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USDA Wheat Outlook

13 February 2012

USDA Wheat Outlook - February 2012USDA Wheat Outlook - February 2012

U.S. wheat ending stocks for 2011/12 are projected lower this month. Exports are raised 25 million bushels supported by the stronger-than-expected pace of sales and shipments, particularly for competitively priced feed-quality wheat.
USDA Wheat Outlook

U.S. Exports Are Raised, Dropping Ending Stocks

Projected exports of soft red winter and white wheat are each raised 15 million bushels on strong demand from Mexico and South Korea. Exports are also projected higher for hard red winter wheat, up 5 million bushels, based on sales and shipments to date. Projected hard red spring wheat exports are lowered 10 million bushels as strong domestic premiums for spring wheat continue to limit demand. Ending stocks for all wheat are projected 25 million bushels lower at 845 million. Based on prices reported to date and the lower expected carryout, the 2011/12 projected season-average farm price is raised 20 cents on the bottom end of the range to $7.15 to $7.45 per bushel.

World wheat production for 2011/12 is projected up 1.4 million tons this month, pushing the historical record even further. Projected global stocks are up beating the historical record of 1999/00. Projected global wheat trade is up, while strong demand and ongoing sales and shipments of wheat are boosting prospects for U.S. wheat exports this month despite record-high season average prices.

Domestic Situation and Outlook

2011/12 Supplies

Total projected supplies for 2011/12, at 2,982 million bushels, are unchanged from January. Supplies for 2011/12 are 297 million bushels below 2010/11. Lower beginning stocks and production were only slightly offset by higher expected imports year to year.

Projected supplies of hard red winter (HRW), hard red spring (HRS), and durum are down year to year, mostly because of reduced production. HRW production is down from last year because of reduced harvested area and lower yields. Year to year, the planted area for the 2011 HRW crop is slightly smaller than 2010, but the rate of abandonment is up sharply and yields are down from the previous year due to the severe drought on the Central and Southern Plains. HRS and durum production are down from a year ago with lower planted and harvested areas and lower yields. Excessive moisture and cool temperatures on the Northern Plains resulted in late seeding and prevented plantings. The 2011 HRS crop was reduced by a greater percentage from 2010 than the HRW crop. The result is a substantial premium of HRS over HRW and a substitution of HRW for HRS in some flour blends.

Projected supplies of soft red winter (SRW) and white are up from 2010/11, mostly because of larger production. SRW production is up from last year because of larger harvested area and higher yields. The 2011 crop area recovered from 2010, when a rain-delayed row-crop harvest and low prices reduced SRW seedings in the fall of 2009. Due to excellent weather conditions through much of the season, production was up significantly from the previous year, with production in many of the SRW States up more than 100 percent from 2010. White wheat production was up due to both higher area and yield.

All-wheat 2011 production is estimated at 1,999 million bushels, unchanged from January, but down 208 million bushels from 2010. All-wheat harvested area is estimated at 45.7 million acres, unchanged from December and down 1.9 million acres from last year. The U.S. all-wheat estimated yield is 43.7 bushels per acre for 2011, unchanged from December, but down 2.6 bushels from the record high of 46.3 bushels in 2010.

Projected all-wheat imports for 2011/12 are unchanged from January, but up 23 million bushels year to year, mostly due to higher HRS and durum imports. Imports of HRS and durum are projected higher year to year because of tighter U.S. supplies for these classes of wheat.

Estimated 2011/12 carryin stocks, in total and by class, are unchanged from January. Projected 2011/12 carryin stocks of HRS and SRW are down sharply year to year. The carryin stocks for the other classes are nearly unchanged.

2011/12 Use

Domestic use of wheat for 2011/12 is projected at 1,162 million bushels, unchanged from January, but 34 million bushels higher than last year. Food use for 2011/12 is projected at 935 million bushels, unchanged from January, but up 9 million bushels from 2010/11. Projected seed use is unchanged from January. Feed and residual use is projected at 145 million bushels, also unchanged from January. Projected feed and residual use for 2011/12 is 13 million bushels above feed and residual use for 2010/11.

Projected exports for 2011/12 are up 25 million bushels from January based on continued strength in shipments and sales, particularly for competitively priced feed-quality wheat. At 975 million bushels, projected exports are down 314 million bushels from 2010/11 because of higher production in several major exporting countries and relatively high U.S. prices.

The by-class export changes this month are: HRW, up 5 million bushels; HRS, down 10 million bushels; SRW, up 15 million bushels; and white, up 15 million bushels. Exports of durum are unchanged. These by-class changes are based on the pace of sales and shipments to date and expectations for continued strong demand for SRW and white wheat by foreign feeders as corn prices remain relatively strong.

Projected total U.S. ending stocks for 2011/12, at 845 million bushels, are down 25 million bushels from January and down 17 million bushels from 2010/11.

All wheat ending stocks are expected to be down 2 percent from 2010/11. Durum, HRS, and HRW ending stocks are projected down from 2010/11 by 34 percent, 19 percent, and 14 percent, respectively. SRW and white ending stocks are projected up from 2010/11 by 42 percent and 14 percent, respectively.

2011/12 Price Range Is Narrowed

The 2011/12 season-average farm price range is projected at $7.15 to $7.45 per bushel, up 20 cents on the lower side of the January range of $6.95 to $7.45. The higher midpoint of the range this month is $7.30 per bushel based on recent farm prices reported for wheat and expected corn prices for the remainder of the June-May wheat marketing year. This compares with $5.70 for the previous year and the record high of $6.78 for 2008/09.

Current Winter Wheat Crop Conditions Better Than Last Year

Winter wheat crop conditions in the Central and Southern Plains are better this year than last year at this time. In the Central Plains, Nebraska’s winter wheat crop at the end of January 2012 rated 65 percent good to excellent and only 3 percent poor to very poor. A year ago at this time, 41 percent of the crop was rated good to excellent and 15 percent poor to very poor. In Kansas, 49 percent of the State’s winter wheat crop rated good to excellent and 12 percent poor to very poor. Last year at this time, 27 percent of the Kansas crop was rated good to excellent and 37 percent poor to very poor.

In the Southern Plains, Oklahoma’s winter wheat crop at the end of January 2012 rated 54 percent good to excellent and 9 percent poor to very poor. A year ago at this time, 21 percent of the crop was rated good to excellent and 40 percent poor to very poor. In Texas, 26 percent of the State’s winter wheat crop rated good to excellent and 38 percent poor to very poor. Last year at this time, 17 percent of the Texas crop was rated good to excellent and 52 percent poor to very poor.

In the SRW States that report monthly conditions, wheat is in substantially better shape than a year ago at this time. In Illinois, 75 percent of the winter wheat crop was in good to excellent condition as of the end of January with only 3 percent reported as poor to very poor. Last January, 45 percent of the crop was good to excellent and 19 percent poor to very poor. In North Carolina, 84 percent of this year’s winter wheat was reported as good to excellent and 1 percent as poor to very poor. Last year at the same time, 53 percent of the North Carolina crop was good to excellent and 9 percent poor to very poor.

USDA Wheat Baseline, 2012-21

Each year, USDA updates its 10-year projections of supply and utilization for major field crops grown in the United States.

International Situation and Outlook

World Wheat Production Increased This Month

Projections for 2011/12 world wheat production continue to increase. Wheat output is projected up 1.4 million tons this month to 692.9 million, pushing the historical record even further. All changes for 2011/12 world wheat production resulted from the latest government statistical reports and update harvests that were completed a while ago. India’s 2011/12 wheat production is up this month 0.9 million tons to 86.9 million following the government announcement. Wheat production is also up in Kazakhstan and Morocco, 0.2 million tons each, to 22.7 and 6.0 million, respectively, reflecting the latest official reports and revisions.

Global Wheat Consumption Down Slightly, Stocks Record High

Beginning 2011/12 wheat stocks added another 0.8 million tons to supplies this month. The Kazakhstan wheat consumption and stocks’ series for several years was revised, with an extra 0.6 million tons of wheat going into the country’s 2011/12 beginning stocks. A higher estimate for Chilean 2010/11 wheat imports boosted Chile’s 2011/12 beginning stocks by 0.1 million tons. A very small adjustment of wheat beginning stocks is also made for Canada.

Projected global 2011/12 wheat consumption is down 1.0 million tons to 680.5 million. Food, seed and industrial (FSI) use is down 1.1 million tons this month. The largest change is for India, down 1.6 million tons to 82.9 million, reflecting a lackluster pace of domestic demand for wheat in one of the world’s largest wheat-consuming countries. India’s projected consumption is still up 1.2 million tons on the year, but not enough to maintain stable per capita consumption of wheat. In a country that ranks 67th out of 122 developing countries, according to the Global Hunger Index, and where an estimated 20 percent of its 1.2 billion population is undernourished, the Government is trying to strengthen the safety net for the poor and increase per capita consumption. These interventions have so far proved both inefficient and ineffective, and a new food security bill is currently under consideration that could increase, or at least maintain, per capita consumption for staple foods in India. Partly offsetting are several small upward adjustments for FSI use in Australia, Chile, Ethiopia, and Kazakhstan, up 0.1 million tons each.

World feed and residual consumption is raised slightly this month, up 0.1 million tons to 130.7 million. Feed and residual, however, is up sharply on the year increasing 18.2 million tons from 2010/11. For 2011/12 this month, a 1.0-million-ton reduction in Kazakh wheat feed and residual use (a result of already mentioned revision of the series for wheat consumption and stocks for the last 3 years) is more than offset by increased feed consumption in several countries. In Ukraine, where poultry production is showing robust growth on the year, feed consumption is projected up 0.4 million tons to 4.6 million. Feed wheat consumption is also up in Saudi Arabia by 0.3 million tons to 0.35 million because of an unusual increase in feed-quality wheat imports mainly from Ukraine. Feed consumption is up 0.2 million tons in both Canada and in Mexico. Canada has an abundance of low quality wheat that faces tough competition in world markets from the EU, Russia, and Ukraine. Reduced export prospects and lower domestic wheat prices make feeding more attractive, and as a result, more low quality wheat is projected to be used domestically as feed, causing an increase of 5 percent. In Mexico, higher imports of competitively priced soft red winter and white wheat from the U.S. are attractive partly because of tight supplies of U.S. sorghum.

World wheat ending stocks are projected up 3.1 million tons to 213.1 million this month, beating a historical record of 1999/00 by 2.4 million tons. Stocks are up because of an increase in global wheat production and a drop in consumption. The largest increases occur in India and Kazakhstan, up 2.9 and 1.8 million tons, respectively. In both countries, a combination of increased supplies and lower-than-expected wheat consumption (and also lower exports by India) resulted in a rise in the countries’ stocks. Stocks are also up 0.6 million tons in Ukraine following lower projected exports that are partly offset by increased feeding. In Canada, Chile, and Morocco, stocks are up for a total of 0.6 million tons as a result of trade (Canada and Chile) and production (Morocco) changes.

Reduced stocks are projected this month for Russia (down 1.0 million tons), Argentina (down 0.5 million tons), Brazil (down 0.5 million tons), and United States (0.7 million tons), due to higher projected exports. Australian stocks are reduced slightly due to increased food and industrial consumption.

U.S Exports and World Wheat Trade Up This Month

World wheat trade for July-June international trade year 2011/12 is projected up 0.7 million tons to reach 138.8 million tons this month. Export prospects for Russia are increased 1.0 million tons to 20.5 million. The country has already shipped more than 16 million tons of wheat, and despite logistical difficulties associated with wintry weather, the country is on track to export another 1.5 million tons in February. The Government has alleviated fears that grain export duties would be imposed in the near future when it recently raised its maximum target for all grain exports from 24 to 27 million tons, well above the level currently expected. The Russian Government now appears confident that domestic needs will not be threatened even with an additional 3 million tons of exports. In both Argentina and Brazil, wheat exports are up 0.5 million tons each. Argentine wheat exports are projected to reach 9.7 million tons as the pace of shipments is strong, and the Argentine Government has indicated that its grain export controls could become more predictable and less binding for the farmers anytime soon. Brazilian wheat exports are projected 100 percent higher at 1.0 million tons. The country has an excess of low-quality wheat that does not meet domestic milling requirements. The Brazilian Government provides export assistance via its auction program, the so called PEP, and appears to have secured sales of feed wheat to EU-27.

Exports prospects for Ukrainian wheat decreased 1.0 million tons to 6.0 million, as the pace of shipments continue to lag behind. Bureaucratic barriers and severe winter conditions–low temperatures, high winds and ice in the ports–have been identified as the main obstacles to exporting wheat. However, those hurdles have not impeded corn exports that gallop ahead at a pace unheard of before. With wheat stocks projected at more than double the country’s 10-year average, there seem to be no economic reasons for the current scale of wheat exports. The reasons might lie in the murkier area of nonofficial agreements between the Government and the State trade companies. It appears that those companies have been given the green light to export corn because supplies are ample, and high corn output is widely expected in 2012 as most wheat fields damaged by winterkill will be re-seeded with corn. At the same time, an unofficial lid has likely been applied to wheat exports as–quite opposite to corn–wheat is expected to be in short supply next season following substantial damage to winter crops.

Canadian wheat exports are projected down 0.5 million tons to 17.5 million, as the pace of exports this year is lagging behind the 5-year average of 18.0 million tons. As was mentioned above in the consumption section, Canada has been somewhat behind in a competitive battle with other feed wheat suppliers (mainly EU-27, Russia, and Ukraine). Another reason for this comparatively slow export pace could be that the Canadian Wheat Board has been marketing its high-quality wheat less aggressively (not willing to lower prices) in order to maintain a price premium at a time of strong demand for high-quality wheat varieties. Wheat exports are also projected down for India by 0.3 million tons to 0.7 million, as wheat appears to be uncompetitive for private exporters, while exports under government direct agreements are estimated at only 0.1 million tons.

Imports are adjusted up for a total of 0.7 million tons for several countries this month, mostly based on the pace of recent sales and shipments. Saudi Arabian and Mexican wheat import prospects are increased 0.3 and 0.2 million tons to 2.3 and 4.2 million, respectively, reflecting higher feed-wheat demand, as already mentioned above in the discussion involving feed-wheat consumption. Imports are up 0.1 million tons for Chile based on increase of wheat products (pasta) imports, and for Ethiopia reflecting an increase in food aid.

The recent pace of U.S. sales and shipments of wheat supports a 0.5-million-ton increase in exports to 25.5 million for the international July-June trade year (up 25 million bushels to 975 million for the June-May local marketing year). Despite recent price increases that have made higher quality U.S. wheat less competitive in price-sensitive markets, the United States continues to sell additional exports to traditional customers like Japan and Mexico. U.S. feed-quality wheat also remains competitive with corn in many traditional U.S. corn export markets. With commitments (shipments plus outstanding sales) just over 22 million tons as of February 2, even a slow pace of additional sales will bring 2011/12 U.S. wheat exports to 25.5 million tons, down 10.5 million tons, or 29 percent on the year.

February 2012

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