Corn and soybean acreage have a lot of time and space to dance with each other over the next four months until it comes time to put seed in the ground. Not so with wheat, which provided the biggest reality check in the USDA’s crop reports of last week. Wheat is doing its own solo minuet with no chance of increasing acreage for the 2010 crop. Despite the prediction that the least amount of wheat had been planted last fall since 1913, the wheat market has languished. But why?
USDA statisticians reported significant acreage declines for both hard red wheat and soft red wheat when the Wheat Seedings report was released on January 12. But few people are getting concerned, and certainly not the marketplace. Apparently the fall weather that prevented wheat planting was fortuitous since demand for wheat has fallen. The USDA says exports will be down 50 million bushels in the wake of strong foreign wheat trade, and US ending stocks will be growing along with lower domestic and foreign demand. Is US wheat going the way of oats?
Agriculture Department economists writing in the latest Wheat Outlook describe the abundant stocks, lack of exports, growing carryover, and the $2 drop in prices just since 2008/09. The wheat price was part of the reason for skimpy planted acreage that totals barely more than 37 million acres, according to USDA economists. HRW acreage was less than 28 million, down 12% from last year, and down 700,000 acres in Kansas alone, which is the least since 1957. SRW acreage is under 6 million acres, with record low acreage in IL, IN, MO, and OH. IL acreage is down 59%, a 500,000 acre plummet from 2008/09.
Curiously, world wheat production is up by 2.3 million tons to 676 million for the 2009/10 production year. Russia reports record high production in some regions, along with large production increases in Brazil. With high production also come high global stocks that are expected to reach 196 million tons. That level of stocks has only been surpassed once. Even though consumption has increased, stocks are still expected to reach a 30% ratio with use for the current marketing year, up 18% from two years ago.
Global wheat trade in the coming year will be down only fractionally, while some countries that are exporting more are being offset by others that will be exporting less. For example, “The projected 1.5-million-ton increase in Argentine exports to 3.0 million is offset by a decline in U.S. exports, down 1.5 million tons to 22.5 million.”
USDA economists say, “While the world is awash in wheat, and exporters are becoming increasingly competitive trying to expand into nontraditional markets, U.S. domestic prices remain high enough to weaken U.S. export prospects. High stocks and a stocks-to-use ratio not seen since 1987 seem not to have the expected market effect on prices. It appears that high domestic prices are being supported, in part, by investment activity, with buying grains considered a hedge against future from inflation. Institutional buyers have been rebalancing investment funds at the end of the year, buying wheat contracts, and therefore supporting prices.” Some farmers may rhetorically ask, if prices are above what they should be, how much of a wheat acreage decline would there be if prices were not being propped up by investors?
Summary:
What plantings are at a 97 year low in the US while global wheat production has increased, and global stocks are at a 30% stocks to use ratio. US wheat stocks will grow next spring, despite the low production. US domestic consumption is down, along with foreign consumption of US wheat, but overseas demand is still strong. USDA says US wheat producers will not be much of a player in the global wheat trade during the coming year, in part due to high prices.