Higher wheat stocks lower prices

Producers around the world reacted to higher wheat prices by planting more wheat. United States winter wheat seedings are estimated to be 4 percent higher than for the 2007-2008 marketing year (this year) and spring wheat planted acres are also projected to be at least 4 percent higher. Estimates of U.S. total wheat planted acres are about 63 million.

A 4 percent increase in planted acres would be 62.8 million. If 84.6 percent (the five-year average) of the planted acres are harvested and yields are average (41.7 bu.ac.), 2008-2009 wheat marketing year production would be 2.215 billion bushels.

World wheat planted acres are expected to be 6 percent to 8 percent higher than last year. The world's five-year average production is 22.06 billion bushels. This year's production was 22.2 billion bushels and the record is 23.1 billion bushels. A 6 percent increase in production would be 23.5 billion bushels.

United States wheat ending stocks are projected to be 272 million bushels, the lowest since the 1948-1949 marketing year. The U.S. wheat stocks-to-use ratio is projected to be 11.6 percent, the lowest since the 1946-1947 marketing year.

World wheat ending stocks are projected to be four billion bushels, the lowest since the 1977-1978 marketing year. The stocks-to-use ratio is projected to be 17.7 percent, compared to a 10-year average of 30 percent and a five-year average of 22 percent.

Wheat stocks are at near-record lows. The supply “pipeline” will essentially be empty before the U.S. winter wheat harvest. Flour millers are scrambling to find wheat. Demand will be “backed up” until 2008 harvested wheat becomes available.

The major wheat exporters are the United States, the European Union, Canada, Argentina, and Australia. United States winter wheat will be available for export in mid-June. European and Canadian wheat will be available for export in early September. It will be at least November before Argentine or Australian wheat is available for export.

The current supply and demand situation is similar to the 1995-1996 marketing year situation. Prices peaked near $7 in April 1996, declined to near $6 in May, and averaged about $5.50 in June. The average September price was about $4.15.

Pent-up demand should keep prices relatively high into June. If the foreign wheat crop appears to be average or better, millers will buy enough wheat to meet nearby needs and will backup as much demand as possible into September.

Wheat stocks should remain relatively tight throughout the 2008-2009 marketing year. One signal is that the Kansas City Board of Trade July 2008 wheat contract price is $10.25, and the July 2009 wheat contract price is $9.20. This implies that the market believes that stocks will only be slightly higher in May 2009.

United States 2008-2009 marketing year beginning stocks are expected to be about 275 million bushels; 90 million bushels are expected to be imported, and production is projected to be 2.215 billion bushels. The total U.S. wheat supply is expected to be 2.58 billion bushels.

For the last two years, domestic wheat use has been 1.14 billion bushels. United States' wheat exports are projected to be 1.2 billion bushels and the five-year average is 1.07 billion bushels. Using 1.14 billion bushels for domestic use and 1.1 billion bushels for exports would produce an estimated 2.24 billion bushel use for the 2008-2009 marketing year.

The United States 2008-2009 supply of 2.58 billion bushels and use of 2.24 billion bushels would result in ending stocks of 340 million bushels. This would be an increase of about 70 million bushels.

World beginning stocks of four billion bushels, production of 23.5 billion bushels, and use of 22.8 billion bushels would result in 2008/09 wheat marketing year ending stocks of 4.7 billion bushels.

Both U.S. and world wheat yields and production must be average or better. Average U.S. production is expected to result in price peaking in May or June. If followed by average or better foreign wheat production, prices will continue to fall, but are expected to remain near $7.

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