WHEAT OUTLOOK January 13, 1997 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-0197. ----------------------------------------------------------------------------- Recent Developments HIGHLIGHTS --U.S. winter wheat plantings at 48.2 million acres are estimated down 7 percent from 1996 and the lowest since 1978. --Feed and residual use was lowered 25 million bushels from the December forecast to 300 million, seed use was reduced down 4 million bushels. --U.S. imports were raised 5 million bushels to 75 million as imports from Canada accelerate. --December 1 stocks at 1.2 billion bushels are extremely low, but 1996/97 ending stocks are projected up 34 million bushels from the December forecast because of the forecast drop in use for the remainder of the year. --Season average farm prices remain unchanged at $4.20 to $4.40. --World wheat trade forecast down; ending stocks to rise. Season Average Price Forecast Remains Unchanged The forecast season average farm price for 1996/97 remains unchanged at $4.20 to $4.40 per bushel. Average monthly farm prices are expected to continue to decline. The average monthly farm price for December is estimated at $4.02, down from $4.14 in November. Ending stocks, while still tight, will be greater than previously forecast, pressuring cash and nearby futures contract prices down. The surprisingly low level of winter wheat seedings will be bullish for new-crop wheat prices. However, the increase in projected beginning stocks will be partially offsetting. Weather over the rest of the winter and spring will be critical to the development of the 1997 crop, and given the small planted area estimate, new-crop futures prices will likely become more volatile in reaction to weather developments or unexpected changes in demand. Winter Wheat Plantings Lowest Since 1978 Winter wheat plantings for the 1997/98 crop fell to 48.2 million acres, the lowest since 1978 and well below market expectations. Despite the 7-percent drop in winter wheat planted acreage, the year-to-year decline in harvested acreage is not expected to be as severe as a year earlier, assuming normal weather conditions in coming months. In 1996, an unusually large portion of the crop was not harvested because of drought and winterkill. Several factors explain the decline in winter wheat seedings, including the late soybean harvest, adverse weather at planting and disease concerns in the eastern Corn Belt, the late sorghum harvest in Kansas, dry weather at planting in Montana and Washington, and increased planting flexibility resulting from the 1996 farm legislation. Also, in contrast to the fall of 1995 when wheat prices were rising, cash prices in the autumn of 1996 were falling rapidly and new-crop futures market prices indicated sharply lower harvest time prices than were observed during the 1996 harvest. Most states that expanded winter wheat acreage in response to rising wheat prices in the fall of 1995, scaled back wheat plantings in 1996. Hard red winter (HRW) wheat plantings are estimated down 5 percent (1.7 million acres) to 34.1 million acres. Greater planting flexibility, growing demand for feed grains in the Southern Plains, the late sorghum harvest in Kansas, and dry weather in Montana contributed to the drop in HRW plantings. The 1996 farm legislation freed producers from base acreage restrictions, allowing them to plant other crops. In the Southern Plains, livestock operations are expanding and demand for feed grains is growing. Feed grain acreage has been expanding in the Central and Southern Plains in recent years and increased flexibility is likely to hasten the shift. Relative net returns favor corn over wheat in eastern Kansas and on irrigated land. Favorable returns from sorghum in 1996 will encourage producers in dryland areas to incorporate sorghum into crop rotations in 1997. Sunflowers will also be an attractive rotation crop in northwestern Kansas. Planting was delayed in the Southern Plains because of wet weather. But the resulting favorable soil moisture meant that planting conditions were much improved over a year ago when drought hindered planting and germination. However, farmers in Kansas, the largest wheat producing State in most years), planted only 11.4 million acres, 3 percent less than a year earlier, and the lowest since 1988 when 3.4 million acres were idled under annual programs. Producers in Oklahoma reduced winter wheat acreage 3 percent to the lowest since 1973. In Texas, winter wheat plantings remained unchanged from a year earlier. Nebraska winter wheat area continues to trend downward and HRW plantings in Montana dropped 23 percent because of dry weather. Plantings in South Dakota are down 17 percent to a more normal level after unusually large HRW plantings last year. Soft red winter wheat (SRW) plantings are estimated down 15 percent (1.8 million acres) to 9.97 million acres, the lowest since the 1994 crop. Wet, cool weather at planting in the fall of 1996 explains much of the decline, particularly in Arkansas and Missouri, where wheat planted area is estimated down more than 30 percent from a year ago. By the time the fields had dried out enough to plant, the temperatures were too cold. Wet weather was also a factor in the acreage decline in the three largest SRW producing States, Illinois (down 30 percent), Indiana (down 18 percent), and Ohio (down 11 percent). The late row crop harvest prevented some producers from getting into their fields in time to plant wheat, and the 1996 disease outbreaks in those States likely discouraged some producers from planting wheat again. Spot shortages of seed were also reported. Some SRW area increases occurred in the Southeastern States, but the declines in the Corn Belt overwhelm these small gains. In the eastern Corn Belt, corn and soybeans are likely alternatives to wheat and bring higher net returns. However, by September, the prices of all three crops were clearly in decline and producers' experience with low wheat yields in 3 out of the last 5 years may have been a deciding factor in the shift away from wheat. In the fall of 1995, planting conditions were generally favorable, prices were rising, and total SRW wheat area increased 11 percent. But in 1996, yields plunged and this, together with declining wheat prices, likely prompted some producers to scale back wheat acreage in favor of planting corn and soybeans next spring. Winter white wheat planted acres are estimated down 5 percent (204,000 acres) to 4.19 million. Most of the drop was in Washington (down 6 percent) where dry weather in the fall hindered planting. December 1 Wheat Stocks Record Low, But 1996/97 Ending Stocks Revised Upwards Stocks on December 1 were estimated at 1.2 billion bushels, 9 percent below the same time a year ago and the lowest since December stocks data have been collected. However, the low stocks estimate had been expected by many market analysts. And changes in the forecasts of the other components of supply and demand imply larger 1996/97 ending stocks. The ending stocks forecast was revised up 34 million bushels from the December forecast to 469 million bushels. Domestic use for 1996/97 is forecast down 29 million bushels from the December forecast. Projected seed use was lowered 4 million bushels because of lower than expected winter wheat seedings. Feed and residual use is forecast down 25 million bushels from the December forecast to 300 million. The feed and residual use forecast is not directly measured. It is calculated by subtracting food use, seed use, exports, and ending stocks from total supply. The December 1 stocks report implied that feed and residual use in the first half of the year was not as high as previously forecast. The feed and residual use component of supply and demand table is a statistical residual, reflecting imperfections in the measurement of the other parts of supply and demand, as well as waste and losses. It also includes feed use, which cannot be measured. In the first quarter of the year, wheat prices were competitive with feed grain prices, which were extremely high while feed grain supplies were short. Actual wheat feeding likely occurred and the first quarter feed and residual estimate was the largest since 1990/91. However, similar to last year, the second quarter feed and residual estimate was negative and large. As a result the feed and residual use for the year was lowered. Negative second quarter feed and residual is normal, implying that wheat which did not appear in the September 1 stocks report was "found back." U.S. Imports Revised Upwards The U.S. wheat import forecast was revised upwards 5 million bushels from the December forecast to 75 million bushels, up 10 percent from 1995/96. While U.S. Census data indicate that imports between June and September were 27 percent below the same time a year earlier, the pace of imports picked up in October. The import forecast was raised based on the assumption that the increased pace of imports will continue through the rest of the year. During the summer, Canadian supplies were tight and the new-crop wheat was not in position to be exported to the United States until the fall. In addition, Canada harvested a large crop, but is forecast to export less wheat than in 1995/96, making the United States an attractive market if Canadian prices are competitive. A larger portion of Canada's wheat is lower quality than normal and could be exported to the United States for blending at competitive prices. World Wheat Trade Forecast Reduced, But U.S. Exports Unchanged U.S. exports are still forecast at 950 million bushels (25.9 million tons), unchanged from last month. Strong shipments occurred early in 1996/97 but the pace of sales and shipments has slowed dramatically in recent months. Only modest amounts of new sales, mostly to customers (Japan and Pakistan, for example) who always buy some wheat from the United States, need to be shipped in the current marketing year to reach the U.S. export forecast. World wheat trade is now forecast at 88.7 million tons (July/June, excluding intra EU) down 2 percent from last month's projection. For China, in most recent years the world's largest importer, forecast imports were reduced 2 million tons, to 4 million, the lowest since 1976/77. In recent months China has been virtually absent from world wheat markets. South Korea's July/June imports were reduced a million tons as feed wheat imports from Canada are not expected to reach levels forecast earlier. Low corn prices are expected to reduce feed wheat imports and Canadian transportation problems are limiting Canada's nearby sales. Reduced imports by both China and South Korea are expected to hurt Canadian export prospects in 1996/97, so this month, forecast Canadian exports dropped 2 million tons to 16 million, less than shipped the year before. Some of the forecast drop in world trade was offset by the 1.3-million-ton increase in the forecast for India's imports. India bought wheat on world markets to reduce internal prices. Because of a strong export pace, Australia's exports are forecast up 0.5 million tons this month, to 15 million. Reduced production forecast in the Ukraine (down 1 million tons) is not expected to have any trade effects. **************************************************************************** * 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 * * * * Next Wheat Situation Outlook Report will be released on March 12, 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 75.0 TOTAL | 2,889.0 3,011.8 3,035.9 2,981.4 2,757.1 2,733.0 | Use | Food | 789.5 834.8 871.7 852.9 883.8 910.0 Seed | 97.7 99.1 96.3 89.2 104.1 104.0 Feed & Residual | 244.5 193.6 271.7 344.4 152.1 300.0 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 2,264.0 | Ending stocks | 475.0 530.7 568.5 506.6 376.0 468.8 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 95.0 Free stocks | 273.0 352.7 412.5 364.6 258.0 373.8 Stocks-to-use | 19.7 21.4 23.0 20.5 15.8 20.7 | 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 1,976 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 | 25.8 18.7 9.7 5.2 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 46 0 10 18 75 TOTAL | 917 779 457 420 160 2,733 | Use: | Total domestic | 483 323 270 147 92 1,314 Exports 2/ | 275 270 160 215 30 950 TOTAL | 758 593 430 362 122 2,264 | Ending stocks | 159 186 28 58 38 469 --------------------------------------------------------------------- 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 Sep-Aug | 0 20 1,744 237 60 (78) 305 1,219 ---------------------------------------------------------------------------- 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 | July August September October November to date 1/ --------------|------------------------------------------------------------ Mill grind +| 73,925 77,749 75,507 83,069 73,996 310,250 Food exports -| 2,121 1,772 3,161 2,648 N/A 9,702 Food imports +| 1,704 1,739 1,385 1,830 N/A 6,658 Non-flour | food use +| 2,000 2,000 2,000 2,000 2,000 8,000 Food use | 75,508 79,715 75,531 84,252 75,996 315,006 2/ ------------------------------------------------------------------------- 1/ Jun-Oct. 2/ Does not include November 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 | 4.81 4.14 | 4.78 4.05 | 5.78 4.56 | 4.61 4.11 Dec 1/| 4.88 4.02 | 4.88 3.98 | 5.75 4.60 | 4.72 3.92 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 4.78 | 5.60 4.78 | 5.07 3.85 | 5.35 4.10 Dec | 5.51 4.70 | 5.71 4.72 | 5.14 3.90 | 5.50 4.06 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 4.64 | 7.23 5.56 | 203 176 | 0.00 0.00 Dec | 5.80 4.51 | 7.11 5.57 | 209 176 | 0.00 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 | May June July August September October --------------|----------------------------------------------------------- Wheat grain | 78,303 73,715 108,437 145,840 125,910 98,302 Wheat flour | 1,830 2,005 2,008 1,669 3,133 2,496 Products | 127 133 113 142 149 172 Total | 80,260 75,854 110,558 147,651 129,192 100,970 U.S. wheat imports, (1,000 bu.) 1996 | May June July August September October --------------|------------------------------------------------------------ Wheat grain | 3,692 3,527 2,875 3,392 2,997 5,498 Wheat flour | 616 574 553 553 556 682 Products | 1,190 1,031 1,155 1,189 833 1,151 Total | 5,498 5,134 4,583 5,135 4,386 7,331 ---------------------------------------------------------------------------- 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 12/26/96)|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 | 997 14 1,011 | Egypt | 5,069 5,072 | 2,685 0 2,685 | FSU | 929 651 | 226 0 226 | Japan | 3,094 3,468 | 1,585 683 2,268 | S. Korea | 1,413 1,406 | 1,038 248 1,286 | Morocco | 674 693 | 400 0 400 | Nigeria | 820 880 | 461 74 535 | Pakistan | 1,652 1,672 | 1,072 180 1,252 | Philippines| 1,856 2,059 | 956 177 1,133 | | | | Total grain|32,823 32,778 |17,927 2,760 20,687 | | | | Total(incl)| | | products)3/|35,842 33,055 |17,990 2,803 20,793 | 25,855 ----------------------------------------------------------------------------- 1/ June - May. 2/ "U.S. Export Sales" report. 3/ Grain equivalent basis. END_OF_FILE