WHEAT OUTLOOK April 12, 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-0496. ----------------------------------------------------------------------------- Recent Developments HIGHLIGHTS -- U.S. Wheat Stocks Projected Lowest Since 1947/48 -- U.S. 1995/96 Domestic Use Forecast Increased -- Forecast U.S. Exports Up, Imports Down -- World Wheat Trade Projections Rise with U.S. Increase -- U.S. 1995/96 Farm Price Forecast Increased -- Wheat Crop Conditions Poor in Several HRW and Some SRW States -- Karnal Bunt Found in Arizona, California, New Mexico, and West Texas -- New Farm Bill Increases Flexibility FORECAST U.S. WHEAT STOCKS REDUCED 12 PERCENT IN APRIL USDA reduced the forecast of May 31, 1996 stocks by 41 million bushels to only 305 million. This would be the lowest U.S. wheat ending stocks since 1947/48, following a period when U.S. wheat markets were strictly controlled through wartime rationing. The expected stocks equal only 12 percent of forecast total use in 1995/96, significantly lower than 17 percent in 1973/74. More than a third of the forecast ending stocks are expected to be government owned, in the Food Security Commodity Reserve. Strong demand for exports and domestic milling is drawing down stocks despite high prices. DOMESTIC USE BOOSTED Mill grind reported by Census has been higher than expected, especially in February, indicating a rebound in 1995/96 (June/May) from the unusual decline in 1994/95. Additional milling capacity is reportedly coming online. High wheat prices have little or no effect on U.S. wheat food use because wheat represents a small portion of the cost of the final product and U.S. incomes are high enough that small price increases in the consumer product have little effect on purchasing decisions. The U.S. food use forecast was increased 10 million bushels to 870 million. Seed use was also raised slightly. U.S. EXPORTS UP, IMPORTS SLOWING DOWN U.S. exports of wheat, wheat flour, and selected products are forecast at 1.3 billion bushels, up 25 million from last month. The increase was based on expected strong shipments during April and May. With new-crop prices strengthening, importers have added incentive to take shipment as contracted. While U.S. exports have been stronger than expected, imports have declined in recent months. Canada's wheat supplies are tight and off-shore demand for Canadian wheat is strong, limiting sales to U.S. millers. WORLD WHEAT TRADE PROJECTIONS RISE WITH U.S. INCREASE The 1995/96 world wheat production projection was slightly lowered in April to 534.5 million tons, as declines in Romania and Uzbekistan overshadowed increases in Ireland, Egypt, and Ethiopia. Several of the 1995/96 production projections for the African countries, excluding the North African region and South Africa, were also revised. The first USDA 1996/97 world wheat production projection as well as country-specific projections, will be released next month. Global wheat trade projections for 1995/96 (July/June) were increased to 96.8 million tons this month, as U.S. exports were raised a half million tons because of a strong sales pace. Because of an extremely sluggish sales pace, the European Union (EU) export projection was lowered by another half million tons this month. The weakness in EU export sales has been especially noticeable to the North African countries of Algeria, Morocco, and Tunisia. As a result, all three countries' import projections were reduced in April. Import projections were also lowered by 300,000 tons for Bangladesh and Yemen. The remaining substantial change for the 1995/96 trade projection was an increase in Kazakhstan exports by 500,000 tons, all of which are expected to be destined for Russia. Kazakhstan is estimated to already have exported 1.6 million tons of wheat to Russia for the July/June trade year. U.S. 1995/96 WHEAT FARM PRICE PROJECTION UP All the changes made in April to the 1995/96 U.S. wheat supply and demand tended to reduce supply or increase use. This boosts price prospects, and wheat prices have been strong in March and early April. However, the season average price is weighted by marketings that are heaviest during the summer, so higher prices in the last quarter of 1995/96 will have little affect on the annual forecast. In April, the price range was narrowed 5 cents on the bottom, now $4.45-4.50 per bushel, from $4.40-4.50 in March. While the annual farm price has changed little, market prices and futures prices have risen sharply in recent months because of new wheat crop production problems and tight 1995/96 ending stocks of grain. U.S. 1996 WHEAT CROP CONDITIONS: 40 PERCENT POOR OR VERY POOR Winter wheat crop conditions for the week ending April 7 highlight weather problems in winter areas. As expected, the Southern Plains wheat is hurting, with 63 percent of the Texas crop, 54 percent of the Oklahoma crop, 52 percent of the Kansas crop, and 47 percent of the Nebraska crop rated poor or very poor. Moreover, several SRW States reported a large portion of the wheat crop in poor to very poor condition: Illinois, 54 percent; Missouri, 48 percent; Indiana, 38 percent; and Ohio, 25 percent. Apparently late freezes caught some SRW fields at a vulnerable stage. KARNAL BUNT PROBLEMS WIDEN Karnal bunt, a wheat smut, was first detected in Arizona durum seed wheat, but has also been found in New Mexico, in Texas near El Paso, and in two counties in southern California. Quarantines have been instituted to prevent spread and eradification procedures are underway. Most importers have agreed to accept U.S. wheat, provided APHIS certification that the wheat originates from an area free of the Karnal bunt fungus. 1996 FARM BILL BECOMES LAW Congress recently passed and President Clinton signed into law the Federal Agricultural Improvement and Reform Act (FAIR Act) on April 4, 1996. The FAIR Act replaces the 1990 farm bill and covers the crop years 1996 through 2002. Title I of the FAIR Act, Agricultural Market Transition Act, sets income and price support provisions for program commodities of wheat, feed grains, cotton, and rice, with oilseeds receiving price support. Fixed payments replace deficiency payments, production flexibility is increased, and the nonrecourse loan program with marketing loan provisions continues. Income support Fluctuating deficiency payments, in place since the early 1970s, are eliminated and replaced with fixed payments under production flexibility contracts (PFC). PFCs provide payments to program participants regardless of current production or season average farm prices. Expenditures on contract payments are fixed in advance and decline gradually over the 7-year life of the FAIR Act. PFCs cover eligible production, based on contract acreage and the farm program payment yield (similar to crop acreage base and program yield under previous farm legislation). The annual acreage reduction program (ARP) and the 0/85-92 program are eliminated. Target prices are eliminated for program commodities. Eligibility--Any producer with an established crop acreage base for wheat who has received payments or has certified their acreage in at least 1 of the past 5 years is eligible to sign a contract. Contract compliance means meeting conservation, wetland, planting flexibility, and land use requirements. Sign-up for the one-time offer begins May 20, 1996, and extends through July 12,1996. One exception for this deadline is CRP contract acreage expiring after the deadline. Production flexibility contracts signed after April 15, 1996, extend through the 2002 crop. Contract payments--For fiscal 1996 $5.57 billion is available to program commodities and wheat's share is 26.26 percent. An annual contract payment is the product of the contract payment quantity (85 percent of contract acreage x farm program payment yield) times annual payment rate. The annual payment rate equals the annual payment amount divided by the annual payment quantity. Annual contract payments will be made by September 30 of each fiscal year from 1996 through 2002. A 50-percent advance payment may be requested within 30 days of entering the contract for fiscal 1996 and thereafter, the advance will be made by December 15 or January 15. The actual payment rate per bushel will not be known until sometime after final sign-up. However, the payment rate will be affected by total participating base, program yields associated with participating base, and any adjustments made to the total payment amount based on deficiency payment refunds or terminated contracts. Planting flexibility Producers can plant any mix of approved crops on contract acreage, including unlimited planting of alfalfa and other foliage, and still receive annual payments. Haying or grazing on all contract acreage may occur at any time during the year without loss of subsidy payment, a major change from previous law. Fruits and vegetables may not be planted on contract acres except under certain circumstances. Price support Nonrecourse marketing assistance loans are available for the 1996 through 2002 crops. The producer may place the crop under loan in return for the wheat loan rate which may not exceed $2.58 per bushel, the rate set for 1995. The loan may be repaid at the lower of the loan rate plus interest or a rate set by the Secretary (marketing loan provisions). The loan rates for wheat will be calculated as 85 percent of the simple average farm price for the five preceding seasons, excluding high and low price, not to exceed $2.58 per bushel. The Secretary may make loan rate reductions of up to 10 percent based on stocks-to-use ratios. For example: 1) If wheat's stocks-to-use ratio is greater than 30 percent, the loan rate reduction can be up to 10 percent. 2) If wheat's stocks-to-use ratio is between 15 and 30 percent, the loan rate reduction can be up to 5 percent. 3) If wheat's stocks-to-use ratio is less than 15 percent, there is no adjustment made to the loan rate. Payment limitations The maximum a single farm could receive in production flexibility contract payments is $40,000 per year, down from the previous limit of $50,000. An individual's limit on payments from marketing loan provisions, marketing loan gains, or loan deficiency payments, continues at $75,000. The three-entity rule has been modified so that a producer can receive up to $80,000 per year in contract payments ($40,000 for the first farm and $20,000 on each of two additional farms) on three separate farming operations, down from the previous limit of $100,000. Annual limits on marketing loan provisions is continued at $75,000 for the first farm and $37,500 each on two additional farms. Other provisions Annual interest rate paid on USDA commodity loans is increased by 1 percentage point. Catastrophic crop insurance is no longer required by producers to participate in the farm program. If they do not carry crop insurance, they must forgo any emergency crop loss assistance. o Farmer-owned reserve program is eliminated. **************************************************************************** * Information Contacts: * * Edward W. Allen (senior wheat analyst) (202) 219-0831 * * Mark Simone (international) (202) 219-0823 * * Bryan Just (farm bill) (202) 219-0021 * * Linwood Hoffman (farm bill) (202) 501-7103 * **************************************************************************** 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 65.0 TOTAL | 3,302.6 2,889.0 3,011.8 3,035.9 2,981.4 2,757.1 | Use | Food | 789.8 789.5 834.8 871.7 852.5 870.0 Seed | 92.9 97.7 99.1 96.3 89.2 107.0 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 1,300.0 TOTAL | 2,434.5 2,413.9 2,481.2 2,467.4 2,474.8 2,452.0 | Ending stocks | 868.1 475.0 530.7 568.5 506.6 305.1 Farmer-owned | reserve | 14.0 50.0 28.0 6.0 0.0 0.0 CCC inventory 2/ | 163.0 152.0 150.0 150.0 142.0 110.0 Free stocks | 691.1 273.0 352.7 412.5 364.6 195.1 Stocks-to-use | 35.7 19.7 21.4 23.0 20.5 12.4 | Prices ($/bu.) | Season average | 2.61 3.00 3.24 3.26 3.45 4.45-4.50 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 9,780 -------------------------------------------------------------------------- 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/ | 0 28 0 18 19 65 TOTAL | 1,018 697 486 409 147 2,757 | Use: | Total domestic | 474 269 198 123 89 1,152 Exports 2/ | 417 335 265 245 38 1,300 TOTAL | 891 604 463 368 127 2,452 | Ending stocks | 127 93 24 41 20 305 1996/97P | HRW HRS SRW White Durum All Wheat ------------------|-------------------------------------------------- Area: (mil. ac.) | Planted | 35.8 16.6 11.7 5.5 3.6 73.1 --------------------------------------------------------------------- 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. 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 | 0 16 1,897 232 65 (99) 361 1,338 Dec-Feb 2/| 0 13 1,351 215 3 8 300 826 Mar-May 3/| 0 13 839 208 31 (42) 338 305 Mkt. year| 2,186 65 2,757 870 107 175 1,300 305 --------------------------------------------------------------------------- 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. 3/ implied by the annual forecasts. Table 4 -- Wheat: Food disappearance (1,000 bu.) (Census Data Delayed) January 1995 | September October November December 1996 February --------------|---------------------------------------------------------- Mill grind +| 74,042 78,349 74,660 69,885 70,278 72,294 Food exports -| 2,421 2,248 1,389 3,575 972 Food imports +| 1,403 1,749 1,775 1,697 1,394 Non-flour | food use +| 2,000 2,000 2,000 2,000 2,000 2,000 Food use | 75,024 79,850 77,046 70,007 72,700 ------------------------------------------------------------------------- Source: Department of Commerce, Bureau of Census. Wheat flour 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 | 3.61 4.99 | 3.62 5.01 | 4.68 5.72 | 3.39 4.81 Mar 1/| 3.52 4.96 | 3.47 4.91 | 4.59 5.59 | 3.38 4.86 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 5.67 | 4.01 5.81 | 3.74 4.83 | 4.23 5.59 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 5.82 | 5.91 6.86 | 154 219 | 9.91 0.00 Mar | 4.11 | 5.87 | 150 216 | 15.20 0.00 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, 1995/96: (1,000 bu.) January January 1995 | September October November December 1996 1995 --------------|----------------------------------------------------------- Wheat grain | 131,424 117,679 105,535 99,175 96,085 93,735 Wheat flour | 2,249 2,080 1,221 3,458 808 2,805 Products | 186 193 193 174 200 111 Total | 133,859 119,952 106,948 102,806 97,093 96,652 U.S. wheat imports, 1995/96: (1,000 bu.) January January 1995 | September October November December 1996 1995 --------------|------------------------------------------------------------ Wheat grain | 4,494 3,478 3,339 3,058 2,333 4,109 Wheat flour | 594 619 559 497 525 776 Products | 811 1,131 1,226 1,202 870 1,014 Total | 5,899 5,228 5,124 4,757 3,728 5,899 ---------------------------------------------------------------------------- Source: Department of Commerce, Bureau of Census. Wheat flour and products converted to wheat grain equivalent. Wheat: U.S. exports (1,000 metric tons) 1/ ------------------------------------------------------------------------------ |1993/94 1993/94 |1994/95 1994/95 | 1995/96 -----------|---------------------------------|-------------------------------- | Export | Export | as of 3/28/96 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 | 361 100 461 | China | 1,887 1,933 | 3,061 3,347 | 2,235 1,519 3,754 | Egypt | 2,975 2,787 | 5,432 5,427 | 4,518 440 4,958 | FSU | 2,659 1,394 | 1,284 928 | 637 0 637 | Japan | 3,266 3,014 | 3,053 3,544 | 2,760 689 3,449 | S. Korea | 1,544 1,459 | 1,578 1,557 | 1,200 211 1,411 | Morocco | 1,348 1,304 | 137 116 | 664 0 664 | Nigeria | 1,076 1,050 | 563 631 | 726 81 806 | Pakistan | 1,834 1,447 | 1,416 1,414 | 1,647 0 1,647 | Philippines| 1,883 1,739 | 1,752 1,852 | 1,686 407 2,093 | | | | | Total grain| 32,038 27,561 | 30,597 30,027 | 27,900 6,115 34,015 | | | | | Total (incl| | | | products)3/| 33,414 28,268 | 33,067 30,817 | 28,177 6,121 34,298 | 35,380 ------------------------------------------------------------------------------ 1/ June - May. 2/ U.S. Export Sales Report. 3/ Grain equivalent basis. END-END-END