The world’s glut of grain

Until the 2007-2008 wheat marketing year, Oklahoma and Texas Panhandle wheat prices averaged about $3.50 per bushel. The USDA predicts the future average price of wheat will be above $5. The current glut of wheat and corn and the upcoming wheat harvest could result in wheat prices well below $5.

This time last year (marketing year 2007-2008), U.S. wheat ending stocks were projected to be 272 million bushels, compared to 656 million bushels this year (2008-2009). World wheat ending stocks were projected to be 4.0 billion bushels compared to 5.5 billion bushels this year.

Wheat producers around the world reacted to historically high wheat prices by increasing production. The result was one of the largest year-to-year increases in ending stocks in history.

This time last year, U.S. corn ending stocks were projected to be 1.4 billion bushels, compared to 1.8 billion bushels this year. World corn ending stocks projections have increased from 4.0 billion bushels to 5.4 billion bushels. Corn ending stocks have increased because of reduced use, not because of higher production.

In the case of wheat, producers increased production and use remained about the same. Corn use declined in the U.S. Corn required for ethanol production is projected to be 3.6 billion bushels rather than the 4.0 billion bushels projected in June 2008.

Wheat prices have declined from about $12 in February 2008 to about $4.90 at this writing. Oklahoma and Texas, June 2008, prices were about $8.50. Depending on the location, new crop bids (June 2009) are between $4.60 and $4.90.

Oklahoma and Texas corn prices have declined from about $7 in late June 2008 to about $3.50 at this writing.

Relatively low prices indicate that the market is concerned that 2009-2010 marketing year wheat production will be greater than use and that wheat stocks will increase. Since the majority of the world winter wheat crop has been planted, the weather will determine if wheat production is greater than use.

The two major factors that resulted in both U.S. and world 2008-2009 wheat production being well above average were increased planted acres and above average yields. This is just opposite of the 2007-2008 marketing year when poor harvest weather resulted in below average yields and quality.

Winter wheat planted acres in the U.S. are about 9 percent less than last year. Hard red winter wheat acres are down 4 percent and soft red winter wheat planted acres are 26 percent lower. Foreign wheat planted acres are also projected to be less than last year.

Nine percent less planted acres alone could result in winter wheat production declining from 2008’s 1.87 billion bushels to 1.7 billion bushels. The five-year average yield is 43.7 bushels per acre.

United States 2009 winter wheat production is projected to be 1.47 million bushels. This is below the five-year average of 1.54 million bushels.

If U.S. spring wheat production is 590 million bushels, total U.S. wheat production in 2009 will be about 2.1 billion bushels.

The five-year average wheat use, domestic plus exports, is 2.2 billion bushels. Unless weather results in above average yields, the odds indicate that U.S. wheat stocks will not increase during the 2009-2010 marketing year.

This same scenario may be applied to world wheat production and use. The conclusion is that wheat prices are expected to remain in the $4.50 to $5.50 range throughout the 2009-2010 marketing year.

The caveat is that weather will determine 2009-2010 prices. Above-average yields could result in prices below $5 and below average yields could result in prices above $6.

TAGS: Corn
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