HDR1011800201901113951600 WHEAT OUTLOOK November 13, 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--1195. ------------------------------------------------------------------------ Recent Developments HIGHLIGHTS -- Record marketing year average wheat price forecast in 1995/96. -- U.S. 1995/96 supply and use forecasts unchanged in November. -- World wheat trade increases with higher production. -- U.S. 1996 wheat crop emergence near 5-year average. USDA FORECASTS RECORD WHEAT FARM PRICE IN 1995/96 The U.S. average farm price for wheat in 1995/96 (June-May) is projected at $4.20-4.50 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 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 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. In September the farm price increased to $4.52 per bushel, 10 cents higher than the preliminary mid-month estimate. The preliminary mid-month estimate for October reached $4.71 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 monthly record of $5.52 per bushel set 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. An updated version of the futures price model published by Linwood Hoffman in the March 1992 (WS-296) issue of the Wheat Situation and Outlook puts the 1995/96 average farm price at $4.45 per bushel, based on November 7, 1995, Kansas City Board of Trade futures for December, March, and May. About 55 percent of marketings are assumed in the first 5 months. U.S. supply and demand forecasts were unchanged in November. Tight wheat supplies, strong export demand that boosted use, and prospects for low global stocks kept prices strong. The forecast U.S. ending stocks equal only 16.5 percent of projected use, the lowest stocks-to-use ratio since 1947/48. (Because of changes in the crop marketing years, however, present stocks data are not directly comparable with years prior to 1975.) WORLD WHEAT TRADE INCREASES WITH HIGHER PRODUCTION After several consecutive monthly declines, projected 1995/96 world wheat production rose in November as estimates were increased for India, Australia, Canada, and several other countries. Abundant soil moisture in Western Australia and South Australia has enabled yields in both states to approach record highs. This has more than offset the reductions in yield prospects for New South Wales. India's and Pakistan's wheat production estimates were increased to be in line with official ministry of agriculture estimates. Canada's wheat production estimate increased to 24.5 million tons based on good harvest weather in western Canada, where most of Canada's wheat is produced. Global wheat trade projections increased for November as exportable supplies rose with greater production in Australia, Canada, and India. EU wheat exports were lowered to 16.5 million tons because of high internal prices that reflect limited EU grain supplies. The ban on EU export subsidies for soft wheat was extended, continuing a suspension that was scheduled to be lifted on October 12. A new EU wheat export system allowing for either export taxes or subsides will take effect on November 16. The U.S. wheat export forecast was unchanged in November as the U.S. export sales pace slowed in recent weeks. However, U.S. sales remain significantly ahead of 1994/95, according to U.S. Export Sales, with large sales to date to several large wheat importing countries including China, the Philippines, Egypt, and Brazil. U.S. 1996 WHEAT CROP EMERGENCE NEAR 5-YEAR AVERAGE On November 5, 1995, the winter wheat crop planted for harvest in 1996 was 79 percent emerged, only 1 percent behind the 5-year average, despite dryness in the Southern Plains and colder than normal temperatures in the first week of November. Crop conditions were reported at 56 percent good to excellent in the 19 top producing states, somewhat less than last year when ample moisture in many areas produced exceptionally good conditions. A survey by state extension economists in Texas, Oklahoma, Kansas, Colorado, South Dakota, and Montana indicated an increase in wheat seedings of only 4 percent from last year. **************************************************************************** * 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 estimated 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 have been 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 4.20-4.50 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 9,498 -------------------------------------------------------------------------- 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 2,713 215 8 306 303 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.) September 1995 | May June July August September 1994 --------------|---------------------------------------------------------- Mill grind +| 74,592 71,833 69,818 77,716 74,042 76,296 Food exports -| 5,995 2,925 5,115 7,555 3,387 Food imports +| 1,737 1,807 1,866 1,690 1,366 Non-flour | food use +| 1,950 2,000 2,000 2,000 1,900 Food use | 72,283 72,715 68,569 73,851 76,174 ------------------------------------------------------------------------- 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 | 3.57 4.52 | 3.57 4.47 | 4.51 5.87 | 3.38 4.26 Oct 1/| 3.76 4.71 | 3.79 4.70 | 4.89 5.69 | 3.52 4.48 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 5.00 | 4.12 5.26 | 3.69 4.56 | 4.32 4.96 Oct | 4.31 5.28 | 4.37 5.59 | 3.89 4.92 | 4.61 5.17 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 5.27 | 6.16 7.26 | 159 194 | 37.61 0.00 Oct | 4.40 5.52 | 6.64 6.76 | 167 203 | 26.82 0.00 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.) August 1995 | May Jun July August 1994 --------------|-------------------------------------------------- Wheat grain | 75,006 78,355 88,649 119,797 103,941 Wheat flour | 6,005 2,822 5,018 7,520 5,636 Products | 109 113 115 146 195 Total | 81,120 81,290 93,783 127,463 109,772 U.S. wheat imports, 1994/95: (1,000 bu.) August 1995 | May Jun July August 1994 --------------|-------------------------------------------------- Wheat grain | 6,395 6,626 5,895 4,832 5,672 Wheat flour | 711 650 597 562 539 Products | 1,029 1,161 1,270 1,130 1,185 Total | 8,135 8,436 7,762 6,524 7,395 ----------------------------------------------------------------- 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 -----------|---------------------------------|--------------------------------- | Export | Export | as of 11/02/95 2/ | | Sales2/| Sales 2/| ------------------- | | Final Final | Final Final | Out- Total | |Census Ship- |Census Ship- |Ship- standing commit-|USDA Country | total ments | total ments |ments sales ments |forecast -----------|---------------------------------|------------------------|-------- | | | Algeria | 1,301 1,323 | 522 547 156 0 156 | China | 1,887 1,933 | 3,061 3,347 | 1,720 0 1,720 | Egypt | 2,975 2,787 | 5,432 5,427 | 2,291 1,030 3,321 | FSU | 2,659 1,394 | 1,284 928 | 40 153 193 | Japan | 3,266 3,014 | 3,053 3,544 | 1,446 582 2,028 | S. Korea | 1,544 1,459 | 1,578 1,557 | 562 383 945 | Morocco | 1,348 1,304 | 137 116 | 226 139 365 | Nigeria | 1,076 1,050 | 563 631 | 419 76 495 | Pakistan | 1,834 1,447 | 1,416 1,414 | 510 405 915 | Philippines| 1,883 1,739 | 1,752 1,852 | 927 335 1,262 | | | | | Total grain| 32,038 27,561 | 30,597 30,027 | 14,428 6,210 20,638 | | | | | Total (incl| | | | products)3/| 33,414 28,268 | 33,067 30,817 | 14,608 6,233 20,841 | 32,659 ------------------------------------------------------------------------------- 1/ June - May. 2/ U.S. Export Sales Report. 3/ Grain equivalent basis. END-END-END