WHEAT OUTLOOK December 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-1296. ----------------------------------------------------------------------------- Recent Developments HIGHLIGHTS --U.S. season-average farm price forecast range narrowed to $4.20-$4.40 per bushel. --Increased competitor supplies lead to declining global prices. --End-use certificates detail the use of imported grain. Season-Average Farm Price Forecast Range Narrowed The U.S. season average farm price is projected to range from $4.20 to $4.40 per bushel, down 10 cents at the top end and up 10 cents at the bottom end of the range from the November forecast. Monthly average farm price for all wheat fell again in November to $4.07 from a peak of $5.73 in May and $4.18 in October. Futures prices indicate a further decline in farm prices over the rest of the marketing year. However, cash and nearby futures prices rebounded from the lows of mid-November as wheat marketings appear to have remained slow. The price premiums for hard red winter wheat in cash and the nearby futures contracts remain strong as supplies continues to be tight relative to the other classes. Price competition with other exporters has led to a sharp drop in export sales in recent weeks. Most of the recent sales have been for white or hard red spring wheat. Market Waits for New Data On January 10, the National Agricultural Statistics Service (NASS) will release the September-November quarterly Grain Stocks report, the Winter Wheat and Rye Seedings report, and update 1996/97 wheat production estimates. The new data will provide important information regarding stocks levels, where stocks are being held, and for which classes. The data will provide additional information to calculate implied feed and residual use. Wheat supplies remain tight. The large spring wheat harvest offset the drop in the winter wheat crop and 1996/97 production is estimated 5 percent above the poor 1995/96 crop. However, with carryin stocks the lowest since 1974/75, total wheat supplies are estimated down 1 percent from a year earlier. Exports in the first quarter of the June/May marketing year continued strong as importers sought to secure supplies. As the winter wheat harvest progressed, prices began to fall. When it became widely known that the foreign exporters' harvests and U.S. spring wheat production would be large, prices declined even further. Prices were further pressured down as corn and soybean prices fell and conditions for the winter wheat crop planted this fall were reported to be favorable. However, despite the price decline, cash prices remain at historically high levels, in part because of the relatively strong export pace to date and the apparent slow marketings of the 1996 crop. Heavy wheat feed and residual use prior to the corn harvest also provided price strength over the summer. Competitor Production Forecast Up, But No Gains in Global Trade Projected Production forecasts for 1996/97 were boosted this month for all the major foreign competitors-- Argentina, Australia, Canada, and the EU. However, world production increased only marginally as reduced production in Kazakstan offset some of the increases in exporting countries. Despite the increase in exporter supplies, global trade is not expected to expand. China has been absent from the world wheat market in recent months, so the forecast for its imports was dropped 1 million tons from the November forecast to 6 million, only half that of 1995/96. The decline in China's imports was offset by increases in other countries. With no expansion in global imports, competitor ending stocks are projected to build. Wheat yields in Argentina are now forecast record high, because of increased fertilizer use and timely rains. Area harvested is expected to be near record, and up 38 percent from a year ago, boosting wheat production to a record 15.5 million tons, up 1 million from last month. By early December, Argentina had reportedly harvested 29 percent of its wheat area, and was aggressively marketing and shipping new-crop wheat. The additional production is expected to be exported, boosting Argentina's wheat exports to a record 10.5 million tons (July/June marketing year). The 1996/97 Australian production forecast was increased 0.5 million tons from the November projection to 21.5 million tons as favorable harvest conditions boosted forecast yields. The additional production is expected to lead to increased carryout stocks. In the EU, the winter wheat harvest is complete, and production was slightly higher than previously forecast. EU wheat production in 1996/97 is a record 99 million tons, and while both exports and domestic use are expected to increase from last year, ending stocks are forecast up more than 50 percent from 1995/96. Based on official Canadian statistics, Canada's wheat production estimate was raised to 30.5 million tons, up 0.7 million from the November projection. However, some of that crop remains unharvested. Therefore, the forecast for feed and residual (including losses) was increased 0.5 million tons from the November forecast. Exports and sales have not been as strong as expected, and with no recent shipments to China, Canada's wheat exports are forecast down 1 million tons from the November projection to 18 million. Ending stocks are now forecast at over 10 million tons, up 55 percent from a year earlier. Argentina Leads Decline in Wheat Export Prices Wheat export price quotes, according to the International Grains Council (IGC), at the end of November in Bahia, Argentina were $130-137 per ton, down from $210 a year ago. Meanwhile, according to the IGC, EU export quotes (French, net of subsidy) at the end of November were $156-158 per ton, down from about $205 a year ago. At the same time, U.S. No. 2 soft red winter wheat at the Gulf was quoted at $160-166 per ton, down from $200 last year, while No. 2 hard red winter wheat at the Gulf was $178-187 per ton, down from $203 a year ago. Although actual traded prices are not available from Canada and Australia, reportedly the Australian Wheat Board has followed Argentina's prices down, while the Canadian Wheat Board has stuck closer to the U.S. prices for higher protein wheat. The EU has set subsidies to generally match changes in U.S. export prices, but has not followed Argentina's prices down. The EU went from taxing wheat exports in July 1996, to reinstituting subsidies as world prices declined. By the end of October and early November maximum refunds for free market tenders of common wheat reached $28.54 per ton, but, by December 12th, they had dropped below $20 per ton. U.S. Wheat Export Sales Slowing as Competitors Increase Market Share U.S. wheat exports (including the wheat equivalent of flour and selected products, reported by Census) in the first 4 months (June-September) of 1996/97, were 463 million bushels, up 6 percent from a year earlier, and almost half of forecast exports for 1996/97. The strong early pace occurred with limited competition from other exporters. Stocks were down in Canada and the EU, and new-crop supplies were not available to export until after the summer. Southern Hemisphere exporters had moved most old-crop supplies, and would not have new crop supplies until November or later. Although the U.S. winter wheat crop was down and prices reflected that, importers that needed wheat mostly had to come to the U.S. during the summer of 1996. According to inspections data, wheat grain exports in October 1996 were less than a year earlier, but still relatively strong at 93 million bushels. However, as of December 5, 1996, according to U.S. Export Sales shipment data, exports were down 4 percent compared to a year ago. Moreover, outstanding sales left to be shipped in 1996/97 were barely more than half those reported a year ago. Importers are beginning to turn to other exporters who have large supplies and are willing to export at lower prices. U.S. 1996/97 wheat sales and shipments to Mexico and Brazil are up compared to a year ago. However sales and shipments to other countries are down, especially to China, while outstanding sales to Egypt are only 12 percent of what they were a year ago. Although shipments to Pakistan are up, outstanding sales are down compared to a year ago as recent tenders for optional origin wheat have reportedly been won by Australia. Sri Lanka has also turned to Australia for recent purchases. End-Use Certificate Program Details Use of Imported Grain The North American Free Trade Agreement Implementation Act (NAFTA Act) required the Secretary of Agriculture to establish end-use requirements for wheat imported from any foreign country that required end-use certificates for imports of U.S.-produced wheat. The purpose of the requirement is to ensure that foreign agricultural commodities do not benefit from U.S. export programs. Because Canada requires such certificates, the U.S. in February 1995 began to require end-use certificates for Canadian origin wheat. As a result, the Farm Service Agency has implemented an End-Use Certificate Program that requires the "identity preserved " storage of Canadian-produced wheat that enters the United States. Additionally, importers and subsequent buyers must report each entry and resale of Canadian-produced wheat, and importers, subsequent buyers, end users, and exporters must report the ultimate disposition of such wheat. The end-use data do not exactly match Census information. For example, in 1995/96 the total imports indicated by the end-use certificates were 3 percent lower than Census data. However, even though some discrepancies exist, the end-use data provide previously unavailable details regarding the specific use of wheat imports. Since the program was initiated, most wheat that entered the United States was used in the milling industry for flour or semolina production. The milling data are broken out by class. Other uses, such as seed and feed are not broken out by class. According to the end-use data, only 2 percent of imported wheat entered as feed wheat in 1995/96. In the first quarter of 1996/97, less than 1 percent was imported for feed. The data in table A show imports of Canadian grain, indicating final use from March 1995 through September 1996. Totals by class are summarized at the bottom of each table for the entire period and by crop year. Total U.S. wheat imports (grain only) reported in the Table A reached 1.3 million metric tons in 1995/96. Durum wheat accounted for about 15 percent of the total, with red spring and white wheat accounting for 45 percent and 33 percent, respectively. Total imports from March 1995 through September 1996 were about 2 million metric tons, with durum wheat accounting for 401,000 metric tons and other wheat accounting for 1.6 million metric tons. Table A--Canadian origin wheat imports, end use certificate data 1/ -----Milling wheat----- ---Non-milling Uses--- ------------------------------------------|-------|-----------------|-----|---- | | |Total| Red Red |Total | |Non- |All Year Quarter Durum spring winter White |milling|Seed Other Feed |Mill |Total ------------------------------------------|-------|-----------------|-----|---- Thousand metric tons | | | | | | | | 1995 Mar-May 120.6 256.2 11.0 48.1 |436.0 | 8.4 0.2 0.3 | 8.9 | 44 Jun-Aug 48.4 215.8 0.0 173.3 |437.4 | 2.4 0.2 0.3 | 2.9 | 44 Sep-Nov 53.4 134.7 13.3 94.8 |296.1 | 1.0 0.9 0.2 | 2.1 | 29 Dec-Feb 17.1 123.5 1.4 49.6 |191.5 | 3.6 0.0 0.5 | 4.1 | 19 | | | | 1996 Mar-May 57.3 155.7 1.1 72.8 |286.9 |17.1 0.0 18.8 |35.9 | 32 Jun-Aug 73.0 152.1 4.4 33.3 |262.8 | 1.6 0.1 1.8 | 3.5 | 26 Sep 9.2 18.5 7.1 37.1 | 71.9 | 2.5 0.0 0.1 | 2.6 | 74. Total 379.0 1,056.3 38.3 509.0 |1,982.8|36.5 1.4 22.0 |59.9 |2,04 ------------------------------------------|-------|-----------------|-----|---- 1995/96 2/ | | | | Total 176.2 629.6 15.7 390.5 |1,212.0|24.0 1.0 19.8 |44.9 |1,25 1996/97 3/ | | | | Total 82.1 170.6 11.6 70.4 | 334.7| 4.1 0.1 1.9 | 6.1 | 34 ------------------------------------------------------------------------------- 1/Values in table may not add due to rounding. 2/June-May. 3/June-September. **************************************************************************** * Information Contacts: * * Sara Schwartz (domestic) (202) 219-0768 * * James N. Barnes (domestic) (202) 219-0711 * * Edward W. Allen (international) (202) 219-0831 * * Keith Menzie (End use certificates) (202) 720-4146 * * Electronic copies available at: * * World Wide Web Site www.econ.ag.gov * * ERS Autofax system (202) 219-1107 * * Document Number 12105 * * Next Wheat Situation Outlook Report will be released on January 13, 1997.* **************************************************************************** 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 4.20-4.40 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 | 760 608 431 367 127 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 product 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.) Crop year 1996 | June July August September October to date 1/ --------------|------------------------------------------------------------ Mill grind +| 67,936 73,925 77,749 75,507 83,093 295,117 Food exports -| 2,114 2,121 1,772 3,161 0 9,169 Food imports +| 1,603 1,704 1,739 1,385 0 6,431 Non-flour | food use +| 2,000 2,000 2,000 2,000 0 8,000 Food use | 69,425 75,508 79,715 75,531 83,093 2/ 300,379 ------------------------------------------------------------------------- 1/ Jun-Sep. 2/ Does not include October import/export data or non-flour est. 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 | 4.72 4.18 | 4.70 4.07 | 5.80 4.78 | 4.45 4.23 Nov 1/| 4.81 4.07 | 4.78 4.03 | 5.78 4.32 | 4.61 4.09 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 4.76 | 5.59 4.75 | 4.92 4.02 | 5.17 4.28 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 4.69 | 6.76 5.41 | 204 178 | 0.00 0.00 Nov | 5.63 | 7.23 | 203 176 | 0.00 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 | April May June July August September --------------|----------------------------------------------------------- Wheat grain | 90,373 78,303 73,715 108,437 145,840 125,910 Wheat flour | 2,415 1,830 2,005 2,008 1,669 3,133 Products | 130 127 133 113 142 149 Total | 92,919 80,260 75,854 110,558 147,651 129,192 U.S. wheat imports, (1,000 bu.) 1996 | April May June July August September --------------|------------------------------------------------------------ Wheat grain | 4,312 3,692 3,527 2,875 3,392 2,997 Wheat flour | 535 616 574 553 553 556 Products | 1,438 1,190 1,031 1,155 1,189 833 Total | 6,284 5,498 5,134 4,583 5,135 4,386 ---------------------------------------------------------------------------- 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 comparison 2/ --------------------------------------------------------------------------- | 1995/96 | 1996/97 --------------------------------------------------------------------------- | Total Shipments |Export Sales (as of 12/05/96)|Census |-----------------------------------------------------|--------- | | | Out- Total | | | | Ship- standing com- |USDA | Census | Export Sales| ments sales mitments |forecast -----------|-----------------------|--------------------------------------- | | --1,000 metric tons-- | Algeria | 444 452 | 229 0 229 | China | 3,057 2,979 | 982 0 982 | Egypt | 5,069 5,072 | 2,626 115 2,741 | FSU | 929 651 | 224 3 227 | Japan | 3,094 3,468 | 1,438 658 2,096 | S. Korea | 1,413 1,406 | 898 360 1,258 | Morocco | 674 693 | 400 0 400 | Nigeria | 820 880 | 437 88 525 | Pakistan | 1,652 1,672 | 979 87 1,066 | Philippines| 1,856 2,059 | 914 78 992 | | | | Total grain|32,823 32,778 |16,971 2,653 19,624 | | | | Total(incl)| | | products)3/|35,842 33,055 |17,023 2,707 19,730 | 25,855 ----------------------------------------------------------------------------- 1/ June - May. 2/ "U.S. Export Sales" report. 3/ Grain equivalent basis. END_OF_FILE