HDR1011800201901012951600 WHEAT OUTLOOK October 12, 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--1095. ----------------------------------------------------------------------------- Recent Developments HIGHLIGHTS -- USDA forecasts record average wheat prices in 1995/96. -- U.S. 1995/96 ending stocks projected below 400 million bushels. -- U.S. wheat export forecast up 25 million bushels to 1.2 billion. -- While other classes tighten, white wheat stocks to increase. USDA FORECASTS RECORD WHEAT FARM PRICE IN 1995/96 The U.S. average farm price for wheat in 1995/96 is projected at $4.10-4.40 per bushel. The low end of the range is higher than the 1974/75 record of $4.09 per bushel. However, if past wheat prices are adjusted for inflation, the current prices are not records, as real wheat prices have generally trended down for over a century. Prices so far in 1995/96 (June-May) have been very strong. The June average wheat farm price matched the previous June record of $3.85 per bushel posted in 1989, and the July 1995 price averaged $4.09, a record for the month. The August price increased to $4.25 per bushel, second only to August 1973's $4.45. The preliminary mid-month September estimate is $4.42 per bushel. The heavy marketings at high prices in the summer are expected to push the weighted season average farm price in 1995/96 to a new record even if later monthly prices do not approach the record of $5.52 per bushel in February 1974. December, March, and May futures contracts indicate the market expects firm but not record prices through the winter, followed by a modest decline during the spring. Supply and demand factors that supported prices over the last month include: 1) reduced supply, with small downward revisions in production and beginning stocks; 2) increased use, boosted by strong export demand; and 3) prospects for low global stocks. The forecast U.S. ending stocks equal only 16.5 percent of projected use, the lowest stocks-to-use ratio since 1947/48. U.S. WHEAT ENDING STOCKS PROJECTED AT 395 MILLION BUSHELS IN 1995/96 Forecast ending stocks on June 1, 1996, at 395 million bushels, are down from 427 million a month ago. Although there is nothing particularly significant about the 400 million bushel ending stock level, market forces have driven ending stocks below that threshold only once since the World War II era, in 1973/74 when ending stocks plummeted to 340 million. The current situation is different from 20 years ago, making it less likely that stocks will drop as low. Production and consumption are larger, increasing "pipeline stocks," those needed to keep domestic and export operations running smoothly. And the U.S. Government is maintaining 142 million bushels in the food security wheat reserve. This reserve can be accessed only by the President when he declares a foreign emergency. Deducting the government owned wheat stocks leaves only 253 million bushels of free stocks, or just over 10 percent of projected 1995/96 use. Because spring wheat is generally harvested later than winter wheat, ending stocks on June 1, 1996, need to include wheat used to keep spring wheat mills running, especially in the Northern Plains. At least 50 million bushels of hard red spring and 15 million bushels of durum are usually milled during the summer. Deducting the 65 million bushels of spring wheat needed for summer milling leaves less than 200 million bushels, or about the equivalent of 1 month of 1995/96 forecast total use. However, projected ending stocks are much larger when compared to domestic food use. Wheat supplies for the U.S. domestic market are ample. Low 1995/96 ending stocks make the amount of wheat exported in 1996/97 and the price very dependant on 1996 production. U.S. WHEAT EXPORT FORECAST INCREASED 25 MILLION BUSHELS TO 1.2 BILLION Projected U.S. wheat exports were raised in October as the U.S. export sales pace is significantly ahead of 1994/95 and global demand continues very strong. Consequently, the estimated U.S. share of world trade is up slightly to 34.0 percent. As of September 28, U.S. shipments (according to U.S.Export Sales) are ahead of 1994/95 in the key importing countries of China, Egypt, Morocco, and the Philippines. Projected 1995/96 world wheat exports are down again this month, primarily due to the lack of available exportable supplies from the European Union, Argentina, and Kazakhstan. Production estimates were also reduced for Australia but an increase in estimated carryin stocks for 1995/96 and continued high wheat prices led to Australias exports being unchanged this month. Because of high internal prices, the EU suspended export restitutions for soft wheat since August and is considering export taxes. Significant production declines in Argentina and Kazakhstan result from continued severe drought conditions in both countries. Despite heavy rains in early October, prospective wheat production in Argentina is down this month because the precipitation occurred too late in the season to prevent reduced wheat plantings. Kazakhstans sharp reduction in wheat output is a reflection of the drought that never abated for spring grains in 1995. WHILE OTHER CLASSES TIGHTEN, WHITE WHEAT STOCKS PROJECTED TO INCREASE The changes to the U.S. wheat supply and use over the last month have compounded the differences between classes of wheat. Hard wheat supplies are reduced and demand increased, while soft wheat supplies have increased. At the end of September, USDA released estimates of wheat production and wheat stocks. The U.S. production revisions added up to a slight downward revision, but the State level revisions shifted production by class. Hard red winter (HRW) production dropped almost 20 million bushels, and hard red spring (HRS) declined about 6 million. Meanwhile, soft red winter (SRW) increased about 6 million bushels and white wheat increased about 20 million. Revised beginning stocks for 1995/96 indicated a slight downward adjustment for HRW and HRS. September 1, 1995 stocks also indicated large supplies in white wheat areas. Moreover, early season imports of white wheat were heavy, causing a shift of the import forecasts by class, reducing HRW imports and increasing white wheat imports. Strong export demand for HRW and HRS is reducing prospects for ending stocks for those classes to unusually low levels. Export demand has also been strong for SRW, a class where, in most years, ending stocks are low. Durum supplies in the U.S. and world market continue tight for a third straight year. Only for white wheat do export commitments lag the a year ago pace. The major white wheat foreign competitor is Australia, currently harvesting a much larger crop after last year's devastating drought. Also, the world's largest importer, China, refuses to buy U.S. white wheat from the Pacific Northwest because of the TCK smut fungus. Some markets, particularly in Africa, that normally buy the cheapest wheat available and are looking for alternative sources because of reduced EU exports, are located so that transportation costs from the Pacific Northwest are high. An acceleration of white wheat export sales will be needed just to match last year's U.S. exports. Some increase is forecast in domestic use because white wheat has become the cheapest wheat, but white wheat ending stocks are projected up 15 million bushels from beginning stocks. **************************************************************************** * Information Contacts: * * Edward W. Allen (senior wheat analyst) (202) 219-0831 * * Mark Simone (international) (202) 219-0823 * **************************************************************************** Fundamentals of Wheat Supply and Demand in 1995/96 U.S. SUPPLY FORECAST DOWN 6 PERCENT FROM A YEAR EARLIER Reduced production and beginning stocks are dropping U.S. wheat supplies to 2,790 million bushels, the lowest in 6 years, and the second lowest in 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. 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. In 1995, yields were hurt by late frost and rain at harvest in important winter wheat areas, as well as by delayed planting, disease and insect problems, and summer heat 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, had record low head weights as frost damage, disease, and rains during harvest reduced yields. Soft red winter yields are below last year's record. Disease, insects, and hot conditions reportedly limited spring wheat yields in the Northern Plains for the third straight year. U.S. production in 1995 is forecast at 2,183 million bushels, down 6 percent from a year earlier and smaller than 5 of the last 10 years. Imports are projected up slightly. On September 11, 1995, the Memorandum of Understanding with Canada that sets tariff rate quotas on wheat imports expired. The United States intends to consult with the Government of Canada to discuss potential problems before imports from Canada reach disruptive levels. USE FORECAST DOWN 3 PERCENT U.S. wheat exports are projected at 1.2 billion bushels (32.5 million tons), up slightly from 1994/95. The U.S. share of global trade is expected to be 34 percent in 1995/96. Major competitor stocks are down, and a lower crop is forecast for Argentina, but Australia is rebounding from drought and exports from Eastern Europe 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 is strong, so export prices are above a year ago. As competition has receded, EEP bonuses fell, and since July, no EEP bonuses have been awarded. Global trade is decreasing from last year despite increased imports by China, Morocco, and Turkey. U.S. domestic use in 1995/96 is forecast down 7 percent from a year earlier. Food use is projected up 1.5 percent, returning to the long term trend. After growing much stronger 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 34 percent, as feeding of wheat is not attractive because of the high price of wheat 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 U.S. supply and demand support record U.S. farm prices. 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 70.3 69.1 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 35.9 | Supply (mil. bu.) | Beg. Stocks | 536.5 868.1 475.0 530.7 568.5 506.6 Production | 2,729.8 1,980.1 2,466.8 2,396.4 2,321.0 2,183.4 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 2,981.4 2,790.0 | Use | Food | 789.8 789.5 834.8 871.7 852.5 865.0 Seed | 92.9 97.7 99.1 96.3 89.3 105.0 Feed & Residual | 482.4 244.5 193.6 271.7 344.8 225.0 Exports 1/ | 1,069.5 1,282.3 1,353.6 1,227.8 1,188.3 1,200.0 TOTAL | 2,434.5 2,413.9 2,481.2 2,467.4 2,474.8 2,395.0 | Ending stocks | 868.1 475.0 530.7 568.5 506.6 395.0 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 | 691.1 273.0 352.7 412.5 364.6 253.0 | Stocks-to-use | 35.7 19.7 21.4 23.0 20.5 16.5 | Prices ($/bu.) | Season average | 2.61 3.00 3.24 3.26 3.45 4.10-4.40 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 8,007 9,280 -------------------------------------------------------------------------- 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 | 34.9 17.6 9.9 5.1 2.8 70.3 Harvested | 28.7 17.0 8.5 4.9 2.7 61.8 Yield (bu/ac) | 33.9 30.3 51.3 62.1 35.6 37.6 | | Supply: (mil. bu.)| Production | 971 515 434 304 97 2,321 Beg. stocks | 227 201 45 67 28 568 Imports 2/ | 3 51 0 15 22 92 TOTAL | 1,202 767 480 386 147 2,981 | Use: | Food | 361 200 150 67 75 852 Seed | 38 20 20 7 4 89 Residual | 187 62 61 32 2 345 Total domestic | 586 282 231 107 80 1,287 Exports 2/ | 422 292 212 222 40 1,188 TOTAL | 1,008 574 443 329 121 2,475 | Ending stocks | 194 193 37 57 26 507 1995/96P |HRW HRS SRW White Durum All Wheat ------------------|-------------------------------------------------- | Area: (mil. ac.) | Planted | 33.9 15.9 10.5 5.3 3.4 69.1 Harvested | 27.8 15.6 9.2 5.0 3.4 60.9 Yield (bu/ac) | 29.8 30.2 48.9 66.7 30.5 35.9 | | Supply: (mil. bu.)| Production | 828 470 450 334 102 2,183 Beg. stocks | 194 193 37 57 26 507 Imports 2/ | 3 54 0 18 25 100 TOTAL | 1,024 717 486 409 153 2,790 | Use: | Total domestic | 502 269 220 117 87 1,195 Exports 2/ | 385 315 235 220 45 1,200 TOTAL | 887 584 455 337 132 2,395 | Ending stocks | 137 133 31 72 21 395 --------------------------------------------------------------------- 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 | 1994/95E | Jun-Aug | 2,321 31 2,920 213 2 376 260 2,069 Sep-Nov | 0 21 2,091 229 61 (29) 338 1,491 Dec-Feb | 0 18 1,509 202 2 26 310 969 Mar-May | 0 22 991 209 24 (28) 280 507 Mkt. year| 2,321 92 2,981 852 89 345 1,188 507 | 1995/96P | Jun-Aug | 2,183 23 2,713 219 8 305 300 1,881 Mkt. year| 2,183 100 2,790 865 105 225 1,200 395 --------------------------------------------------------------------------- Totals may not add due to rounding. E--Estimated, P--Projected. 1/ Imports and exports include flour and selected products expressed in wheat equivalent. Table 4 -- Wheat: Food disappearance (1,000 bu.) August 1995 | May June July August 1994/95 --------------|-------------------------------------------------- Mill grind +| 74,592 71,833 69,818 77,710 78,653 Food exports -| 5,995 2,925 5,115 5,795 Food imports +| 1,737 1,807 1,866 1,723 Non-flour | food use +| 1,950 2,000 2,000 1,900 Food use | 72,283 72,715 68,569 76,481 ----------------------------------------------------------------- Source: Department of Commerce, Bureau of Census. Wheat flour an 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 | 3.04 4.09 | 2.99 4.05 | 4.32 5.21 | 3.28 4.25 Aug | 3.25 4.25 | 3.23 4.23 | 4.30 5.09 | 3.19 4.18 Sep 1/| 3.57 4.42 | 3.57 4.41 | 4.51 5.43 | 3.38 4.32 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 4.76 | 3.78 5.01 | 3.31 4.13 | 3.71 4.65 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 5.06 | 5.30 6.35 | 148 185 | 36.39 0.00 Sep | 4.27 | 6.16 | 159 194 | 37.61 0.00 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.) July 1995 | Apr May Jun July 1994/95 --------------|-------------------------------------------------- Wheat grain | 85,251 75,006 78,355 88,649 66,314 Wheat flour | 6,945 6,005 2,822 5,018 6,824 Products | 109 109 113 115 223 Total | 92,305 81,120 81,290 93,783 73,361 U.S. wheat imports, 1994/95: (1,000 bu.) July 1995 | Apr May Jun July 1994/95 --------------|-------------------------------------------------- Wheat grain | 5,771 6,395 6,626 5,895 8,932 Wheat flour | 599 711 650 597 455 Products | 1,114 1,029 1,161 1,270 1,102 Total | 7,484 8,135 8,436 7,762 10,489 ----------------------------------------------------------------- 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 | 9/28/95 | | Final End | End | Out- Total | | Census Ship- |USDA Ship- |Ship- standingcommit- |USDA Country | total ments |estimatements |ments sales ments 2/|forecast -----------|---------------------------------|------------------------|-------- | | | Algeria | 1,301 1,323 | 547 129 25 154 | China | 1,887 1,933 | 3,347 | 1,581 128 1,709 | Egypt | 2,975 2,787 | 5,427 | 1,767 828 2,594 | FSU | 2,659 1,394 | 928 | 35 53 88 | Japan | 3,266 3,014 | 3,544 | 1,187 561 1,748 | S. Korea | 1,544 1,459 | 1,557 | 434 324 758 | Morocco | 1,348 1,304 | 116 | 138 95 232 | Nigeria | 1,076 1,050 | 631 | 288 102 390 | Pakistan | 1,834 1,447 | 1,414 | 208 350 558 | Philippines| 1,883 1,739 | 1,852 | 698 311 1,009 | | | | | Total grain| 32,038 27,561 | 30,027 | 10,746 6,003 16,748 | | | | | Total (incl| | | | products)3/| 33,414 28,268 | 33,067 30,817 | 10,778 6,219 16,997 | 32,659 ------------------------------------------------------------------------------- 1/ June - May. 2/ U.S. Export Sales Report. 3/ Grain equivalent basis. End end end