Gloomy outlook for winter wheat

MANHATTAN, Kan. – A scary future for wheat growers may be hidden in the picture USDA’s World Board of economists painted with its May 10 supply-demand report.

“There’s a chance this could be a year in which farmers have less to sell, but market prices fall anyway,” said Kansas State University economist Bill Tierney.

The World Board’s May 10 view of the upcoming year reflects a gloomy outlook for the 2001 U.S. winter wheat crop – a 12 percent annual production drop that yields the smallest harvest since 1974.

The board’s view also reflects growing concern about the year’s spring wheat planting delays and implies they already have taken average yields 4 bushels per acre below last year’s.

Plus, the report points to price-supporting cutbacks in world wheat production and stocks.

Yet, it also suggests why prices might fall – not rise – in the upcoming June-May wheat marketing year, said Tierney, who is K-State Research and Extension’s grain marketing specialist.

Exports fall off.

The World Board’s new annual wheat price forecast is $3.05. That’s 20 cents a bushel higher than USDA’s February estimate and 42 cents over last year’s price average.

“But U.S. new-crop wheat bookings in early May were the lowest in the 28 years USDA has been reporting export data for the month,” Tierney said. “I estimate 6 million of those 19 million bushels in commitments were food aid that the CCC has tendered for, but won’t ship until the new marketing year begins June 1.”

May’s report cut 25 million bushels from the board’s February projection, putting the year’s total exports at 1 billion bushels.

But, to reach that final sales number at an average pace, U.S. exports already should total nearly 75 million bushels, Tierney said.

“Beyond that, the industry has some doubt that we’ll be shipping as much food aid. Those shipments peaked in 1999-2000 with 142 million bushels,” he said. “The total for 2000-01 is likely to be 115 million, and an annual drop of equal size could take 2001-02 food aid down to 88 million bushels.”

China trade.

May’s report also makes “dramatic, but not unexpected revisions” in the World Board’s balance sheet for trade with China, Tierney said. They include:

* A 40.4 million metric ton increase for China’s 2000-01 ending wheat stocks, which still would put that country’s carryover at 54.2 million metric tons – the lowest in 12 years.

* Yet, no change in the projection for an 8.5 million metric ton decrease in China’s 2001-02 wheat carryover.

* A 1 million metric ton total for China’s 2001-02 imports of U.S. wheat, rather than the 4-6 million metric tons some industry analysts were expecting.

“The market has to be a bit uncertain about the significance of those revisions,” Tierney said. “But the fact is, China always has been the first of the top 16 U.S. wheat markets to book a large part of its annual imports. On average, for example, its early May bookings account for 20 percent of China’s total imports from the United States.

“And this year in early May, China’s U.S. wheat purchases were just shy of 1 million bushels.”

Downward pressure.

Typically, U.S. wheat prices fall as the winter wheat harvest nears.

“Over the last few weeks, however, Kansas City Board of Trade July wheat futures have been demonstrating considerable resistance to downside pressure,” Tierney said. “So, if winter and/or spring wheat prospects continue to worsen, prices may move higher.

“But, given the current export situation, if relatively ‘normal’ weather conditions prevail in the weeks ahead, wheat prices could move lower. In fact, futures prices could challenge their previous life-of-contract lows.”

The World Board’s May report calls for a 1.96 billion bushel U.S. wheat harvest in 2001-02, a 164 million bushel drop from USDA’s February projection. It raises the U.S. food use forecast by 5 million bushels, but lowers domestic wheat feed use by 25 million bushels.

The report puts world wheat production at 572.4 million metric tons, an 8 million metric ton decline from the previous annual total. It projects world wheat imports will be 125.9 million metric tons, slightly higher than 124.2 million metric tons imported in 2000-01.

“The board’s latest estimate is that ending world stocks will represent just 23.6 percent of annual use. That could be the lowest stocks-to-use ratio we’ve seen in more than 40 years. It also would be a significant drop from last year’s 26.9 percent,” Tierney said. “But its accuracy will depend on actual demand in what so far appears to be a stagnant world market.”