WHEAT OUTLOOK September 15, 1997 September 1997, WHS-0997 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 published copies available. ----------------------------------------------------------------------------- HIGHLIGHTS --U.S. wheat crop forecast shaved slightly --Prices bounce up from early harvest lows --World wheat production forecast record large, but competitors' crops down --U.S. wheat quality is reportedly good, HRS protein premiums flatten --U.S. winter wheat planting underway for 1998; soil conditions favorable --Sixteenth CRP signup set for October-November With the U.S. wheat crop nearly in the bin, the market has turned its attention to Southern Hemisphere production and unfolding export demand. In late summer, prospects for smaller crops in major exporting countries buoyed farm and futures prices, which had sunk dramatically during the bumper U.S. winter wheat harvest. Uncertain crop prospects in Australia and Argentina will continue shaping the near-term price and export outlook. The U.S. crop is the largest crop in 7 years, and grain quality is reportedly good. U.S. Wheat Crop Forecast Shaved Slightly USDA forecasts the 1997 crop at 2.51 billion bushels, up 10 percent from last year and the fifth largest on record. Compared with the August forecast, production is revised down 24 million bushels for "other" spring wheat. Lower yield prospects in North Dakota, South Dakota, and Minnesota offset gains in Montana and Washington. The durum production forecast is unchanged from August (see the August 1997 Wheat Outlook), while the winter wheat forecast is carried forward. The 24-million-bushel production decline is reflected in lower ending stocks, now forecast at 671 million bushels, but still up sharply from 444 million in 1996/97. The rest of the balance sheet is unchanged from last month. Based on this month's decline in expected ending stocks and relatively strong grower prices during June-August, the forecast season-average farm price was raised from $3.05-$3.65 per bushel in August to $3.20-$3.70. This is down from $4.30 in 1996/97. Year-over-year exports are forecast up 10 percent due to production declines in major foreign exporting countries. Food use continues its steady growth of 1 percent. Feed and residual use is down 11 percent due to improved wheat quality and lower corn prices than a year earlier. Prices Bounce Up From Early Harvest Lows Despite a lack of major export news and prospects for a sharp year-over-year increase in ending stocks, wheat futures advanced in late July and August, reportedly fueled by speculative buying. But with the market becoming increasingly impatient for export demand, prices have moderated. The export pace has picked up slightly in recent weeks, but wheat inspections (for export) remained 14 percent behind a year earlier through September 4. Unlike last year, December futures are substantially higher than September futures, which provides a strong incentive to hold stocks. This large "carry" reflects the uncertain size of the wheat crops in Australia and Argentina and the potential for increased export demand as the marketing season advances. Cash wheat prices in major markets showed some strength in late August and early September, reportedly due to logistical problems associated with lack of locomotives. Mill grind through early September was reportedly very active, providing further support. The next piece of domestic news will be USDA's estimate of September 1 wheat stocks in the Grain Stocks report to be released September 30. The report will provide the first indication of first quarter (June-August) use. Preliminary production estimates (in contrast to forecasts) will also be released for all wheat classes on September 30 in USDA's Small Grains Summary. World Wheat Production Forecast Record Large in 1997/98, But Competitors' Crops Down World wheat production is forecast record large at 596 million tons in 1997/98, up almost 14 million from 1996/97. In addition to a large U.S. crop, China's summer grain harvest was record large. Projected production in the Newly Independent States (NIS), the 12 countries of the former Soviet Union, is up 20 percent from last year. Production prospects for the major foreign exporters are lower than a year ago, with combined output of Canada, Australia, Argentina, and the European Union (EU) down 20 million tons. Sharply lower plantings and dry conditions in some areas reduced production prospects in Canada. Dry conditions hurt yield prospects in Australia, while extended planting delays in Argentina reduced area and caused more short season, lower yielding varieties to be planted. Reduced foreign competitor production and increased U.S. supplies allow the U.S. share of world wheat trade to expand in 1997/98. Meanwhile, strong demand from drought-stricken North Africa will support world wheat trade, even with imports declining in China and the NIS. Projected 1997/98 world wheat production and trade are nearly unchanged from August as changes in different countries are largely offsetting. Lower production prospects for Canada and the EU, especially the U.K., are offset by increased harvests in Eastern Europe, Russia, Mexico, and Brazil. On the export side, lower Canadian shipments are mostly offset by increased prospective exports from Eastern Europe. Meanwhile, among importers, modest reductions forecast for Mexico and Brazil are mostly offset by increased imports expected in Libya and small increases in several other countries. World wheat trade is up marginally from the previous year at 96.5 million tons. Hot, dry growing conditions this summer have reduced wheat yield prospects in Canada from earlier expectations. Production in 1997 is forecast at 23 million tons, 0.5 million less than last month and down 23 percent from a year ago. The 1996 crop was also revised down 0.7 million tons as Statistics Canada recognized that some fields, especially in Peace River, a northern growing region, had been abandoned after snowfall prevented harvest last fall. The reduced 1997 production was the basis for dropping the export forecast 0.5 million tons to 18.5 million. The 1997/98 forecast is still greater than the 18 million tons exported last year, when a severe winter exacerbated logistical problems in Canada's Pacific ports, limiting exports. Production prospects for Argentina and Australia should begin to firm up when the wheat harvest gets underway in October-November. USDA forecasts Argentina's crop at 12.7 million tons, down from 16.1 million last year and unchanged from a month earlier. The Australian crop is forecast at 16 million tons, down from 23.6 million last year and also unchanged from a month earlier. U.S. Wheat Quality Is Reportedly Good, HRS Protein Premiums Flatten According to the Kansas Agricultural Statistics Service, about 72 percent of the State's wheat samples graded No. 1, up from 55 percent last year and the 5-year average of 43 percent. Average test weight in Kansas has been above average and dockage is relatively low. In the soft red belt, vomitoxin is reportedly a much smaller concern compared with last year. Quality is reportedly good in the Pacific Northwest as well. Although test weight in the Northern Plains is reportedly down, grain quality has been improving as harvest advances, with the best wheat in western North Dakota and Montana. Scab problems have been reported in the Red River Valley, but protein in this area reportedly averaged well above 14 percent. Dockage was excessive in some areas of the region due to late-season weed growth following July rains. Back in June, initial reports of low protein wheat in the Southern Plains, along with shriveling prospects for the spring wheat crop, raised concerns that very high protein premiums could persist in 1997/98. But now that the harvest dust is nearly settled, it is clear that high protein wheat was produced in large pockets of northwestern and southwestern Kansas and the protein content of the hard red spring (HRS) crop is well above average. Based on samples representing about 65 percent of the wheat harvested to date in North Dakota, South Dakota, Minnesota, and Montana, the Cereal Science Department of North Dakota State University estimates the protein content at 14.6 percent, compared with the 1996 average and the 1992-96 average of 13.9 percent. Prospects for adequate protein in the U.S. market for bread flour have led to a decline in protein premiums in recent weeks. The HRS cash price spread between 15 percent protein wheat and 14 percent was 40 cents per bushel on August 1. It dropped to 15-20 cents on August 15, and evaporated completely by early September. In early September 1996, the spread was about 60 cents. Protein premiums for hard red winter (HRW) have also declined in recent weeks, but in contrast to HRS, they are higher than a year earlier due to lower protein levels in the HRW crop. The average protein content of the Kansas crop is 11.8 percent, down 1.5 points from last year and below the 10-year average of 12.3 percent, according to the Kansas Agricultural Statistics Service. In the second week of September, the premium for 13.6 percent protein wheat was about 25 cents per bushel above ordinary protein. The difference was zero a year earlier. Despite occasional thunderstorms in the Northern Plains, hot weather in early September has allowed the spring wheat harvest to progress rapidly. As of September 7, the spring wheat harvest was 84 percent complete, slightly ahead of last year and 18 points ahead of the 1992-96 average. All major spring wheat-producing States harvested ahead of the normal pace, especially Minnesota and North Dakota. U.S. Winter Wheat Planting Underway For 1998; Soil Conditions Favorable Soil conditions are very favorable for winter wheat planting, which is now underway in the Southern and Central Plains. Topsoil moisture in Kansas, for example, was rated 67 percent adequate and 2 percent surplus on September 7. Subsoil moisture was 75 percent adequate and 1 percent surplus. Similar conditions exist in Oklahoma. In the Texas Plains, more rain is needed for germination and emergence. Generally good planting conditions and relatively attractive new-crop (1998) futures prices at $3.80-$4.00 per bushel bode well for wheat seeding this fall. Nationwide, planting was 5 percent complete as of September 7, down from 6 percent in 1996 and the 1992-96 average of 7 percent. The first forecast of winter wheat seedings will be released on January 10, 1998. Sixteenth CRP Signup Set For October-November On September 4, 1997, USDA announced that the next Conservation Reserve Program (CRP) general signup will be held during a 5-week period from October 14 through November 14 in USDA Service Centers across the Nation. The Environmental Benefits Index (EBI) system, which is used to rank all eligible CRP offers, was changed for this signup to address concerns arising from the 15th signup and to better protect the Nation's natural resource base. The EBI's wildlife habitat factor is revised to recognize the benefits attributable to vegetative covers planted to address the habitat needs of specific wildlife species. USDA also modified the EBI's air quality factor to reflect more accurately wind speed, moisture conditions, particle size, organic material, and volcanic and organic soils. Except under special circumstances, CRP rental rates will be based on local land rental rates just as they were for the 15th signup, which was held last March. Approximately 27.8 million acres will be under CRP contracts on October 1, 1997. Just over 4.8 million acres are under contracts that expire next year on September 30. USDA is authorized to maintain enrollment of up to 36.4 million acres. More information on the 16th signup can be found at: http://www.fsa.usda.gov/pas/news/releases/index.htm. *************************************************************************** * 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 * * * * The next issue of WHEAT OUTLOOK will be released October 14, 1997. * * The 1997 Wheat Yearbook is available from: * * 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 39.5 | 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 2,507.2 Imports 1/ | 70.0 108.8 91.9 67.9 90.0 95.0 TOTAL | 3,011.8 3,035.9 2,981.4 2,757.1 2,747.8 3,046.4 | Use | Food | 834.8 871.7 852.9 883.0 892.0 900.0 Seed | 99.1 96.3 89.2 104.1 103.0 100.0 Feed & Residual | 193.6 271.7 344.4 151.9 310.0 275.0 Exports 1/ | 1,353.6 1,227.8 1,188.3 1,241.1 1,001.0 1,100.0 TOTAL | 2,481.2 2,467.4 2,474.8 2,381.1 2,306.0 2,375.0 | Ending stocks | 530.7 568.5 506.6 376.0 444.0 671.4 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 | 352.7 412.5 364.6 258.0 351.2 578.4 Stocks-to-use | 21.4 23.0 20.5 15.8 19.3 28.3 | Prices ($/bu.) | Season average | 3.24 3.26 3.45 4.55 4.30 3.20-3.70 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 Contract rate 3/ | 0.81 1.03 0.61 0 0.874 0.620 | 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 9,812 8,650 -------------------------------------------------------------------------- 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/ Deficiency payment rate prior to 1996/97. 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 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 | .3 53.0 0 15 24 92 TOTAL | 916 787.6 457 424 163 2,750 | Use: | Total domestic | 487 327 272 130 93 1,304 Food | 320 260 150 85 76 891 Seed | 38 32 19 7 7 103 Feed and residual| 128 28 103 37 13 310 | Exports 2/ | 286 300 140 237 38 1,001 TOTAL | 774 620 412 366 134 2,306 | 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) | 38.6 28.2 53.1 68.8 28.1 39.5 Supply: (mil. bu.)| Production | 1,112 528 470 331 90 2,507 Beg. stocks | 143 166 45 59 32 444 Imports 2/ | 1 59 0 10 25 95 TOTAL | 1,256 753 515 400 147 3,046 Use: | Total domestic | 550 292 250 97 86 1,275 Exports 2/ | 370 260 195 240 35 1,100 TOTAL | 920 552 445 337 121 2,375 | Ending stocks | 336 201 70 63 26 671 --------------------------------------------------------------------- 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 | 1995/96 | 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 1996/97E | 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 30 849 220 32 (24) 180 444 Mkt. year| 2,282 92 2,748 892 103 310 1,001 444 --------------------------------------------------------------------------- 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.) 1997 | February March April May June --------------|------------------------------------------------------------ Mill grind +| 67,286 70,647 72,285 72,425 72,245 Food exports -| 2,025 2,620 1,410 2,233 1,858 Food imports +| 1,526 594 1,630 1,807 1,558 Non-flour | food use +| 2,000 2,000 2,000 2,000 2,000 Food use | 68,787 70,621 74,505 73,998 73,946 ------------------------------------------------------------------------- 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 | 96/97 97/98 96/97 97/98 96/97 97/98 96/97 97/98 ------|----------------------------------------------------------------- Jun | 5.26 3.52 | 5.14 3.42 | 5.58 4.21 | 5.48 3.74 Jul | 4.73 3.23 | 4.67 3.16 | 5.13 4.61 | 5.30 3.66 Aug 1/| 4.58 3.49 | 4.52 3.39 | 5.03 4.77 | 4.63 3.68 Sep | 4.37 | 4.28 | 4.69 | 4.41 Oct | 4.18 | 4.07 | 4.78 | 4.23 Nov | 4.14 | 4.05 | 4.56 | 4.11 Dec | 4.06 | 4.04 | 4.59 | 4.01 Jan | 4.03 | 4.02 | 4.47 | 3.95 Feb | 3.88 | 3.90 | 4.31 | 3.80 Mar | 3.93 | 3.98 | 4.32 | 3.83 Apr | 4.11 | 4.14 | 4.40 | 4.04 May | 4.09 | 4.14 | 4.50 | 3.94 KC HRW #1 KC HRW #1 St. Louis Portland ordinary 13% prot. #2 SRW #1 soft white Month | 96/97 97/98 96/97 97/98 96/97 97/98 96/97 97/98 ------|----------------------------------------------------------------- Jun | 6.12 4.08 | 6.20 4.19| 4.84 3.46| 5.55 4.20 Jul | 5.34 3.57 | 5.35 3.80| 4.72 3.34| 4.96 3.85 Aug | 5.01 3.84 | 5.04 4.11| 4.62 3.64| 5.02 4.10 Sep | 4.70 | 4.71 | 4.38 | 4.79 Oct | 4.76 | 4.75 | 4.02 | 4.28 Nov | 4.78 | 4.78 | 3.85 | 4.10 Dec | 4.70 | 4.72 | 3.90 | 4.06 Jan | 4.61 | 4.63 | 3.78 | 4.10 Feb | 4.52 | 4.57 | 3.55 | 4.13 Mar | 4.58 | 4.67 | 3.71 | 4.25 Apr | 4.78 | 4.85 | 3.99 | 4.54 May | 4.61 | 4.76 | 3.80 | 4.70 ------------------------------------------------------------------------ Minn. Minn. FOB Gulf Average EEP DNS 14% durum $/ton (HRW) bonus $/ton 2/ Month | 96/97 97/98 96/97 97/98 96/97 97/98 96/97 97/98 ------|----------------------------------------------------------------- Jun | 6.73 4.44 | 6.57 5.38 | 227 148 | 0.00 0.00 Jul | 6.04 4.36 | 6.18 5.93 | 203 140 | 0.00 0.00 Aug | 5.29 4.49 | 5.77 6.39 | 192 152 | 0.00 0.00 Sep | 4.63 | 5.47 | 179 | 0.00 Oct | 4.69 | 5.41 | 178 | 0.00 Nov | 4.64 | 5.56 | 176 | 0.00 Dec | 4.51 | 5.57 | 176 | 0.00 Jan | 4.62 | 5.42 | 176 | 0.00 Feb | 4.45 | 5.25 | 172 | 0.00 Mar | 4.62 | 5.18 | 177 | 0.00 Apr | 4.78 | 5.35 | 183 | 0.00 May | 4.58 | 5.38 | 173 | 0.00 ------------------------------------------------------------------------- Source: NASS & AMS, USDA. 1/ Mid-month for 1997/98. 2/ Weighted avg., all classes. Table 6 -- Wheat: Exports and imports U.S. wheat exports, (1,000 bu.) 1997 | January February March April May June --------------|----------------------------------------- ----------------- Wheat grain | 63,431 59,039 55,936 69,821 47,640 65,654 Wheat flour | 1,344 1,897 2,490 1,253 2,086 1,731 Products | 110 155 168 166 192 207 Total | 64,886 61,091 58,594 71,240 49,917 67,592 U.S. wheat imports, (1,000 bu.) 1997 | January February March April May June --------------|------------------------------------------------------------ Wheat grain | 5,712 9,533 8,703 6,587 8,963 6,623 Wheat flour | 508 376 373 453 447 467 Products | 1,063 1,152 222 1,570 1,361 1,095 Total | 7,282 11,061 9,298 8,610 10,772 8,184 --------------------------------------------------------------------------- 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 9/04/97) --------------------------------------------------------------------------- | |Ship- |Outstanding| Total | Shipments |ments | sales | -------------|------------------------------------------------------------- Data| | Export | Export | Export Source| Census| Sales | Census | Sales | Sales -------------|------------------------------------------------------------- Country | --1,000 metric tons-- Algeria | 444 452| 350 | 350 | 146 0 146 China | 3,057 2,979| 1,003 | 1,065 | 75 62 137 Egypt | 5,069 5,072| 2,684 | 2,825 | 1,810 715 2,524 FSU | 929 651| 408 | 288 | 48 134 182 Japan | 3,094 3,468| 3,325 | 3,264 | 539 688 1,226 S. Korea | 1,413 1,406| 1,544 | 1,646 | 421 220 641 Morocco | 674 693| 443 | 421 | 384 5 389 Nigeria | 820 880| 590 | 698 | 236 120 356 Pakistan | 1,652 1,672| 2,027 | 1,973 | 582 350 932 Philippines | 1,856 2,059| 1,772 | 1,876 | 479 217 695 Total grain |32,823 32,778| 26,516 | 25,964 | 7,962 5,336 13,298 Total(incl. | | | | products)1/ |35,842 33,055| 27,254 | 26,127 | 8,004 5,381 13,384 USDA forecast| of Census | | | | 29,937 ---------------------------------------------------------------------------- 1/ Grain equivalent basis. END_OF_FILE