farmgate: Will The Wheat Market Be As Strong Next Year As It Has Been In The Past Year?
The Midwestern and Great Plains wheat producers have a bit more competition this year, compared to the past two years when the US wheat market was about the only game in town. World production is up, global trade is up, supplies are plentiful and that means demand may be a bit softer for US wheat.
USDA reports world wheat production prospects have grown to 671 million tons, with the greatest supply of low quality feed wheat in 18 years. The past two years have seen weather problems diminish production and supplies were described as being at the lowest point in the past 30 years. In its latest Wheat Outlook, USDA now says global carryover is rebuilding and stocks are up 18% over last year.
Part of the increased global supply is attributed to US domestic production, which is the highest since 1998 with production at 2.462 million bushels. Hard red winter wheat is up 94 million bushels over 2007, soft red winter wheat production is up 251 million bushels over 2007, with white and hard red spring wheat also up over last year. US ending stocks will be higher with lower domestic use and a 264 million bushel decline in export projections. That led USDA to project a season average price of $6.50 to $8.00.
So what is happening globally that is reducing export projections? USDA says wheat production has expanded in Russia, India, the EU-27, Ukraine, Canada, and Brazil. Russian production increased from more acres, better yields, and better weather. India recalculated its production and found more that it thought it had. European-Union 27 recorded better yields and more acres. Ukraine’s production reached 18 year highs.
World wheat production will reach nearly 650 million tons which means livestock that had a ration made up of corn and sorghum for the past two years will be back on feed wheat. The higher wheat production will be a factor that softens the corn market for the 2008-2009 marketing year.
With higher production, carryout will also increase, and the more abundant supplies will allow world wheat trade to also expand. Exports will grow for many nations, except the US, which enjoyed record exports the past year. USDA says the pace of US exports was strong in July with strong outstanding sales yet to be delivered. However, as the marketing year progresses, USDA economists say large foreign production and lower world prices are expected to limit US exports.
USDA economists project US harvested acreage in 2009 at 56.6 million, up about 5.6 million from the 2008 crop. The trend yield is at 43.5 bushels per acre, putting production at 2.462 billion bushels. US domestic use is estimated at just under 1.3 billion, and with exports falling to 1 billion bushels, total disappearance will be 2.294 billion bushels. US ending stocks are estimated at 574 million, well above the 305 million from last year. That puts the stocks to use ratio at 25%, up from the 13% in 2008.
Summary:
Changes in world wheat production not only mean less demand for US wheat, but with increased supplies of feed wheat available around the world, it will mean less export demand for US corn. Global supplies are building as the result of better weather, compared to two years of drought conditions in the Southern Hemisphere and other major wheat producing nations. The situation the past two years brought the world to the US wheat market, but now US wheat exports are expected to fall more than a quarter billion bushels. Without much change in US domestic consumption from prior years, more wheat will be carried over and that means a weaker national average price.
Posted by Stu Ellis on August 26, 2008 12:30 AM to farmgate