HDR1011800201900814951600 WHEAT OUTLOOK August 14, 1995 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- WHEAT OUTLOOK is published monthly (except January) by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. WHS-0895. ----------------------------------------------------------------------------- HIGHLIGHTS -- U.S. wheat production up 2 percent from July. -- Global wheat supplies continue to decline in 1995/96. -- U.S. exports up 25 million bushels from July to 1,175 million. -- 1995/96 ending stocks projected up 14.4 million bushels to 442.7 million. -- U. S. prices respond to tighter World fundamentals. U.S. WHEAT PRODUCTION FORECAST AT 2.23 BILLION BUSHELS The U.S. wheat production forecast in August increased slightly because of improved yield prospects. In August, reduced forecast production in Kansas was more than offset by increases in Nebraska, Colorado and Montana, boosting hard red winter (HRW) slightly. Soft red winter (SRW) production is forecast up 1.6 percent from July as production increased in Illinois, Missouri, and Ohio. White wheat production is up 3.6 percent from July as yields were boosted in Washington, Idaho, and Oregon. Hard red spring (HRS) production is forecast up 2.8 percent from July despite a decline of 100,000 acres in planted and harvested area as yield prospects improved. Although scab disease is present in the Northern Plains for the third year in a row, the damage is reportedly not as severe as last year. Durum production is forecast up 1.5 percent from July because of a 50,000-acre boost in planted and harvested acres. The increase in U.S. wheat production is modest, increasing 1995/96 U.S. wheat supplies by only 1.4 percent. However, the increase is significant in a year of tight world supplies. GLOBAL WHEAT SUPPLIES CONTINUE TO DECLINE IN 1995/96 World wheat supplies continue to tighten in 1995/96. Despite the projected increases in the U.S. and Australian wheat crops, global wheat production for 1995/96, at 539.57 million tons is down from a month earlier. This is largely because dry conditions in Argentina, Russia, and Kazakhstan reduced projected yields and production. In Kazakhstan, dryness and extremely high temperatures have affected spring grains this season. In Russia, the drought in the Volga Valley, Urals, and Central Black Soils region has persisted and crop stress is continuing. Argentinažs wheat production is projected down from the July estimate, based mainly on area reductions, as dry weather is preventing some planting and continues to stress much of the area planted to date. Production declines, especially in Russia and Turkey, along with strong import demand, resulted in a 1.3 million ton rise in 1995/96 world trade to 98.5 million. Over the next several weeks, world wheat prices are expected to remain high relative to the past several years as the EU-15 has suspended export restitutions until September and several recent sales have been made by the United States without EEP bonuses. For the first time since 1989, Egypt and Bangladesh purchased U.S. wheat on entirely commercial terms. However, U.S. wheat export sales slowed during July as higher prices constrained demand until prices eased towards the end of the month, encouraging more import buying in early August. For the near term, the United States will remain the only major source of supply, with the Canadian crop to be harvested in September. Australia and Argentina's crops in the vegetative stage of development. U.S. EXPORTS UP 25 MILLION BUSHELS FROM JULY U.S. wheat exports are forecast up to 1,175 million bushels this month because of larger U.S. production and strong global demand. During the fall months, the United States could increase wheat exports to Brazil and other South American countries because of smaller anticipated 1995/96 supplies available from its two major competitors in this region: Argentina and Canada. In Asia and Middle Eastern markets, U.S. exports will face more competition during early 1996, after the Australian wheat crop is harvested. This month, Australia's 1995/96 production and exports were increased 1 million tons to 17 and 12 million tons, respectively, because of favorable moisture conditions in most of Australia's states. U.S. ENDING STOCKS PROJECTED UP 14.4 MILLION BUSHELS TO 442.7 MILLION August's larger U.S. production forecast is only partly offset by the modest increase in exports, boosting 1995/96 ending stocks slightly. Although up from a month ago, these stocks would be the lowest since 1974/75, and are near minimal levels, especially considering increased domestic use. Domestic millers in spring wheat areas will need to have enough stocks on hand on May 31, 1996, to continue operations until the spring wheat harvest in August. The month-to-month change in the stocks-to-use ratio is relatively modest, from 18.1 percent in July to 18.5 percent in August. Because both exports and ending stocks increased, the ratio was little changed. U.S. PRICES RESPOND TO TIGHTER WORLD FUNDAMENTALS The average wheat farm price in 1995/96 is projected at $3.65-$4.05 per bushel, compared to $3.45 in 1994/95, and unchanged from last month. Price premiums for good quality wheat are likely to be higher than usual, so futures market prices and wholesale price quotes based on good quality wheat are likely to run significantly higher than average farm prices. In the first months of 1995/96 U.S. wheat farm prices have been quite strong -- $3.85 per bushel in June, reaching $4.24 in July (preliminary mid-month price). This preliminary price, if confirmed, is the highest July wheat farm price ever, significantly above $4.04 per bushel in July 1974, and the highest monthly price since the $4.32 in November 1980. The July preliminary mid-month price is likely to be revised down if more of the wheat marketed in July was below average in quality. Widespread rains during harvest in the Southern Plains and resulting below normal average test weights in Kansas make a downward revision more likely. However, downward revisions as large as 20 cents are rare. Even if the July farm price is revised down, the USDA season average forecast range implies that this year will not have a normal seasonal price pattern. Normally lows occur in July, August, or September, and highs in late fall or winter. **************************************************************************** * Information Contacts: * * Edward W. Allen (senior wheat analyst) (202) 219-0831 * * Mark Simone (international) (202) 219-0823 * * Carolyn Whitton (international) (202) 219-0825 * **************************************************************************** Fundamentals of Wheat Supply and Demand In 1995/96 U.S. SUPPLY FORECAST DOWN 5 PERCENT FROM A YEAR EARLIER Reduced production and beginning stocks are dropping U.S. wheat supplies to 2.84 billion bushels, the lowest in 6 years, and the third lowest in the last 20 years. Area planted, area harvested, and yield have declined for 3 years in a row. In each of the last 3 years, unusual planting conditions have contributed to reduced area planted, especially in Montana and Missouri. In 1995, yields were hurt by late frost and rain at harvest in important winter wheat areas, as well as delayed planting and disease problems in major spring wheat areas. Favorable rains and mild growing conditions increased plant populations above average in most winter wheat states. However, several states, especially Kansas, are having record low head weights as frost damage, disease and rains during harvest reduced yields. Imports are projected up because of the September 11, 1995 expiration of the Memorandum of Understanding with Canada that sets tariff rate quotas on wheat imports. As of July 23, 1995, 856,615 tons of other wheat had been shipped against the 1,050,000 ton quota (81.6 percent); 281,491 tons of durum had been shipped under the 300,000 ton quota (93.8 percent), and 3,390 tons of durum had paid additional tariffs even though the 300,000 ton durum quota was not filled. Imports are expected to run slower than a year earlier during the summer, but then accelerate as the U.S. market remains attractive for Canada, despite high prices in many foreign markets. U.S. production in 1995 is forecast at 2.23 billion bushels, down 4 percent from a year earlier and less than 5 of the last 10 years. Despite a 0-percent ARP for the third year in a row, planted area continued to decline. Wheat prices before and during the early planting of winter wheat (August-September 1994) were lower than prices affecting the planting of spring wheat (March-April 1995). Moreover, excess moisture and cool conditions prevented some spring wheat from being planted, especially in South Dakota. Average yields are forecast down 1.0 bushel per acre as late frost, disease problems, and rains during harvest reduced HRW yields in the Southern Plains. Soft red winter yields are forecast below last year's record yields. Scab disease is reportedly limiting spring wheat yields in the Northern Plains for the third straight year. USE FORECAST DOWN 3 PERCENT U.S. wheat exports are projected at 1.175 billion bushels (32 million tons), down slightly from 1994/95. The U.S. share of global trade is expected to remain about 33 percent in 1995/96. Low beginning stocks, especially those of competing exporters, are reducing world supply and competition for exports. Although major competitor stocks are down, and a lower crop is forecast for Canada and Argentina, Australia is rebounding from drought and exports from Eastern Europe and India will increase. Global 1995/96 ending stocks will be the lowest since 1975/76 and the world stocks-to-use ratio will be the lowest since the USDA database began in 1960/61. Exporter supplies are very tight and global demand strong, so export prices are above a year ago. As competition has receded, EEP bonuses have fallen, and in July averaged less than $5 per ton. Global trade is increasing slightly from last year mostly because of increased imports by China, Morocco, Russia and Turkey. U.S. domestic use is forecast down 5 percent in 1995/96 compared to a year earlier. Food use is projected up 1.5 percent, returning to the long term trend. After growing much higher than the long term trend in 1992/93 and 1993/94, food use dropped in 1994/95. This suggests that food use of wheat is a mature market, characterized by slow growth based on population increases and gradually changing dietary habits. Feed and residual use is forecast down 26 percent, as feeding of wheat is not attractive because of high wheat prices compared to feed grains. However, the rain-delayed harvest in the Southern Plains has reduced test weights, and some wheat may be discounted enough to be fed to livestock. Moreover, rains during harvest could also increase losses during storage and handling, also contributing to residual disappearance. The changes in the U.S. supply and demand support increased U.S. prices from last year. Reduced foreign production and tight competing exporters' supplies support U.S. and world prices. Table 1 -- Wheat: U.S. market year supply and disappearance Item |1990/91 1991/92 1992/93 1993/94 1994/95E 1995/96P -------------------|------------------------------------------------------ Area (mil. ac.) | ARP (%) | 5.0 15.0 5.0 0.0 0.0 0.0 Nat'l total base | 90.8 89.6 89.6 89.6 88.9 88.5 CRP base retired | 10.3 10.4 10.6 10.8 10.8 10.8 Effective base | 80.5 79.2 78.9 78.4 78.1 78.7 0,50/92/85 | 5.3 5.8 4.0 5.7 5.2 4.3 Planted | 77.0 69.9 72.2 72.2 70.4 69.3 Harvested | 69.1 57.8 62.8 62.7 61.8 60.9 Yield (bu/ac) | 39.5 34.3 39.3 38.2 37.6 36.6 | Supply (mil. bu.) | Beg. Stocks | 536.5 868.1 475.0 530.7 568.5 510.2 Production | 2,729.8 1,980.1 2,466.8 2,396.4 2,320.6 2,227.4 Imports 1/ | 36.4 40.7 70.0 108.8 91.9 100.0 TOTAL | 3,302.6 2,889.0 3,011.8 3,035.9 2,981.0 2,837.7 | Use | Food | 789.8 789.5 834.8 871.7 852.5 865.0 Seed | 92.9 97.7 99.1 96.3 89.6 105.0 Feed & Residual | 482.4 244.5 193.6 271.6 340.4 250.0 Exports 1/ | 1,069.5 1,282.3 1,353.6 1,227.8 1,188.3 1,175.0 TOTAL | 2,434.5 2,413.9 2,481.2 2,467.4 2,470.8 2,395.0 | Ending stocks | 868.1 475.0 530.7 568.5 510.2 442.7 Farmer-owned | reserve | 14.0 50.0 28.0 6.0 0.0 0.0 CCC inventory 2/ | 163.0 152.0 150.0 150.0 142.0 142.0 Free stocks | 691.1 273.0 352.7 412.5 368.2 300.7 | Stocks-to-use | 35.7 19.7 21.4 23.0 20.7 18.5 | Prices ($/bu.) | Season average | 2.61 3.00 3.24 3.26 3.45 3.65-4.05 Target price | 4.00 4.00 4.00 4.00 4.00 4.00 Loan rate | 1.95 2.04 2.21 2.45 2.58 2.58 deficiency | payment rate | 1.28 1.35 0.81 1.03 0.61 3/ | Deficiency pmts. | (mil. dollars) | 2,420 2,246 1,371 1,904 1,146 | Market value | of production | (mil. dollars) | 7,184 5,957 7,984 7,812 8,006 -------------------------------------------------------------------------- Totals may not add due to rounding. E--Estimated, P--Projected. 1/ Imports and exports include flour and other products expressed in wheat equivalent. 2/ From 1981 on, includes Food Security Reserve. 3/ Based on 5-month price + 10 cents. Table 2 -- Wheat supply and disappearance by class 1/ 1994/95E |HRW HRS SRW White Durum All Wheat ------------------|-------------------------------------------------- | Area: (mil. ac.) | Planted | 35.0 17.5 9.8 5.2 2.9 70.4 Harvested | 28.7 16.9 8.4 5.0 2.7 61.8 Yield (bu/ac) | 33.9 30.4 51.3 61.0 35.5 37.6 | | Supply: (mil. bu.)| Production | 971 515 433 303 97 2,321 Beg. stocks | 227 201 45 67 28 568 Imports 2/ | 3 51 0 15 22 92 TOTAL | 1,202 767 479 386 147 2,981 | Use: | Food | 361 200 150 67 75 852 Seed | 39 20 20 7 4 90 Residual | 185 60 60 33 3 340 Total domestic | 584 280 230 107 81 1,283 Exports 2/ | 422 292 212 222 40 1,188 TOTAL | 1,006 572 442 329 121 2,471 | Ending stocks | 195 195 37 57 26 510 1995/96P |HRW HRS SRW White Durum All Wheat ------------------|-------------------------------------------------- | Area: (mil. ac.) | Planted | 34.6 15.8 10.5 5.2 3.3 69.3 Harvested | 27.9 15.5 9.2 5.0 3.3 60.9 Yield (bu/ac) | 30.3 32.9 48.1 62.5 35.0 36.6 | | Supply: (mil. bu.)| Production | 847 508 444 314 114 2,227 Beg. stocks | 195 195 37 57 26 510 Imports 2/ | 3 60 0 12 25 100 TOTAL | 1,046 763 481 383 165 2,838 | Use: | Total domestic | 505 289 230 107 89 1,220 Exports 2/ | 375 315 220 220 45 1,175 TOTAL | 880 604 450 327 134 2,395 | Ending stocks | 166 159 31 56 31 443 --------------------------------------------------------------------- Totals may not add due to rounding. E--Estimated, P--Projected. 1/ ERS estimates of area, yield, and domestic use. Table 3 -- Wheat: Quarterly supply and disappearance (1,000 bu.) ----------|---------------------------------------------------------------- Market |Produc- Year | tion Imports Supply Food Seed Feed Exports E.stocks | 1/ 1/ ----------|---------------------------------------------------------------- | 1992/93: | Jun-Aug | 2,467 20 2,962 211 1 346 283 2,121 Sep-Nov | 0 16 2,137 219 63 (82) 345 1,592 Dec-Feb | 0 17 1,609 197 3 5 356 1,048 Mar-May | 0 16 1,064 208 32 (75) 370 531 Mkt. year| 2,467 70 3,012 835 99 194 1,354 531 | 1993/94E | Jun-Aug | 2,396 15 2,942 211 1 296 301 2,133 Sep-Nov | 0 30 2,163 225 61 (38) 329 1,586 Dec-Feb | 0 27 1,613 211 2 39 332 1,028 Mar-May | 0 37 1,065 224 32 (25) 266 568 Mkt. year| 2,396 109 3,036 872 96 272 1,228 568 | 1994/95P | Jun-Aug | 2,321 31 2,920 213 2 376 260 2,069 Sep-Nov | 0 21 2,091 229 62 (29) 338 1,491 Dec-Feb | 0 18 1,509 202 2 26 310 969 Mar-May 2/| 0 22 989 209 24 (32) 280 510 Mkt. year| 2,321 92 2,981 852 90 340 1,188 510 --------------------------------------------------------------------------- Totals may not add due to rounding. E--Estimated, P--Projected. 1/ Imports and exports include flour and other products expressed in wheat equivalent. 2/ Based on market year forecast. Table 4 -- Wheat: Food disappearance (1,000 bu.) Jun-May Jun-May 1994 | Feb Mar Apr May 1994/95 1993/94 --------------|------------------------------------------------------------ Mill grind +| 65,143 76,820 66,485 74,592 871,203 881,093 Food exports -| 7,213 7,682 7,043 5,995 62,676 48,774 Food imports +| 3,344 4,487 5,771 6,395 20,912 17,557 Non-flour | food use +| 1,950 1,950 1,950 1,950 23,050 21,850 Food use | 63,224 75,575 67,163 76,942 852,489 871,726 --------------------------------------------------------------------------- Source: Department of Commerce, Bureau of Census. Wheat flour and products converted to wheat grain equivalent. Non-flour food use is ERS estimate. Table 5 -- Wheat: Farm prices and prices at selected markets ($/bu.) --------------------- Farm Prices ---------------------- All wheat Winter wheat Durum Other spring Month | 94/95 95/96 94/95 95/96 94/95 95/96 94/95 95/96 ------|----------------------------------------------------------------- Jun | 3.21 3.85 | 3.09 3.77 | 4.59 5.22 | 3.51 3.77 Jul 1/| 3.04 4.24 | 2.99 4.21 | 4.32 5.53 | 3.28 4.22 Aug | 3.25 | 3.23 | 4.30 | 3.19 Sep | 3.57 | 3.57 | 4.51 | 3.38 Oct | 3.76 | 3.79 | 4.89 | 3.52 Nov | 3.75 | 3.76 | 4.88 | 3.51 Dec | 3.74 | 3.75 | 4.67 | 3.56 Jan | 3.69 | 3.67 | 4.58 | 3.51 Feb | 3.61 | 3.61 | 4.68 | 3.40 Mar | 3.52 | 3.47 | 4.61 | 3.38 Apr | 3.49 | 3.45 | 4.48 | 3.34 May | 3.66 | 3.65 | 4.82 | 3.53 ------------------------------------------------------------------------ KC HRW #1 KC HRW #1 St. Louis Portland ordinary 13% prot. #2 SRW #1 soft white Month | 94/95 95/96 94/95 95/96 94/95 95/96 94/95 95/96 ------|----------------------------------------------------------------- Jun | 3.60 4.72 | 3.85 4.90 | 3.22 3.90 | 3.64 4.65 Jul | 3.48 4.98 | 3.63 5.24 | 3.11 4.35 | 3.52 4.94 Aug | 3.70 | 3.78 | 3.31 | 3.71 Sep | 4.05 | 4.12 | 3.69 | 4.32 Oct | 4.31 | 4.37 | 3.89 | 4.61 Nov | 4.24 | 4.31 | 3.84 | 4.54 Dec | 4.27 | 4.32 | 4.00 | 4.49 Jan | 4.06 | 4.07 | 3.83 | 4.33 Feb | 3.98 | 4.01 | 3.74 | 4.23 Mar | 3.87 | 3.91 | 3.59 | 3.98 Apr | 3.86 | 3.95 | 3.55 | 4.08 May | 4.22 | 4.35 | 3.62 | 4.45 ------------------------------------------------------------------------ Minn. Minn. FOB Gulf Average EEP DNS 14% durum $/ton (HRW) bonus $/ton 2/ Month | 94/95 95/96 94/95 95/96 94/95 95/96 94/95 95/96 ------|----------------------------------------------------------------- Jun | 4.20 4.89 | 5.76 7.16 | 139 170 | 43.28 12.71 Jul | 4.14 5.52 | 5.19 7.49 | 138 190 | 42.18 4.35 Aug | 4.00 | 5.30 | 148 | 36.39 Sep | 4.27 | 6.16 | 159 | 37.61 Oct | 4.40 | 6.64 | 167 | 26.82 Nov | 4.41 | 6.61 | 162 | 22.44 Dec | 4.37 | 5.99 | 165 | 18.65 Jan | 4.21 | 6.23 | 156 | 15.26 Feb | 4.09 | 5.91 | 154 | 9.91 Mar | 4.11 | 5.87 | 150 | 15.20 Apr | 4.30 | 5.64 | 149 | 20.52 May | 4.61 | 6.47 | 159 | 23.95 ------------------------------------------------------------------------ Source: NASS & AMS, USDA. 1/ Mid-month. 2/ Weighted avg., all classes. Table 6 -- Wheat: Exports and Imports U.S. wheat exports, 1994/95: (1,000 bu.) Jun-May Jun-May | Feb Mar Apr May 1994/95 1993/94 --------------|------------------------------------------------------------ Wheat grain | 97,478 98,876 85,251 75,006 1,124,657 1,178,058 Wheat flour | 7,085 7,617 6,945 6,005 61,807 47,972 Products | 136 137 109 109 1,812 1,729 Total | 104,699 106,631 92,305 81,120 1,188,277 1,227,761 U.S. wheat imports, 1994/95: (1,000 bu.) Jun-May Jun-May | Feb Mar Apr May 1994/95 1993/94 --------------|------------------------------------------------------------ Wheat grain | 3,344 4,487 5,771 6,395 70,561 91,288 Wheat flour | 735 920 599 711 8,073 6,471 Products | 964 1,124 1,114 1,029 13,313 11,057 Total | 5,043 6,531 7,484 8,135 91,947 108,817 --------------------------------------------------------------------------- Source: Department of Commerce, Bureau of Census. Wheat flour and products converted to wheat grain equivalent. Table 7 -- Wheat: U.S. exports (1,000 metric tons) 1/ ------------------------------------------------------------------------------- |1993/94 1993/94 |1994/95 1994/95 | 1995/96 -----------|---------------------------------|--------------------------------- | | | as of | | Year | Year | 8/3/95 | | Final End | End | Out- Total | | Census Ship- |USDA Ship- |Ship- standing commit- |USDA Country | total ments |estimatements |ments sales ments 2/|forecast -----------|---------------------------------|------------------------|-------- | | | Algeria | 1,301 1,323 | 547 129 1,845 1,975 | China | 1,887 1,933 | 3,347 | 855 824 1,679 | Egypt | 2,975 2,787 | 5,427 | 584 1,490 2,073 | FSU | 2,659 1,394 | 928 | 0 0 0 | Japan | 3,266 3,014 | 3,544 | 656 651 1,307 | S. Korea | 1,544 1,459 | 1,557 | 223 240 463 | Morocco | 1,348 1,304 | 116 | 24 60 84 | Nigeria | 1,076 1,050 | 631 | 157 144 301 | Pakistan | 1,834 1,447 | 1,414 | 0 0 0 | Philippines| 1,883 1,739 | 1,852 | 388 334 721 | | | | | Total grain| 32,038 27,561 | 30,027 | 4,866 6,286 11,153 | | | | | Total (incl| | | | products)3/| 33,414 28,268 | 33,067 30,817 | 4,899 6,502 11,401 | 31,978 ------------------------------------------------------------------------------- 1/ June - May. 2/ U.S. Export Sales Report. 3/ Grain equivalent basis. END-END-END