WHEAT OUTLOOK October 14, 1997 October 1997, WHS-1097 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- WHEAT OUTLOOK is issued monthly by the Economic Research Service, U.S. Department of of Agriculture, Washington, DC 20005-4788. Electronic release only, no published copies available. ----------------------------------------------------------------------------- HIGHLIGHTS --The market awaits export demand --U.S. export forecast reduced slightly due to increased competition from Canada and Australia --Record world wheat production expected --U.S. winter wheat planting speeds along --Slight adjustments to U.S. wheat supply and use balance --White wheat outlook: smaller use, higher stocks The Market Awaits Export Demand With the 1997 U.S. wheat crop 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 drooped during the bumper U.S. winter wheat harvest. But for most of September and into October, wheat prices worked mostly lower as unexpected rain drenched key growing regions in Australia, boosting production prospects from early-season expectations. U.S. exports are still expected to rise from a year ago due to reduced foreign competitor production, but the fight for market share is expected to intensify somewhat. Wheat futures prices rallied during the first full week of October, mostly on the strength of higher corn and soybean prices. As usual, U.S. wheat prices for the rest of the marketing year will hinge mostly on export demand and prospects for the next year's crop. Unlike last year, March wheat futures are above December futures, which provides an incentive to hold stocks. This "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. However, the carry has declined in recent weeks as Australian crop prospects have improved. U.S. Export Forecast Reduced Slightly U.S. exports are forecast down 25 million bushels from the September forecast to 1,075 million bushels in 1997/98 (June-May marketing year). This is down 0.5 million tons on the July/June international marketing year to 29.0 million tons. Increased export competition is expected from Australia and Canada because of increased production. USDA's forecast for Australia's crop increased to 17 million tons after above normal rains fell during the critical month of September, even though the El Nino was thought to make abundant September rains less likely. However, earlier dryness and lower planted area will keep Australia's wheat production down about 25 percent below last year's record. In Canada, favorable harvest conditions boosted production prospects to 23.5 million tons, up 0.5 million from last month. Although the weekly export pace since June has advanced relative to a year earlier, U.S. exports are 10 percent behind last year's level as of October 2, according to U.S. Export Sales. But outstanding sales are up, so commitments (exports plus outstanding sales) are down only about 3 percent. While early season exports were strong in 1996/97, the pace of exports dropped dramatically as the season progressed because of tight U.S. supplies and large production in Canada, Australia, and Argentina. This year, U.S. supplies are up, and production by major foreign competitors is down, so U.S. exports are expected to be more stable through the year. This month's decline in forecast U.S. exports is small because expected exports for Argentina also declined. The pace of sales and shipments to date indicate that Argentina is consuming more than expected domestically, and exporting less in 1997/98 (July/June). European Union (EU) production in 1997/98 was reduced 1.3 million tons from September, mostly because of the effects of excessive rain in England, especially late in the growing season. EU exports in 1997/98 are forecast unchanged from last month, but down from a year ago. The EU Commission has been licencing subsidized wheat into export channels at only a modest rate. Record World Wheat Production Expected World wheat production is forecast at a record 601 million tons, up 4.5 million from last month. Forecast foreign wheat production rose this month, with increases in Australia and Canada more than offsetting the drops in EU and Kazakstan. However, the year-to-year decline in major foreign competitor production is still large, with production in the EU, Canada, Australia and Argentina down more than 20 million tons from a year ago. This underpins the projected year-over-year increase in U.S. exports and supports price prospects. The largest production increases were in Russia (up 3.0 million tons from last month's forecast), and in India (up 1.7 million). India is expected to hold the additional production in stocks. In Russia, forecast imports are revised down and exports up. However, this was somewhat offset by reduced exports from Kazakstan, where expected production declined 1.0 million tons. More than offsetting the decline in Russian wheat imports is increased imports forecast this month for Pakistan, Iran, and South Korea. Iran and South Korea are expected to increase wheat feeding. Purchases by Pakistan from Australia have been larger than expected, and given the available credit, imports are expected to reach 3.5 million tons in 1997/98, up 0.5 million from last month. U.S. Winter Wheat Planting Speeds Along Fall planting prospects for U.S. winter wheat remain generally favorable in most growing areas. Planting was slowed by rainfall in the central and southern Plains in late September. But it sped up as dry, very warm weather (weekly temperatures 6 to 12 degrees F above normal) blew across the Plains in early October. This promoted winter wheat planting and growth, but reduced topsoil moisture. Rain showers have since returned, benefiting many hard red winter wheat-growing regions. As of October 5, the 1998 winter wheat crop was 58 percent planted, compared with 51 percent last year and 2 points ahead of the 1992-96 average. Producers in Montana have made excellent planting progress after showers replenished dry soils in September. Seeding continued at a blistering pace in Washington, though some reseeding was underway after rainfall caused crusting problems. Emergence of the newly planted winter wheat crop was 32 percent, ahead last year's 27 percent and 1 point above the 1992-96 average. Emergence is significantly ahead of normal in Colorado, Montana, and Washington. 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. The first forecast of winter wheat seedings will be released on January 10, 1998. On the same day, USDA's estimate of December 1 wheat stocks will be released in the Grain Stocks report. The report will provide the first indication of second-quarter (September-November) use. Final production estimates for 1997 (in contrast to the preliminary estimates released on September 30) will also be released for all wheat classes in USDA's Crop Production-Annual. Slight Adjustments to U.S. Wheat Supply and Use Balance USDA estimates the 1997 U.S. crop at 2.53 billion bushels, up 11 percent from last year and the fifth largest on record. Despite a freeze that threatened crops in the southern and central Plains last spring, 14 wheat-growing states either set or tied production records in 1997, with output in Kansas topping 500 million bushels for the first time. The U.S. average yield for all wheat hit a record high 39.7 bushels per acre. Compared with the September 1 forecast, total production is revised up 19 million bushels. Small increases in all winter wheat classes more than offset minor declines in spring wheats. Total use is revised up 25 million bushels to 2,400 million, with feed and residual up 50 million and exports down 25 million. Feed and residual is now forecast at 325 million bushels, reflecting higher-than-expected "residual" likely associated with a such a large crop. (The preliminary forecast for the first-quarter feed and residual use is around 400 million bushels.) Total domestic food use is unchanged from September, leaving ending stocks at 665 million bushels, down 6 million from August. Based on this month's decline in expected ending stocks and relatively strong grower prices during June-September, the forecast season-average farm price was raised from $3.20-$3.70 per bushel in September to $3.30-$3.70. This is down from $4.30 in 1996/97. Stocks are still up sharply from 444 million in 1996/97 and are the largest in 7 years. White Wheat Outlook: Smaller Use, Higher Stocks Prices for HRW and SRW drifted lower on lack of export news during most of September. But for white wheat, prices fizzled all at once in late September when Pakistan announced a major purchase (400,000 tons) of white wheat from Australia, effectively beating U.S. bids at the tender. In early October, price quotes for U.S. No. 1 soft white wheat in Portland were about $3.88 per bushel, down about 20 cents from a week earlier. Cash prices for soft white wheat in Portland had held fairly steady throughout much of September. The decline narrowed the price gap between white wheat and SRW after it had widened considerably during much of September. If the Australian crop is larger than expected and white wheat prices come under additional pressure, the gap could narrow further, making white wheat more competitive in some soft red markets. Pakistan is the leading buyer of U.S. white wheat, accounting for nearly one-third of U.S. white wheat exports in 1996/97 (June-May). Most U.S. wheat sales to Pakistan are under the Export Credit Guarantee Program (i.e., GSM-102). The program guarantees repayment of credit for up to 3 years extended to eligible banks that issue letters of credit on behalf of purchasers of U.S. products. In fiscal 1997 (October-September), virtually all of the $350 million of credit guarantees allocated for Pakistan were used for wheat. U.S. wheat exports to Pakistan totaled $375 million in fiscal 1996 and were $267 million from October 1996 to July 1997. Pakistan's export credit allocation is $250 million for fiscal 1998. (A number of commodities other than wheat are eligible.) Trade developments are especially critical to the white wheat market because exports account for about two-thirds or more of total white wheat use. U.S. white wheat exports are forecast down 6 percent from the September forecast due to increased competition from Australia. Lower domestic use is also contributing to softer prices this year. A year ago, soft white wheat worked its way into more domestic soft wheat milling blends when good-quality SRW wheat was hard to find. Total use is down a projected 8 percent from last year, with ending stocks expected to be the highest in 4 years. Total white wheat supplies are down 5 percent in 1997/98, which will prevent even higher stock building. Production and projected imports are down, while higher beginning stocks are partially offsetting. Producers planted fewer acres due to planting problems in the Pacific Northwest and Michigan. Last fall, heavy rains in the Pacific Northwest slowed planting, while late field crop harvests in Michigan limited winter seedings. While white winter yields were down slightly from last year's high levels in the top producing states of Washington, Oregon, and Idaho, higher yields elsewhere (including spring wheat in Idaho and Washington) lifted the overall white yield to 69.9 bushels per acre in 1997. (This compares with the overall U.S. wheat yield of 39.7 bushels.) In particular, Michigan yields rebounded sharply from a disastrous 1996. Compared with the Great Plains, soils in the Pacific Northwest are deeper, rainfall is more plentiful, and summers are cooler, which all contribute to a generally favorable environment for wheat production. And unlike the other classes of wheat, white wheat has posted steady yield increases. Since 1970, white wheat yields have grown more than twice as fast as the U.S. average for all wheat. *************************************************************************** * 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 Wheat Outlook Report will be released on November 12, 1997. * * The 1997 Wheat Yearbook is currently 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. * * ERS will be moving into new offices at 1800 M St., N.W., Washington, D.C. 20036-5831 during * the last week of October. The new number for the ERS Information Center is 202-694-5050. * The new autofax number will be (202) 694-5700. * Beginning November 3, 1997, the Wheat Outlook staff will have new phone numbers: * Shields (202 694-5311), Barnes (202 694-5291), and Allen (202 694-5288) * * *************************************************************************** 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 71.0 Harvested | 62.8 62.7 61.8 60.9 62.9 63.6 Yield (bu/ac) | 39.3 38.2 37.6 35.8 36.3 39.7 | Supply (mil. bu.) | Beg. Stocks | 475.0 530.7 568.5 506.6 376.0 443.6 Production | 2,466.8 2,396.4 2,321.0 2,182.6 2,281.8 2,526.6 Imports 1/ | 70.0 108.8 91.9 67.9 92.0 95.0 TOTAL | 3,011.8 3,035.9 2,981.4 2,757.1 2,749.8 3,065.2 | 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 | 193.6 271.7 344.4 151.9 310.0 325.0 Exports 1/ | 1,353.6 1,227.8 1,188.3 1,241.1 1,001.0 1,075.0 TOTAL | 2,481.2 2,467.4 2,474.8 2,381.1 2,306.0 2,400.0 | Ending stocks | 530.7 568.5 506.6 376.0 444.0 665.2 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 | 352.7 412.5 364.6 258.0 351.2 572.2 Stocks-to-use | 21.4 23.0 20.5 15.8 19.3 27.7 | Prices ($/bu.) | Season average | 3.24 3.26 3.45 4.55 4.30 3.30-3.70 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 8,843 -------------------------------------------------------------------------- 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 18.5 10.0 5.0 3.3 71.0 Harvested | 28.9 17.8 8.9 4.8 3.1 63.6 Yield (bu/ac) | 38.7 28.1 54.4 69.9 27.7 39.7 Supply: (mil. bu.)| Production | 1,121 501 484 335 86 2,527 Beg. stocks | 143 166 45 59 31 444 Imports 2/ | 1 54 0 10 30 95 TOTAL | 1,265 721 529 404 147 3,065 Use: | Total domestic | 574 287 270 112 82 1,325 Exports 2/ | 385 230 195 225 40 1,075 TOTAL | 959 517 465 337 122 2,400 | Ending stocks | 306 204 64 67 25 665 --------------------------------------------------------------------- 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 | March April May June July August --------------|------------------------------------------------------------ Mill grind +| 70,647 72,285 72,425 72,245 75,570 75,561 Food exports -| 2,620 1,410 2,233 1,858 2,977 Food imports +| 594 1,630 1,807 1,558 1,602 Non-flour | food use +| 2,000 2,000 2,000 2,000 2,000 Food use | 70,621 74,505 73,998 73,946 76,195 ------------------------------------------------------------------------- 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 | 4.58 3.56 | 4.52 3.39 | 5.03 5.23 | 4.63 3.75 Sep 1/| 4.37 3.62 | 4.28 3.44 | 4.67 5.39 | 4.41 3.71 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 1/| 4.70 3.86 | 4.71 4.07| 4.38 3.62| 4.79 4.12 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 1/| 4.63 4.36 | 5.47 6.69 | 179 150 | 0.00 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 | February March April May June July --------------|----------------------------------------------------------- Wheat grain | 59,039 55,936 69,821 47,640 65,654 92,465 Wheat flour | 1,897 2,490 1,253 2,086 1,731 2,849 Products | 155 168 166 192 207 180 Total | 61,091 58,594 71,240 49,917 67,592 95,494 U.S. wheat imports, (1,000 bu.) 1997 | February March April May June July --------------|------------------------------------------------------------ Wheat grain | 9,533 8,703 6,587 8,963 6,623 5,217 Wheat flour | 376 373 453 447 467 517 Products | 1,152 222 1,570 1,361 1,095 1,163 Total | 11,061 9,298 8,610 10,772 8,184 6,897 --------------------------------------------------------------------------- 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 10/02/97) --------------------------------------------------------------------------- | |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 | 137 11 148 Egypt | 5,069 5,072| 2,684 | 2,825 | 2,419 487 2,906 FSU | 929 651| 408 | 288 | 103 89 191 Japan | 3,094 3,468| 3,325 | 3,264 | 997 466 1,463 S. Korea | 1,413 1,406| 1,544 | 1,646 | 511 332 842 Morocco | 674 693| 443 | 421 | 425 52 477 Nigeria | 820 880| 590 | 698 | 333 75 408 Pakistan | 1,652 1,672| 2,027 | 1,973 | 929 356 1,285 Philippines | 1,856 2,059| 1,772 | 1,876 | 672 327 999 Total grain |32,823 32,778| 26,516 | 25,964 | 11,288 4,678 15,966 Total(incl) | | | | products)1/ |35,842 33,055| 27,254 | 26,127 | 11,344 4,711 16,055 USDA forecast| of Census | | | | 29,257 ---------------------------------------------------------------------------- 1/ Grain equivalent basis. ERS is moving to 1800 M St., N.W., Washington, D.C. 20036-5831 during the last week of October. The new number for the ERS Information Center is 202-694-5050. END_OF_FILE