Wheat Market Outlook for the 2012/13 Marketing Year
Wheat Market Outlook for the 2012/13 Marketing Year Daniel O’Brien – Extension Agricultural Economist, K‐State Research and Extension June 14, 2012 Summary In its June 12th Crop Production and World Supply and Demand Estimates (WASDE) reports, the USDA updated its “old crop” 2011/12 marketing year projections for U.S. and World wheat supply‐demand, and gave its projections of U.S. and World wheat supply‐demand balances for the 2012/13 marketing year. Overall, the report indicated that there is a continuing trend toward tightening domestic and global wheat supply‐demand balances. Although adequate global wheat stocks are projected for MY 2012/13, World wheat markets now are much more sensitive and responsive to both domestic and foreign wheat and feedgrain production issues than they were just a few months ago. U.S. Wheat Market Prospects: For “old crop” MY 2011/12 the USDA increased its projection of U.S. food use (up 10 million bushels or “mb”) and exports (1.055 mb, up 30 mb) over last month, leading to a 40 mb decline in MY 2011/12 ending stocks (728 mb), with % ending stocks‐to‐use tightening to 32.3%. For “new crop” MY 2012/13, the USDA projected 2012 U.S. wheat production of 2.234 billion bushels (bb), down 11 mb from May, but up from 1.999 bb in 2011. With lower beginning stocks (728 mb) and year‐to‐year increases in 1) domestic food use (945 mb, up 5 mb), 2) exports (1.150 bb, up 95 mb), and 3) feed and residual use (220 mb, up 40 mb), U.S. wheat ending stocks were projected to be 694 mb (down from 735 mb in May and from 728 mb in MY 2011/12). Percent ending stocks‐to‐ use is projected to be 29.1% (down from 32.3% in MY 2011/12 and 35.7% the previous year). U.S. average wheat prices are projected to be in the range of $5.60‐$6.80 per bushel for MY 2012/13, compared to the record high $7.25 for MY 2011/12 and $5.70 in MY 2010/11. World Wheat Market Prospects for MY 2012/13: Based on projections of 1) lower production (672 mmt, down 3.2% vs last year), 2) lower total supplies (868 mmt, down 3.0%), 3) lower total use (682 mmt, down 2.0%), and 4) lower export trade (135 mmt, down 9.0%), the USDA projected World wheat ending stocks to be 186 mmt (27.2% S/U) for MY 2012/13. This projection would be down from 28.1% in MY 2011/12, and is comparable to 30.1%, 30.8%, and 26.4% in the three previous years. Historic lows of 128 mmt ending stocks and 20.9% stocks‐to‐use occurred in MY 2007/08. Current Wheat Production Trends & Factors: Uncertainty of wheat production and supply‐demand prospects in the U.S. central and southern plains, in the Black Sea region (Russia, Ukraine and Kazakhstan), in parts of the European Union, and in Australia have continued to provide support for World wheat markets this spring. Kansas hard red winter wheat harvest is over half complete, with varying yields and quality over that state. Prospects for high yields and “good” U.S. wheat production still exist in the U.S. northern plains (HRS wheat) and the eastern U.S. Corn Belt (SRW wheat) absent freeze, heat/drought, disease or other potential production problems. Key Wheat Market Factors: Wheat markets have continued to be responsive to crop development news from key World wheat production regions (the Black Sea region, the EU, Australia, Canada, and the U.S. northern plains / spring wheat area). Unless major wheat production problems occur in these important production / trade areas, it is likely World wheat supply‐demand balances will remain large enough in MY 2012/13 to suppress extreme wheat market price increases based on wheat market developments – not with‐standing cross market impacts from corn or soybeans. Page | 1
I. U.S. Wheat Market Situation and Outlook In its June 12th WASDE report, the USDA increased its projection of domestic food use and exports of U.S. wheat for the “old crop” 2011/12 marketing year, leading to tighter projected MY 2011/12 ending stocks and % ending stocks‐to‐use. The USDA also lowered its projection of 2012 U.S. wheat yields and production, which together with lower beginning stocks, lead to a reduction in projected U.S. wheat supplies for the “new crop” 2012/13 marketing year. Together with a reduction in estimated wheat feeding, these changes led to a reduction in projected U.S. MY 2012/13 supply‐demand balances – down to % ending stocks‐to‐use levels that are only marginally larger to those in MY 2008/09.
U.S. Wheat Yield & Production for 2012 The USDA projected that U.S. wheat yields in 2012 would be 45.4 bushels per acre (bu/ac) based on the June 12, 2012 USDA NASS Crop Production Report (Figure 1). This projection is down 0.3 bu from May, and compares to 43.7 bu in 2011 and 46.3 bu in 2010. Given USDA projections of 55.9 million acres (ma) of wheat planted and 49.2 ma of U.S. wheat harvested in 2012, the USDA projects 2012 U.S. wheat production to be 2.234 billion bushels (bb) – down 11 mb from May, and comparable to 1.999 bb in 2011 and 2.207 bb in 2010
Figure 1. U.S. Wheat Yield Trend (1973‐2011) and Projection for 2012
U.S. Average Soybean Yield per Acre
60 55 50 45
U.S. Wheat Yield Trend (1973‐2011) U.S. wheat Yield = 30.47 bu/ac + 0.36 bu/ac/yr R² = 0.73 (73% of variation explained)
2012 Yields KSU: 45.0 bu/ac (trend) USDA: 45.4 bu/acre
40 35 30 25 20 15 10 5 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
Year
U.S. Average Wheat Yield
KSU 2012 Trend
USDA June 2012 Projection
Hard Red Winter Wheat Production Hard red winter (HRW) wheat production is projected to be 1.02 bb in 2012, up from 780 mb in 2011 under extreme drought conditions in the central and southern plains of the United States. However, crop conditions ratings from the USDA National Agricultural Statistical Service (NASS) on June 10, 2012 for hard red winter wheat in Colorado (28% poor‐very poor or “p‐vp” and 38% fair), Kansas (24% p‐vp / 36% fair), Texas (33% p‐vp / 31% fair), and Nebraska (16% p‐vp / 40% fair) are indicative of the stress the 2012 HRW crop has endured in U.S. hard red winter regions. Page | 2
Kansas hard red winter (HRW) wheat yields are projected to be 43.0 bu/ac (unchanged from May), with projected production of 387 million bushels (mb) in 2012 (unchanged), but down from earlier private projections of 400 mb or more. Kansas produced 276.5 mb of wheat in 2011 under extreme drought conditions in the southwest and south central parts of the state. Nebraska HRW wheat yields are projected to be 40.0 bu/ac (down 47.0 bu from May), with projected production of 51 mb (down from 60 mb in May). Nebraska produced 65 mb of wheat in 2011 – largely avoiding the extreme drought conditions of states further south. South Dakota HRW wheat yields are projected to be 43.0 bu/ac (down 44.0 bu from May), with projected production of 56 mb (down from 57 mb in May). South Dakota produced 67 mb of wheat in 2011 – just as Nebraska largely avoiding the extreme drought conditions of states further south. Colorado HRW wheat yields are projected to be 39.0 bu/ac (down 2 bu from May), with projected production of 88 mb (down 5 mb from May). Colorado produced 78 mb of wheat in 2011 under drought conditions in parts of the state. Texas HRW wheat yields are projected to be 31.0 bu/ac (unchanged from May), with projected production of 104 mb (unchanged from May). Texas produced 49 mb of wheat in 2011 under extreme drought conditions and widespread non‐harvest of wheat in parts of the state. Oklahoma HRW wheat yields are projected to be 37.0 bu/ac (up 1 bu from May), with projected production of 159 mb (up from 155 mb in May). Oklahoma produced 70 mb of wheat in 2011 under drought conditions in parts of the state.
Soft Red Winter Wheat Production Soft red winter (SRW) wheat production is projected to be 428 mb in 2012, down from 458 mb in 2011. Changes in production are projected in Michigan (39 mb vs 51 mb a year ago), Missouri (39 mb vs 34 mb last year), Illinois (38 mb vs 47 mb last year), Ohio (32 mb vs 49 mb last year), Kentucky (28 mb vs 31 mb last year), Arkansas (27 mb vs 30 mb a year ago), Tennessee (23 mb vs 21 mb last year), and Indiana (20 mb vs 25 mb last year).
White Winter Wheat Production White wheat production (WW) is projected to be 231 mb in 2012, down from 314 mb in 2011. Changes in production are projected in Washington (115 mb vs 130 mb last year), Oregon (56 mb vs 64 mb last year), Idaho (60 mb vs 63 mb last year), and Montana (85 mb vs 90 mb last year). Comment on remaining 2012 U.S. wheat production uncertainty: Although the 2012 U.S. winter wheat harvest is advancing ahead of schedule in the central and southern plains and parts of the southeastern U.S, questions remain about final 2012 wheat production totals and crop quality in the U.S. central and southern plains region for hard red winter wheat, in the eastern U.S. corn belt for soft red winter wheat, in the northern plains for hard red spring and durum wheat, and elsewhere in the northern plains and pacific northwest for white wheat production. Early harvest reports from Texas, Oklahoma and Kansas indicate that U.S. HRW wheat protein levels are nearly equal to the 2011 crop, but that test weights are marginally lower than a year ago.
U.S. Wheat Total Supplies of 3.082 bb for MY 2012/13 With projected MY 2012/13 beginning stocks of 728 mb (the lowest since 657 mb in MY 2009/10), 2012 production of 2.234 bb, and imports of 120 mb, total supplies of U.S. wheat are projected to be 3.082 bb for MY 2012/13 by the USDA (Table 1). The action by the USDA of lowering its projection of “old crop” MY 2011/12 ending stocks by 40 mb from May down to 728 mb in the June WASDE caused projected MY 2012/13 U.S. wheat beginning stocks and total supplies to be by the same amount. This amount of total supplies (3.082 bb in MY 2012/13) is projected to be up 3% from 2.982 bb in MY 2011/12, less than 3.279 bb in MY 2010/11, and is 89‐462 mb greater than total U.S. wheat supplies for MY 2007/08 through 2009/10.
Page | 3
Table 1. U.S. Wheat Supply‐Demand Balance Sheet: MY 2007/08 through MY 2012/13 (June 12, 2012 USDA WASDE Report) Item Planted Area (million acres) Harvested Area (million acres) Yield per harvested acre (bu./acre) Beginning Stocks Production Imports Total Supply Food Use Seed Use Exports Feed & Residual Total Use Ending Stocks % Ending Stocks‐to‐Total Use U.S. Average Farm Price – Wheat ($/bushel) June 1st to May 31st Marketing Year Adj. U.S. Average Farm Price – Corn ($/bushel) Monthly Avg: June 1st to May 31st Ratio of U.S. Wheat‐to‐Corn Prices st st Monthly Avg: June 1 to May 31
2007/08 60.5 51.0 40.2
2008/09 63.2 55.7 44.9
456 2,051 113 2,620 948 88 1,263 16 2,314 306 13.2% $6.48
306 2,499 127 2,932 927 78 1,015 255 2,275 657 28.9% $6.78
2009/10 2010/11 59.2 53.6 49.9 47.6 44.5 46.3 Million bushels 657 976 2,218 2,207 119 97 2,993 3,279 919 926 69 71 879 1,289 150 132 2,018 2,417 976 862 48.4% 35.7% $4.87 $5.70
2011/12 54.4 45.7 43.7
2012/13 55.9 49.2 45.2
862 1,999 120 2,982 940 79 1,055 180 2,254 728 32.3% $7.25
$3.96
$4.47
$3.56
$4.76
$6.22
768 2,234 120 3,082 945 73 1,150 220 2,388 694 29.1% $5.60‐$6.80 ($6.20) ≈$4.60
164%
152%
137%
120%
117%
≈135%
U.S. Total Wheat Use up to 2.388 bb in MY 2012/13 The USDA raised its projections of domestic food use, exports, feed and residual use, and total usage of U.S. wheat from “old crop” MY 2011/12 to “new crop” MY 2012/13 based on expectations of increased U.S. wheat production in 2012 (Table 1 & Figure 3). The USDA also increased its projection of U.S. wheat domestic food use, exports and total use for “old crop” MY 2011/12, with an associated drop in ending stocks and % ending stocks‐to‐use. Food Use = 945 mb in MY 2012/13: The USDA projected U.S. wheat usage for domestic food consumption in MY 2012/13 to be 945 mb, up from 940 mb in MY 2011/12, and the highest since 948 mb in MY 2007/08. The projection of 940 mb food use in MY 2011/12 is up 10 mb from the May WASDE report due to “higher than expected flour milling during …January‐March… as reported by the North American Millers’ Association”. This recent trend in U.S. food use continues to track at least marginally higher on an annual basis in accordance with U.S. population growth and largely inflexible consumer wheat product purchases. Export Use = 1.150 bb in MY 2012/13: In the May WASDE report, the USDA cited “larger supplies, more competitive (U.S. wheat) prices, and an early expected start to this year’s (U.S. wheat) harvest” as factors likely to bring about higher U.S. wheat export demand in the near‐to‐intermediate term. The USDA’s projection of 1.150 bb in U.S. wheat exports in MY 2012/13 would be up from 1.055 bb from MY 2011/12, and compares to 1.289 bb in MY 2010/11 and 879 mb in MY 2009/10. The projection of 1.055 mb in U.S. wheat exports in MY 2011/12 is up 30 mb from the May WASDE report due to “…the strong pace of U.S. shipments during the final weeks of the old‐crop marketing year”. Comments on U.S. wheat export sales for MY 2012/13 to date: U.S. wheat export sales for MY 2012/13 on May 31st totaled 188 mb, 16% of projected MY 2012/13 exports of 1.150 bb. With uncertain wheat production prospects in a
Page | 4
number major exporting countries and regions, it is too early to place much credence in these “new crop” advance sales at this point in time.
Seed Use = 73 mb for MY 2012/13: The USDA projected seed use of wheat in MY 2012/13 to be 73 mb, down 6 mb from the previous marketing year. Feed & Residual Use = 220 mb for MY 2012/13: The USDA lowered its projection of MY 2012/13 U.S. wheat feed and residual use up to 220 mb, down 10 mb from May, but still up sharply from 180 mb in MY 2011/12, 132 mb in MY 2010/11, and 150 mb in MY 2009/10. However, this amount of projected U.S. wheat feeding is still less than 255 mb in MY 2008/09. On June 13, 2012, Kansas City Board of Trade (KCBT) July 2012 wheat futures prices closed at $6.40 ½ /bushel in comparison to the Chicago Board of Trade (CBOT) July 2012 corn futures closing price of $5.92 ½ /bushel, a ratio of 108%. Historically, the ratio of wheat to corn prices have been in the range of 110‐115% ‐ a level that has typically discouraged wheat feeding. Over the last month the relationship between U.S. wheat and corn prices have swung dramatically, leading to mixed signals regarding the profitability of using relatively abundant wheat supplies to “fill in the gap” between relatively short “old crop” U.S. corn supplies and what is expected to be an early harvested 2012 U.S. corn crop. Comments on unfulfilled expectations for U.S. wheat feeding in MY 2011/12 and implications for MY 2012/13: In early‐mid 2011, given tight U.S. corn supply‐demand balances and relatively abundant U.S. wheat supplies, it was thought by many market analysts that U.S. wheat feed use would increase sharply in MY 2011/12 to make up the shortfall in availability of U.S. corn supplies. However, monthly USDA projections from late 2011 through early 2012 had not reflected that actuality. Then USDA projections of MY 2011/12 wheat feeding jumped sharply from March (145 mb) to April (180 mb), again supporting the idea of increased feeding of U.S. domestic wheat “making up the difference” for short “old crop” MY 2011/12 U.S. corn supplies. It seems that the possibility of any further projected increase in wheat feeding for “new crop” MY 2012/13 from 180 mb up to 220 mb should be treated with some caution until further verification of MY 2011/12 wheat feeding becomes available in the next USDA quarterly grain stocks report – scheduled for June 29th.
Total Wheat Use = 2.398 bb for MY 2012/13: The USDA projects that U.S. total use of wheat will be 2.388 bb for “new crop” MY 2012/13, up 134 mb from 2.254 bb in “old crop” MY 2011/12. This would be the 2nd largest amount of U.S. wheat usage since 2.427 bb in MY 1998/99, following 2.417 bb in MY 2010/11. This amount of U.S. wheat usage is comparable to 2.314 bb in MY 2007/08, 2.352 bb in MY 2003/04, 2.392 bb in MY 2000/01, and 2.386 bb in MY 1999/00. The USDA also raised its projection of “old crop” MY 2011/12 U.S. wheat total use in this report by 40 mb up to 2.254 bb (as indicated above). This change follows from a 10 mb increase in domestic food use and a 30 mb increase projected U.S. wheat exports for MY 2011/12.
Recent U.S. Wheat Use Trends Trends in U.S. wheat usage by category and ending stocks since MY 2004/05 are represented in Figure 2. If these projections by the USDA for MY 2012/13 hold true, it would signal a) the second consecutive year‐over‐ year increase in U.S. feed and residual use, b) the negation of what several months ago was thought to be a trend toward sizable declines in U.S. wheat exports, c) at lease marginal growth in U.S. domestic food use, and d) what would be the third consecutive marketing year decline in U.S. wheat ending stocks (Figure 2). Since MY 2007/08, variability in U.S. wheat exports has been a key source of uncertainty in U.S. wheat supply‐demand balances. While food use has been somewhat consistent since MY 2004/05 (ranging from 879 to 948 mb), feed and residual use of U.S. wheat has varied from 16 to 255 mb per marketing year over the same time period.
Page | 5
Figure 2. Trends in U.S. Wheat Use and Ending Stocks: MY 2004/05 through MY 2012/13 (July 12, 2012 USDA WASDE Report) 1,400
Million Bushels
1,200
1,150 1,066
1,055
1,015
1,003
1,000 800
1,289
1,263
908 917
910
879 948
938
927
945
940
926
919
600 976
400 540
200
571
862
657
728
694
456 306
0 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 Marketing Years
Food Use
Exports
Seed Use
Feed+Residual
Ending Stocks
U.S. Wheat Ending Stocks & Percent Ending Stocks‐to‐Use Ending Stocks = 694 mb for MY 2012/13: The USDA projected MY 2012/13 ending stocks of U.S. wheat to be 694 mb, which is down from its estimate of 728 mb for MY 2011/12, and also down from 862 mb in MY 2010/11 and 976 mb in MY 2009/10 (Table 1 and Figure 3). The USDA also lowered its projection of ending stocks for “old crop” MY 2011/12 by 40 mb, down from 768 mb in May as result of the increase in projected “old crop” U.S. wheat usage discussed above. % Ending Stocks‐to‐Use = 29.1%: The USDA implicitly projected that MY 2012/13 % ending stocks‐to‐use would equal 29.1%. This projection is down from 32.3% for MY 2011/12, and would be the lowest since 28.9% in MY 2008/09. It also compares to 35.7% in MY 2010/11, and 48.4% in MY 2009/10. The USDA’s lowering of its projection of % ending stocks‐to‐use for “old crop” MY 2011/12 to 32.3% from 34.7% in May projection reflected a tightening of both “old crop” ending stocks and “new crop” beginning stocks for MY 2012/13. These projected U.S. ending stocks and % ending stocks‐to‐use levels for MY 2012/13 are markedly above the historic 60 year lows of 306 mb and 13.2%, respectively, in MY 2007/08 – the benchmark scenario “tight supply‐demand balance” marketing year since the early 1970s. Comments on level of U.S. wheat % ending stocks‐to‐use: Projected U.S. wheat % ending stocks‐to‐use of 29.1% for MY 2012/13 is large enough relative to total use to avoid causing immediate concerns about short supplies in the U.S. wheat market. Absent a) a “game changing” crop shortfall in the U.S. this year that would drastically reduce available domestic supplies, and/or b) the actual fruition of significant foreign wheat production problems that cause a sharp increase in U.S. wheat exports, it seems increasingly likely that the current “more than adequate” U.S. wheat ending stocks situation will persist in the coming year – limiting independent wheat market price potential.
U.S. Wheat Price Prospects The USDA projects that market forces will lead to lower U.S. wheat prices in MY 2012/13 – consistent with its projection of lower MY 2012/13 U.S. corn prices (Table 1 & Figure 3). The USDA projected MY 2012/13 U.S. average wheat prices to be in the range of $5.60‐$6.80 per bushel in MY 2012/13, up $0.10 per bushel on each Page | 6
end of the price range (Figure 3). The midpoint of this MY 2012/13 projection of $6.20 per bushel is down from the record high of $7.25 in MY 2011/12, and compares to $5.70 in MY 2010/11, $4.87 in MY 2009/10, $6.78 in MY 2008/09, and $6.48 in MY 2007/08.
Figure 3. U.S. Wheat Ending Stocks vs U.S. Avg. Cash Prices: MY 1973/74 through MY 2012/13 (June 12, 2012 USDA WASDE Report) 180 $8.00
% Ending Stocks‐to‐Use
150
$6.78 $6.48
$6.20
$6.00
120
$5.70
$5.00
$4.50
90
$4.09
$4.87
$4.26
$3.99
$3.72
$3.51
$3.45
$4.00
$3.56
$3.40
$3.00
$3.42
60 $2.42
$2.33
30
$7.00
48
$2.61
$2.48
29
17
16
36 32
29
Wheat $ per bushel
$7.25
$2.00 $1.00
13
0
U.S. Wheat Ending Stocks‐to‐Use %
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
1979
1977
1975
1973
$0.00
U.S. Wheat Price
U.S. Wheat vs Corn Prices: The percentage relationship between USDA marketing year average prices for U.S. wheat and corn has been “narrowing” over the MY 2007/08 through MY 2011/12 period (Table 1). The ratio of U.S. season average wheat‐to‐corn farm prices has fallen from 164% in MY 2007/08, to 152% in MY 2008/09, to 137% in MY 2009/10, to 120% in MY 2010/11, and to 117% in MY 2011/12. However, projected prices for “new crop” U.S. MY 2012/13 wheat (for June 1, 2012 through May 31, 2013) compared to “new crop” U.S. MY 2012/13 corn (for September 1, 2012 through August 31, 2013) imply a ratio of 135%, up from 120% and 117% the previous two periods. This reversal of “trend” would indicate that corn prices are expected to be markedly lower than for wheat, and likely changes what had been the market expectation throughout the fall 2011 to approximately April 2012 period of an incentive existing in grain markets to feed wheat as a substitute replacement for corn during the June‐August 2012 period. Comments on interaction of U.S. wheat and corn prices: Throughout the winter and early spring of 2011‐2012, wheat prices were supported by record high corn prices, benefiting from being a competitive potential livestock feed substitute for feedgrains. If since mid‐2011 the wheat market would not have had such support from the U.S. corn market, it is likely that U.S. wheat prices would be markedly lower than actually occurred, given the relatively “burdensome” projections of U.S. and World wheat supply‐demand balances through that period.
U.S. Wheat Prices vs % Ending Stocks‐to‐Use: Since MY 1973/74 the relationship between U.S. wheat season average cash prices and % ending stocks‐to‐use has in general been consistent with economic theory (Figure 4). Economic theory indicates that a negative relationship exists between U.S. wheat % ending stocks‐ to‐use and U.S. season average wheat prices. In other words, larger wheat supply‐demand balances (i.e., higher percent ending stocks‐to‐use) are typically associated with lower prices, while smaller supply‐demand Page | 7
balances are usually associated with higher wheat prices – all else being equal. Wheat prices in Figure 5 are reported on a nominal basis (i.e., not adjusted for inflation). This graphic also indicates that wheat prices have moved to a higher “level” from MY 2007/08 onward (i.e., $4.87 to $7.25 /bu) than they had been in during the MY 1973/74 through MY 2006/07 period (i.e., $2.33 to $4.50 /bu.). University grain marketing economists and private grain market analysts commonly attribute higher prices for U.S. wheat to changes in wheat supply‐demand, cross‐price support from U.S. corn and soybean markets, other factors contributing to general commodity price inflation, and/or declines in the relative value of the U.S. dollar.
Figure 4. U.S. Wheat Price vs % Stocks‐to‐Use (MY 1973/74 through projected MY 2012/13) $9
Proj. 2012/13: 29.1% S/U, $6.20 /bu
$8
2008/09
$ per bushel
$7
2011/12: 32.3% S/U, $7.25/bu
2007/08
Cross Market Price Support Tight corn stocks & high corn prices since MY 2006/07 have been supporting wheat prices
$6 2010/11
$5
2009/10
$4 $3 $2 $1 $0 0
5
10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100 U.S. Wheat % Ending Stocks‐to‐Use
II. Supply‐Demand Balances for Major U.S. Wheat Classes Tables 2‐4 show U.S. hard red winter wheat, hard red spring wheat, and soft red winter wheat supply‐ demand balances for the 2007/08 through 2011/12 marketing years. USDA supply‐demand balance sheet projections for MY 2012/13 by U.S. wheat class have not yet been released.
U.S. Hard Red Winter Wheat Supply‐Demand The USDA made changes in its projection of MY 2011/12 HRW wheat supply‐demand balances in June – increasing its projection of exports and domestic food use (Table 2). For the 2011/12 marketing year, the USDA estimated total supplies of U.S. hard red winter wheat to be 1.167 bb, based on the sum of beginning stocks of 386 mb, production of 780 mb, and imports of 1 mb. Total use of 843 mb (up 12 mb from May and 27 mb from April) is comprised of food use of 397 to 399 mb (up 4 to 6 mb from a month ago), seed use of 34 mb, exports of 401 mb (up 6 mb from a month ago), and feed and residual use of 10 to 12 mb. Page | 8
The USDA has projected MY 2011/12 U.S HRW wheat ending stocks to be 324 mb (38.4% S/U) – down from 336 mb (40.4% S/U) in the May WASDE report. This is the lowest U.S. HRW wheat ending stocks level in 3 years, compared to 386 mb (37.9% S/U) in MY 2010/11, 385 mb (48.7% S/U) in MY 2009/10, 254 mb (27.6% S/U) in MY 2008/09, and to extremely tight supplies in MY 2007/08 of 138 mb (14.0% S/U).
Table 2. U.S. Hard Red Winter Wheat S‐D Balance Sheet: MY 2007/08 through MY 2011/12 (June 12, 2012 USDA WASDE Report) Item Planted Area (million acres) Harvested Area (million acres) Yield per harvested acre (bushels/acre) Beginning Stocks Production Imports Total Supply Food Use Seed Use Exports Feed & Residual Total Use Ending Stocks % Ending Stocks‐to‐Total Use U.S. HRW Avg. Farm Price ($/bushel) % U.S. HRW / U.S. All Wheat Price
2007/08 33.0 25.7 37.2
2008/09 31.3 25.9 39.9
165 956 1 1,121 397 35 536 15 984 138 14.0% $6.15 94.9%
138 1,035 2 1,174 385 35 447 52 919 254 27.6% $6.90 101.8%
2009/10 31.7 24.1 38.1
2010/11 28.6 24.0 42.4
2011/12 28.5 21.4 36.4
385 1,018 1 1,404 359 32 616 11 1,018 386 37.9% $6.49 113.9%
386 780 1 1,167 397 to 399 34 401 10 to 12 843 336 38.4%
million bushels
254 920 2 1,176 361 32 370 28 791 385 48.7% $4.84 99.4%
‐‐‐ ‐‐‐
2012 HRW Wheat Harvest Progress As the 2012 harvest in Kansas approaches 60‐75% completion, reports indicate varying yields and protein quality. Current year wheat production prospects have declined in recent weeks due to ongoing drought and extreme weather conditions in parts of western and central Kansas, as well as because of widespread wheat disease problems. Earlier prospects and projections from the early April 2012 Kansas wheat tour now seem optimistic (i.e., 400+ mb for Kansas) given the negative turn in wheat growing conditions that has occurred in some regions of the state. USDA HRW wheat projections to be released in coming months seem likely to not indicate growth in supply‐demand balances as was the general market consensus just weeks ago. Wheat protein and test weight levels are similar to last year for the 2012 HRW crop according to U.S. Wheat Associates harvest reports (source: http://www.uswheat.org/reports/harvest). In its June 8th report, U.S. Wheat Associates indicated: “Protein took a big jump this week (now 12.4% overall average, up from 11.8% last week) as data is now being received from southern and western Kansas. Test weights dropped slightly, but are still well above 60 pounds per bushel. Dockage and total defects dropped this week.” In general, drier growing conditions encourage higher protein levels in hard red winter wheat, and early harvest reports have indicated at least “decent” protein levels for the Texas, Oklahoma and southern Kansas for the 2012 wheat harvest. Remaining uncertainty about 2012 Kansas wheat production will be largely resolved in the next few weeks.
Page | 9
U.S. Hard Red Spring Wheat Supply‐Demand The USDA’s “tightened” its June projection of MY 2011/12 U.S. hard red spring wheat supply‐demand balances – making marginal increases in its projection of exports and food use, with accompanying decreases in ending stocks from the previous month (Table 3). In the 2011/12 marketing year, the USDA projects total supplies for U.S. hard red spring wheat to be 618 mb (down 2 mb from last month), based on beginning stocks of 185 mb, production of 398 mb, and imports of 35 mb (down 2 mb). Total use of 486 mb (up 9 mb from a month ago) is comprised of food use of 218 to 221 mb, seed use of 19 to 22 mb, exports of 246 mb (up 6 mb), and no appreciable feed and residual use. The USDA has projected MY 2011/12 U.S HRS wheat ending stocks of 131 mb (27.0% S/U), down from 143 mb (30.0% S/U) in the May WASDE report. Just as for U.S. HRW wheat, this level of U.S. HRS wheat ending stocks is projected to be the lowest in 3 years, compared to 185 mb (28.6% S/U) in MY 2010/11; 234 mb (47.1% S/U) in MY 2009/10; 142 mb (29.4% S/U) in MY 2008/09; and to the extremely tight supplies of 68 mb (12.4% S/U) in MY 2007/08.
Table 3. U.S. Hard Red Spring Wheat S‐D Balance Sheet: MY 2007/08 through MY 2011/12 (June 12, 2012 USDA WASDE Report) Item Planted Area (million acres) Harvested Area (million acres) Yield per harvested acre (bushels/acre) Beginning Stocks Production Imports Total Supply Food Use Seed Use Exports Feed & Residual Total Use Ending Stocks % Ending Stocks‐to‐Total Use U.S. HRS Avg. Farm Price ($/bushel) % U.S. HRS / U.S. All Wheat Price
2007/08 12.7 12.4 36.3
2008/09 13.5 12.8 39.9
2009/10 12.6 12.3 44.5
2010/11 13.0 12.6 45.1
2011/12 11.6 11.3 35.9
234 570 28 832 247 14 339 46 647 185 28.6% $6.54 114.7%
185 398 35 618 218 to 221 19 to 22 246 ‐‐ 486 131 27.0%
million bushels
117 450 48 615 233 20 304 ‐11 547 68 12.4% $7.16 110.5%
68 512 45 625 224 17 210 32 483 142 29.4% $7.39 109.0%
142 548 41 731 239 17 214 27 497 234 47.1% $5.26 108.0%
‐‐‐ ‐‐‐
U.S. HRS Wheat Production Prospects in 2012 At this early stage of the U.S. HRS wheat growing season, seeding and emergence are running well ahead of the five year average pace in most northern plains and northern mountain region states. Also, spring wheat condition ratings are indicating no real areas of significant crop stress at this time. Current prospects are for a recovery from 2011’s low yield of 35.9 bu per acre back up to 40‐45 bushels /ac in 2012. In its March 30th Prospective Plantings report, USDA NASS projected that area planted to other spring wheat for 2012 is estimated at 12.0 million acres, down 3 percent from 2011. Of this total, about 11.3 million acres are Hard Red Spring wheat. The question remains as to whether potentially higher 2012 HRS wheat yields will more than offset lower HRS wheat planted acres in the determination of 2012 U.S. HRS wheat production. Page | 10
U.S. Soft Red Winter Wheat Supply‐Demand The USDA made notable changes in its estimates of MY 2011/12 U.S. soft red winter wheat supply‐demand balances in its June report – increasing exports and total use which led to a decline in estimated ending stocks. Over the past year, U.S. soft red winter wheat production jumped dramatically to 458 mb in 2011, which was up from 237 mb in 2010. The U.S. SRW wheat 2011 production estimate of 458 mb is the highest level since 614 mb in 2008 (Table 4). In the 2011/12 marketing year, the USDA estimates total supplies for U.S. soft red winter wheat to be 666 mb (up 4 mb from May), based on beginning stocks of 171 mb, 2011 production of 458 mb, and imports of 37 mb (up 4 mb). Total supplies of 666 mb in MY 2011/12 are up from 508 mb in MY 2010/11 and 607 mb in MY 2009/10, but still below 702 mb in MY 2008/09. Total use of 471 mb (up 10 mb from May and 20 mb from April) is comprised of food use of 155 mb, seed use of 16 mb, exports of 165 mb, and feed and residual use of 135 mb. Exports of 165 mb in MY 2011/12 are up 10 mb from May, up from 20 mb from April and up 35 mb from March. The June export estimate of 165 mb for MY 2011/12 compares to 109 mb in both MY 2010/11 and MY 2009/10, but is down from 199 and 208 mb in MY 2008/09 and MY 2007/08, respectively. Feed & residual usage of 135 mb in MY 2011/12 is up 19 mb from the March WASDE report, and compares to 62 mb in MY 2011/12 and 90 mb in MY 2009/10, but still less than 161 mb in MY 2008/09. The USDA has projected MY 2011/12 U.S SRW wheat ending stocks to be 194 mb (41.2% S/U). The June ending stocks estimate of 194 mb is down from 201 mb (43.6% S/U) in May, and is down markedly from 243 mb (58.4% S/U) in the March WASDE. It also compares to 171 mb (37.9% S/U) in MY 2010/11 and 242 mb (48.7% S/U) in MY 2009/10.
Table 4. U.S. Soft Red Winter Wheat S‐D Balance Sheet: MY 2007/08 through MY 2011/12 (June 12, 2012 USDA WASDE Report) Item Planted Area (million acres) Harvested Area (million acres) Yield per harvested acre (bushels/acre) Beginning Stocks Production Imports Total Supply Food Use Seed Use Exports Feed & Residual Total Use Ending Stocks % Ending Stocks‐to‐Total Use U.S. SRW Avg. Farm Price ($/bushel) % U.S. SRW / U.S. All Wheat Price
2007/08 8.6 7.0 50.0
2008/09 11.2 10.1 60.9
2009/10 8.3 7.2 56.1
2010/11 5.3 4.4 54.3
2011/12 8.6 7.4 61.7
242 237 29 508 150 16 109 62 337 171 37.9% $5.16 90.5%
171 458 37 666 155 16 165 135 471 201 43.6%
million bushels
109 352 14 475 150 21 208 41 420 55 14.0% $5.20 80.2%
55 614 34 702 155 16 199 161 531 171 27.6% $5.78 85.3%
171 404 32 607 156 10 109 90 365 242 48.7% $4.35 89.3%
‐‐‐ ‐‐‐
U.S. SRW Wheat Production and Supply‐Demand Prospects in 2012 With the 2012 U.S. SRW wheat crop advancing toward summer harvest, crop condition ratings in major states are generally fair‐to‐good to‐excellent. The USDA projected 2012 U.S. SRW wheat seeded acreage to be Page | 11
approximately 8.4 million, down marginally from 8.56 million in 2011. Prospects for the 2012 U.S. SRW crop still are uncertain – but a major crop shortfall in 2012 seems unlikely at this point in time. Market expectations in summer 2011 were that feed usage of U.S. SRW wheat in MY 2011/12 would be markedly higher given the tightness of U.S. corn supply‐demand balances in the current marketing year. It is still possible that increases in U.S. SRW wheat feeding could occur in June‐August 2012 if the availability of “old crop” U.S. corn supplies were to tighten markedly, and if it turns out that a substantial amount (50‐100 mb) of U.S. SRW wheat has been used in ethanol production in MY 2011/12.
III. World Wheat Supply‐Demand Trends Consistent growth in World wheat usage since MY 2007/08 has occurred in spite of periods of record high prices in MY 2007/08‐MY 2008/09 and again in MY 2011/12 (Figure 5). However, USDA forecasts for MY 2012/13 project that for the first time in several years World wheat usage will be down marginally – primarily because of lower projected production. Overall, foreign wheat production and exports are projected to decline markedly in MY 2012/13 as opposed to in MY 2011/12. Foreign wheat production is projected to be 611.3 mmt in MY 2012/13, down from 5.2 mmt from May, and compares to 639.8 mmt in MY 2011/12 and 591.1 mmt in MY 2010/11. Foreign wheat trade for MY 2012/13 is projected to be 104.1 mmt, down 1.6 mmt from May; down sharply from 120.0 mmt in MY 2011/12; but up from 97.4 mmt in MY 2010/11.
Figure 5. World Wheat Usage & Ending Stocks: MY 2007/08 thru MY 2012/13
(June 12, 2012 USDA WASDE Report)
Million Metric Tons
1,200 Production 651‐695 mmt since 2008/09 683 686 612
651
694 672
End Stocks 185.8 mmt in 2012/13 lowest since 2008/09
Wheat Usage ×11.3 mmt/yr (+1.8%/yr) since 2007/08 614 637
650 654
690 682
600
Up 57.6 mmt (+45%) since 30 year low in MY 2007/08
Wheat Trade 132‐144 mmt since 2008/09
117 145 137 132
149 135
128
168
201 197 196 186
0
Production
MY 2007/08
MY 2008/09
Usage
MY 2009/10
Trade
MY 2010/11
End Stocks
MY 2011/12
MY 2012/13
World Wheat Production Global wheat production in MY 2012/13 is projected to be 672.1 mmt, dpwm 5.5 mmt from May, and down from 694.2 mmt in MY 2011/12, and is within the range of 612‐686 mmt over the MY 2007/08 through MY 2010/11 period (Figure 5). World wheat production is projected to increase by an annual average of 1.6% or 10.0 mmt per year from MY 2007/08 through MY 2012/13.
Page | 12
Lower MY 2012/13 wheat production is projected for a) the EU‐27 (131.1 mmt, down 1.0 mmt from May and down 6.4 mmt versus last year), b) Russia (53.0 mmt, down 3 mmt vs May and down 3.2 mmt vs last year), c) Australia (26.0 mmt, down 3.5 mmt vs last year), d) Pakistan (23.0 mmt, down 1.2 mmt vs last year), e) Turkey (16.5 mmt, down 2.3 mmt vs last year), f) Kazakhstan (15.0 mmt, down 7.7 mmt vs a year ago), g) Ukraine (13.0 mmt, down 9.1 mmt vs last year), and h) Argentina (12.0 mmt, down 2.5 mmt vs last year). Higher MY 2012/13 wheat production is projected for a) China (120.0 mmt, up 2.6 mmt vs last year), b) India (91.0 mmt, up 4.1 mmt vs last year), c) the United States (60.8 mmt, down 1.3 mmt vs May, and up 6.4 mmt vs last year), and d) Canada (27.0 mmt, up 1.7 mmt vs last year).
World Wheat Use Global wheat usage in MY 2012/13 is projected to be 681.9 mmt, down from 695.8 mmt in MY 2011/12, and is markedly above the range of 614 – 654 mmt over the MY 2007/08 through MY 2010/11 period (Figure 5). World wheat total use is projected to increase by an annual average of 1.8% or 11.3 mmt per year from MY 2007/08 through MY 2012/13. The 27 countries included in the European Union (EU‐27) are projected to be the largest domestic users of wheat (123.3 mmt), followed by 2) China (122.0 mmt), 3) India (85.5 mmt), 4) North Africa (40.9 mmt), 5) Russia (37.9 mmt), 6) the United States (33.7 mmt), 7) selected Middle Eastern Countries (31.7 mmt), 8) Pakistan (23.2 mmt), 9) Southeast Asia (15.6 mmt), 10) Ukraine (11.7 mmt), 11) Brazil (11.0 mmt) and 12) Kazakhstan (8.5 mmt).
World Wheat Exports Projected World wheat exports of 135.4 mmt in MY 2012/13 are down from 148.8 mmt in MY 2011/12, and compare to 132.4 mmt in MY 2010/11. Larger exports in MY 2012/13 are projected for 1) the United States (31.3 mmt, up from 28.7 mmt last year), 2) Canada (18.5 mmt, vs 17.3 mmt last year), and 3) India (2.5 mmt, vs 0.75 mmt last year). Smaller exports in MY 2012/13 are projected for 1) Australia (20.5 mmt, vs 22.5 mmt last year), 2) Russia (16.0 mmt, down 2.0 mmt vs May, and down from 21.0 mmt last year), 3) the EU‐27 (14.5 mmt, vs 16.2 mmt last year), 4) Kazakhstan (8.5 mmt, vs 11.0 mmt last year), 5) Argentina (6.2 mmt, down 0.3 mmt from May and down from vs 10.1 mmt last year), 6) Ukraine (4.0 mmt, vs 5.0 mmt last year), and 7) Brazil (0.5 mmt, vs 2.0 mmt last year). Comments on U.S. competitor’s wheat export prospects: Potential weather‐related wheat production problems in parts of eastern Europe and the Black Sea countries as well as in western European wheat regions and parts of Australia may lead to further reductions in projected wheat production and exports from these regions in coming USDA WASDE reports. As in past years, there is the risk that government policies in the Black Sea region regarding exports of wheat and other grains may impact World wheat and grain markets should these governments become concerned about having adequate domestic supplies. The relative abundance of feed quality wheat in MY 2011/12 is “fortuitous” for World grain markets, since in MY 2011/12 many countries usee lower cost, more readily available livestock feed alternatives such as wheat instead of higher priced / less available corn and other coarse grains.
World Wheat Imports Projected World wheat imports of 135.3 mmt for MY 2012/13 are down from 143.0 mmt in MY 2011/12, but up from 131.7 mmt in MY 2010/11. Smaller imports in MY 2011/12 are projected for 1) North African countries – including Egypt and Libya (23.0 mmt vs 23.5 mmt last year), 2) Southeast Asian countries – including Indonesia, the Philippines, Thailand and Vietnam (15.4 mmt, vs 16.3 mmt last year), 3) selected Middle Eastern countries – including Iraq, Iran, Page | 13
Saudi Arabia and Israel (15.20 mmt, vs 15.25 mmt last year)2) Brazil (6.7 mmt, vs 7.3 mmt last year), 4) other Former Soviet Union countries – excluding Russia, Kazakhstan and the Ukraine (6.3 mmt, vs 6.9 mmt last year), 5) the EU‐27 (5.5 mmt, vs 7.5 mmt last year) and 6) China (2.5 mmt, vs 3.0 mmt last year).
World Wheat Ending Stocks & % Ending Stocks‐to‐Use Ending Stocks: The USDA projected World wheat ending stocks to be 185.8 mmt in MY 2012/13 (Figure 6). This is down 2.4 mmt from May, and down from its estimate of 195.6 mmt for MY 2011/12 and from 197.2 mmt in MY 2010/11. The USDA has been reducing its projections of World ending stocks for “old crop” MY 2011/12 over the last several months, starting with a projection of 209.6 mmt in March, 206.3 mmt in April, 197.0 in May, and now 195.6 mmt in June. These changes in “old crop” MY 2011/12 World wheat ending stocks were spurred primarily by increasing World wheat exports. % Ending Stocks‐to‐Use: The USDA also projected that % ending stocks‐to‐use for MY 2012/13 will be 27.2%. This projection is down from 28.3% for MY 2011/12, and from 30.2% for MY 2010/11, and would be the lowest since 26.4% in MY 2008/09. The tightest supply‐demand balances in the World wheat market since at least the early 1970’s occurred in MY 2007/08, with ending stocks declining down to 128.2 mmt in ending stocks and to 20.9% in % ending stocks to use.
Page | 14
