WHEAT OUTLOOK July 14, 1997 Approved by the World Agricultural Outlook Board ------------------------------------------------------------------------------ WHEAT OUTLOOK is issued electronically once a month by the Economic Research Service, U.S. Department of of Agriculture, Washington, DC 20005-4788. No printed copies available. WHS-0797. ------------------------------------------------------------------------------ HIGHLIGHTS --Largest U.S. wheat crop in 5 years weighs on prices --Output rebounds in the Southern Plains; winter wheat yields forecast record high --Spring wheat acreage is higher than expected, but yields take a hit --Reduced area and yields drive down durum output --World wheat production revised up U.S. Wheat Production Revised Up . . . Again U.S. wheat production, spurred by favorable weather in the central Plains States, is rebounding in 1997 to the highest level in 5 years. Total U.S. wheat production is forecast at 2.43 billion bushels, up 7 percent from 1996 and 6 percent above the June forecast. With larger beginning stocks and higher year-over-year imports due to a meager durum crop, the U.S. wheat supply in 1997/98 is forecast to rise 8 percent, marking the first increase in 4 years. While many market observers expected an increase in total production, the July 1 forecast for winter wheat production was higher and spring wheat was lower than expected. Under the weight of larger supplies and lackluster early-season demand, futures prices for wheat have sunk to 3-year lows this summer after temporarily spiking in April following a freeze in the Southern Plains. Cash wheat prices in Kansas City dropped $1.08 per bushel during the last 3 weeks of June as harvested area expanded and growing conditions improved in the central Plains. In addition, USDA's June 30 Acreage report confirmed what the market suspected --that farmers had planted more spring wheat than first anticipated. However, relatively strong U.S. and world demand are expected to support wheat prices as the season progresses. Domestic food use continues to march steadily upward, while a moderately tight world wheat market is expected to push up U.S. exports by 6 percent. Domestic feed and residual use is expected to decline as larger corn supplies will likely weigh on corn prices this summer, making wheat feeding less attractive. Ending stocks are forecast to hit 650 million bushels, up 71 million from the June 1997 forecast and the highest since 1990/91. The average price received by farmers for wheat in 1997/98 is forecast between $3.10 and $3.70 per bushel, down from $4.35 in 1996/97 and $4.55 in 1995/96. This would be the largest year-over-year drop since the $1.11-per-bushel decline in 1990/91 when bumper yields in 1990 followed a 1989 drought in the Southern Plains. The year-over-year increase in supply was 542 million bushels from 1989/90 to 1990/91, compared with a projected 227 million this year. Unlike last season when prices peaked early, monthly average prices received by farmers are expected to follow a more normal seasonal pattern in 1997/98, hitting seasonal lows from July through September as large old-crop supplies in Canada and Australia provide stiff export competition during the U.S. harvest. Prices are likely to climb gradually through the rest of the season, reflecting both the cost of storing grain and an expected slowdown in foreign competition in the second half of 1997/98. Output Rebounds in the Southern Plains Weather conditions have been extremely favorable during the winter wheat growing season, with the exception of a mid-April freeze that hit portions of Texas, Oklahoma, and Kansas. Although many fields sustained damage, especially where there was no snow cover for protection, moist and cool weather after the freeze was nearly ideal for the wheat plants to recover. Consequently, average yields and harvested areas will be much higher than last year in each of the freeze-damaged States, which together account for almost three-quarters of projected hard red winter (HRW) wheat production in 1997. The revival in this year's crop is testimony to the resiliency of the wheat plant. Based on conditions as of July 1, 1997, the U.S. winter wheat yield is forecast at a record high 42.8 bushels per acre, up 3.5 bushels from June 1 and up 5.6 bushels from 1996. Total HRW output is forecast at 1,062 million bushels, up a robust 15 percent from the June forecast and up 39 percent from last year's drought-afflicted crop. Production prospects improved dramatically through May and June, especially in Kansas and Oklahoma. Compared with the May forecasts, the Kansas yield is forecast up a whopping 10 bushels per acre to a record 42 bushels, while the Oklahoma yield is up 7 bushels. The Kansas crop is forecast at 449 million bushels, second only to the 1990 record of 472 million. The winter wheat harvest has lagged behind the average pace in both the southern and central Plains due to wet weather. HRW beginning stocks for 1997/98 (June 1) are estimated at 143 million bushels, basically unchanged from the most recent forecast and the lowest in at least 20 years. But with production expected to increase sharply, total HRW supplies are forecast to climb to 1.21 billion bushels, the highest since 1993/94 when carryin stocks were substantially larger. All use categories are expected to register gains, with ending stocks forecast to climb to 306 million bushels. The protein content of the HRW crop is reportedly below normal, which will add upward price pressure on premiums for higher-protein spring wheat. Soft red winter (SRW) production, which accounts for about 18 percent of the U.S. crop, is forecast at 455 million bushels in 1997, up 33 million from 1996. Higher yields are expected to offset lower harvested acreage. Crop prospects have been excellent in the leading SRW producing States such as Ohio and Illinois. Incidences of scab and other diseases are reportedly much lower than last year. Total SRW use in 1997 is forecast at 435 million bushels, slightly above 1996. Exports are forecast to increase in 1997 to 185 million bushels, up 32 percent from 1996 as higher quality supplies are bid away from feed buyers in the domestic market. As a result of the overall improved quality of SRW supplies, feed and residual use in 1997 is forecast to decline. White winter (WW) wheat production is forecast at 264 million bushels, down 10 percent from 1996 due mostly to planting problems in both the Pacific Northwest and Michigan. Last fall, heavy rains in the Pacific Northwest slowed planting, while late field crop harvests in Michigan limited winter wheat seedings. WW harvested area is forecast down 6 percent, and yields are expected down from last year's high levels in Washington, Oregon, and Idaho, which together account for about 90 percent of WW production. From December 1996 to May 1997, farm prices for winter wheat broke from their historical pattern and rose above spring wheat prices as supplies of winter wheat tightened relative to hard red spring supplies. This farm price relationship is expected to return to a more normal spring wheat price premium in 1997/98 as winter wheat output advances while spring wheat output declines. Spring Wheat Acreage Higher Than Expected, But Yields Take a Hit Based on conditions as of July 1, 1997, the spring wheat crop is forecast to decline sharply in 1997, despite higher than expected harvested area. Generally dry weather in the Northern Plains since mid-May resulted in below- average yield prospects. The first survey-based forecast indicates an average yield of 30.4 bushels per acre for "other spring" wheat (i.e., excludes durum), down nearly 5 bushels from 1996 and the lowest since 1989. According to the June 30 ACREAGE report, farmers planted 19.2 million acres of other spring wheat, up from the March forecast of 17.8 million and the second highest in modern times following last year's 20.0 million acres. Area had been expected to drop back to the 1995 level after increasing sharply in 1996 due to strong spring wheat prices. However, another spring price runup--this year due mostly to the mid-April freeze in the Southern Plains--apparently provided farmers a sufficient incentive to increase plantings above their March intentions. Despite the relatively large acreage, HRS production is forecast to decline to 513 million bushels due to sharply lower yields. Lower output will overwhelm a larger carryin and an expected increase in imports, leaving HRS supplies at 738 million bushels in 1997/98, down 6 percent from last year. Reduced supplies are expected to boost HRS prices, which is expected to slow use in all categories. Total use is forecast at 542 million bushels, down 13 percent from last year, with exports at 250 million bushels (down 15 percent from 1996/97). Reduced Area and Yields Drive Down Durum Output Durum production is forecast at 81 million bushels, down 30 percent from 1996. Similar to HRS, durum yields in the Northern Plains are forecast to drop sharply to 25.2 bushels, the lowest since 1989. Moreover, grower prices at planting were weaker in 1997 compared with 1996, resulting in planted area of 3.27 million acres, down from 3.62 million last year. To partially compensate for the smaller crop, imports are forecast to rise from 21 million in 1996/97 to 30 million in 1997/98. Durum use is forecast at 116 million bushels--down from 131 million last year-- with feed and residual use and exports accounting for the drop. Ending stocks are forecast to slide to 27 million bushels in 1997/98, down 4 million from last year, which should support grower prices in 1997/98. World Wheat Production Forecast for 1997/98 Boosted 8 Million Tons in July As wheat harvest has progressed in the southern portions of the Northern Hemisphere, and wheat crops are growing and maturing further north, it has been possible to solidify production forecasts. World wheat production is forecast at 587 million tons, up 1.4 percent from the June forecast and up 0.7 percent from 1996/97. Harvested wheat in the United States and India was greater than earlier forecast, accounting for most of the increase. Smaller, but significant increases were posted for Pakistan, Russia, the European Union (EU), and Uzbekistan. Except for larger area in Russia, higher-than-expected yields accounted for most of the increased production. Wheat production forecasts declined in several exporting countries, notably, Argentina, Canada, and Romania. In Canada, less-than-expected area was sown with wheat, as oilseed prices were more attractive. In Argentina, unfavorable planting conditions kept wheat area below expectations and stressed the wheat in early growth stages. Romania's wheat yields failed to match earlier expectations. U.S. Wheat Exports Forecast Up Despite Reduction in World Trade World wheat trade in 1997/98 is forecast to reach 97 million tons, down almost 2 million from last month, but still up over 2 million from a year ago. Although several countries had smaller, mostly offsetting trade changes, India's import forecast dropped 2 million tons because of increased production. India is an especially important market for Australia, so reduced imports by India resulted in a 0.5 million ton drop in Australia's export prospects. Reduced production dropped Canada's export forecast by the same amount, as did the slow pace of early sales by the EU. With reduced exports from major competitors and lower U.S. price prospects because of the larger crop, prospects for U.S. wheat exports increased this month. Although the U.S. share of world wheat trade is forecast at 29 percent in 1997/98, up slightly from last month's forecast and the forecast for last year, it remains far below the 36 percent share posted in 1995/96. **************************************************************************** Information Contacts: Dennis A. Shields (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 August 13, 1997 The 1997 Wheat Yearbook is now available at: 1) ERS autofax; Call (202) 219-1107 and select document 12100 for a complete directory of the historical tables and special articles. 2) ERS homepage: www.econ.ag.gov/, select Products and Services, then Publications, Field Crops, and Wheat. *************************************************************************** Table 1 -- Wheat: U.S. market year supply and disappearance Item | 1992/93 1993/94 1994/95 1995/96 1996/97E 1997/98P -------------------|------------------------------------------------------- Area (mil. ac.) | ARP (%) | 5.0 0.0 0.0 0.0 N.A. N.A. Nat'l total base | 89.6 89.6 88.9 88.5 87.9 77.3 CRP base retired | 10.6 10.8 10.8 10.8 10.6 10.1 Eff.base/ctr.acres| 78.9 78.4 78.1 77.7 76.4 76.6 0,50/92/85 | 4.0 5.7 5.2 6.1 N.A. N.A. Planted | 72.2 72.2 70.3 69.1 75.6 70.8 Harvested | 62.8 62.7 61.8 60.9 62.9 63.5 Yield (bu/ac) | 39.3 38.2 37.6 35.8 36.3 38.3 | Supply (mil. bu.) | Beg. Stocks | 475.0 530.7 568.5 506.6 376.0 444.2 Production | 2,466.8 2,396.4 2,321.0 2,182.6 2,281.8 2,430.7 Imports 1/ | 70.0 108.8 91.9 67.9 90.0 100.0 TOTAL | 3,011.8 3,035.9 2,981.4 2,757.1 2,747.8 2,974.9 | Use | Food | 834.8 871.7 852.9 883.0 890.0 900.0 Seed | 99.1 96.3 89.2 104.1 103.0 100.0 Feed & Residual | 193.6 271.7 344.4 151.9 316.0 275.0 Exports 1/ | 1,353.6 1,227.8 1,188.3 1,241.1 995.0 1,050.0 TOTAL | 2,481.2 2,467.4 2,474.8 2,381.1 2,304.0 2,325.0 | Ending stocks | 530.7 568.5 506.6 376.0 444.0 649.9 Farmer-owned | reserve | 28.0 6.0 0.0 0.0 N.A. 0.0 CCC inventory 2/ | 150.0 150.0 142.0 118.0 93.0 93.0 Free stocks | 352.7 412.5 364.6 258.0 351.2 556.9 Stocks-to-use | 21.4 23.0 20.5 15.8 19.3 28.0 | Prices ($/bu.) | Season average | 3.24 3.26 3.45 4.55 4.35 3.10-3.70 Target price | 4.00 4.00 4.00 4.00 N.A. N.A. Loan rate | 2.21 2.45 2.58 2.58 2.58 2.58 Def. payment/ | contract rate 3/ | 0.81 1.03 0.61 4/ 0 0.874 0.620 | Def./Contract pmts.| (mil. dollars)3/ | 1,371 1,900 1,146 100 1,976 1,401 Market value | of production | (mil. dollars) | 7,984 7,812 8,007 9,931 9,926 8,265 -------------------------------------------------------------------------- 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/ Includes Food Security Reserve. 3/ Prior to 1996/97 Deficiency payment rate; 1996/97-contract rate. Table 2 -- Wheat supply and disappearance by class 1/ 1996/97E | 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 8.9 32.7 36.3 Supply: (mil. bu.)| Production | 762 627 422 355 116 2,282 Beg. stocks | 154 106 35 55 26 376 Imports | .2 54.9 0 14 21 90 TOTAL | 916 787.6 457 424 163 2,748 | Use: | Total domestic | 487 327 272 130 93 1,309 Food | 320 260 150 85 75 890 Seed | 38 32 19 7 7 103 Feed and residual| 128 35 103 38 11 316 | Exports 2/ | 287 295 140 235 38 995 TOTAL | 774 622 412 65 131 2,304 | Ending stocks | 143 166 45 59 32 444 | | 1997/98P | HRW HRS SRW White Durum All wheat ------------------|-------------------------------------------------- Area: (mil. ac.) | Planted | 34.2 18.3 10.0 5.0 3.3 70.8 Harvested | 28.8 17.8 8.8 4.8 3.2 63.5 Yield (bu/ac) | 36.9 28.7 51.4 66.5 25.2 38.3 Supply: (mil. bu.)| Production | 1,062 513 455 321 81 2,431 Beg. stocks | 143 166 45 59 32 444 Imports 2/ | 1 59 0 10 30 100 TOTAL | 1,206 738 500 390 143 2,975 Use: | Total domestic | 550 292 250 97 86 1,275 Exports 2/ | 350 250 185 235 30 1,050 TOTAL | 900 542 435 332 116 2,325 | Ending stocks | 306 196 66 58 27 650 --------------------------------------------------------------------- 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 2,757 883 104 152 1,241 376 1996/97P | Jun-Aug | 2,282 15 2,673 224 9 382 334 1,724 Sep-Nov | 0 21 1,745 234 60 (76) 308 1,219 Dec-Feb | 0 27 1,246 214 2 29 179 822 Mar-May | 0 27 849 219 32 (19) 173 444 Mkt. year| 2,282 90 2,748 890 103 316 995 444 --------------------------------------------------------------------------- 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 1997 | December January February March April May --------------|------------------------------------------------------------ Mill grind +| 71,607 72,158 67,286 70,647 72,285 72,425 Food exports -| 2,336 1,452 2,025 2,620 1,410 N/A Food imports +| 1,957 1,570 1,526 594 1,630 N/A Non-flour | food use +| 2,000 2,000 2,000 2,000 2,000 2,000 Food use | 72,947 72,158 68,787 70,621 74,505 1/74,425 ------------------------------------------------------------------------- 1/ Does not include April import/export data. 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 | 4.88 4.06 | 4.88 4.04 | 5.75 4.59 | 4.72 4.01 Jan | 4.83 4.03 | 4.80 4.02 | 5.66 4.47 | 4.66 3.95 Feb | 4.98 3.88 | 5.01 3.90 | 5.72 4.31 | 4.81 3.80 Mar | 5.07 3.93 | 5.06 3.98 | 5.73 4.32 | 4.88 3.83 Apr | 5.32 4.11 | 5.39 4.14 | 5.63 4.40 | 5.21 4.04 May | 5.73 4.09 | 5.81 4.10 | 5.62 4.41 | 5.67 3.98 Jun 97 1/ 3.66 | 3.54 | 4.37 | 3.85 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 4.61 | 5.62 4.63 | 4.84 3.78 | 5.44 4.10 Feb | 5.67 4.52 | 5.81 4.57 | 4.83 3.55 | 5.59 4.13 Mar | 5.63 4.58 | 5.67 4.67 | 4.79 3.71 | 5.38 4.25 Apr | 6.60 4.78 | 6.71 4.85 | 5.65 3.99 | 5.66 4.54 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 4.62 | 6.95 5.42 | 207 176 | 0.00 0.00 Feb | 5.82 4.45 | 6.86 5.25 | 219 172 | 0.00 0.00 Mar | 5.81 4.62 | 6.97 5.18 | 216 177 | 0.00 0.00 Apr | 6.53 4.78 | 7.01 5.35 | 250 183 | 0.00 0.00 May | 7.14 | 7.22 | 262 173 | 0.00 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 1997 | November December January February March April --------------|----------------------------------------- ----------------- Wheat grain | 75,245 50,979 63,431 59,039 55,936 69,821 Wheat flour | 2,748 2,240 1,344 1,897 2,490 1,253 Products | 135 119 110 155 168 166 Total | 78,129 53,338 64,886 61,091 58,594 71,240 U.S. wheat imports, (1,000 bu.) 1996 1997 | November December January February March April --------------|------------------------------------------------------------ Wheat grain | 7,160 6,780 5,712 9,533 8,703 6,587 Wheat flour | 651 659 508 376 373 453 Products | 1,139 1,301 1,063 1,152 222 1,570 Total | 8,950 8,740 7,282 11,061 9,298 8,610 --------------------------------------------------------------------------- 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 --------------------------------------------------------------------------- | 1995/96 | 1996/97| 1997/98 (as of 7/10/97) --------------------------------------------------------------------------- | | Ship- |Outstanding | Total | Shipments | ments | sales |Commitments -------------|------------------------------------------------------------- Data| | Export | Export | Export Source| Census| Sales | Sales | Sales -------------|------------------------------------------------------------- Country | --1,000 metric tons-- Algeria | 444 452| 350 | 18 50 68 China | 3,057 2,979| 1,065 | 14 30 43 Egypt | 5,069 5,072| 2,825 | 218 886 1,104 FSU | 929 651| 288 | 0 26 26 Japan | 3,094 3,468| 3,264 | 219 484 703 S. Korea | 1,413 1,406| 1,646 | 137 288 425 Morocco | 674 693| 421 | 85 75 160 Nigeria | 820 880| 698 | 64 135 199 Pakistan | 1,652 1,672| 1,973 | 184 350 534 Philippines | 1,856 2,059| 1,876 | 155 142 297 Total grain |32,823 32,778| 25,964 | 1,979 5,465 7,444 Total(incl) | | | products)1/ |35,842 33,055| 26,127 | 1,999 5,500 7,499 USDA forecast| of Census | | 27,079 | 28,576 ---------------------------------------------------------------------------- 1/ Grain equivalent basis. Note: Census data for 1996/97 released July 18, 1997. END-OF-FILE