Wheat: Lower Crop, Lower Use, Higher Price
Friday, June 17th, 2011
US wheat supplies continue to decline and global wheat supplies are diminishing as well. In the US the change in ending stocks from the old crop to the new crop is a 122 million bushel decline, despite the new crop that will produce over 2 billion bushels. In line with the ending stocks and higher prices, consumption will decline by 185 million bushels.
The 2011 wheat harvest is moving north in the Great Plains and soft wheat is beginning to turn across the Cornbelt. USDA’s economists say the new crop will produce 2.058 billion bushels, down about 150 million from the prior crop. However, global production for the new crop is also down more than 5 million tons, which is a function of lower production in Europe and Canada. Nevertheless, global ending stocks a year from now will be 3 million tons higher.
USDA’s Economics Research Service has published it latest Wheat Outlook and reports the 32 million acres of winter wheat will produce 1.450 billion bushels, down 35 million from last year. Most of the decline was attributed to the drought in the Southern Plains. Hard red winter wheat production is forecast at 777 million bushels, down 241 from 2010, while soft red winter wheat production will be up 196 million bushels from last year to 434 million.
Weather was the dominant factor for wheat production this year, according to economists, who said, “34 percent of the winter wheat crop is rated good to excellent and 44 percent was rated poor to very poor. A year ago at this time, 66 percent of the winter wheat crop was rated good to excellent and only 9 percent was rated poor to very poor. The reason the 2011 winter wheat crop conditions are worse than a year ago is because of the persistent lack of moisture on the Central and Southern Plains.”
But the territory for soft wheat had more of a variety of weather, but on the whole was better they indicated, “Until recently, the conditions for most SRW States were much better than on the Plains. However, excessive moisture and flooding have sharply impacted crops in Arkansas and Missouri. The percentage of the crops in Arkansas and Missouri rated poor to very poor are 26 percent and 29 percent, respectively. Illinois, Indiana, North Carolina, and Ohio average 63 percent of their crops rating good to excellent. Conditions are even better in the Pacific Northwest. Idaho, Oregon, and Washington average 80 percent of their crops rating good to excellent.”
The wheat market was supposed to get a significant demand from the livestock industry, which was being asked to feed wheat and take the pressure off short supplies of corn. However, wheat prices were not attractive to livestock feeders. USDA is reporting a modest increase of wheat feeding, “Feed and residual use is projected at 220 million bushels, unchanged from May, but up from the 170 million bushels projected for 2010/11 as high corn prices and a rebound in SRW production is expected to encourage more summer quarter wheat feeding.” Overall wheat utilization of 2.290 billion bushels will be down from last year because of fewer exports. Exports are projected at 1.050 billion bushels, which is down 245 million bushels from last year. USDA says the change results from: (1) drought has reduced exportable supplies of HRW and (2) the expected recovery of Black Sea production from the severe drought of a year ago.
Despite the decline in exports and utilization, the lower carryout helped push the average price upward. The 2011/12 season-average farm price range is projected at a record $7.00 to $8.40 per bushel, up 20 cents on both ends of the range from May. For the old crop, the season average price was $5.70 per bushel, compared to the record of $6.78 set by the 2008-2009 crop.
Globally, foreign production will be down 5.2 million tons to 664.3 million for the 2011 crop. In the EU-27 the past spring was the driest in 25 years in wheat production areas, following a poor planting season last fall. Precipitation was only 30% of normal.