WHEAT OUTLOOK November 13, 1996 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- WHEAT OUTLOOK is issued monthly by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. WHS-1196. ----------------------------------------------------------------------------- Recent Developments HIGHLIGHTS -- U.S. season average farm price forecast down to $4.10 to $4.50 per bushel. -- U.S. exports projected up 25 million bushels from October. -- U.S. food use forecast adjusted up by 10 million bushels. -- U.S. ending stocks projected down 35 million bushels. -- Winter wheat emergence ahead of average. FARM PRICES SLIDE The U.S. season average farm price is projected to range from $4.10 to $4.50 per bushel, down 20 cents at the top end of the range from the October forecast. The average farm price for wheat in October fell to $4.16, down 21 percent from their peak in May. Farm prices have fallen each month since May as concerns about tight wheat supplies subsided in the light of expanding global production, especially in foreign exporting countries, and the second largest U.S. spring wheat harvest on record. More recently, favorable weather conditions for the recently planted winter wheat crop and declining corn and soybean prices have contributed to a weaker price outlook. However, from a historical prospective, prices remain relatively high. SEASONAL PRICE PATTERN: EARLY STRENGTH GIVES WAY TO AUTUMN WEAKNESS Farm, futures, and cash prices in 1996/97 started off strong, deteriorated over the summer, and are likely to stay weak through the autumn and winter. Prices toward the end of the crop year will be greatly influenced by winter wheat conditions in the spring, especially in the U.S. plains. If conditions are favorable, prices are likely to remain low. Early November prices for May winter wheat futures contracts currently reflect this scenario. For example, on November 11, the Kansas City May wheat contract price closed nearly 57 cents below December. The difference among the contracts was less pronounced in Chicago, where the May contract closed only 26 cents below December on November 11. Both nearby futures and cash prices have declined since the beginning of the marketing year, but the decline has been steeper for futures prices. Cash prices were supported by the strongest first-quarter export pace since 1989/90. Cash prices may have also experienced less of a decline because producers may be marketing their crop more slowly than usual. Since 1990, between 53 and 62 percent of the U.S. wheat crop has been marketed by the end of October. However, producers may be expecting prices to rise later in the year, as prices have done every year since 1991 in response to relatively strong export sales. If prices continue to decline, the 1996/97 price pattern would be significantly different from that of the last 5 years, and more closely resemble the pattern observed in 1990/91. In 1990/91, farm prices fell through November, stayed low through the winter, and rose slightly just before the 1991 winter wheat harvest. In 1990/91, market conditions were roughly similar to the present. That year, U.S. and foreign producers increased production in response to the high prices brought on by drought in 1988 and 1989. In the United States, program changes facilitated increased planted acreage. Global trade dropped sharply in 1990/91 and U.S. exports fell nearly 16 percent from the previous year as the global market shrank and foreign competition expanded. In 1996/97, as in 1990/91, global production has greatly expanded after a year of tight supplies and high prices. However, unlike 1990/91, U.S. supplies remain small relative to those of the other major foreign exporters, who have begun to offer wheat at prices below those of the United States. During the first quarter of 1996/97, U.S. export sales were strong as buyers sought to cover short term needs and hedge against further price rises. Concerns remained that the Northern Hemisphere spring crops could run into problems or that Southern Hemisphere crop conditions could turn unfavorable. However, by September, it became clear that the European winter wheat crops were ample, that the North American spring crops would be large, and that the Southern Hemisphere crops would be the largest in over a decade. The U.S. export pace has slowed from the first quarter as competitor supplies begin to enter marketing channels, but new sales remain more robust than some analysts had expected. If farmers have delayed marketings and this delayed wheat enters the market at the same time export sales slow, U.S. futures and cash prices will deteriorate even further. In addition, there will be little upward price pressure in the spring if weather conditions are favorable for the winter wheat crop in the United States and in other major producing countries. ARGENTINA AND EU SELLING WHEAT AGGRESSIVELY Argentina has been pricing its bumper new crop at a discount to other exporters, reportedly below $140 per ton FOB ($3.80 per bushel) for early 1997 delivery. This compares to recent U.S. FOB Gulf quotes for no. 1 soft red winter wheat of $154 per ton. Moreover, the Eurpean Union (EU), with a large crop of its own, has responded to declining export prices with increasing export subsidies. Instead of export taxes used earlier in 1996 to protect internal grain markets from world price fluctuations, the EU instituted export restitutions (subsidies) to commercial markets. The restitutions began at low levels in mid-September, but by the first week of November had reached an average of over $28 per ton. This month the production forecasts for Argentina and Australia were increased, raising the prospective amount of wheat that could move into export channels over the next several months from the Southern Hemisphere. However, the increased output forecast for Southern Hemisphere exporters was more than offset by reduced production estimates in other countries, particularly India. Projected world production for 1996/97 declined about 2 million tons this month while the consumption forecast increased, dropping world ending stocks by almost 6 million tons. World wheat ending stocks in 1996/97 are projected up only 7 percent from last year's low, and are the second lowest since 1975/76. INCREASED USE PUSHES U.S. ENDING STOCKS DOWN The U.S. export forecast was increased this month by 25 million bushels to 950 million. The 1996/97 food use estimate was raised slightly to 910 million bushels, reflecting stronger than expected growth since June. This increase, together with the rise in exports, is expected to reduce ending stocks to 435 million bushels, lowering hard red winter (HRW) and hard red spring (HRS) stocks the most. Hard red winter stocks are now expected to be almost as tight by the end of 1996/97 as they were in 1995/96. Tightness in hard red winter wheat supplies relative to projected use is being reflected in the strong HRW cash and futures price premiums compared to other classes of wheat. WINTER WHEAT EMERGENCE AHEAD OF AVERAGE; CONDITIONS FAVORABLE Winter wheat planting is nearly complete and, as of November 10, emergence, at 89 percent, was ahead of the 5-year average. Despite initial delays in planting due to prolonged wet weather, producers in the Southern Plains caught up quickly in October. Soil moisture during planting and emergence was excellent in the hard red winter wheat States. However, rain delayed the corn and soybean harvests and soft red winter wheat plantings in the eastern Corn Belt States. Emergence in Ohio, Illinois, and Indiana remains behind average. As of November 10, 73 percent of the winter wheat crop was rated in good to excellent condition. **************************************************************************** * Information Contacts: * * Sara Schwartz (domestic) (202) 219-0768 * * James N. Barnes (domestic) (202) 219-0711 * * Edward W. Allen (international) (202) 219-0831 * * Electronic copies available at: * * World Wide Web Site www.econ.ag.gov * * ERS Autofax system (202) 219-1107 * * Document Number 12105 * **************************************************************************** Table 1 -- Wheat: U.S. market year supply and disappearance Item |1991/92 1992/93 1993/94 1994/95 1995/96E 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 87.9 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 77.3 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 69.1 75.6 Harvested | 57.8 62.8 62.7 61.8 60.9 62.9 Yield (bu/ac) | 34.3 39.3 38.2 37.6 35.8 36.3 | Supply (mil. bu.) | Beg. Stocks | 868.1 475.0 530.7 568.5 506.6 376.0 Production | 1,980.1 2,466.8 2,396.4 2,321.0 2,182.6 2,281.8 Imports 1/ | 40.7 70.0 108.8 91.9 67.9 70.0 TOTAL | 2,889.0 3,011.8 3,035.9 2,981.4 2,757.1 2,727.8 | Use | Food | 789.5 834.8 871.7 852.9 883.8 910.0 Seed | 97.7 99.1 96.3 89.2 104.1 108.0 Feed & Residual | 244.5 193.6 271.7 344.4 152.1 325.0 Exports 1/ | 1,282.3 1,353.6 1,227.8 1,188.3 1,241.1 950.0 TOTAL | 2,413.9 2,481.2 2,467.4 2,474.8 2,381.1 2,293.0 | Ending stocks | 475.0 530.7 568.5 506.6 376.0 434.8 Farmer-owned | reserve | 50.0 28.0 6.0 0.0 0.0 N.A. CCC inventory 2/ | 152.0 150.0 150.0 142.0 118.0 87.0 Free stocks | 273.0 352.7 412.5 364.6 258.0 347.8 Stocks-to-use | 19.7 21.4 23.0 20.5 15.8 19.0 | Prices ($/bu.) | Season average | 3.00 3.24 3.26 3.45 4.55 4.10-4.50 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 Def. payment/ | contract rate 3/ | 1.35 0.81 1.03 0.61 4/ 0 0.874 | Def./Contract pmts.| (mil. dollars)3/ | 2,246 1,371 1,900 1,146 100 1,961 Market value | of production | (mil. dollars) | 5,957 7,984 7,812 8,007 9,931 9,812 -------------------------------------------------------------------------- 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/ Prior to 1996/97 Deficiency payment rate; 1996/97-contract rate. 4/ Based on 5-month price + 10 cents. Table 2 -- Wheat supply and disappearance by class 1/ 1995/96E |HRW HRS SRW White Durum All wheat ------------------|-------------------------------------------------- Area: (mil. ac.) | Planted | 33.8 16.1 10.6 5.1 3.4 69.1 Harvested | 27.7 15.7 9.3 4.9 3.4 61.0 Yield (bu/ac) | 29.8 30.2 49.0 66.6 30.5 35.8 Supply: (mil. bu.)| Production | 825 475 456 325 102 2,183 Beg. stocks | 194 193 37 57 26 507 Imports 2/ | 0 30 0 19 18 68 TOTAL | 1,019 698 492 401 147 2,757 Use: | Total domestic | 481 262 207 108 82 1,140 Food | 347 231 150 77 79 884 Seed | 40 27 23 7 7 104 Feed and residual| 95 4 34 23 -4 152 Exports 2/ | 384 330 250 238 39 1,241 TOTAL | 865 592 457 346 121 2,381 | Ending stocks | 154 106 35 55 26 376 1996/97P | HRW HRS SRW White Durum All wheat ------------------|-------------------------------------------------- Area: (mil. ac.) | Planted | 35.8 19.1 11.8 5.3 3.6 75.6 Harvested | 26.1 18.6 9.7 5.3 3.5 62.9 Yield (bu/ac) | 29.6 33.6 43.4 68.9 32.7 36.3 Supply: (mil. bu.)| Production | 762 627 422 355 116 2,282 Beg. stocks | 154 106 35 55 26 376 Imports | 1 41 0 10 18 70 TOTAL | 917 774 457 420 160 2,728 | Use: | Total domestic | 486 338 271 152 97 1,343 Exports 2/ | 275 270 160 215 30 950 TOTAL | 761 608 431 367 127 2,293 | Ending stocks | 157 166 26 53 33 435 --------------------------------------------------------------------- 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- Ending Year | tion Imports Supply Food Seed Feed Exports stocks | 1/ 1/ ----------|---------------------------------------------------------------- 1994/95 | 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 | 1995/96E | Jun-Aug | 2,183 23 2,712 215 8 305 303 1,881 Sep-Nov | 0 16 1,897 232 65 (99) 361 1,338 Dec-Feb | 0 12 1,350 216 3 13 294 823 Mar-May | 0 17 841 220 28 (67) 283 376 Mkt. year| 2,183 68 2,757 884 104 152 1,241 376 1996/97P | Jun-Aug | 2,282 15 2,673 225 9 381 334 1,724 --------------------------------------------------------------------------- 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.) 1996 | March April May June July August --------------|---------------------------------------------------------- Mill grind +| 72,147 69,601 72,830 67,936 73,925 79,715 Food exports -| 1,390 2,535 1,931 2,114 2,121 1,772 Food imports +| 1,546 1,970 1,802 1,603 1,704 1,739 Non-flour | food use +| 2,000 2,000 2,000 2,000 2,000 2,000 Food use | 74,303 71,037 74,701 69,425 75,508 79,715 ------------------------------------------------------------------------- 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 | 95/96 96/97 95/96 96/97 95/96 96/97 95/96 96/97 ------|----------------------------------------------------------------- Jun | 3.84 5.26 | 3.77 5.14 | 5.20 5.58 | 3.78 5.48 Jul | 4.10 4.73 | 4.05 4.67 | 5.29 5.13 | 4.26 5.30 Aug | 4.26 4.58 | 4.22 4.52 | 5.33 5.03 | 4.19 4.63 Sep | 4.53 4.37 | 4.47 4.28 | 5.87 4.69 | 4.27 4.41 Oct 1/| 4.72 4.16 | 4.70 4.11 | 5.80 4.32 | 4.45 4.19 Nov | 4.81 | 4.78 | 5.78 | 4.61 Dec | 4.88 | 4.88 | 5.75 | 4.72 Jan | 4.83 | 4.80 | 5.66 | 4.66 Feb | 4.98 | 5.01 | 5.72 | 4.81 Mar | 5.07 | 5.06 | 5.73 | 4.88 Apr | 5.32 | 5.39 | 5.63 | 5.21 May | 5.73 | 5.81 | 5.62 | 5.67 ------------------------------------------------------------------------ KC HRW #1 KC HRW #1 St. Louis Portland ordinary 13% prot. #2 SRW #1 soft white Month | 95/96 96/97 95/96 96/97 95/96 96/97 95/96 96/97 ------|----------------------------------------------------------------- Jun | 4.72 6.12 | 4.90 6.20 | 3.90 4.84 | 4.65 5.55 Jul | 4.98 5.34 | 5.24 5.35 | 4.35 4.72 | 4.94 4.96 Aug | 4.76 5.01 | 5.01 5.04 | 4.13 4.62 | 4.65 5.02 Sep | 5.00 4.70 | 5.26 4.71 | 4.56 4.38 | 4.96 4.79 Oct | 5.28 | 5.59 | 4.92 | 5.17 Nov | 5.34 | 5.60 | 5.07 | 5.35 Dec | 5.51 | 5.71 | 5.14 | 5.50 Jan | 5.40 | 5.62 | 4.84 | 5.44 Feb | 5.67 | 5.81 | 4.83 | 5.59 Mar | 5.63 | 5.67 | 4.79 | 5.38 Apr | 6.60 | 6.71 | 5.65 | 5.66 May | 7.02 | 7.16 | 5.61 | 6.00 ------------------------------------------------------------------------ Minn. Minn. FOB Gulf Average EEP DNS 14% durum $/ton (HRW) bonus $/ton 2/ Month | 95/96 96/97 95/96 96/97 95/96 96/97 95/96 96/97 ------|----------------------------------------------------------------- Jun | 4.89 6.73 | 7.16 6.57 | 170 227 | 12.71 0.00 Jul | 5.52 6.04 | 7.49 6.18 | 190 203 | 4.35 0.00 Aug | 5.06 5.29 | 6.35 5.77 | 185 192 | 0.00 0.00 Sep | 5.27 4.63 | 7.26 5.47 | 194 179 | 0.00 0.00 Oct | 5.52 | 6.76 | 204 178 | 0.00 0.00 Nov | 5.63 | 7.23 | 203 | 0.00 Dec | 5.80 | 7.11 | 209 | 0.00 Jan | 5.62 | 6.95 | 207 | 0.00 Feb | 5.82 | 6.86 | 219 | 0.00 Mar | 5.81 | 6.97 | 216 | 0.00 Apr | 6.53 | 7.01 | 250 | 0.00 May | 7.14 | 7.22 | 262 | 0.00 Source: NASS & AMS, USDA. 1/ Mid-month. 2/ Weighted avg., all classes. Table 6 -- Wheat: Exports and imports U.S. wheat exports, (1,000 bu.) 1996 | March April May June July August --------------|----------------------------------------------------------- Wheat grain | 108,800 90,373 78,303 73,715 108,437 145,840 Wheat flour | 1,230 2,415 1,830 2,005 2,008 1,669 Products | 160 130 127 133 113 142 Total | 110,189 92,919 80,260 75,854 110,558 147,651 U.S. wheat imports, (1,000 bu.) 1996 | March April May June July August --------------|------------------------------------------------------------ Wheat grain | 3,869 4,312 3,692 3,527 2,875 3,392 Wheat flour | 459 535 616 574 553 553 Products | 1,088 1,438 1,190 1,031 1,155 1,189 Total | 5,415 6,284 5,498 5,134 4,583 5,135 ---------------------------------------------------------------------------- Source: Department of Commerce, Bureau of Census. Wheat flour and products converted to wheat grain equivalent. Table 7 -- Wheat: U.S. exports, Census and export sales 2/ comparison --------------------------------------------------------------------------- | 1995/96 | 1996/97 --------------------------------------------------------------------------- | Total Shipments |Export Sales (as of 11/07/96)|Census |-----------------------------------------------------|--------- | | | Out- Total | | | | Ship- standing com- |USDA | Census | Export Sales| ments sales mitments |forecast -----------|-----------------------|--------------------------------------- | | --1,000 metric tons-- | Algeria | 444 452 | 194 0 194 | China | 3,057 2,979 | 965 18 983 | Egypt | 5,069 5,072 | 2,530 205 2,735 | FSU | 929 651 | 79 43 121 | Japan | 3,094 3,468 | 1,270 556 1,826 | S. Korea | 1,413 1,406 | 757 406 1,163 | Morocco | 674 693 | 389 0 389 | Nigeria | 820 880 | 430 125 556 | Pakistan | 1,652 1,672 | 683 105 788 | Philippines| 1,856 2,059 | 747 151 898 | | | | Total grain|32,823 32,778 |14,730 3,538 18,267 | | | | Total(incl)| | | products)3/|35,842 33,055 |14,773 3,564 18,337 | 25,855 ----------------------------------------------------------------------------- 1/ June - May. 2/ "U.S. Export Sales" report. 3/ Grain equivalent basis. END-OF-FILE