Wheat market sends planting signal

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URBANA, Ill. – Wheat prices, currently at extremely high levels, raise some important questions about U.S. crop acreage for the year ahead.
Depending on the size of the 2007 U.S. corn crop and soybean planting decisions in South America, there may be a need for U.S. producers to plant more acres to those two crops in 2008, says University of Illinois Extension marketing specialist Darrel Good.
“If winter wheat seedings increase significantly, generating an increase in corn or soybean acreage will be a challenge.”
Wheat prices high. September 2007 wheat futures settled at $8.40 Sept. 7, nearly $1 above the previous record established in 1996. High prices are being generated by a second consecutive small world wheat crop, extremely strong export demand for U.S. wheat, and declining world wheat inventories.
The USDA will release a new world wheat production estimate on Sept. 12.
Export boom. Export demand for U.S. wheat has been extremely strong, Good said, with concerns that production in Europe and Australia may be smaller than previously forecast.
The USDA has forecast 2007-08 marketing year U.S. wheat exports at 1.075 billion bushels, the largest in four years. Through the first 14 weeks of the 2007-08 marketing year, the USDA reports that 338.4 million bushels of U.S. wheat have been inspected for export, nearly 52 percent more than during the first quarter of the 2006-07 marketing year.
As of Aug. 30, the USDA reported that nearly 332 million bushels of U.S. wheat had been sold for export, but not yet shipped.
That’s 2.8 times larger than unshipped sales of a year ago, Good said.
The largest year-over-year increase in export commitments is for hard red winter wheat – 2.9 times – and soft red winter wheat – 2.6 times.
Planting signal. High wheat prices reflect the need to slow the rate of consumption and to increase the area planted to wheat in 2007-08, Good added.
“There is widespread anticipation that U.S. winter wheat producers will increase seedings in this fall,” Good said. “That decision, however, will be influenced by the large inversion in wheat futures prices and the generally weak basis in most areas.”
The July 2008 futures price at Chicago on Sept. 7 was $2.465 below the September 2007 price, and the discount at Kansas City was $2.1475 per bushel. Those bids were 57 3/4 cents to 93 1/2 cents under July 2008 futures, representing a continuation of a weak basis.
While $5 is a historically high price for wheat, the harvest bids are about $2.30 below the current spot price of wheat.
What about corn? The decision relative to winter wheat seedings will also be influenced by prices of competing crops, particularly corn and soybeans, said Good.
If the 2007 U.S. corn crop is close to 13.3 billion bushels – well above the USDA’s August forecast – stocks of U.S. corn at the end of the 2007-08 marketing year may be near 1.7 billion bushels.
If consumption increases another 1 billion bushels in 2008-09, a 13 billion crop will be required again in 2008.
“The corn market may have to encourage corn producers to hold acreage at the extremely high level of 2007.”
Bean stocks slipping. U.S. soybean stocks will decline sharply during the current marketing year, even if exports decline by 80 million bushels as forecast by the USDA, Good added. Consumption of U.S. soybeans during the current year is expected to exceed the size of the 2007 crop by 360 million bushels, accommodated by large stocks of 2006 soybeans.
“Stocks at the end of the current year will not allow consumption to exceed production in 2008-09, implying that consumption of U.S. soybeans will have to decline or production will have to increase, or a combination of the two.”
If U.S. winter wheat seedings are increased significantly, if more U.S. soybean acreage is needed in 2008, and if U.S. corn acreage needs to remain at the 2007 level, corn and soybean prices will continue to be well supported.
Perfect storm. “Prices of those two crops will have to be in the right relationship at the right time to direct plantings and perhaps be high enough to divert acreage from other crops,” said Good.
In 2007, acreage of cotton and spring wheat – excluding durum – declined by nearly 6 million acres. In addition, acreage of all crops, including harvested acreage of hay, increased by 3.7 million acres.
Good wonders: “Can those types of adjustments continue in 2008?”

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