World wheat production and use predicted higher

The International Grains Council (IGC) estimates that 2004/05 wheat marketing year production will be 22.1 billion bushels compared to 20.3 billion bushels in the 2003/04 marketing year. Average production over the last five years has been 21.1 billion bushels.

Higher production is projected in Europe, the Former Soviet Union and India. Lower production is projected in the U.S., Australia and China.

World wheat use during the 2004/05 marketing year is projected to be 22.1 billion bushels compared to 21.6 during the 2004/04 marketing year. During the last five years, wheat use has averaged 21.7 billion bushels.

Higher use is expected to be the result of improved economic conditions in Asian countries and relatively high corn prices. High corn prices should result in more wheat used for feed.

During the 2004/05 marketing year, the IGC projects wheat exports to remain about the same as during the 2003/04 marketing year. Higher Chinese wheat imports (92 million bushels in 2004/04 compared to 257 million bushels in 2004/05) are expected to be offset by lower wheat imports by European, North African and some Asian countries.

Stock projections

The IGC projects wheat stocks to increase in India, Russia and to decline in China. Higher ending stocks are also projected in the five major exporting countries (Argentina, Australia, Canada, European-15, and the U.S.).

The first USDA projection of 2004/05 wheat and feed grain production and use will be released on May 12.

The above scenario supports higher and more volatile price expectations for next year. Marketing year 2003/04 wheat prices are projected to average $3.35 per bushel. This is compared to the U.S. average June 2003 price of $3.07 and the mid-March 2004 average price of $3.71.

The average monthly June 2003 wheat price in Oklahoma was $2.82 and the mid-March 2004 average Oklahoma prices was $3.59.

From a production stand point; there is a long time until harvest. Current U.S. crop conditions imply yields about the same or higher than last year. Since there are 4 percent less planted acres, total U.S. wheat production is projected to be less.

Key time periods

Three key production time periods will impact wheat prices. First is the U.S. winter wheat harvest that begins in late May and goes through July. The second is the foreign wheat harvest that begins in earnest in late August and goes through October. The third is the Southern Hemisphere harvest that starts in October and goes through late December to early January.

Given tight world wheat stocks, all of these harvests have the potential to cause dramatic changes in wheat prices. The 2004/05 wheat price trend will depend on the size of the crops relative to current expectations.

Note that world 2004/05 wheat production is projected to be about one billion bushels or about 4.7 percent higher than last year and above the five year average of 21.1 billion bushels. World wheat consumption is projected to be 400 million bushels or about 1.8 percent higher than the five-year average.

Production and timing are important when anticipating price trends and developing marketing strategies. Given expected price volatility, this may be a good year to spread price risk over most of the marketing year. This may be accomplished by forward contracting (hedging if you don't mind the potential margin calls) one-fourth now, one-fourth at harvest and the remainder in October and December/January.

This is also the year to hold 200 to 300 bushels in storage just in case something happens to the 2005 wheat crop and the market goes wild.

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