As the US wheat crop comes to life, and makes the final turn toward maturity, domestic and global supplies will soon be expanding and concluding a multi-year chapter of short crops and tight supplies. The US wheat producer fed the world, allowing domestic supplies to run critically short in an effort to meet global needs. As the new crop in the Northern Hemisphere takes shape, what factors will dominate the market?

USDA’s latest Wheat Outlook has kept supplies at 2.613 billion bushels from the 2007 and prior crops and utilization at 2.371 billion bushels. That makes ending stocks at 242 million bushels, the least since the late 1940’s. The relative short US crop last year was just over 2 billion bushels because of freeze and harvest problems. Combined with the short crop was a 322 million bushel increase in use, primarily from export demand.

Old crop exports continue to rise and the 1.275 billion bushels estimated for the year will be 366 million above the prior year. Short crops around the world, increased economic buying power in developing countries, and the exchange rate all made the US the world storehouse for wheat.

Domestic flour consumption continues it slow climb back from the recent dietary trend that diminished carbohydrate consumption. Per capital use in the last fiscal year was 8.8 lbs. under the recent high watermark set in 2000. The diet trend toward high fiber, grain-based food will spur wheat flour consumption. Last year’s consumption of 137.5 lbs compares to the all time high of 225 lbs. in 1879 and 110 lbs. in 1972.

New crop production is based on an estimated 63.8 million acres, up 6% from last year. Winter wheat acreage is estimated at 46.8 million, and spring wheat is forecast at 14.3 million. The winter wheat crop is currently 45% good to excellent condition, compared to 64% at this time last year. 21% of the crop is rated poor to very poor, primarily in the Texas and Oklahoma wheat country, but conditions are improving.

Globally, wheat production is increasing with better crops and crop conditions, along with increased acreage due to higher world wheat prices. Production for 2007/08 is estimated at 606.7 million tons and use for the same period is forecast at 619.1 million tons. The continued high demand and corresponding prices are shifting wheat from livestock feed to human food. Ending stocks are estimated at 112 million tons, up slightly from higher production and lower use.

US export trade for the current marketing year continues to climb because of reduced competition and an increase in overall world trade. March shipments, for example, were 20% higher than March of 2007. While the continued pace of exports for the balance of the current marketing year will slow from tight US supplies, USDA is expecting June shipments of new crop wheat to be strong. The Australian wheat exports are being restricted to ensure supplies are sufficient for domestic demand, and Argentine wheat export estimates have been cut because of the uncertainty in domestic export regulations. However the high world price for wheat has resulted in increased exports from China and Brazil.

US average wheat prices, which had nudged the $4 mark for 2006 production, pushed well toward $12 for the 2007 crop.

Summary:
Domestic supplies of wheat are at 60 year lows. World supplies of wheat are at 30 year lows. But prices have responded, encouraging more production. Wheat prices are half of what they had been, but are still well above typical prices, driven both by short supplies, and by increasing world wealth and corresponding buying power. Major suppliers in the global wheat trade have both curtailed exports for domestic reasons and others have expanded exports to take advantage of the high priced demand.