HDR1011800201900117961600 WHEAT OUTLOOK January 17, 1995 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- WHEAT OUTLOOK is published monthly by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. WHS--0196. ----------------------------------------------------------------------------- Recent Developments HIGHLIGHTS -- U.S. winter wheat seedings estimated up 7 percent at 52 million acres. -- December stocks greater than expected, reducing feed and residual use. -- Projected U.S. exports increase in January. -- U.S. 1995/96 farm price increased 5 cents to $4.30-4.50 per bushel. U.S. WINTER WHEAT AREA PLANTED HIGHEST SINCE 1990 Strong wheat prices and better planting conditions in Montana, South Dakota, and major soft red winter (SRW) states boosted U.S. winter wheat seedings to the highest in 5 years. SRW area increased 10 percent from a year ago, while hard red winter (HRW) and white winter each increased 6 percent. The major HRW States of the Southern Plains increased area by only 3 percent or less, as dryness hampered seeding, except in Oklahoma, where September wetness delayed the start of planting. Further north, in Montana and South Dakota, winter wheat area increased dramatically from last year's low levels. Although winter wheat planted increased 50 percent in Montana, this was merely a return to the normal acerage of several years ago. In South Dakota, winter wheat expanded on areas left fallow by poor spring planting conditions last year. Planting conditions were generally favorable in SRW Corn Belt States, with area increases ranging from 11 percent in Illinois to 26 percent in Missouri. Based on historical data, SRW wheat area in the Corn Belt responds to price more than in other regions. SRW area increases were generally less dramatic outside the Corn Belt, with excessive rains putting a damper on wheat area in North Carolina. White wheat area planted increased fairly strongly in Washington (+7 percent) and Idaho (+8 percent), but seedings declined in Oregon. Conditions are generally favorable in the region. WHEAT STOCKS DOWN 10 PERCENT FROM A YEAR AGO On December 1, 1995, U.S. wheat stocks were an estimated 1.34 billion bushels, down significantly from a year ago, but about 30 million above the average estimated by industry analysts before data were released. The December 1 stocks data make it possible to preliminarily estimate U.S. wheat supply and demand in the second quarter (September - November) of 1995/96 (see table 3). Trade data from Census have been delayed, so other sources were used to approximate trade volume. Exports can be tracked by the export inspections and export sales reports, although there is often substantial differences between the reports and with the Census data. Canadian exports to the United States provide an insight into imports. Compared with second-quarter 1994/95, U.S. exports and seed use increased in the second quarter of 1995/96, but beginning stocks, imports, food use, feed and residual use, total use, and ending stocks were lower. The greatest decline in use was in the feed and residual estimate. U.S. feed and residual use of wheat is not directly measured, but calculated by taking measured supply (beginning stocks + production + imports) and subtracting known use (food use + seed use + exports) and ending stocks. Often the residual disappearance of wheat includes significant feed use, so it is called feed and residual use. However, during September-November 1995, wheat prices were high enough so that very little wheat grain was fed to animals. The feed and residual use then becomes a statistical residual, reflecting imperfections in the measurement of the other parts of supply and demand, as well as wastes and losses. A negative second quarter feed and residual use is "normal" and means that the December 1 stocks report "found back" some wheat that did not show up in the September 1 report. A possible cause for this is that more wheat may be in transit in September, while in December more of the wheat is in bins and gets counted. The preliminary calculation of a second quarter feed and residual use of -91 million bushels in 1995/96 would be the largest amount of wheat "found back" since September stocks data began to be collected. However, it is not much greater than the -88 million bushels in 1989/90. Because of the large negative second quarter, the annual 1995/96 feed and residual use forecast was reduced 25 million bushels, to 200 million. Because the first quarter was 308 million, and the second was -91, the forecast implies that the last two quarters will sum to -17. High wheat prices and tight supplies are likely to cause wheat to continue to be "found back." PROJECTED U.S. WHEAT EXPORTS INCREASE IN JANUARY Projected 1995/96 world wheat production was raised slightly in January with the increases in South Africa and the United States more than offsetting the declines in Brazil and Greece. Global wheat trade projections rose to 97.5 million tons in January, as the U.S. July/June wheat export projection was increased a half million tons to 33 million and Pakistan's import demand forecast rose by 300,000 tons. However, projected Canadian wheat exports for 1995/96 were lowered a half million tons because of the slow pace of Canadian sales to date. U.S. wheat exports are currently ahead of the 1994/95 export sales pace despite significantly higher prices during 1995/96. According to U.S. Export Sales, most world regions are showing increases in U.S. sales for 1995/96, except for Africa and the former Soviet Union. The increases from last year in U.S. wheat exports continue to be evident in several South American and Southeast Asian destinations, including Brazil, Colombia, Chile, Peru, Indonesia, and Pakistan. In addition, the U.S. has 1 million tons of outstanding sales to Brazil for the 1996/97 (June/May) marketing year. U.S. WHEAT FARM PRICE FORECAST RAISED 5 CENTS The preliminary December 1995 wheat farm price was $4.92 per bushel, up 10 cents from November's price. If confirmed, this is the highest reported wheat farm price since $4.96 per bushel in March 1974. Strong export demand and tight supplies have fueled strong prices. The 1995/96 price projection was increased a nickel on each end of the range to $4.30-4.50. **************************************************************************** * 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 7 PERCENT FROM A YEAR EARLIER Reduced production and beginning stocks are dropping 1995/96 U.S. wheat supplies to 2,777 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. 1995 production is estimated at 2,186 million bushels, down 6 percent from last year and less than in 5 of the last 10 years. Imports are projected down 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. June/May wheat exports are projected at 1.225 billion bushels (33.3 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 smaller 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 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 9 percent from a year earlier. Food use is projected up less than 1 percent. 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 42 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 cause losses during storage and handling, also contributing to residual disappearance. The changes in U.S. supply and demand support record U.S. farm prices. Strong global demand 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 77.7 0,50/92/85 | 5.3 5.8 4.0 5.7 5.2 6.1 Planted | 77.0 69.9 72.2 72.2 70.3 69.2 Harvested | 69.1 57.8 62.8 62.7 61.8 61.0 Yield (bu/ac) | 39.5 34.3 39.3 38.2 37.6 35.8 | 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 2,185.5 Imports 1/ | 36.4 40.7 70.0 108.8 91.9 85.0 TOTAL | 3,302.6 2,889.0 3,011.8 3,035.9 2,981.4 2,777.1 | Use | Food | 789.8 789.5 834.8 871.7 852.5 860.0 Seed | 92.9 97.7 99.1 96.3 89.2 106.0 Feed & Residual | 482.4 244.5 193.6 271.7 344.8 200.0 Exports 1/ | 1,069.5 1,282.3 1,353.6 1,227.8 1,188.3 1,225.0 TOTAL | 2,434.5 2,413.9 2,481.2 2,467.4 2,474.8 2,391.0 | Ending stocks | 868.1 475.0 530.7 568.5 506.6 386.1 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 | 691.1 273.0 352.7 412.5 364.6 244.1 Stocks-to-use | 35.7 19.7 21.4 23.0 20.5 16.1 | Prices ($/bu.) | Season average | 2.61 3.00 3.24 3.26 3.45 4.30-4.50 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 1,146 100 | Market value | of production | (mil. dollars) | 7,184 5,957 7,984 7,812 8,007 9,616 -------------------------------------------------------------------------- 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 | 188 62 61 32 2 345 Total domestic | 586 282 231 107 81 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 | 33.8 16.1 10.5 5.3 3.4 69.2 Harvested | 27.7 15.7 9.2 5.0 3.4 60.9 Yield (bu/ac) | 29.8 30.2 48.9 66.6 30.5 35.8 Supply: (mil. bu.)| Production | 824 475 450 334 102 2,185 Beg. stocks | 194 193 37 57 26 507 Imports 2/ | 2 43 0 18 22 85 TOTAL | 1,020 712 486 409 150 2,777 | Use: | Total domestic | 487 252 207 133 88 1,166 Exports 2/ | 385 325 255 220 40 1,225 TOTAL | 872 577 462 352 128 2,391 | Ending stocks | 148 135 24 56 23 386 1996/97P |HRW HRS SRW White Durum All Wheat ------------------|-------------------------------------------------- Area: (mil. ac.) | Planted | 35.8 10.5 4.6* --------------------------------------------------------------------- Totals may not add due to rounding. E--Estimated, P--Projected. 1/ ERS estimates of area, yield, and domestic use. 2/ Imports and exports include flour and other products expressed in wheat equivalent. *--Winter only (1995/96 = 4.4) 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 | 2,186 23 2,715 215 8 308 303 1,881 Sep-Nov 2/| 0 17 1,898 226 65 (91) 360 1,338 Mkt. year| 2,186 85 2,777 860 106 200 1,225 386 --------------------------------------------------------------------------- Totals may not add due to rounding. E--Estimated, P--Projected. 1/ Imports and exports include flour and selected products expressed in wheat equivalent. 2/ Preliminary. Lack of Census data makes imports, exports and food use specially tentative. Table 4 -- Wheat: Food disappearance (1,000 bu.) (Census Data Delayed) October 1995 | June July August September October 1994 --------------|---------------------------------------------------------- Mill grind +| 71,833 69,818 77,716 74,042 78,441 77,850 Food exports -| 2,925 5,115 7,555 2,421 3,249 Food imports +| 1,807 1,866 1,690 1,403 1,671 Non-flour | food use +| 2,000 2,000 2,000 2,000 1,900 Food use | 72,715 68,569 73,851 75,024 78,172 ------------------------------------------------------------------------- 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 3.84 | 3.09 3.77 | 4.59 5.20 | 3.51 3.78 Jul | 3.04 4.11 | 2.99 4.07 | 4.32 5.29 | 3.28 4.26 Aug | 3.25 4.26 | 3.23 4.22 | 4.30 5.33 | 3.19 4.19 Sep | 3.57 4.53 | 3.57 4.47 | 4.51 5.87 | 3.38 4.27 Oct | 3.76 4.73 | 3.79 4.72 | 4.89 5.83 | 3.52 4.47 Nov | 3.75 4.82 | 3.76 4.79 | 4.88 5.63 | 3.51 4.61 Dec 1/| 3.74 4.92 | 3.75 4.92 | 4.67 5.41 | 3.56 4.78 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 5.34 | 4.31 5.60 | 3.84 5.07 | 4.54 5.35 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 | 167 204 | 26.82 0.00 Nov | 4.41 5.63 | 6.61 7.23 | 162 203 | 22.44 0.00 Dec | 4.37 | 5.99 | 165 209 | 18.65 0.00 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 (Census Data Delayed) U.S. wheat exports, 1994/95: (1,000 bu.) September 1995 | Jun July August September 1994 --------------|-------------------------------------------------- Wheat grain | 78,355 88,649 119,797 131,424 117,555 Wheat flour | 2,822 5,018 7,520 2,249 3,407 Products | 113 115 146 186 130 Total | 81,290 93,783 127,463 133,859 121,091 U.S. wheat imports, 1994/95: (1,000 bu.) September 1995 | Jun July August September 1994 --------------|-------------------------------------------------- Wheat grain | 6,626 5,895 4,832 4,494 5,253 Wheat flour | 650 597 562 594 599 Products | 1,161 1,270 1,130 811 769 Total | 8,436 7,762 6,524 5,899 6,621 ----------------------------------------------------------------- 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 12/28/95 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 75 231 | China | 1,887 1,933 | 3,061 3,347 | 1,720 0 1,720 | Egypt | 2,975 2,787 | 5,432 5,427 | 3,295 565 3,860 | FSU | 2,659 1,394 | 1,284 928 | 194 0 194 | Japan | 3,266 3,014 | 3,053 3,544 | 1,910 623 2,534 | S. Korea | 1,544 1,459 | 1,578 1,557 | 811 327 1,137 | Morocco | 1,348 1,304 | 137 116 | 406 90 496 | Nigeria | 1,076 1,050 | 563 631 | 500 150 650 | Pakistan | 1,834 1,447 | 1,416 1,414 | 959 554 1,512 | Philippines| 1,883 1,739 | 1,752 1,852 | 1,190 390 1,580 | | | | | Total grain| 32,038 27,561 | 30,597 30,027 | 19,395 5,668 25,063 | | | | | Total (incl| | | | products)3/| 33,414 28,268 | 33,067 30,817 | 19,672 5,675 25,347 | 33,333 ------------------------------------------------------------------------------- 1/ June - May. 2/ U.S. Export Sales Report. 3/ Grain equivalent basis. End end end