The U.S. wheat industry missed an opportunity this past year that, alas, isn't likely to be repeated in 2002, with a “brutally competitive” world wheat market shaping up, says Keith Collins, chief economist for the USDA.
“The stage was set in 2001-02 for strong U.S. wheat exports and higher U.S. and world prices,” he said at the Agricultural Outlook Forum 2002 in Washington, D.C.
Production fell by 12 percent — 20 million tons — in major competitor nations, Argentina, Australia, Canada, and the European Union.
“Yet, U.S. wheat exports this season are expected to be the smallest in five years, with prices again below $3 a bushel. Wheat missed an opportunity.”
For one thing, Russia, Ukraine, and Eastern Europe boosted production by 31 million tons; their wheat exports are up by 10 million tons.
“Add another 3 million to 4 million tons from India and Pakistan, and it's no surprise U.S. wheat exports and prices haven't rebounded.”
Looking at 2002-03, Collins said another opportunity like last year's “is unlikely.”
Stocks continue large in Pakistan, India, and Central Asia, and European Union plantings were up sharply last fall. With a rebound from last year's drought to an average yield in Canada, he said, the outlook is for the world wheat market to be “brutally competitive.”
U.S. exports could drop to 900 million bushels, the lowest since 1971-72, and with stocks holding about the same, average farm prices could decline by 5 cents from the average price of $2.80 per bushel expected for 2001-02.
“We appear to have missed the opportunity for a rebound in U.S. exports and (the stronger) prices that have occurred every five to six years during the last two decades,” Collins said.
Although wheat is a crop for which the United States has “vast regions well-suited for production” and which American farmers are very efficient at growing, “the problem is that a number of other countries can also grow wheat pretty well — and that number is increasing.”
U.S. acres have “fallen pretty steadily,” Collins noted, from 88 million in 1981 to 59.6 million last year. “We expect 59.5 million this coming year.”
Prior to this year, he said, there have been only two periods in the past two decades when several major exporters have had significant production problems simultaneously.
“Normally, the mix of winter and spring wheat and Northern Hemisphere and Southern Hemisphere production spreads the risk sufficiently to avoid large production declines. But, during 1987-88 and 1988-89, the combined production of the major competitors dropped 12 percent, their stocks declined almost 40 percent, and U.S. wheat exports rose by 50 percent from 1986-87.
“The other period prior to this year was 1994-95 and 1995-96, when there were weather problems. But the major factor is that several years of low prices had shifted land to oilseeds and other crops and the European Union had cut acres through a set-aside program.
This steadily drew down competitor stocks. U.S. exports didn't jump in 1994 and 1995, but they were steady and wheat prices reached record levels.”
Based on those two episodes, the stage was set for 2001-02 to see strong U.S. wheat exports and higher U.S. and world prices, Collins said.
But for the reasons outlined above, it didn't happen.
And most likely won't this year either.