FOURTH YEAR OF LARGE GRAIN CROPS WEIGHS DOWN PRICES

Writer: Marlene Fritz (208/364-4010 in Boise)
Source: Larry Makus (208/885-6037 in Moscow)

IDAHO FALLS, Idaho–Despite a 2.318 billion bushel U.S. wheat crop that’s 9 percent below 1998, reductions in domestic feed use are likely to leave U.S. carryover stocks at their highest since 1987-88 and hold farm-level wheat prices for the 1999-00 marketing year at or slightly below last year’s.

"Market fundamentals provide little encouragement for a substantial price rally," says Larry Makus, University of Idaho agricultural economist. Writing in the university’s Fall 1999 Idaho Agricultural Outlook, Makus notes that a formidable corn crop continues to erode demand for wheat. Current U.S. Department of Agriculture forecasts put 1999-00 farm-level prices for U.S. wheat in the $2.45 to $2.65 range, compared with an average $2.65 in 1998-99.

With U.S. white wheat production–at 247 million bushels–18 percent below last year’s, prices for that crop have held up well compared to other classes, Makus says. Portland prices during 1999-00 should average $3.10 to $3.30, slightly higher than 1998-99’s $3.04.

Worldwide, the wheat crop for the 1999-00 marketing year is projected to be the smallest since 1995-96 but still relatively high by historical standards. Significant gains in China and Russia were more than offset by short crops in the U.S., European Union, Eastern Europe and North Africa.

"World ending stocks continue to decline, but the decline continues to be relatively modest," says Makus. Currently projected at 128.1 million metric tons or MMT by the close of the 1999-00 marketing year, lower world carryover stocks "provide some encouraging news," he says. "However, the market will likely not become terribly excited until world stocks forecasts get down into the 105-110 MMT range."

Early export levels for U.S. wheat suggest another potential bright spot. Wheat export inspections from June to September are up almost 16 percent over last year, and projected exports for the entire 1999-00 marketing year are about 8 percent above 1998-99.

According to Makus, U.S. exports "need to remain at above-projected levels to sustain any type of significant price rally." Unfortunately, export levels of white wheat "may take a hit when the Australian crop begins to show up on the market later this year," he says. "The markets are certainly saying white wheat is not the class to hold at this point."

More than adequate supplies also continue to pressure feed grain prices. An 8 MMT drop in U.S. feed grain production, coupled with a 12 MMT decline in world production, will skim 1.1 percent off world ending stocks, but U.S. stocks are projected to end the 1999-00 marketing year at a price-depressing 8 percent higher.

At 9.467 billion bushels, projected U.S. corn production for 1999 is 300 million bushels lower than 1998 but still the fourth largest crop on record. Grain sorghum production is expected to be up 12 percent, oats down 11 percent and barley off 20 percent to 284 million bushels.

USDA economists forecast farm-level corn prices in the $1.65 to $2.05 bushel range, and feed barley should hold steady at $2.00 per bushel or $83 per ton. "Any price improvement on feed grains will likely wait until spring," Makus says. "Although feed barley may not face as much supply-side pressure as other feed grains, early export levels are dismal, and corn stocks will continue exerting a heavy weight on barley prices."

For grain growers, Makus calls the 2000 wheat crop the "key to any opportunity for a substantial price increase between now and next summer." Although this year’s projected prices "should discourage wheat plantings and reduce world wheat production," current U.S. winter wheat plantings and emergence are in fact slightly above average this fall, he says. On the upside: Makus expects total world use to recover and rise as incomes improve in some major Asian importing countries. He also notes that it’s high time for a price-boosting change in the weather.

"The world wheat crop has been at record or near record levels for four consecutive years," he says. "The law of averages suggests that favorable weather patterns may not continue."

The Fall 1999 Idaho Agricultural Outlook is available at length, with supporting tables and graphs, on the web site of the UI Department of Agricultural Economics and Rural Sociology, http://www.uidaho.edu/ag/agecon. Once on the home page, Internet users should click first on Publications, then on the Idaho Agricultural Outlook for October 1999.