“It’s a very tough, very competitive world for wheat, with a lot of clouds on the horizon for our trade in this commodity,” he said at the annual Agricultural Outlook Forum at Arlington.
Exports are expected to decline by 3 percent, according to preliminary forecasts, with ending stocks rising by 10 percent, and food uses expected to remain flat.
This dismal picture is indicating a drop in wheat prices of about 40 cents a bushel, to $3.30, Riley says, compared to a season average of about $3.60 last year.
“There is a lot of uncertainty,” Riley notes. If Canada and Australia recover from their droughts, their export numbers could rise. Russia and Ukraine have also become low-cost exporters of wheat, and are expected to continue putting “substantial” amounts into the market.
Analysts for the USDA’s World Agricultural Outlook Board, Economic Research Service, Foreign Agricultural Service, and Farm Service Agency say preliminary estimates are for a 63-million-acre, U.S. crop, up 2.6 million acres from 2002.
Still, planted area is expected to be the fourth lowest in the last 30 years, due chiefly to wet conditions that hampered planting last fall in parts of the Delta, Southeast, and Atlantic Coast states. Acres are up sharply in the Midwest.
Even though drought sharply cut production in the U.S., Canada, and Australia in 2002/03, gains in wheat prices have been much less than expected, as importers switched to much lower-priced wheat from Russia, Ukraine, and other countries. Thus, U.S. prices are down sharply from the highs early last fall, and alternative crops are offering better returns than spring wheat.
“The major questions about potential U.S. wheat production center around harvested acres and yields, especially given the current dry conditions in parts of the Plains states, prolonged wet conditions in the Delta, and cold weather in the Midwest,” the analysts note.
Forecast harvested acres are estimated at 53.4 million, up more than 7.5 million from 2002. But, last year’s harvested acres were the lowest since 1970, and the harvested-to-planted ratio was the smallest since 1936.
“An unusually large percentage of both winter and spring wheat was not harvested for grain in 2002; some of the increased acreage of both winter and spring wheat was planted with the intention of being hayed and/or grazed instead of for grain. However, drought resulted in increased abandonment and planting of another crop, or increased haying/grazing in order to salvage something from the crop.”
While the assumed harvested-to-planted ratio for 2003 is higher than the past two years, it still is “well below” those in the mid- to late 1990s, the analysts point out. The assumed production of 2,065 million bushels would be almost 450 million more than 2002.
“The larger production will more than offset lower carryin stocks, pushing 2003/04 supplies up 140 million bushels from a year earlier.
Feed and residual uses are forecast to rise sharply, to 225 million bushels, compared to the unusually small 200 million bushels expected in 2002/03. Reduced prices will promote the use of wheat for feeding.
Exports for 2003/04 are expected to fall slightly below the 900 million bushels expected for 2002/03 – the smallest level since the 610 million in 1971/72.
“A year ago, no one would have forecast our exports would drop to a 30-year low, had they known that the combined crops of Argentina, Australia, and Canada would shrink 36 percent from a year earlier and that the European Union would be the world’s largest importer. Argentina had the smallest crop since 1995/96; Australia’s was the smallest since 1994/95; and Canada’s was the smallest since 1974/75.”
The analysts say a near-record crop in the European Union is helping offset the lower exportable supplies in the other major foreign exporters, “but the major reason for the weak demand for U.S. wheat is expanding shipments by traditionally ‘minor’ exports: Russia, Ukraine, Kazakhstan, and India, which combined are up more than 11.5 million tons. Many importers switched to dramatically lower-priced wheat from these minor exporters instead of being forced to bid for dwindling U.S. stocks.”
As usual, they say, “Imports by China are the biggest unknown” in the market.