WHEAT OUTLOOK March 13, 1996 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--0396. ----------------------------------------------------------------------------- Recent Developments HIGHLIGHTS -- U.S. Export Forecast Raised Only for July/June -- No changes in March to the June/May Wheat Forecasts -- 1995/96 World Wheat Production and Trade Projections Decline -- Increased Foreign Production Expected in 1996/97 -- Southern Plains Crop Conditions Poor -- Karnal Bunt Found In Arizona Durum U.S. WHEAT EXPORT FORECAST INCREASED 0.5 MILLION TONS FOR JULY/JUNE 1995/96 The U.S. wheat export projection was raised a half million tons to 35 million tons for the July/June international trade year as the U.S. has dramatically increased market share during 1995/96 in several South American countries including Brazil, Chile, Colombia, Equator, and Peru. The increase was spurred by diminished exportable supplies in 1995/96 in the two other major Western Hemisphere competitors, Argentina and Canada. However, the export forecast for the June/May 1995/96 U.S. marketing year for wheat remained unchanged at 1.275 billion bushels. June 1995, with 81 million bushels exported, was an especially slow month because exceptional harvest delays reduced shipments. In 1996, export sales indicate much stronger shipping during June. Because the June/May 1995/96 marketing year includes June 1995, while the July/June 1995/96 international trade year includes June 1996, the July/June forecast is higher. WORLD WHEAT PRODUCTION AND TRADE PROJECTIONS DECLINE Because the 1995/96 international wheat harvest is essentially completed, changes in the March projections were primarily the result of USDA adopting several foreign official estimates. The largest absolute change occurred in Australia, as USDA adopted the Australian Bureau of Agricultural Economics (ABARE) 1995/96 production forecast, lowering production by 377,000 tons. Global wheat trade projections for 1995/96 (July/June) declined 1.1 million tons to 96.4 million. Export projections were reduced for the EU, Canada, Romania, and Turkey. Slower than expected exports to date is the main reason for the declines. With reduced export availabilities, forecast imports were lowered for Brazil, North Africa, and a number of other importers. Brazil's import projection was reduced by 600,000. Brazil's wheat imports had been projected to remain unchanged from 1994/95 and with Argentina's exportable wheat supplies sharply reduced in 1995/96, Brazil was expected to increase wheat imports from other sources. However, the sales pace to Brazil from the EU, Canada, and U.S. has not been sufficient to support Brazil's earlier projected 1995/96 imports of 6.6 million tons. INCREASED FOREIGN PRODUCTION EXPECTED IN 1996/97 At this stage, the outlook for the upcoming 1996/97 crop year for wheat remains largely uncertain since most countries' wheat is dormant or has yet to be planted. However, weather conditions have been favorable except in the U.S. Southern Plains. In the EU, the set-aside for grains under CAP reform has been decreased to 10 percent for 1996/97. the smaller set-aside and significantly greater 1995/96 wheat prices have increased winter wheat area in France, Germany, and the United Kingdom. These are the three largest wheat producing countries of the 15-member European Union. Increased precipitation in North Africa (Algeria, Morocco, and Tunisia) in recent months has enhanced soil moisture as the winter wheat crop has emerged and is currently in the vegetative-heading stages of development. Winter wheat seedings increased in Russia from 1994 and adequate snowcover is expected to significantly reduce winterkill from the 1994 level. All of these developments are expected to significantly influence world wheat trade and prices during 1996/97. U.S. SOUTHERN PLAINS CROP CONDITIONS REMAIN POOR Continued dry weather, high winds, and temperature fluctuations are stressing winter wheat in the Southern Plains. Wheat crop conditions are reportedly poor, especially in Texas and Kansas. However, it is still too early to begin to quantify the damage to production. KARNAL BUNT DISCOVERED IN ARIZONA DURUM On March 8, 1996, USDA announced that karnal bunt, a wheat smut, was detected in durum seed wheat. This is a localized find and emergency quarantines have been instituted on those infected properties, seed, farm equipment, planted wheat, and soil associated with the infected wheat. State and Federal quarantines will be put into place to augment this emergency action and USDA has established a wheat export certification team to develop options for dealing with potential trade issues. Karnal bunt is on the quarantine list of some major importers of U.S. wheat, including China, Russia, Brazil, Morocco, and Tunisia. APHIS can no longer issue phytosanitary certificates for U.S. wheat exports, as included in contracts, to countries that quarantine karnal bunt. USDA is currently negotiating with countries to agree on a USDA certification that the wheat is from a region free of karnal bunt. **************************************************************************** * 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, beginning stocks, and imports are dropping 1995/96 U.S. wheat supplies to 2,762 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 2,186 million bushels, down 6 percent from a year earlier and less than in 5 of the last 10 years. Imports are projected down. On September 11, 1995, the Memorandum of Understanding with Canada that set tariff rate quotas on wheat imports expired. However, when the quotas were lifted, no surge of imports occurred as high off- shore wheat prices attracted Canadian wheat. USE FORECAST DOWN 2 PERCENT U.S. June/May wheat exports are projected at 1.275 billion bushels (34.7 million tons), up 7 percent from 1994/95. The U.S. share of global trade is expected to be 36 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 and several other countries. U.S. domestic use in 1995/96 is forecast down 11 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 about 50 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 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 70.0 TOTAL | 3,302.6 2,889.0 3,011.8 3,035.9 2,981.4 2,762.1 | 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 | 482.4 244.5 193.6 271.7 344.8 175.0 Exports 1/ | 1,069.5 1,282.3 1,353.6 1,227.8 1,188.3 1,141.0 TOTAL | 2,434.5 2,413.9 2,481.2 2,467.4 2,474.8 2,275.0 | Ending stocks | 868.1 475.0 530.7 568.5 506.6 346.1 Farmer-owned | reserve | 14.0 50.0 28.0 6.0 0.0 0.0 CCC inventory 2/ | 163.0 152.0 150.0 150.0 142.0 120.0 Free stocks | 691.1 273.0 352.7 412.5 364.6 226.1 Stocks-to-use | 35.7 19.7 21.4 23.0 20.5 15.0 | Prices ($/bu.) | Season average | 2.61 3.00 3.24 3.26 3.45 4.40-4.50 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 9,726 -------------------------------------------------------------------------- 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 2.8 70.3 Harvested | 28.7 16.9 8.4 5.0 2.7 61.8 Yield (bu/ac) | 33.9 30.4 51.4 61.0 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 61.0 Yield (bu/ac) | 29.8 30.2 48.9 66.6 30.5 35.8 Supply: (mil. bu.)| Production | 824 475 450 334 102 2,186 Beg. stocks | 194 193 37 57 26 507 Imports 2/ | 1 30 0 18 21 70 TOTAL | 1,019 699 486 409 149 2,762 | Use: | Total domestic | 477 257 197 123 88 1,141 Exports 2/ | 400 325 265 245 40 1,275 TOTAL | 877 582 462 368 128 2,416 | Ending stocks | 142 117 24 41 22 346 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 16 1,897 232 65 (99) 361 1,338 Mkt. year| 2,186 70 2,762 860 106 175 1,275 346 --------------------------------------------------------------------------- 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) January 1995 | August September October November December 1996 --------------|---------------------------------------------------------- Mill grind +| 77,716 74,042 78,349 74,660 69,885 70,278 Food exports -| 7,555 2,421 2,248 1,389 3,575 Food imports +| 1,690 1,403 1,749 1,775 1,697 Non-flour | food use +| 2,000 2,000 2,000 2,000 2,000 2,000 Food use | 73,851 75,024 79,850 77,046 70,007 ------------------------------------------------------------------------- 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 | 3.74 4.88 | 3.75 4.88 | 4.67 5.80 | 3.56 4.72 Jan | 3.69 4.83 | 3.67 4.80 | 4.61 5.66 | 3.50 4.66 Feb 1/| 3.61 5.03 | 3.62 5.08 | 4.68 5.68 | 3.39 4.83 Mar | 3.52 | 3.47 | 4.59 | 3.38 Apr | 3.48 | 3.45 | 4.51 | 3.35 May | 3.67 | 3.65 | 4.76 | 3.54 ------------------------------------------------------------------------ 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 5.51 | 4.32 5.71 | 4.00 5.14 | 4.49 5.50 Jan | 4.06 5.40 | 4.07 5.62 | 3.83 4.84 | 4.33 5.44 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 5.80 | 5.99 7.11 | 165 209 | 18.65 0.00 Jan | 4.21 5.62 | 6.23 6.95 | 156 207 | 15.26 0.00 Feb | 4.09 | 5.91 | 154 219 | 9.91 0.00 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.) December 1995 | August September October November December 1994 --------------|----------------------------------------------------------- Wheat grain | 119,797 131,424 117,679 105,535 99,175 104,139 Wheat flour | 7,520 2,249 2,080 1,221 3,458 3,903 Products | 146 186 193 193 174 147 Total | 27,463 133,859 119,952 106,948 102,806 115,767 U.S. wheat imports, 1994/95: (1,000 bu.) December 1995 | August September October November December 1994 --------------|------------------------------------------------------------ Wheat grain | 4,832 4,494 3,478 3,339 3,058 4,327 Wheat flour | 562 594 619 559 497 697 Products | 1,130 811 1,131 1,226 1,202 1,685 Total | 6,524 5,899 5,228 5,124 4,757 6,709 ---------------------------------------------------------------------------- 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 | 261 75 336 | China | 1,887 1,933 | 3,061 3,347 | 1,741 2,100 3,841 | Egypt | 2,975 2,787 | 5,432 5,427 | 4,242 459 4,701 | FSU | 2,659 1,394 | 1,284 928 | 569 80 649 | Japan | 3,266 3,014 | 3,053 3,544 | 2,560 598 3,158 | S. Korea | 1,544 1,459 | 1,578 1,557 | 1,014 290 1,304 | Morocco | 1,348 1,304 | 137 116 | 572 30 602 | Nigeria | 1,076 1,050 | 563 631 | 625 113 738 | Pakistan | 1,834 1,447 | 1,416 1,414 | 1,439 204 1,644 | Philippines| 1,883 1,739 | 1,752 1,852 | 1,575 268 1,843 | | | | | Total grain| 32,038 27,561 | 30,597 30,027 | 25,267 5,713 30,980 | | | | | Total (incl| | | | products)3/| 33,414 28,268 | 33,067 30,817 | 25,544 5,720 31,264 | 34,700 ------------------------------------------------------------------------------- 1/ June - May. 2/ U.S. Export Sales Report. 3/ Grain-equivalent basis. END-END-END