Corn may be wheat's savior

The USDA estimated U.S. winter wheat planted acres at 44.1 million acres, up 9 percent from last year. Hard red winter wheat planted acres were 31.9 million, 9 percent higher. Soft red winter wheat planted acres were 8.3 million, 13 percent higher. White wheat planted acres were 3.9 million acres, 2 percent higher.

Assuming that 82 percent of the planted acres will be harvested and that yields will average 44.2 bushels per acre, the 10-year average is 44.2 bushels, U.S. winter wheat production would be 1.6 billion bushels.

Over the last 10 years, spring wheat production has averaged 600 million bushels. Adding 600-million-bushel spring production to the 1.6-billion-bushel winter wheat crop produces a 2.2-billion-bushel wheat crop.

The USDA projects that in the 2007/08 marketing year, beginning wheat stocks will be 475 million bushels. Wheat imports, for the 2007/08 marketing year are projected to be 100 million bushels.

With beginning stocks of 475 million bushels, 2.2-billion-bushel production and 100-million-bushel imports, the 2007/08 wheat marketing year supply would be 2.775 billion bushels.

Wheat use consists of domestic use and exports. Domestic use includes food, feed and seed. Food use is a constant 975 million bushels. Seed use is normally between 75 million bushels and 81 million bushels. Feed use has averaged 167 million bushels during the last five years and 238 million bushels over the last 10 years. During the 2006/07 wheat marketing year, total U.S. wheat use is projected to be 1.15 billion bushels.

During the 2006/07 wheat marketing year, wheat exports are projected to be 875 million bushels. Given that producers worldwide have increased wheat planted acres, 2007/08 foreign wheat production should be above average and U.S. export demand near current levels. Thus, 2007/08 U.S. wheat exports could be 900 million bushels.

Using food use of 975 million bushels, 80-million-bushel seed use and 200-million-bushel feed use and 900 million bushels for exports, total wheat use would be 2.155 billion bushels.

With total wheat supply of 2.775 billion bushels and use of 2.155 billion bushels, 2007/08 wheat ending stocks would be 620 million bushels. Ending stocks of 620 million bushels imply that wheat prices would be in the $3.25 range.

Now introduce corn into the market. Corn ending stocks are projected to decline from two billion bushels to 752 million bushels. It currently costs about $4.50 to ship corn into Oklahoma and the Texas Panhandle. Wheat has about 8 percent more feeding value than corn. Thus, wheat prices should remain about 8 percent higher than corn.

To obtain wheat from a local elevator, it will cost a feed mill 30-35 cents above the farmer wheat price. Thus with $4.50 corn delivered, the breakeven wheat farm level price for wheat delivered for feed would be $4.48 ($4.50 corn — 35 cents handling and transportation equals $4.15 times 1.08 feeding value equals $4.48.)

Given that new crop corn will not be available until September or October, corn prices should remain at current levels or higher and corn prices should support wheat prices.

One caveat is that for feed mills to switch from corn to wheat, the wheat price needs to be below corn. There are costs associated with changing rations. However, once the switch is made and the rations balanced, wheat tends to stay in the ration as long as wheat prices are near corn prices.

The relative corn price implies that wheat used for feed will probably be 300 to 400 million bushels. The result would be wheat ending stocks below 500 million bushels and wheat prices above $4.

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