Catching Up With The Wheat Market, As Harvest Plays Catch Up

US wheat stocks had practically been “the only game in town,” for the past year, forcing the world wheat consumer to shop at the US grocery store. Global stocks remain tight, but supplies are loosening up a bit with the northern hemisphere harvest well underway and wheat returning to the international pipeline. As we begin a new wheat marketing year, we’ll assess what is known.

Higher wheat prices were the driving force for the US producer last fall and spring and USDA reports an additional 3 million acres were produced, with harvested acreage at 56.6 million, and that is the largest since 1998. USDA’s Wheat Outlook says less wheat was abandoned this year than last because 2007 spring freezes destroyed more acreage than did flooding this year. But delayed maturity is putting harvest progress well behind 2007 rates.

For winter wheat, acreage was about 1 million below last year, but the harvested ratio will climb because of high prices for the new crop. In addition to flooding and slow maturity, rainfall increased the incidence of disease. Spring wheat acreage is also 1.4 million more than last year, but the crop maturity is significantly behind 2007 and the five year average.

Total production is estimated at 2.461 billion bushels, up 394 million from last year with a national average yield at 43.5 bushels per acre and that would be the most since 2003. USDA’s grain stocks estimate at the end of June put ending stocks at 306 million, up 52 million from last year. The average farmgate price was calculated at $6.48 per bushel which is a record high, nearly $2 above the 1995-96 season price of $4.55.

But that was last year and this is this year, and ending stocks for the 2008-2009 crop will be up, with consumption about even with the old crop. Projected use for the new crop will be 2.329 billion bushels, which reflects 271 million bushels more domestic use and 267 million bushels lower export demand. The export demand is weak because of high US prices and larger world production. US wheat, because of its feed value relative to corn, is expected to remain at a high market price supported by corn. Subsequently, USDA is expecting the 2008-2009 wheat crop to average $6.75 to $8.25 for the marketing year, all because producers made an abundance of early forward contract sales.

Global production will rise slightly, and about the same amount of increased US production, since production in other nations is flat. In the EU, acreage is up, but yields are down. In Australia, acreage is up, and some sheep pasture has also been planted to wheat. World wheat consumption is projected higher and should reach 647 million tons, compared to 664 million tons of production. Consumption will be up in part because high corn prices are forcing livestock producers to feed wheat instead of corn. The global wheat surplus, with ending stocks is 133 million tons.

Global wheat trade is estimated at more than 120 million bushels, boosted in part by less control in the European Union, where wheat exports had been curtailed last year to preserve stocks for domestic use.
Summary:
US wheat growers will not enjoy quite the “sellers market” which they had for old crop wheat, however, many of them took advantage of the higher prices of the past year and forward contracted a large portion of the 2008 crop as noted by the high USDA estimates for average market prices. Nevertheless, global wheat demand will remain high, as stocks remain at historic lows. US domestic consumption is expected to rise about as much as the export volume is expected to fall, leaving rather static stocks levels. US production this year suffered slightly from abandoned acreage from floods, but not as much compared to the 2007 Easter freeze that reduced harvested acreage last year.