WHEAT OUTLOOK May 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--0596. ----------------------------------------------------------------------------- Recent Developments HIGHLIGHTS -- U.S. Winter Wheat Production Lowest since 1978 -- U.S. Wheat Production Projected Down 5 Percent in 1996 -- U.S. 1996/97 Wheat Supply Lowest since 1974/75 -- Forecast U.S. Exports Drop 25 Percent in 1996/97 -- World Wheat Production Up, Trade Projections Down -- Record U.S. 1996/97 Farm Price Projected U.S. WINTER WHEAT AREA HARVESTED LOWEST SINCE 1972 Unfavorable weather damaged wheat so badly that farmers will not harvest 27 percent of the winter wheat planted last fall, even though wheat prices have reached record highs. The main winter wheat area of the Southern Plains was dry at planting and germination suffered. Then over the winter, continued dry conditions and a series of very cold temperatures following unseasonable warmth produced extensive winterkill that extended across the Southern Plains. High winds and blowing topsoil also damaged some fields. Periods of extreme temperatures fluctuations also occurred in the Midwest. Poor emergence and extensive winterkill have left plant populations in many fields too low to be worth harvesting, even if weather conditions turn favorable. In some areas producers will plow under low-yielding wheat and plant a spring-seeded crop. In the May Crop Production report, USDA forecast winter wheat yields down for the fourth year in a row in the fields that will be harvested. However, the forecast yield is down only 5 percent from 1995, as many of the lowest yielding fields are not likely to be harvested and reported yields are based on harvested area. Exceptionally low yields in the Southern Plains are partly offset by increased yields in Idaho and Oregon. U.S. winter wheat production, forecast at 1.36 billion bushels, is the lowest since 1978, when planted area was sharply reduced. Hard red winter (HRW) production is forecast at 664 million bushels, the lowest since 1964. Soft red winter (SRW) is forecast below 400 million bushels, less than the previous 4 years. However, white winter is expected to top 300 million, almost matching the record production posted in 1981. Production was particularly hard hit in the Southern Plains. Kansas, normally the largest wheat producing State, is forecast to produce only 183 million bushels, down 36 percent from last year's poor crop and down 58 percent from 2 years ago. This will be the smallest Kansas crop since 1957. Oklahoma, in many years the second largest winter wheat producing State, is forecast to produce 86 million bushels, the lowest since 1971. Texas is forecast to produce only 57 million bushels, the lowest in 11 years. Forecast output is also down for Colorado and Nebraska, while winter wheat conditions improve to the north with Montana yields expected to reach 40 bushels per acre. Some SRW producing States also suffered dramatic production losses because of winterkill. Illinois is expected to only harvest 55 percent of planted area, producing a forecast 37 million bushels, the lowest since 1986. Missouri is expected to harvest 68 percent of planted area, with production the lowest since 1987. Production is also forecast down in Indiana and Ohio, although Ohio is expected to remain the largest SRW producing State. Production is forecast up in Arkansas, almost matching Ohio, as winterkill stayed mostly to the north. TOTAL U.S. WHEAT PRODUCTION DOWN 5 PERCENT Spring wheat production (including durum) is projected at 710 million bushels using the March Prospective Plantings and harvested-to-planted ratios and yields by State for 1991-1995. Spring wheat is expected to account for more than a third of U.S. wheat production, an exceptionally high percent. Record wheat prices are boosting spring plantings, but prices for alternative crops are also high and cold weather in the Northern Plains has delayed seedings, especially in North Dakota. U.S. wheat production in 1996 is projected at 2,074 million bushels, the fourth consecutive decline. Wheat production has dropped below 2.1 billion bushels 6 times in the last 20 years, but in all but 2 of those years planted area was lower than for 1996. This year is an example of how producers can respond to high prices with increased area, but achieve reduced production because of unfavorable weather. U.S. WHEAT SUPPLIES IN 1996/97 FORECAST LOWEST SINCE 1974/75 U.S. 1996/97 wheat supplies are projected at 2.46 billion bushels, down 11 percent from the previous year. Reduced U.S. wheat production is occurring when beginning stocks are forecast to be exceptionally low. Imports are likely to increase, especially if Canada has a large, good quality crop. But unless yields are exceptional in Canada, there should be enough offshore demand for Canadian wheat. U.S. EXPORTS TO DROP 25 PERCENT IN 1996/97, DOMESTIC USE STABLE High wheat prices are expected to have little effect on U.S. food use. Even after strong flour price increases, wheat accounts for less than 10 percent of the cost of a loaf of bread. U.S. consumers are affluent enough that small price increases do not affect purchasing patterns as much as changing tastes and preferences. Population increases provide the basis for slow growth. Feed and residual disappearance was low in 1995/96, and is unlikely to decline given tight supplies of feed grains this summer. With stable domestic use and minimal beginning stocks, the adjustment to the lower U.S. crop is expected to be concentrated in U.S. exports -- down 25 percent, and lower than any of the last 10 years. WORLD WHEAT PRODUCTION PROJECTED TO REBOUND IN 1996/97 Against a background of the tight world stocks, 2 consecutive years of steady import demand, and dramatically higher U.S. and international wheat prices in 1996, global wheat production for 1996/97 is projected to expand 8 percent to 578 million tons. The expansion in production is expected in numerous countries but will be especially pronounced in Australia, Argentina, Canada, European Union (EU), China, North Africa, and the former Soviet Union (FSU). The main factors behind greater production in 1996/97 are the expectations of continued robust wheat prices leading to increased wheat area and generally favorable international crop conditions to date. The escalation in wheat prices in 1995/96 largely explains the projected increase in wheat output by major wheat exporters as Argentina, Australia, Canada, and the EU all are anticipated to increase wheat area and production, with normal weather assumed at this initial stage. The exception is the United States. In the EU, in addition to high wheat prices, the decrease in the set-aside for grains to 10 percent for 1996/97 and much improved weather conditions in the Iberian Peninsula, are leading to a projected production increase in the EU of over 8 million tons. Substantial precipitation in Spain since last fall has ended its 4-year drought and dramatically improved reservoir levels. As a result, Spain's wheat production is projected to double in 1996/97 to 5 million tons. Because most of Canada's wheat production is spring wheat, wheat planting is just beginning this month in the Prairie Provinces of Alberta, Saskatchewan, and Manitoba, although delays are presently occurring because of cold and wet conditions. According to the Statistics Canada planting intentions survey, total Canadian wheat area is expected to increase 1.8 million hectares in 1996, largely at the expense of canola. Assuming average yields, production will rise to 29 million tons in 1996/97, the largest since 1992/93. Wheat planting is also beginning in the Southern Hemisphere countries of Argentina and Australia, who seed winter wheat which will not be harvested until late in the calendar year. Both countries are projected to increase wheat production to the highest level since 1984/85 as area increases in response to high international wheat prices. In addition, Argentina is anticipated to bounce back from last year's drought, with improved yields. The aggregate of the countries of the FSU is projected to show the largest absolute gain in wheat production of any country or region in 1996/97. The increase of 18.6 million tons is attributed to a sharp rise in wheat area in the three main wheat producing countries of Russia, Kazakhstan, and Ukraine. Strong demand for food wheat and higher relative prices have prompted FSU farmers to sow more wheat. Improved moisture conditions at planting last fall for winter wheat in Russia and Ukraine and less winterkill than last year are the major factors behind the projected increase in FSU wheat production for 1996. The Eastern Europe region saw a large rise in wheat exports in 1995/96, to the highest in several years, fueled by high international wheat prices and greater production during 1995. Because of unfavorable weather during last fall at planting, lower production is projected for 1996 in Bulgaria, Romania, and the former Yugoslavia. Because of the curtailment in available supplies, Eastern Europe's wheat exports in 1996/97 are projected to decline by 1 million tons. Although most of the major exporters will have greater supplies in 1996/97, world wheat trade is projected to shrink to 92.9 million tons, the lowest since 1986/87. This is primarily because of reduced import demand by China, Morocco, Tunisia, Brazil, and Russia, all of whom are expected to produce larger crops for 1996/97. Morocco is the most notable for wheat trade implications because record production of 5.6 million tons is projected as Morocco recovers from its 1995 drought and its imports are projected to drop 1.8 million tons to 1 million tons in 1996/97. Russia's wheat imports are projected to decline more than Morocco's in 1996/97 but most of its imports were largely met by other FSU countries in 1995/96. Because of a smaller projected wheat crop in 1996, the U.S. is expected to experience a sharp drop in export market share in 1996/97 as Argentina, Australia, Canada, and the EU are all projected to gain relative to 1995/96. After being at their lowest since 1975/76, world ending stocks for 1996/97 are projected to rise to 104 million tons, up 13 million from 1995/96 as production exceeds projected consumption for the first time in 4 years. However, the projected ending stocks for 1996/97 are still below those held during 1990/91 through 1993/94. Among the major exporters, Canada and the EU are expected to show higher ending stocks for 1996/97. RECORD HIGH AVERAGE FARM PRICE PROJECTED FOR 1996/97 The season average price received by farmers for wheat is projected to range from $4.70 to $5.30 per bushel, up from the $4.50 record forecast for 1995/96. July futures contracts indicate that farm prices at the beginning of 1996/97 will be above $5.00 per bushel in most regions. However, when (1) the projected spring wheat crop materializes, (2) corn prices decline seasonally during fall harvest, and (3) competition for wheat exports increases in the fall as Canadian and EU supplies become available, U.S. wheat prices can be expected to decline. **************************************************************************** * Information Contacts: * * Edward W. Allen (senior wheat analyst) (202) 219-0831 * * Mark Simone (international) (202) 219-0823 * **************************************************************************** Table 1 -- Wheat: U.S. market year supply and disappearance Item |1991/92 1992/93 1993/94 1994/95E 1995/96P 1996/97P -------------------|------------------------------------------------------ Area (mil. ac.) | ARP (%) | 15.0 5.0 0.0 0.0 0.0 N.A. Nat'l total base | 89.6 89.6 89.6 88.9 88.5 88.0 CRP base retired | 10.4 10.6 10.8 10.8 10.8 10.6 Effective base | 79.2 78.9 78.4 78.1 77.7 77.4 0,50/92/85 | 5.8 4.0 5.7 5.2 6.1 N.A. Planted | 69.9 72.2 72.2 70.3 69.2 73.1 Harvested | 57.8 62.8 62.7 61.8 61.0 58.2 Yield (bu/ac) | 34.3 39.3 38.2 37.6 35.8 35.6 | Supply (mil. bu.) | Beg. Stocks | 868.1 475.0 530.7 568.5 506.6 305.1 Production | 1,980.1 2,466.8 2,396.4 2,321.0 2,185.5 2,073.9 Imports 1/ | 40.7 70.0 108.8 91.9 65.0 85.0 TOTAL | 2,889.0 3,011.8 3,035.9 2,981.4 2,757.1 2,464.0 | Use | Food | 789.5 834.8 871.7 852.5 870.0 885.0 Seed | 97.7 99.1 96.3 89.2 107.0 100.0 Feed & Residual | 244.5 193.6 271.7 344.8 175.0 175.0 Exports 1/ | 1,282.3 1,353.6 1,227.8 1,188.3 1,300.0 975.0 TOTAL | 2,413.9 2,481.2 2,467.4 2,474.8 2,452.0 2,135.0 | Ending stocks | 475.0 530.7 568.5 506.6 305.1 329.0 Farmer-owned | reserve | 50.0 28.0 6.0 0.0 0.0 N.A. CCC inventory 2/ | 152.0 150.0 150.0 142.0 110.0 Free stocks | 273.0 352.7 412.5 364.6 195.1 Stocks-to-use | 19.7 21.4 23.0 20.5 12.4 15.4 | Prices ($/bu.) | Season average | 3.00 3.24 3.26 3.45 4.50 4.70-5.30 Target price | 4.00 4.00 4.00 4.00 4.00 N.A. Loan rate | 2.04 2.21 2.45 2.58 2.58 2.58 deficiency | payment rate | 1.35 0.81 1.03 0.61 3/ 0 N.A. | Deficiency pmts. | (mil. dollars) | 2,246 1,371 1,904 1,146 100 1,971 | Market value | of production | (mil. dollars) | 5,957 7,984 7,812 8,007 9,835 10,369 -------------------------------------------------------------------------- Totals may not add due to rounding. E--Estimated, P--Projected, N.A.--not applicable. 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 | 35.7 16.6 11.7 5.5 3.6 73.1 Harvested | 24.5 8.9 5.3* 58.2 --------------------------------------------------------------------- Totals may not add due to rounding. E--Estimated, P--Projected, *--includes an ERS projection of white spring. 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 25 310 969 Mar-May | 0 22 991 209 24 (29) 280 507 Mkt. year| 2,321 92 2,981 853 89 344 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 | 0 12 1,350 216 3 11 294 826 Mar-May 2/| 0 14 840 207 31 (45) 342 305 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/ implied by the annual forecasts. Table 4 -- Wheat: Food disappearance (1,000 bu.) January 1995 | October November December 1996 February March --------------|---------------------------------------------------------- Mill grind +| 78,349 74,660 69,885 70,278 72,294 72,147 Food exports -| 2,248 1,389 3,575 972 2,641 Food imports +| 1,749 1,775 1,697 1,394 1,447 Non-flour | food use +| 2,000 2,000 2,000 2,000 2,000 2,000 Food use | 79,850 77,046 70,007 72,700 73,100 ------------------------------------------------------------------------- Source: Department of Commerce, Bureau of Census. Wheat flour and products 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 4.10 | 2.99 4.05 | 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 4.72 | 3.79 4.70 | 4.89 5.80 | 3.52 4.45 Nov | 3.75 4.81 | 3.76 4.78 | 4.88 5.78 | 3.51 4.61 Dec | 3.74 4.88 | 3.75 4.88 | 4.67 5.75 | 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 | 3.52 5.06 | 3.47 5.06 | 4.59 5.73 | 3.38 4.88 Apr 1/| 3.48 5.41 | 3.45 5.65 | 4.51 5.67 | 3.35 5.16 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 5.63 | 3.91 5.67 | 3.59 4.79 | 3.98 5.38 Apr | 3.86 6.60 | 3.95 6.71 | 3.55 5.65 | 4.08 5.66 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 5.81 | 5.87 6.97 | 150 216 | 15.20 0.00 Apr | 4.30 6.53 | 5.64 7.01 | 149 250 | 20.52 0.00 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 February 1995 | October November December 1996 February 1995 --------------|----------------------------------------------------------- Wheat grain | 117,679 105,535 99,175 96,085 91,876 97,478 Wheat flour | 2,080 1,221 3,458 808 2,537 7,085 Products | 193 193 174 200 165 136 Total | 119,952 106,948 102,806 97,093 96,652 104,699 U.S. wheat imports, 1995/96: (1,000 bu.) January February 1995 | October November December 1996 February 1995 --------------|------------------------------------------------------------ Wheat grain | 3,478 3,339 3,058 2,333 1,825 3,344 Wheat flour | 619 559 497 525 473 735 Products | 1,131 1,226 1,202 870 975 964 Total | 5,228 5,124 4,757 3,728 3,273 5,043 ---------------------------------------------------------------------------- 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 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 | 384 78 461 | China | 1,887 1,933 | 3,061 3,347 | 2,755 621 3,376 | Egypt | 2,975 2,787 | 5,432 5,427 | 4,893 114 5,007 | FSU | 2,659 1,394 | 1,284 928 | 637 16 652 | Japan | 3,266 3,014 | 3,053 3,544 | 3,112 461 3,574 | S. Korea | 1,544 1,459 | 1,578 1,557 | 1,344 142 1,486 | Morocco | 1,348 1,304 | 137 116 | 693 0 693 | Nigeria | 1,076 1,050 | 563 631 | 784 106 889 | Pakistan | 1,834 1,447 | 1,416 1,414 | 1,672 0 1,672 | Philippines| 1,883 1,739 | 1,752 1,852 | 1,952 154 2,106 | | | | | Total grain| 32,038 27,561 | 30,597 30,027 | 30,995 3,371 34,366 | | | | | Total (incl| | | | products)3/| 33,414 28,268 | 33,067 30,817 | 31,272 3,377 34,649 |35,380 --------------------------------------------------------------------------- 1/ June - May. 2/ U.S. Export Sales Report. 3/ Grain equivalent basis. END-END-END