The current wheat crop was planted on more acres than the 2005-06 crop, but in many areas wheat suffered critical injuries earlier this spring from the devastating freeze. With some disease problems and harvest getting underway in the coming month, let’s visit about the supply and demand outlook for the crop, and where prices fit into the larger commodity picture.

USDA’s latest wheat outlook estimated the crop at 2.2 billion bushels, up 20% from last year on 11% more acres. Kansas State economist Mike Woolverton characterized that as bearish news, but since world stocks are down, “U.S. exports of wheat are expected to be strong because of tight supplies in other major wheat exporting countries. The national average U.S. farm price for wheat is expected to be in the range of $4.35 to $4.95 per bushel. The projected wheat price also reflects the battle for acres with corn that will be continued into the next crop year.”

The current wheat crop has been challenged, not only with freezing temperatures in early April, but now diseases are breaking out. Several Nebraska Extension crop watchers were offering anecdotal reports last week:
1) “Nearly all of the winter wheat in Holt and Boyd counties was sprayed for rust during the past week and from what I saw it was justifiable. I saw some big differences in the wheat variety plots near Atkinson so it will be interesting to see how the various varieties yield.”
2) “Several fields of wheat were sprayed with fungicides the last couple of weeks. There will be a lot of variability in wheat yields this year, some very good and others pretty mediocre.”
3) “We have had spotty moisture, but not enough. The wheat needs rain and is showing stress — dryland acres will need continued rainfall to make what appears to be an above average crop. Wheat streak mosaic and tan spot have taken an additional toll on wheat that had to survive a very tough winter (dry and windy).

Just prior to those crop conditions being reported, USDA economists Gary Vocke and Edward Allen issued their monthly analysis of the wheat market.

The National Agricultural Statistics Service (NASS) survey-based May 1 forecast estimates:
1) U.S. winter wheat production is 1,616 million bushels, up 24 percent from 2006. Based on May 1, 2007 conditions, the U.S. yield is forecast at 43.5 bushels per acre, 1.8 bushels above last year. Harvest area totals 37.2 million acres, up 19 percent from last year.
2) Hard red winter (HRW) wheat harvested acreage is up about 26 percent from the previous year to 26.8 million acres. The estimated harvest-to-planted (h-to-p) ratio for 2007 is 84 percent, up from last year’s reduced 73 percent because of the drought. HRW production is up 51 percent from a year ago to 1,028 million bushels with an average yield of 38.4 bushels per acre, 6.4 bushels above last year’s drought reduced yields.
3) Soft red winter (SRW) wheat harvested acreage is estimated to be up 8 percent from last year to 6.7 million acres. The estimated (h-to-p) ratio for SRW for 2007 is 77 percent, down from last year’s 83 percent because of the freezing weather on April 7-8. The portion of the winter wheat crop rated good to excellent on April 29, at 56 percent, was 20 percentage points above last year. SRW production is down 11 percent and totals 347 million bushels with an average yield of 52.0 bushels per acre, down 11.3 bushels from last year.

So where did the freeze leave the wheat crop? Vocke and Allen say wheat is recovering from the early setback. “HRW expectations in the central and southern Great Plains were well above normal prior to the April 7-8 freeze. The week following the freeze, condition ratings fell but improved slightly in Kansas and Texas by April 29. Expected harvested area and yield are up significantly in Oklahoma and Texas compared with last year's drought-stricken crop.” The freeze had a greater impact on SRW, with yield deterioration in AR, MO, TN, and KY. In the Pacific Northwest, wheat condition is rated mostly good to excellent and soil moisture is mostly adequate. USDA says total U.S. spring wheat production in 2007 is projected to be 558 million bushels, 44 million bushels more than the drought reduced 2006 crops. Spring wheat seeding trailed behind normal during the month, mostly due to cool and wet conditions in the northern Great Plains.

Overall, demand and supplies are both growing. USDA is expecting total production at 2.174 bil. bu., up 362 mil. from last year. Total use is forecast to increase by 129 mil. bu. Food use will be up slightly on the increased demand for wheat-based products; feed use will be up because of high corn prices, and exports are up because of tight world supplies. As the US cleans out the bins on the old crop, exports continue to drive the market, due to tight world supplies. That is reducing the carryover to 412 mil. bu. Ending stocks will be up slightly, but the second lowest in the last 10 years, supporting a season average price of $4.35 to $4.95 per bushel, well above the 2006/07 forecast of $4.27 per bushel. Due to forward contracting, prices received by farmers in 2007/08 will also reflect strong prices during early 2007 for new-crop delivery.

Worldwide, wheat supplies are somewhat tight, but for a variety of reasons:
1) The European Union-27 (EU-27) is expected to be the world’s largest wheat producing region in 2007/08, increasing wheat production to 127 million tons, only a 2-percent increase from the drought-stricken crop in 2006/07. The expansion of rapeseed area to supply biodiesel limited the rebound in wheat plantings. Moreover, the growing season so far has been far from ideal.
2) China is expected to be the second-largest wheat producer in 2007/08 reaching 100 million tons, a 3-percent decline from the previous year. Area planted is reported down slightly as wheat returns and government payments were not enough to maintain area. Dryness has been reported in some regions and growing conditions so far have not been as good as a year ago.
3) Wheat production in the former Soviet Union (FSU-12) is forecast at 92 million tons in 2007/08, up 7 percent from a year earlier. Fall planting conditions were much better, facilitating a rebound in winter wheat plantings in Ukraine and parts of Russia. However, the strong exchange rate and increased input costs have limited the profitability of wheat production.
4) India is projected to produce 74 million tons in 2007/08, up 6 percent from a year earlier. High wheat prices encouraged a 5-percent increase in area and growing conditions have been mostly favorable.
5) Canadian planting intentions surveys indicate a sharp drop in sowings of Canadian western red spring wheat, more than offsetting a planned increase for durum. Canola and barley are expected to offer better returns than wheat. Moreover, winter wheat seedings in eastern Canada dropped sharply due to cold wet planting conditions last fall.
6) Argentina’s 2007/08 wheat production is projected to decline 10 percent to 12 .8 million tons due to a decline in expected planted area. The Government restricted export registrations in 2006/07 in order to limit internal flour price increases and thus, reduced producer planting incentives for 2007/08. Moreover, a program to subsidize wheat production appears to have been ineffective.
7) Australia is expected to rebound from devastating drought in 2006/07, more than doubling wheat production to 22 million tons in 2007/08.

Summary:
While the there is a strong demand for US wheat from food, feed, and exports, there is also a problem in producing the crop. Some early season damage from freezing temperatures and some late season problems with crop diseases will create crop quality problems. With more acreage planted a year ago, supplies should be sufficient to meet the demand, but still keep wheat prices in the mid to upper $4 range according to USDA and the outlook specialists.