, poor SRW quality also contributed to lower SRW prices. Smaller White Wheat Use, Higher Stocks Total white wheat supplies are forecast down 5 percent in 1997/98, which will prevent higher stock building. Production and projected imports are down. Producers planted fewer acres due to planting problems in the Pacific Northwest and Michigan during the fall of 1996. Heavy rains in the Pacific Northwest slowed planting, while late field crop harvests in Michigan limited winter seedings. White wheat yields were up slightly from 1996's high levels, reflecting yield increases for spring wheat in Idaho and Washington. White winter wheat yields in Michigan rebounded sharply from a disastrous 1996. Compared with the Great Plains, soils in the Pacific Northwest are deeper, rainfall is more plentiful, irrigation is used more extensively, and summers are cooler, which all contribute to a generally favorable environment for wheat production. In contrast to the other classes of wheat, white wheat has posted steady yield increases over time. Since 1970, white wheat yields have grown more than twice as fast as the U.S. average for all wheat. As of February 26, 1998, Pakistan had accounted for about 51 percent of white wheat exports this season, compared to only 29 percent a year ago. Most U.S. wheat sales to Pakistan are under the Export Credit Guarantee Program (i.e., GSM-102). The program guarantees repayment of credit for up to 3 years extended to eligible banks that issue letters of credit on behalf of purchasers of U.S. products. In fiscal 1997 (October-September), virtually all of the $350 million of credit guarantees allocated for Pakistan were used for wheat. Pakistan's initial export credit allocation is $250 million for fiscal 1998. Japan, the Philippines, the Republic of South Korea, Yemen, and Taiwan are the other major importers of white wheat. International trade is critical to the white wheat market because exports account for about two-thirds or more of total white wheat use. U.S. white wheat exports are forecast down about 14 percent from 1996/97, reflecting increased competition from Australia. Lower domestic use and reduced exports have contributed to softer prices this year. A year ago, soft white wheat worked its way into more domestic soft wheat milling blends when good-quality SRW wheat was hard to find. Total use is down a projected 15 percent from last year, with ending stocks expected to be the highest in 7 years. Durum Wheat Crop Dips in 1997 The fluctuating moisture situation in the Northern Plains last summer wreaked havoc with U.S. production of durum wheat, the main ingredient for pasta. Farmers harvested only 86 million bushels in 1997, down 26 percent from the large crop in 1996 and the smallest in 4 years. As a result, U.S. durum prices and imports are projected to rise in 1997/98. Extremely wet field conditions following spring storms and snowmelt slowed spring plantings across much of North Dakota, which typically accounts for at least three-fourths of the U.S. durum crop. Just over one-third of North Dakota's durum plantings were completed by mid-May, compared with nearly half for the 1992-96 average. Dry weather allowed farmers to finish planting by early June, but it continued through the month, withering yield prospects. July brought much needed rain, and crop prospects improved somewhat, especially in the northern parts of the region where the crop matures later. In some areas however, the moist and cool conditions promoted disease development that probably reduced both yield and quality. Besides having lower projected yields than last year, U.S. farmers planted 10 percent less area because prices for durum were weaker at planting time compared with a year earlier. Winter durum is also grown under irrigation in the desert areas of California and Arizona, where farmers harvested a combined 22 million bushels in 1997. While yields were near the previous year's levels, planted area was down in both States, especially Arizona. The discovery of Karnal bunt fungus in durum wheat seed last year led to restrictions on planting and marketing to prevent its spread to other wheat-growing regions, which reduced the incentive to plant durum. Beginning stocks of durum were higher than a year earlier, but not nearly enough to offset the smaller crop. The tight domestic supply situation has kept the season-average farm price for durum strong relative to other classes of wheat and higher than a year earlier. Strong prices will attract more durum from Canada, with imports forecast to rise to 30 million bushels, tieing the 1993/94 record. Tight U.S. durum supplies have encouraged U.S. millers to bid aggressively for #1 and #2 grade Canadian durum. Most foreign durum producers are also expecting smaller 1997 crops, which will support durum prices in 1997/98. For the same reasons as in North Dakota, yields and area are down in Canada--the world's largest producer. Italy and France are also expecting to harvest smaller crops. Drought has sharply curtailed prospects in North Africa, where Morocco, Tunisia, and Algeria are major producers and importers. In this region, semolina (the coarse flour ground from durum) is used primarily to make couscous. Although U.S. exports have been running higher than a year earlier, the pace is expected to slow as the season progresses due to tight domestic supplies. Domestic use is forecast to decline from a year earlier, continuing the recent flat trend. Despite the projected smaller output and larger imports, the U.S. is expected to maintain its status as a net exporter of durum (grain and products), with exports of 45 million bushels. Exports to the European Union are up substantially from a year ago. In the African region, Morocco and Tunisia are major importers of U.S. durum during 1997/98. ERS Wheat Information: How To Get It Fast and Often ERS issues electronic Wheat Outlook reports containing brief descriptions of domestic and international market conditions and outlook, as well as key tables to keep readers up to date on market developments. The reports are released--in electronic format only--at 4 p.m. on the first working day following release of USDA's World Agricultural Supply and Demand Estimates (WASDE) report. The first Wheat Outlook in 1998 was issued on January 14. Subsequent issues will be released on April 10, May 13, July 13, August 13, and October 13. In other months, the key tables will be updated to keep users up to date on market developments. The Wheat Outlook reports are available at no charge and may be accessed using any of the following electronic communication media. o World Wide Web USDA's crop and livestock reports and economic situation and outlook reports (including the Wheat Outlook) are available on the USDA Economics and Statistics System maintained by Cornell University's Albert R. Mann Library. Access reports at http://www.econ.ag.gov/, select Products and Services, then Periodicals. o E-mail Report subscriptions are also available through e-mail from the USDA Economics and Statistics System. For information on how to subscribe, send an e-mail to: usda-reports@usda.mannlib.cornell.edu with no subject and the word "lists" as the body (entered without the quotes). Ordering instructions will be sent by return e-mail. Using the instructions, subscribers may choose from more than 70 scheduled reports, including crop, livestock, and price forecasts from USDA's National Agricultural Statistical Service, situation and outlook reports from USDA's Economic Research Service, and the World Agricultural Supply and Demand Estimates report issued by USDA's World Agricultural Outlook Board. For assistance with Internet delivery or e-mail subscriptions, e-mail help@usda.mannlib.cornell.edu or call 607-255-5406. o ERS AutoFAX Use the telephone attached to your FAX machine to call 202-694-5700. Follow the voice prompts and ask for document number 12105 for the latest edition of the Wheat Outlook. Document 12100 will give you a directory of Wheat documents available on AutoFAX. If you are looking for other material and don't know the document number, please request document number 00012 for a directory of situation and outlook material. For more information about this service, including document ID numbers, call 202-694-5050. Special Article The Growth in U.S. Wheat Food Demand by James N. Barnes and Dennis A. Shields 1/ Abstract: U.S. food use (demand) accounted for 58 percent of domestic disappearance in 1990/91, and is projected to rise to 75 percent by the year 2000. As food use captures an increasing share of total domestic disappearance, estimating its magnitude becomes even more important in determining total wheat demand for the United States. Because there are many classes of wheat used to produce a wide variety of "wheat-based" food products, wheat-by-class food demand equations are developed to estimate total U.S. wheat food demand. Keywords: wheat-by-class, food demand, substitutability. Growth in domestic food use of wheat has accelerated during the last two decades, averaging 880 million bushels during 1994/95-1996/97, up from 520 million in 1970/71-1972/73 (when per capita consumption was at an alltime low). This 67-percent gain compares with a 9-percent gain during the previous two decades. In contrast, exports advanced just 34-percent since the early 1970s, feed and residual use advanced 23-percent, and seed use advanced 55-percent. Moreover, food use has been a more steady (less variable) component of domestic disappearance. 1/ Agricultural Economists, Economic Research Service, United States Department of Agriculture. Most of the export gain occurred in the 1970s and early 1980s as world demand expanded rapidly. U.S. wheat exports peaked in 1981/82 at 1.77 billion bushels. Since then, exports have fluctuated under the influence of international supply and demand conditions and government policies. With no apparent upward trend in exports (as well as in feed and seed use), food use as a share of total use rose from 23-percent in 1981/82 to 39-percent in 1996/97 (figure A-1). While overall domestic food use has grown, demand has grown faster for white wheat and durum than for the other classes of wheat (figure A-2). From the mid-1970s to the mid-1990s, food use of white wheat and durum rose 112-percent and 125-percent. These trends could reflect growing consumption of pasta products and the increasing availability of white wheat. While food use of white and durum rose dramatically, their percentage of total food use is relatively small compared to hard red winter. Over the same time period, food use of hard red winter, hard red spring, and soft red winter increased 43, 55, and 50 percent, respectively. Behind the Growth in Wheat Food Demand Increasing population boosts the wheat consumption base, but other factors are also important. The mix of foods people eat depends upon consumer preferences, relative prices of other foods, and income levels. For most of the 20th century, per capita wheat-based food consumption declined--consumers purchased more expensive foods such as meat as incomes rose. In addition, total per capita calorie intake declined as machines reduced physical work requirements (Meinken). Per capita consumption of flour, including semolina, declined from more than 200 pounds in the early 1900s to 110 pounds in the early 1970s. By the mid-1970s, however, the declining trend in per capita consumption reversed due to growing health concerns, greater consumer awareness of the dietary benefits of fiber, bran, and whole grains, as well as increased use of bread (buns) in the fast food industry (figure A-3). The medical community has long encouraged reduced fat consumption and increased intake of the complex carbohydrates found in grain products (Harwood, et al.). Greater grain consumption particularly benefits those involved in the production of wheat products, as wheat flour accounts for about three-quarters of total U.S. grain intake. Per capita flour consumption increased throughout the 1980s and 1990s, reaching 148 pounds in 1997. Another factor affecting increased consumption has been an expanded product choice. Over the last several years, many manufacturers have introduced or expanded production of wheat-based products (e.g., variety bread, cookies, snack foods, bagels, and pita bread), which provided a greater food variety. Partly because of these efforts, some "specialty" food products have become more popular. Demand growth is also a result of a lifestyle change over the past three decades. Less time and energy is available for home-prepared meals and more two-income families have allowed households to purchase more meals at restaurants and other outlets. In 1996, about 46 percent of the food dollar was spent on away-from-home meals, compared with 28 percent in 1965. Demand for wheat-based food has mirrored this upward trend. Wheat-based foods also benefited from larger population numbers in older age brackets because per capita spending for cereal and bakery products increases with the age of the householder. In 1992, householders aged 25-34 spent $140 per person per year on average for these products. In contrast, householders aged 35-44 years, 45-54 years, and 55-64 years spent 10 percent more, 24 percent more and 43 percent more, than did 25-34 year olds. (Putnam and Allshouse). Among the reasons cited for a decline in per capita flour consumption during the first half of the 1900s was less wastage in the use of flour and bread, including gains from better packaging and mechanical slicing (Meinken). Interestingly, today some observers argue that the current rise in per capita consumption is due in part to increasing waste, which is not incorporated in the consumption figures. With more eating away-from-home, more bread--and food in general--may be landing in the garbage bin as restaurants and stores toss leftovers or discard aging products to maintain fresh inventories. An ERS study estimated that almost one-third of the edible supply of grain products in 1995 was not eaten, due mostly to losses by consumers directly and at the food service level (Kantor, et al.). Since the 1980s, relatively rapid growth in domestic food use has led to a larger, more reliable demand base for the U.S. wheat industry. Consequently, relatively strong food use continues to underpin total demand and support wheat prices. The growing base of domestic food use bodes well for the wheat industry as a whole. First, the gains in domestic consumption have coincided with stable to declining wheat supplies in the 1990s. This has contributed to lower stocks and higher prices, which could raise farm income. The increase in the volume of grain milled increases capacity utilization, which lowers costs, and presents profit opportunities for wheat merchandisers and processors. Another implication is that supply shocks may cause more year-to-year price movement as the domestic food share of total use rises. Ignoring any changes in other market factors, a sudden drop in production from a late spring freeze, for example, may lead to a slightly sharper price rise than under a similar event just 10 years ago. This is due to the nature of wheat demand--food use is less responsive to price changes (i.e., demand is more inelastic) than exports and feed use. However, foreign demand and supply conditions in any particular year could swamp this effect. Estimating U.S. Wheat Food Demand Wheat is used extensively in the United States to produce many familiar household food products such as cookies, bread, noodles and pasta, to name just a few (see Box 3). Many different classes of wheat are used to produce these food products such as hard red winter (HRW), hard red spring (HRS), soft red winter (SRW), white and durum. Because food demand is different for each class of wheat, and estimating total U.S. wheat food demand using only one equation may exclude important by-class demand factors, by-class wheat food demand equations are developed for HRW, HRS, SRW, white and durum. The two econometric procedures selected are equation-by-equation Ordinary Least Squares (OLS) and Seemingly Unrelated Regression (SUR). From these two approaches, quantity demanded for each class may be estimated and then added together to derive a total U.S. wheat food demand estimate. OLS estimates the by-class wheat food demand equations individually, but SUR estimates by-class wheat food demand using a 5-equation demand system. Both procedures are selected to provide by-class demand equations capable of estimating total U.S. wheat food demand, while also providing estimates of cross-price elasticities as well as identifying other important demand factors. These estimated cross-price elasticities increase the understanding of how class-to-class substitutability may affect the quantity demanded for a specific class of wheat. Identifying by-class food demand substitutions as well as other demand factors aid in estimating total U.S. food demand. Estimation Results 2/ The OLS results indicate the most elastic market (evaluating own-price elasticities) of the five classes is HRW. However, the food demand for HRW is still considered inelastic because the estimated own-price elasticity of -0.75 is less than 1. If the price of HRW increased by 10 percent, a 7.50-percent decline in the quantity demanded for HRW food use is expected. 2/ See Box one for estimation procedures and testing results. Seemingly Unrelated Regression (SUR) results indicate white is the most elastic market with an own-price elasticity equal to -0.77 followed by HRW (-0.42). Both techniques agree that all five classes of wheat are inelastic as the own-price elasticities for each class are less than unity. Both equation-by-equation OLS and SUR yielded the correct negative own-price signs. Estimates of Substitutability Between 1993 and 1995, HRS and HRW production averaged 500 and 954 million bushels, respectively. In 1996/97 HRS output was a record 630 million bushels, up 33 percent from the previous year. At the same time, the HRW crop fell 7 percent. As a result, HRS sold at a discount to HRW in 1996/97, which encouraged millers to substitute the lower-priced HRS for HRW. Generally, HRS sells at a premium to HRW primarily because of its higher protein content. Price premiums could change significantly if either HRS output or HRW quality increase, which could increase substitution among these two classes of wheat. The substitution between HRW and HRS is only one example that occurs each year among the classes of wheat. These interactions are inherent as dictated by their common end uses and are continually changing as are consumers tastes and preferences. The estimated OLS HRW demand equation suggests HRS is more substitutable for HRW than SRW (cross-price elasticity of +0.75 versus +0.11--table A-1). When there is a shortfall in HRW production, HRS can be substituted as long as protein specifications are met. SRW is not as substitutable as HRS because of the protein needs associated with HRW's end uses (primarily for bread flour, which requires more protein than SRW can provide). Also, HRS is more substitutable for HRW than HRW is for HRS where the cross-price elasticities are +0.75 versus +0.19. Other cross-price elasticities of interest include durum and HRS. It appears HRS is more substitutable for durum than durum is for HRS (the cross-elasticities are +0.14 versus +0.04). This result could be associated with the different blending requirements to produce durum food products versus HRS products. The SUR econometric procedure provides a "system framework" for evaluating just how substitutable each class is with respect to the others. Table A-3 shows the estimated price elasticities of demand. It appears that HRW is more substitutable for HRS than HRS is for HRW (cross-elasticities of +0.48 versus +0.36). Other cross-elasticities of interest also include white and HRW. It appears HRW is five times more substitutable for white than white is for HRW (cross-elasticities of +1.80 versus +0.36). This could be related to HRW's broader spectrum of end uses. Rising Per Capita Income Bodes Well for U.S. Durum Food Demand Between 1986 and 1996, durum food use grew an average of almost 5 percent per year. Possible reasons explaining such robust growth include: 1) changing lifestyles, 2) an increase in availability of pasta sauces, 3) positive "health importance", and 4) an increasing number of Italian restaurants. Because an increased number of American families consist of two working parents, there is less time to prepare cooked meals. Hence, more consumers are eating out and purchasing food products that are both good in quality and fast in preparation. The introduction of both ready made pasta and pasta sauces could have spurred durum demand in recent years. The introduction of ready-made pasta sauces may have served as a "complementary catalyst" for increased pasta demand. Also, the increasing number of Italian restaurants providing more "durum based foods" is another key factor. In earlier years, pasta was viewed more as an ethnic food, but once the positive "health attributes" became evident to consumers, pasta consumption made the transition from ethnic only to more mainstream consumption. Other factors such as per capita income may have boosted durum food demand as well. As per capita income levels continue to rise in the United States, determining which class of wheat will prosper the most is not clear. Table A-4 shows the OLS and SUR estimated per capita income coefficients for each class of wheat. For both econometric techniques, durum has the largest per capita coefficient which is to say durum food demand will increase more than any other class of wheat as per capita incomes rise. If per capita incomes rise just 10 percent, the quantity of durum demanded is expected to increase between 12.3 and 12.7 percent. However, if per capita income declines, the quantity of durum demanded would also decline more than any other class of wheat. The OLS and SUR estimated per capita income elasticities are about equal, with the exception of HRW. Using different estimation periods does not change the per capita income elasticities a significant amount, which suggests the estimates are robust. Conclusions Developing by-class demand relationships increases understanding of substitutability and how per capita income may affect by-class and total U.S. wheat food demand. These by-class demand equations provide substitutability estimates in the form of cross-price elasticities of demand. As consumers tastes and preferences change, understanding which wheats to blend for end uses aids in understanding total U.S. food demand. Both econometric procedures yield similar results for this study. Both agree that by-class food demand is inelastic as all own-price elasticities are less than unity. Although these procedures differ based on substitutability estimates (cross-price elasticities) between classes such as HRW and HRS, the most probable case seems to favor HRS having more substitutability for HRW than HRW has for HRS because it is easier to blend down for protein than up. This study also found positive per capita income elasticities for all classes of wheat. These estimates differ from previous research results where representative wheat food products such as bread were found to exhibit a negative or inferior relationship. The introduction of a wider variety of "wheat-based" products available for consumption at both the retail level and in fast food restaurants may help explain this finding. Specifically, both econometric techniques found durum to have the largest per capita income elasticity (ranging from 1.23 to 1.27) which is to say durum food demand will increase the most if per capita incomes continue to rise in the United States. Implications for the Future By 1992/93 U.S. wheat food use exceeded 800 million bushels and is projected to surpass 900 million bushels for the first time in 1997/98. Growth in domestic food use is expected to continue at least at the pace of population gains and could be spurred by other factors such as biotechnology. 3. The use of new processing and plant genetic technologies could change the way wheat is both grown and processed. The rising share of domestic use provides a large, steady demand base for all U.S. wheat products. These factors set the stage for an exciting and prosperous outlook for the U.S. wheat food industry. 3/ Biotechnology also offers potential quality enhancements for the U.S. wheat food industry. Quality enhancements being researched include changing the amount or chemical structure of existing starch, protein or oil in the wheat kernel. These quality changes could provide better milling and baking characteristics which include: 1) better bread-making qualities, such as starch modification for longer shelf life and better loaf volume and texture, 2) improved frozen dough or bread, 3) improved nutritional quality, 4) protein modification for higher baking quality, and 5) better "biscuit" quality. References "Wheat End Uses Around the World," edited by H. Faridi and J. Faubion. American Association of Cereal Chemists. 1995. Greene, William H., Econometric Analysis, Second Edition, 1993. Harwood, J., M. Leath, W. Heid. "The U.S. Milling and Baking Industries." AER No. 611. Economic Research Service, USDA. December 1989. Hoffman, L., S. Schwartz, G. Chomo, "Wheat--Background for 1995 Farm Legislation." AER No. 712. Economic Research Service, USDA. April 1995. Kantor, L., K. Lipton, A. Manchester, V. Oliveira, "Estimating and Addressing America's Food Losses." Food Review. January-April 1997. Meinken, Kenneth W., "The Demand and Price Structure for Wheat" Technical Bulletin No. 1136. Agricultural Marketing Service, USDA. November 1955. McGuirk, Anya, Paul Driscoll, Jeffrey Alwang, and Huilin Huang. "System Misspecification Testing and Structural Change in the Demand for Meats." J. Agr. Resour. Econ.20 (July 1995): 1-21 Putnam, Judith, and J. Allshouse. "Food Consumption, Prices, and Expenditures, 1996: Annual Data, 1970-94." Statistical Bulletin No. 928. Economic Research Service, USDA. April 1996. BEGIN BOX #1 Box #1 Estimation Procedures Economic theory provides a useful framework for estimating U.S. wheat food demand where the quantity demanded of wheat for food use is a function of its own-price, price of substitute goods, income, and population. For this study, per capita income was used rather than income and population separately. The own-price relationship to quantity demanded states that as price increases, the quantity demanded decreases. Including the price of substitutes into the demand equation provides a means of evaluating substitutability among the classes of wheat by observing the cross-price elasticity of demand (a positive relationship). This is particularly important for hard red spring (HRS) and hard red winter (HRW) because they are very substitutable (milling purposes) in some protein ranges. As per capita incomes rise, quantity demanded can rise or decline. Previous research has found "wheat-based products" such as bread to have a negative relationship with quantity demand, which is to say as incomes rise, people consume less (an inferior good). Because there are many types and prices of bread, income elasticities may be positive or negative. Consumption of white breads may actually decline as incomes rise, but consumption of other more expensive breads could rise. Possible reasons explaining a positive income elasticity for wheat used in food production, may be attributed to lifestyle changes as well as the introduction of new "fast food" products. Wheat food use may no longer be classified as a bread only category as its end uses continue to broaden. Although some survey data are available on the consumption of specific wheat food products, there are no surveys that measure aggregate U.S. wheat consumed for food. The Economic Research Service does estimate a proxy for wheat food consumption, but it should be viewed as wheat food disappearance. The U.S. wheat food use (demand) data used in this study are calculated by summing wheat ground for flour, imports of flour and selected products, a non-flour wheat food use estimate, and then subtracting exports of flour and selected products. 1/ Essentially, the wheat food use data represent domestic wheat ground for flour plus the net trade of selected import and export food products. These data do not account for any waste in food production. 1/ Wheat import, export, and millgrind data are estimated by the U.S. Department of Commerce, Bureau of the Census. Wheat ground for flour data are reported in the M20A Flour Milling report. Import and export wheat categories (such as pasta) are converted to a bushel equivalent to provide estimates of wheat food imports and exports. The Economic Research Service estimates the non-flour food use. For this study, by-class demand equations are estimated using equation-by-equation Ordinary Least Squares (OLS), and Zeller's Seemingly Unrelated Regression (SUR) econometric procedures.2/ These approaches provide by-class demand equations that can be used to estimate total U.S. wheat food demand. The common multiple equation structure of SUR is denoted in equation three, where there are M equations (5) and T observations (15) in the data sample y1 = X1 1 + 1 y2 = X2 2 + 2 . . yM = XM M + M (1) (Greene 1993). The SUR technique imposes symmetry and homogeneity conditions (restrictions) upon the five by-class demand equations. These restrictions are tested, and then, implemented if statistically significant at the 5 percent level. The Likelihood Ratio test is used to test these by-class demand restrictions because it performs well with small samples. The Likelihood Ratio test statistic compares the unrestricted model to the restricted model and measures whether the data can conform to each of the general restrictions. Testing procedures for functional form, parameter stability, homoskedasticity, and autocorrelation are performed for the system as well as for each individual equation. McGuirk and Driscoll define each of these assumptions as follows: (1) Functional form: conditional mean of the exogenous (independent) variables are linear in form; (2) Parameter stability: exogenous variables do not vary over time; (3) Autocorrelation: randomly distributed error terms are not related to lagged (or previous) error terms; (4) Static heteroskedasticity: error terms do not have a dependent relationship with the exogenous variables; and (5) Dynamic heteroskedasticity: error terms are related to the exogenous (independent) and endogenous (dependent) variables. 2/ The authors wish to express their deepest appreciation for the econometric insight provided by Dusti Fritz at the Foreign Agricultural Service, United States Department of Agriculture. The other estimation procedure, equation-by-equation OLS, does not impose symmetry and homogeneity conditions as by-class demand equations are estimated individually outside of a demand system. Quantity demanded is still assumed to be a function of each class's own price, per capita income, and substitute prices of other classes of wheat. The results of the Likelihood Ratio tests (SUR by-class estimation) indicate the data conform to only homogeneity restrictions as symmetry restrictions are statistically insignificant at the 5 percent level. Therefore, the results reported in table A-2 are "restricted results" where only homogeneity restrictions are imposed upon the demand system. Symmetry restrictions were found not to be statistically significant , which may be caused by the unique end uses for each class of wheat. If symmetry conditions held, cross-price elasticities are assumed to be equal, which implies durum is as substitutable for HRW as HRW is for durum. Clearly, durum may be substituted for HRW, but because of the protein requirements for durum products, HRW substitutability is significantly less. This is confirmed by the estimated cross-price elasticities in table A-3 (+0.002 versus +0.195). END BOX 1 BEGIN BOX 2 Box #2 Demand & Prices Vary by Wheat Class Different classes and qualities of wheat have different uses. As a result, wheat classes are not completely interchangeable. Durum is a special spring wheat used mostly for pasta. Hard red spring (HRS) is usually a high-protein bread wheat. Soft red winter (SRW) is specially bred to produce a low-protein flour primarily for making cookies, cakes, and crackers. Most white wheat--destined principally for export markets--is also soft and, in the United States, is used like SRW or for cereal products. Hard Red Winter (HRW) is the largest class of wheat and is used in a broad spectrum of products. Higher protein HRW is mostly used for bread flour, while lower protein HRW can be used for all-purpose flour, or may compete with SRW. The role of HRW is pivotal. Its production is centrally located with respect to U.S. domestic markets, and its wider range of protein content (varying between SRW and HRS) gives it the broadest spectrum of common uses. In years such as 1996/97 when the supply of HRW was the tightest of any class, mill users' ability to switch among wheat classes is constrained, and price premiums and discounts among classes undergo significant shifts. Substitution among classes can be limited as many users have strong preferences for a single class of wheat or a fixed blend, but some users are not as sensitive to wheat characteristics and switch more readily. HRS and SRW compete directly with HRW, but less so with each other. White wheat competes with SRW and lower protein HRW to some extent in the domestic market, but most white wheat is exported to countries that prefer the white color or are not accustomed to bleaching flour. Since most white wheat is grown in the Pacific Northwest, it is not in a geographically favorable location to compete in the domestic market east of the Rockies. On the other hand, it is close to west coast ports for ready shipment to Asian markets, where low-protein white wheat is used for noodles and dumplings. Durum markets are more independent, although some HRS can be substituted for durum in some traditional pasta products. Durum prices usually run higher than prices for other classes of wheat. END BOX 2 BEGIN BOX 3 Box #3 What Food Products Contain Wheat? Bread is the most common food product made from hard wheat. White pan bread is the major type of bread manufactured in the United States, but specialty breads with more coarse texture, such as "home style" or "country," are also popular. These breads may contain a whole wheat flour or flour made from other grains such as rye, oats, or corn. In contrast to pan-baked breads, hearth breads are baked directly on an open hearth, which creates a solid, crisp crust. Other bread products include flat breads (e.g., pita), rolls and buns (e.g., for hamburgers and hot dogs), and sweet dough (e.g., sweet rolls and coffee cakes). Soft wheat is generally used in products that do not require the elastic characteristics of bread dough, such as crackers, cookies, cakes, pie crusts, and pretzels. Cakes and cookies are relatively high in sugar and shortening, while pie crusts are low in moisture and high in fat. Crackers and pretzels are low in moisture content. Many breakfast cereals also contain wheat. Traditional hot cereals that require cooking are sold as processed raw grains (e.g., wheat grits or rolled oats cereals). Ready-to-eat cereals are grain products that have been cooked and modified (e.g., flaked, puffed or shredded) so that no cooking is required before consumption. Wheat flour is also used to produce noodles. Japanese-style noodles (e.g., udon) are manufactured from soft wheat flour and have a soft texture. Chinese-type noodles (e.g., ramen) use hard wheat flour and have a more stiff texture. Pasta products are produced mostly from semolina (ground from durum wheat), but farina (ground from other kinds of wheat, such as hard red spring) may also be added to reduce costs. During an extrusion and drying process, pasta is formed into different shapes and sizes, including long cuts (e.g., spaghetti, and linguini), short cuts (e.g., elbows, shells, and noodles), and specialty shapes (e.g., bow ties and lasagna). Wheat also finds it way into many other foods, such as breaded products (e.g., fish sticks), ice cream cones, baby foods, and pizza. Adapted from "Wheat End Uses Around the World," edited by H. Faridi and J. Faubion. American Association of Cereal Chemists. 1995. END BOX 3 Special Article Genetic Transformation: A New Tool for the Improvement of Wheat by Ann Blechl 1/ Abstract: Although wheat lags behind crops such as corn and soybeans in biotechnological developments, significant progress has occurred in the last five years with the development of reliable genetic transformation methods. Deployment of biotechnology could revolutionize breeding programs as well as improve and expand the end uses and markets for U.S. wheat. This article describes genetic transformation and the unique contributions it can make to adding value to wheat germplasm. Keywords: Biotechnology, genetic transformation, breeding. Biotechnology is an experimental approach in which a defined gene or set of genes is added to a plant to change specific characteristics. Some biotechnology products developed for agriculture include BST (bovine somatotropin), which enhances milk production, the Flavr Savr tomato, roundup-ready field crops, and Bt-corn, to name just a few. The concept of biotechnology is not new. It has been around for thousands of years and used for fermenting wines and preserving foods by turning milk into cheese and yogurt. What is new about biotechnology is an increased understanding of its applicability to agriculture. Although wheat lags behind other crops such as corn and soybeans in biotechnology developments, there has been significant progress. 1/ Research Geneticist, Crop Improvement and Utilization Research Unit. Agricultural Research Service, Western Regional Research Center, U.S. Department of Agriculture. Among the tools available to the modern breeder for the improvement of wheat are genetic crosses, selection, mutations, and tissue culture. In genetic crosses, a breeder brings together two complete sets of genes, one set from each parent. This results in new combinations of traits. Breeders then evaluate plants during the selection process and replant the seeds from those with the most desirable characteristics, discarding those with undesirable characteristics. Breeders often use mutations or variations of traits, if they confer some advantage. For example, mutations for dwarfism have been used in establishing lodging resistance in modern wheat cultivars. Tissue culture is another tool often employed by breeders when one of the parents of a cross is distantly related to wheat. Grasses other than wheat are sometimes used in crosses to bring in new traits, such as resistances to specific pests, from relatives that are hardier and more adapted to environmental stresses than domesticated wheat. Some of the hybrids produced from these crosses need to be nurtured on artificial media in the laboratory until the chromosomes sort themselves out well enough to regenerate into a viable plant. Thus, tissue culture allows breeders to make crosses to some other grasses and thus to bring new traits into the gene pool of domesticated wheat. Wheat Genetic Transformation Genetic transformation, the newest tool for breeders, combines elements of tissue culture with direct delivery of specific genes to put new traits into wheat. The process leads to a permanent result: the genes that are introduced take up residence in the wheat chromosome, become part of the family, so to speak, and are passed on to the offspring of that plant through the seeds. Genetic transformation provides ways to overcome some of the limitations faced by traditional breeders. For example, genetic transformation can introduce a single gene for a desired characteristic into an already adapted line without backcrossing. Traditional breeding introduces genes wholesale: Each parent contributes one full set of chromosomes. If a breeder wants to introduce a new characteristic into an adapted line that grows well in a certain environment, several backcrosses to the adapted parent after the initial cross are necessary to recover the original cultivar changed only by the new trait. This is especially problematic when wide crosses are used to bring in characteristics from wild grasses: Repeated back-crossing to the domesticated parent must be employed to recover plants adapted for growth under cultivation and with high yield potential. This process can take several years. Genetic transformation allows introduction of a trait in a single generation without altering the rest of a plant's genes. Another obstacle faced by wheat breeders is the difficulty of uncovering loss-of-function mutations. This problem is due to the hexaploid nature of bread wheats. There are six copies of each gene, so changes in one copy are hidden by the activity of the others. It is only recently, for example, that waxy wheat has been created by combining mutations in each of the six genes that encode granule-bound starch synthase. Waxy mutants of corn have long been known. They were easy to uncover because corn has only two copies of each gene. Genetic transformation allows us to create these types of variants in wheat in a directed way by reducing the levels of the gene products. This is done by adding "antisense" genes, versions that are turned around backwards so that they make the wrong or opposite strand of the coding RNA. The antisense RNA reduces the amount of its target. So, instead of waiting for rare mutations to change traits, genetic transformation with antisense genes can reduce or eliminate expression of genes and thus create useful variants. Again, this can be accomplished in a single generation. Genetic transformation can also accomplish tasks that cannot be done by traditional breeding. It allows the introduction of genes from any source, including plants that normally cannot be crossed to wheat. These include, for example, soybeans, genes from microorganisms, and genes designed and made from scratch. Genetic transformation will allow breeders to tap an unlimited gene pool well beyond the genetic variability of domesticated wheat cultivars and closely related grasses. Genetic transformation of some plants, e.g. tobacco, has been possible for more than 15 years, but in wheat for less than 5 years. There are only a handful of U.S. labs in the industrial, academic, and government sectors in which wheat transformation is routinely practiced. All these use similar protocols to achieve the three main processes that are needed for a successful transformation experiment: Delivery of DNA to the wheat cells, identification of the cells that received the DNA, and regeneration of healthy fertile plants from those cells. To describe the methods briefly, young embryos are dissected from seeds early in their development, when they are only 0.5-1.0 mm long, and placed on agar media in a petri dish. Genes are introduced into the cultured embryos by the microprojectile bombardment technique invented by Sanford 2/ and colleagues and using the gene gun, a device manufactured by Dupont. The DNA is carried on tiny gold pellets that are propelled through the cell walls by a pulse of helium gas. The embryos are allowed to recover for 20 hours and then transferred to a type of culture medium called selective medium on which they cannot grow unless they've received the genes included in the shot. Embryo tissue without the genes die, but those with the genes survive and begin to form small shoots. These shoots are encouraged to develop on a slightly different medium and then transferred to a third type of selective medium on which they can form roots if the introduced gene has been successfully incorporated into their chromosomes. After the transformed plantlets develop a dense network of roots, they are transferred to soil and moved to the greenhouse where they grow, flower, and set seed, passing the new genes to their offspring. The technical details of these procedures are published [e.g., Weeks, Anderson and Blechl (1993) Plant Physiology 102: 1077-1082]. 2/ Sandford et al. (1987), Part. Sci. Technol. 5: 27-37. What Biotechnology Improvements Are Being Pursued The power of this approach to change the future of wheat production and uses can be illustrated with a few examples. For the near term, the technology will be targeted to change characteristics that are fairly well understood at the biochemical level and that depend on one or a few genes whose functions in the whole plant are well characterized. 1. Seed protein quality: Genetic studies have shown a positive correlation between certain glutenin proteins and dough strength. Addition of extra glutenin genes to wheat plants to strengthen wheat doughs is underway in several laboratories. For applications other than bread-baking, such as the Japanese export market for noodle-making flours, lower strength doughs are preferred. In this case, antisense genes could be used to decrease the amount of glutenins. Another application of antisense would be reduction of the stickiness of doughs made from flours derived from wheat cultivars that contain pieces of rye chromosomes. These wheats are in widespread production in some parts of the United States because the rye genes confer resistance to several pests and enhance yield under less-than-ideal conditions. A strategy for making the doughs from these flours easier to handle would be to add antisense versions of genes for the rye seed proteins believed to be the components that make these doughs sticky. Another goal for improving wheat flour quality is to raise the levels of lysine and threonine to make it a complete protein source for human and animal nutrition. To accomplish this, genes for storage proteins from other edible seeds that are high in lysine and threonine could be added by genetic transformation. 2. Starch Composition: Wheat seeds are composed primarily of starch (70% dry weight) and changes in starch content are expected to affect the end-use qualities of wheat flours. Thus far, wheat breeders haven't been able to isolate many useful starch variants. Using genetic engineering and the antisense approach, the enzymes involved in making seed starch could be selectively "knocked out" in wheat, yielding a variety of starch compositions. In this way, it is hoped that wheat starch could be made a more valuable co-product of wheat gluten and even competitive with corn and potato starch in some food and nonfood applications. 3) Resistance to head blight/scab. This decade's massive yield and quality losses to scab have focused the efforts of Northern Plains breeders on identifying genetic sources of resistance to the Fusarium fungus. Thus far, no really effective resistances have been found, although some improvements have been made in wheat's tolerance to the disease by crosses to poorly adapted Chinese cultivars. Genetic transformation will allow proteins with the potential to slow the invasion or spread of the fungus to be introduced from other plant sources. In addition, genes from microorganisms that detoxify the fungus' mycotoxins can also be introduced to reduce disease severity and make flours from wheat with low levels of damage safe for food consumption. Other relatively simple and well understood traits that are currently being targeted for improvements by genetic engineering are resistances to herbicides, viruses, and lepidopteran insects. Meanwhile, genetic transformation technology is revolutionizing basic plant biology. The ability to do this kind of genetic surgery is being used to understand how nitrogen is utilized by plants during their growth and development, how carbon compounds made in the leaves of plants find their way to developing seeds, and how plants perceive their environment--light, chemical, and temperature signals--and how they respond to those signals. These are processes that are important to understand in order to make progress in agricultural research, and if we are to continue to feed more people in the future from the same or even smaller areas of cultivated land, and in the face of a growing need to conserve oil, fossil fuel, and water resources. Conclusion In order for genetic transformation to realize its full potential, further research and development are needed to improve the efficiency of the transformation procedure and to apply these techniques to different types of wheat beyond those few cultivars that have been transformed thus far. Field trials are needed to test whether expression of the introduced genes will affect yields, quality, or agronomic traits. Although the introduced genes are well-defined, the field trials also provide the opportunity to ascertain whether any unexpected or undesirable consequences have resulted from the transformation procedure. Genetically engineered wheats are just beginning to make their way into the hands of breeders. Their potential for changing the characteristics of seeds and plants has already been demonstrated. It remains for the marketplace to put a value on those traits and, ultimately, on the technology that makes these changes possible. References Sanford, J.C.D., Klein, T.M., Wolf, E.D. and Allen, N. (1987). "Delivery of substances into cells and tissues using a particle bombardment process". Particulate Science and Technology 5: 27-37. Special Article Noodle End-Use Characteristics for Wheat in East and Southeast Asia by Gary Vocke 1/ Abstract: Noodle flour makers in East and Southeast Asia tend to favor white wheats for making certain oriental noodles, a large and growing consumer item in the region. U.S. soft white wheat has good characteristics for making some of these noodles. However, some types of oriental noodles require a hard white wheat, of which the U.S. produces little. Australia is the favored supplier of hard white wheats for such noodles. Now, hard white wheat varieties are being developed for U.S. farmers that would be competitive with Australian varieties for this noodle market. Keywords: flour, noodles, white wheat In the United States, rolled noodles are primarily used in special applications. Products such as frozen TV dinners use rolled noodles because of a greater resistance to freeze damage. Additionally, rolled noodles are used in canned products, including chicken noodle soup, because of greater stability to high temperature processing. Pasta has become more common in the United States. Pastas, such as spaghetti, sold in the United States are made from durum wheat, processed as an extruded product, and sold as a dried product. 1/ Agricultural Economist, Economic Research Service, United States Department of Agriculture. Rolled, oriental noodle products are an important wheat product in Asia (table B-1). Population-driven growth in demand for noodles has been reinforced in the 1990s in Southeast Asia, where rising incomes have led to the direct substitution of wheat noodles for rice in the traditional Asian diet. This article presents generalized information about the Asian noodle market. Oriental Noodles Oriental wheat noodles can be divided broadly into white, Japanese-style noodles and yellow, Chinese-style noodles. The Japanese-style noodles are made with low-protein flours from soft wheats, and salt (table B-2). The Chinese noodles use higher-protein flours from hard wheat, and are made using a mixture of potassium carbonate and sodium carbonate. When dough is prepared with this higher-protein flour and these alkaline salts, it turns yellow, and is stronger and more elastic than Japanese style noodles. Many Asian consumers prefer to purchase raw or wet (partially boiled) noodles. The moisture content of Asian noodles ranges from 30 percent for raw noodles to 55 percent for wet noodles. Raw noodles can also be steamed and then dried or fried to make instant noodles, an increasingly popular food item in Asia. For example, in Indonesia, the largest wheat importer in Southeast Asia, noodles' share of wheat consumption has doubled in the past decade because of the increasing popularity of instant noodles. Most Asian noodle manufacturers use a flour made from a blend of wheats based on relative prices and the end-use characteristics desired. The Australians have created a niche for their wheat in blends for making oriental noodles because of the color and texture characteristics imparted by their white wheats. Noodles made from Australian wheats have a reputation for a stable white or yellow color. Compared to wheats from Australia, U.S. red wheats tend to contain high levels of an enzyme, polyphenol oxidase (PPO), that Asian wheat millers feel is responsible for noodle discoloration. Raw noodles made from U. S. red wheats may discolor to green, dark brown or black within 24 hours of manufacture (Park, et. al.). The rate of darkening of fresh noodles is important because they may not be consumed until one or more days after manufacturing. Australian White Wheats Of the several classes of white wheats exported by Australia, three target the Asian noodle market: prime hard, with a minimum protein of 13 percent that is suitable for Chinese-style noodles; standard white with a minimum protein of 9 percent; and noodle, a specific soft wheat variety for Japanese-style noodles (table B-3). Australian standard white is the principal raw material for milling Japanese noodle flours in Japan, but some soft wheats such as Japanese wheat and /or U.S. western white wheat are often blended with it. Elsewhere in Asia, however, the Japanese-style noodle is made with a blend that often includes some U.S. hard red and soft white wheat. U.S. hard red wheats are used in noodle flour blends to varying degrees across Asia for Chinese-style noodles. Australian hard white wheat, however, appears to be favored in such flour blends for the Chinese-style noodles. These inherent characteristics of Australia's hard white wheat create a noodle that is more yellow, and has a higher extraction rate when milled for noodle flour. Besides off color, visible specks are not desirable in the noodles. When milled to color standards, white wheat produces 1-3 percent more flour than red wheat. Milling U.S. hard red wheat at a low extraction rate produces a flour with desirable color characteristics for the Asian noodle market, but the low extraction rate makes U.S. red wheat less price competitive. Australian wheats are particularly favored in much of Southeast Asia for Chinese-style noodles. Because of consumer color preferences, Malaysian and Thai millers use only Australian hard white wheats for their most popular Chinese-style noodles, Hokkien and Ba-Mee, respectively [Huo, 1997]. U.S. Market Prospects Over the past 3 years the United States has exported 67 percent of its soft white wheat production. A much smaller proportion, 44 percent, of U.S. non-white wheat production is exported. During these 3 years, soft white wheat accounted for 14 percent of U.S. wheat production. Of these soft white wheat exports, 42 percent went to East and Southeast Asia. In contrast, this Asian region took only 28 percent of U.S. non-white wheat exports. If large, exportable supplies of hard white wheat suitable for making Chinese-style noodles were available, the United States might be able to expand its current 36-percent share of the rapidly growing Asian wheat market. Some hard white wheat is currently produced in the Pacific Northwest region for export to Asia. Elsewhere, however, U.S. production of hard white wheat is very limited because previously available varieties produced low yields. Now, however, varieties are being released that have yields comparable to the hard red wheat varieties. U.S. hard white wheat crop is also used domestically to make the increasingly popular whole-wheat breads. Bread made from hard white wheat is lighter colored and "sweeter" than bread made from red wheat. This is because the outer part of the kernel of white wheat contains fewer of the tannins that give whole red-wheat bread a stronger, bitter flavor. Prompted by increasing U.S. consumer interests in whole wheat breads and the possibility of exporting into the Asian oriental noodle market, farmers in Washington, Idaho, and Montana, where existing white wheat is concentrated, already have started to produce hard white wheats. U.S. wheat breeders and cereal chemists are now developing and releasing hard white wheat varieties that they hope compete with existing red wheat varieties in Kansas and Nebraska. It is uncertain about how rapidly farmers might adopt these new varieties in the hard red wheat areas. Farmers will have to gain experience with the yields of white versus red wheat varieties. It is unlikely that substantial premiums would be offered initially for the white wheat to encourage the growers to switch. High premiums are not likely because there will be some initial expenses as the marketing system adapts to keep the white wheat segregated in the hard red wheat areas. Grain storage and transportation systems will have to handle a second class of wheat in these areas. The white grain will have to be kept separate from other wheat varieties through the entire production chain to the end-user. References Australian Wheat Board. Australian Wheat Industry Guide. Undated. Huo, Guotran (1997). Private communication. Wheat Marketing Center. Portland, OR. Miskelly, D.M. (1996) "The Use of Alkali for Noodle Processing." Pasta and Noodle Technology. James E. Kruger, Robert B. Matsuo, and Joel W. Dick (eds). American Association of Cereal Chemists, Inc. Minnesota. Park, W.J., D.R. Shelton, C.J. Peterson, T.J. Martin, S.D. Kachman, and R.L. Wehling. "Variation in Polyphenol Oxidase Activity and Quality Characteristics Among Hard White Wheat and Hard Red Winter Wheat Samples." Cereal Chemistry 74: 7-11. List of Tables Text Tables The Wheat Situation at a Glance 1. Wheat supply, disappearance, and stocks, June-May 2. Area offered and accepted, 16th CRP Signup, January 29, 1998 3. Change in CRP enrollment: Crop year 1997 to crop year 1998 4. HRW supply and demand 5. HRS supply and demand 6. SRW supply and demand 7. White wheat supply and demand 8. Durum supply and demand Special Article Tables A-1. Equation-by-equation Ordinary Least Squares results for U.S. wheat food demand A-2. Seemingly Unrelated Regression (SUR) results for U.S. wheat food demand system A-3. Estimated U.S. wheat by-class price elasticities A-4. Estimated U.S. wheat by-class per capita income elasticities B-1. Estimated use of flour for noodle production in Asia B-2. Major types of Asian noodles B-3 Wheat types of different end-uses Appendix Tables 1. Wheat: Marketing year supply, disappearance, area, and price, 1991/92-1997/98 2. Wheat: Area, yield and production by major States, 1988-1997 3. Wheat: Estimated acreage, yield, and production, 1965-97 4. Wheat classes: Production, 1950-97 5. Wheat classes: Acreage percentage breakdown by State, 1995-97 6. Wheat classes: Estimated acreage, yield, and production, 1982-98 7. Wheat: Marketing year supply and disappearance, 1960/61-1997/98 8. Wheat: Quarterly supply and disappearance, 1975/76-1997/98 9. Wheat: Farm prices, support prices, and ending stocks, 1950/51-1997/98 10. Wheat: Status of price support loans on specified dates, 1966/67-1997-98 11. Wheat classes: Marketing year supply and disappearance, 1976/77-1997/98 12. U.S. wheat exports: Grain, flour, and products, by month, 1973/74-1997/98 13. U.S. wheat imports: Grain, flour and products, by month, 1983/84-1997/98 14. Wheat: Inspections for export by class and country of destination, June 1, 1996-May 31, 1997 15. Wheat farm programs and participation, 1976-97 16. World wheat production, consumption, trade, and ending stocks, 1960/61-1997/98 17. Wheat production, trade, and ending stocks, world and United States, 1965-97 18. Wheat: Production and exports, major foreign exporters, and total foreign, 1965-97 19. Wheat and wheat flour: World trade, production, stocks and use, 1990/91-1997/98 20. Wheat farm prices for leading classes in U.S. regions, 1977/78-1997/98 21. Wheat cash prices for leading classes at major markets, 1950/51-1997/98 22. Domestic and foreign wheat prices, 1980-97 23. Wheat flour: Supply and disappearance, United States, 1960-97 24. Wheat and flour price relationships at milling centers, annual and by periods, 1982/83-1997/98 25. U.S. wheat production cash costs and returns, 1977-98 26. U.S. wheat production economic costs and returns, 1977-98 27. On-farm receipts of major crops, United States, 1984-98 28. Schedule of wheat base acres to be released from existing CRP contracts by year of expiration, March 2, 1998 29. Wheat: Supply and disappearance, United States, 1910/11-1997/98 30. Quarterly government stock activity for wheat, 1992/93-1997/98 31. U.S. wheat exports: By selected programs 32. Rye: Supply, disappearance, area, and price, 1987/88-1997/98 33. Rye: Production by major States, 1987-97 34. NIS and the Baltics (Former Soviet Union) wheat: Supply and disappearance, 1960/61-1997/98 35. China's wheat: Supply and disappearance, 1960/61-1997/98 36. European Union wheat: Supply and disappearance, 1960/61-1997/98 37. Canada's wheat: Supply and disappearance, 1960/61-1997/98 38. Australia's wheat: Supply and disappearance, 1960/61-1997/98 39. Argentina's wheat: Supply and disappearance, 1960/61-1997/98 END_OF_FILE