U.S. 2008/09 wheat supplies are expected to increase more than use
Supplies. U.S. wheat supplies for 2008/09 are expected to be up from 2007/08 because of larger acreage and higher yields. Responding to higher expected returns, producers sowed 1.9 million more winter acres than a year ago. Increased seedings of soft red winter (SRW) and white winter wheat more than offset smaller hard red winter (HRW) seedings. Excessively dry conditions in the western areas of the central and southern plains in the fall of 2007, in part, led to the HRW decline. Area planted to other spring wheat and durum wheat for 2008 is also up from 2007.
With a return to trend yields, higher winter and spring wheat seedings, are expected to lead to an year-to-year increase in production that more offsets the smaller carryin stocks from 2007/08, the lowest since the late 1940s.
Utilization. Total use for 2008/09 is projected down from 2007/08, largely by an expected 275-million bushel drop in exports. Global wheat production is expected to expand markedly in response to high prices. Wheat feeding in the U.S. is expected to increase year-to-year as the anticipated drop in exports is expected to shift wheat into domestic feeding. A larger all-wheat crop is also expected to increase residual disappearance use, including handling losses. Food use of wheat is expected to increase in 2008/09 with the increase in population growth and rising per capita use.
Ending stocks and price. Projected supply and use changes for 2008/09 are expected to lead to a recovery in ending stocks from the very low level of 2007/08. The expected season-average farmgate price is $7.00 per bushel, above the projected price range of $6.50 $6.80 for 2007/08. The 2008/09 price is projected at a record as raise the monthly season average prices at harvest above the cash price. Strong early-season export demand ahead of harvests in other major exporting countries and continued strong domestic milling demand will also support cash prices into early fall. The previous high was $4.55 per bushel in 1995/96.
U.S. 2007/08 Situation and Outlook
Supplies. Total supplies for 2007/08 are projected 108 million bushels above those for 2006/07. All wheat production totaled 2,067 million bushels in 2007, 14 percent above 2006. Planted area was up and the recovery from the drought lowered the rate of acreage abandonment and raised yields despite winter wheat losses from freeze damage and harvest-time rains. Partially offsetting the increased all-wheat production were lower beginning stocks and imports than in 2006/07.
Utilization. U.S. domestic wheat use in 2007/08 is projected to be nearly the same as in 2006/07 as higher food use offsets lower feed and residual use. U.S. exports for the 2007/08 marketing year are expected to be 1,225 million bushels, sharply above 2006/07 despite record prices. Throughout the past year, adverse weather events around the world reduced crops in several major wheat-producing and -exporting countries. Importing countries turned to United States for wheat. Demand for U.S. wheat has also been boosted by export restrictions and taxes imposed by several major exporting countries. Providing the impetus for rising prices and these efforts by countries to control internal food cost is a projected decline in world wheat stocks to a 30-year low as global consumption exceeds production in 6 of the last 7 years.
Ending stocks, prices, and price spreads. The ending stocks of wheat for 2007/08, projected at 242 million bushels, are down sharply from 2006/07. U.S. ending stocks have not been this low since the late 1940s. These expected low stocks have led to a price historic run up in prices. The all-wheat monthly price at the start of the 2007/08 marketing year in June was $5.03 per bushel. The farm gate monthly price rose to $11.70 per bushel in March, led by a durum price of $14.50 per bushel.
The price spread between hard red spring (HRS) and HRW has been very volatile this marketing year. Because of the abundant moisture supplies on the Central and Southern Plains, supplies of high-protein HRW were limited. The weather conditions on the Northern Plains resulted in good supplies of high-protein HRS. Thus, good protein HRW market prices were at a premium to HRS on the Kansas City and Minneapolis exchanges, respectively, causing millers and bakers to substitute HRS for HRW in their mill grind. Later in the year, after rapid exports of HRS had depleted U.S. HRS stocks and supplies in Canada proved smaller than expected, demand for HRS increased, driving up prices relative to HRW. This spread reversal then caused the an unusual late-season substitution of HRW for HRS in the mill grind.
On a smaller scale, pasta makers with products not made entirely from durum semolina began changing their mill grind. With durum selling at a large premium to HRS because of its even tighter stock situation, there was increased blending of HRS with durum.
International 2008/09 Forecast
Supplies. Wheat prices during the fall of 2007 in many countries were very high, and planting conditions for winter wheat across the Northern Hemisphere were generally favorable, so winter wheat planted area increased significantly.
Assuming trend yields based on normal weather, average global wheat yields will increase in 2008/09. Increased production prospects in the European Union (EU-27), Ukraine, Australia, and others are expected to more than offset lower production in countries where growing conditions have been less favorable. Global wheat production could reach a record level for 2008/09. The increase in global production is expected to offset extremely tight beginning stocks, supporting prospects for some increase in global wheat supplies in 2008/09.
Utilization. World wheat use is expected to increase in 2008/09. Global food use is likely to grow slowly, mostly due to population growth. High feed grain prices and increased wheat production in the United States, EU-27, and the former Soviet Union (FSU-12) are expected to boost wheat feed and residual use. With global beginning stocks projected at their lowest level since 1977/78, growing conditions in 2008 will be crucial for determining available supplies, the size of the expected increase in global stocks during 2008/09, and overall price levels.
International 2007/08 Situation and Outlook
Supplies. Global production in 2007/08 is estimated up 11.8 million tons to 605.0 million. This anemic growth follows the largest year-to-year drop in world wheat production in 12 years, and leaves production significantly short of use.
Utilization. World consumption is forecast up slightly, only one half of 1 percent. Global use is forecast to be 14.7 million tons greater than production, trimming projected ending stocks to 110.4 million tons, the lowest in 30 years.