U.S. WHEAT PRICES HEMMED IN BY HIGH YIELDS AND INTENSE EXPORT COMPETITION

Editor: Marlene Fritz (208/364-4010 in Boise)
Source: Paul Patterson (208/529-8376 in Idaho Falls)

IDAHO FALLS, Idaho–Projections of U.S. and world wheat stocks climbed steadily throughout the fall, constraining the average price anticipated by U.S. farmers to $2.40-2.60 a bushel between now and June.

Despite the smallest planted acreage in 26 years, the 1999 U.S. wheat crop scored the second-highest yield on record–an average 42.5 bushels per acre. That pushed production to an unwelcome 2.307 billion bushels--below the five-year average of 2.360 billion bushels, but not low enough to spark a price recovery. The close of the 1999-00 marketing year this coming May is likely to find U.S. ending stocks 8.6 percent above last year’s, although world stocks should be down 3.6 percent.

Intense competition for export markets–especially with Canada, Australia and Argentina–is eroding sales forecasts made earlier this fall. Compared with the five-year average of 2.377 billion bushels, USDA expectations of combined exports and domestic use of U.S. wheat are now only 2.327 billion bushels for the 1999-00 marketing year.

"The good news is that all the bad news has already been factored into the market, so prices should not drop further," says Paul Patterson, University of Idaho extension agricultural economist. "While wheat will likely trade in a fairly narrow price range, the direction should be up."

Writing in the University of Idaho’s January 2000 Idaho Agricultural Outlook, Patterson notes that if the condition of this winter’s wheat crop continues to deteriorate, "wheat prices could certainly move higher than the fundamentals currently indicate." Dry weather has delayed emergence of fall-planted wheat nationwide and only 43 percent of the U.S. winter wheat crop is currently rated good to excellent. According to Patterson, low moisture and late emergence have plagued Kansas in particular, increasing the chance of winterkill.

"A U.S. wheat crop under 2 billion bushels is needed to help correct the supply situation," says Patterson. For 2000, a yield close to 1995’s 35.8 bushels per acre, produced on the equivalent of 1999’s acreage, would do the trick. But that 1995 yield is almost four bushels below the five-year average and nearly seven bushels below 1999.

Worldwide, wheat production has declined the last two years and use has continued to expand with population growth, Patterson says. But the 1999-00 world crop is just 0.4 percent smaller than the previous crop, and projected ending stocks–while below the previous year-- are still above the five-year average. The December USDA estimate puts the 1999-00 world wheat crop at 584.2 million metric tons–16 MMT above the five-year-average–and ending stocks at 131.1 MMT.

Australia’s 23 MMT crop will be its second largest on record, and Argentina’s anticipated 14 MMT crop is expected to be its third. Favorable harvest conditions also boosted Canada’s production projections to 26.9 MMT–11.5 percent more than last year’s.

So far, the average price received by U.S. farmers for all wheat during the first six months of the 1999-00 marketing year has been $2.49 per bushel. The USDA projection for the entire marketing year is $2.50, compared with $2.65 the previous year and a five-year average of $3.48.

The seasonal average price for soft white wheat at Portland, down a half-dollar from September to its current $2.75-to-$2.90 range, should average about $3.20 for 1999-00, Patterson predicts. A lost sale to Pakistan, along with the anticipated large Australian crop, put significant downward pressure on the market this fall, but he still expects the 1999-00 seasonal average price to rise 10 to 20 cents above the previous year’s $3.04. That’s largely because soft white wheat has the lowest stocks-to-use ratio of any major wheat class: 38 percent compared to around 45 percent for most wheats and 53 percent for durum.

The USDA December Wheat Outlook shows 1999-00 U.S. wheat exports down 7 percent compared to a year earlier and 500,000 tons less than earlier projections. "The U.S. would have to implement a much more aggressive export policy in order to correct this situation," says Patterson. The Export Enhancement Program would "certainly be beneficial, but its use is highly unlikely, given current trade agreements and considerations."

The University of Idaho’s January 2000 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 January 2000. Planning price projections for Idaho commodities can also be found on the home page.