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USDA Wheat Outlook

14 March 2012

USDA Wheat Outlook March 2012USDA Wheat Outlook March 2012

U.S. wheat ending stocks for 2011/12 are projected 20 million bushels lower this month as lower food use is more than offset by higher exports. Projected food use is lowered 5 million bushels reflecting the latest flour production data reported by the North American Millers’ Association.
USDA Wheat Outlook

Exports are projected 25 million bushels higher based on shipments and sales to date. Projected exports of hard red spring and white wheat are each raised 10 million bushels. Projected durum exports are raised 5 million bushels. Prices received by producers for the 2011/12 marketing year are projected at $7.15 to $7.45 per bushel, unchanged from last month.

U.S. wheat exports are up by 1.0 million tons this month to 26.5 million, as the pace of exports and sales has increased in recent months. World wheat trade is up 3.0 million tons this month. Wheat exports from Australia, Brazil, Kazakhstan, Turkey and Serbia are boosted. Global ending stocks are down 3.5 million tons mostly due to a 3.5-million-ton reduction in stocks for China. Global wheat production for 2011/12 is projected up 1.1 million tons to 694.0 million tons, with an upward revision for Australia.

Domestic Situation and Outlook

2011/12 Supplies

Total projected supplies for 2011/12, at 2,982 million bushels, are unchanged from February. 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 February, 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 February, 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 February. 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 1,157 million bushels, down 5 million bushels from February because of lower food use, but 29 million bushels higher than last year. Food use for 2011/12 is projected at 930 million bushels, down 5 million bushels from February based on the recently released flour production report by the North American Millers’ Association (see section below for per capita flour use for calendar year 2011). Projected food use for 2011/12 is up 4 million bushels from 2010/11. Projected seed use is unchanged from February. Feed and residual use is projected at 145 million bushels, also unchanged from February. 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 February based on continued strength in shipments and sales, particularly for competitively priced feed-quality wheat. At 1,000 million bushels, projected exports are down 289 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: HRS, up 10 million bushels; white, up 10 million bushels; and durum, up 5 million bushels. Exports of HRW and SRW are unchanged. These byclass changes are based on the pace of sales and shipments to date and expectations for continued strong demand.

Projected total U.S. ending stocks for 2011/12, at 825 million bushels, are down 20 million bushels from February and down 37 million bushels from 2010/11.

All wheat ending stocks are expected to be down 4 percent from 2010/11. Durum, HRS, and HRW ending stocks are projected down from 2010/11 by 48 percent, 24 percent, and 13 percent, respectively. SRW and white ending stocks are projected up from 2010/11 by 42 percent and 2 percent, respectively.

2011/12 Price Range Is Unchanged

The 2011/12 season-average farm price range is projected at $7.15 to $7.45 per bushel, unchanged February. This compares with $5.70 for the previous year and the record high of $6.78 for 2008/09.

2011 Per Capita Flour Use Down From 2010

Per capita all-wheat flour use for 2011 is estimated at 132.5 pounds. Per capita flour use dropped 2.3 pounds from the 2010 estimate and is now down 5.8 pounds from 2007, a recent peak (see fig. below). Historically, per capita flour use has not been this low since the 1989 level of 129.8 pounds. The 2011 per capita food use is down 13.8 pounds from the 2000 level when flour use started dropping sharply, apparently due to increased consumer interest in low-carbohydrate diets.

US Per Capita Wheat Flour Use, 1964-2011

Current Winter Wheat Crop Conditions Better Than Last Year

Winter wheat crop conditions in the Central and Southern Plains are better than last year at this time. In the Central Plains, Nebraska’s winter wheat crop at the end of February 2012 rated 65 percent good to excellent and only 6 percent poor to very poor. A year ago at this time, 40 percent of the crop was rated good to excellent and 13 percent poor to very poor. In Kansas, as of March 5, 50 percent of the State’s winter wheat crop rated good to excellent and 12 percent poor to very poor. Last year at this time, 25 percent of the Kansas crop was rated good to excellent and 40 percent poor to very poor.

In the Southern Plains, Oklahoma’s winter wheat crop, as of March 5, rated 62 percent good to excellent and 9 percent poor to very poor. A year ago at this time, 22 percent of the crop was rated good to excellent and 41 percent poor to very poor. As of March 5 in Texas, 33 percent of the State’s winter wheat crop rated good to excellent and 39 percent poor to very poor. Last year at this time, 18 percent of the Texas crop was rated good to excellent and 56 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, 81 percent of the winter wheat crop was in good to excellent condition as of the end of February with only 2 percent reported as poor to very poor. Last February, 36 percent of the crop was good to excellent and 18 percent poor to very poor. In North Carolina, 80 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, 59 percent of the North Carolina crop was good to excellent and 8 percent poor to very poor.

International Situation and Outlook

World Wheat Production Gets Even Larger

Projected 2011/12 world wheat production is up 1.1 million tons this month to 694.0 million, further raising the historical record. In Australia, 2011/12 production is up 1.2 million tons to 29.5 million this month, and up 1.6 million tons on the previous year’s record. The harvest in Australia is virtually complete. The increase reflects the latest estimates of the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), a research bureau within the Australian Department of Agriculture, which took stock of near-perfect conditions throughout the growing season in Western Australia (WA). Record wheat yields and production in WA are the main drivers behind the country’s new record. Compared to the previous drought-stricken year, wheat output in WA in 2011/12 more than doubled, increasing by 135 percent, and is almost double the 5-year average. Abundant growing-season precipitation in the eastern States generated very high yields in that part of the country as well (second record yields in New South Wales and South Australia); however, heavy rainfall lasted through harvest time and resulted in reportedly lower wheat quality.

Several other small production changes reflect official revisions and are offsetting. Mongolian wheat production is up 0.2 million tons to 0.4 million, while wheat output in Bangladesh and Kyrgyzstan are down 0.1 million tons each, to 1.1 and 0.8 million, respectively.

Lower 2011/12 global beginning stocks completely offset this month’s production increase. The lion’s share of a 1.2-million-ton decline in beginning stocks comes from China, where 2011/12 wheat beginning stocks are down 1.0 million tons as a result of an upward revision to 2010/11 food, seed, and industrial (FSI) use. Beginning stocks are also down in Bangladesh by 0.2 million tons, as well as in Azerbaijan and Kyrgyzstan, down 0.1 million tons each. An increase in beginning stocks for Paraguay, up 0.25 million tons, is partly offsetting. All changes in beginning stocks result from 2010/11 wheat production adjustments. A tiny change in beginning stocks is made for South Korea.

Chinese Consumption Drives Global Wheat Use Up and Stocks Down

Global 2011/12 consumption is projected up 3.5 million tons this month to 683.9 million. The largest increase is for Chinese FSI use, up 2.5 million tons to 98.5 million. China’s starch and ethanol producers are expected to substitute more wheat for corn as long as the existing wheatcorn price spread favors wheat in industrial production. Since last spring, corn prices in China have been hovering above wheat prices, which is atypical for most of the rest of the world. Another reason for the FSI use increase is growing consumer demand in China for Western-style convenience and bakery products that require high-protein (more than 12 percent) wheat being mixed along with the lower quality varieties. Smaller increases in wheat FSI use occurred in Algeria, Chile, and Azerbaijan.

Prospects for wheat use are also boosted for Australia following increased supplies. Wheat feed use in Australia is up 0.5 million tons to 4.5 million, with total wheat use reaching 7.7 million. Another increase in wheat feed use comes from Iran, up 0.5 million tons to 1.0 million. With poultry production rapidly increasing in Iran, and the country reportedly not having sufficient amounts of other feed grains, Iran appears to be feeding more of its domestic wheat to livestock, while importing wheat of various qualities from a number of countries (see trade section). Smaller increases in feed use are made for South Korea and the Philippines. For Korea, projected wheat feed use is up 0.2 million tons, reaching 2.5 million, while for the Philippines it is up 0.1 million tons to 1.0 million. Changes reflect growth in the livestock sectors in both countries.

Partly offsetting are the reductions in wheat consumption in EU-27 and the United States. For the EU-27, lower domestic wheat use – both feed and industrial – has been reported. Wheat feed use prospects are down 1.0 million tons, reflecting a switch from wheat to corn feeding, while industrial use of wheat is down 0.5 million tons as the country’s ethanol production lags behind earlier forecasts.

With largely unchanged wheat supplies, and higher consumption this month, global ending wheat stocks are down 3.5 million tons to 209.6 million. The largest drop is for China, where stocks are revised down 3.5 million tons to 61.5 million, reflecting expectations of expanded wheat use. Other changes in wheat ending stocks are fully offsetting. Wheat ending stocks in the United States are down 0.5 million tons to 22.5 million, reflecting higher projected exports. Stocks are down 0.5 million tons each in Brazil and Kazakhstan, 0.3 million tons in Turkey, and 0.2 million tons in Serbia – all on higher export expectations. Syrian stocks are also down 0.2 million tons due to lower projected imports. Stocks are projected lower in Bangladesh and Kyrgyzstan, down 0.3 and 0.2 million tons because of lower projected beginning stocks and production. Stocks are up 1.5 million tons in EU-27, reflecting lower domestic wheat use; in Iran, up 0.3 million tons from higher imports despite higher feed use; in Uzbekistan, Algeria, and South Korea, up 0.3, 0.2, and 0.1 million tons, respectively, because of higher imports; in Australia, up 0.2 million tons as higher production more than offsets increased exports, and wheat use; and in Paraguay, up 0.2 million tons because its higher beginning stocks are partly offset by lower production. Changes of less than 0.1 million tons each in ending stocks are made for Georgia and New Zealand.

World Wheat Trade Gets Bigger This Month, Approaching Record

World wheat trade in 2011/12 is projected up 3.0 million tons this month to 141.8 million, just 1.1 million tons short of the 2008/09 record. Record world production and stocks have stimulated trade. There is also an increase in trade of low-quality wheat for feed use.

Iran’s projected 2011/12 wheat imports are up 1.8 million tons this month to 2.0 million. Reports suggest Iran has been buying extensively from various countries in an effort to spread the risk of cancellation. Financial sanctions resulting from the country’s nuclear program are limiting its ability to pay for imports. And indeed some cargoes initially directed to Iran were diverted to such countries as Iraq, Yemen, Sudan, and Egypt. Iran is reported to be negotiating grain purchases with Russia, Pakistan, and India using letters of credit denominated in rubles and rupees to bypass Western banking sanctions. Other countries that reported sales to Iran include Australia, EU-27, the United States, and Brazil.

Changes in wheat trade for many countries have been made this month. By this time of the year, there is sufficient trade data and information to update current forecasts based on the pace of shipments. Import prospects for South Korea in 2011/12 are up 0.3 million tons to a record of 5.0 million, reflecting its growing demand for feed quality wheat and its recent tenders (in large part white wheat from the U.S.). Algeria has purchased wheat at a faster pace than expected, holding several tenders last month, and its 2011/12 imports are up 0.3 million tons this month to 6.4 million. Imports for Uzbekistan, Azerbaijan, and Georgia – all parts of the former Soviet Union – are also up based on increased flows from Kazakhstan. There are small pace-based increases this month in projected imports by Chile, Angola, Eritrea, Ghana, New Zealand, and Ukraine, which are partly offset by reductions in wheat imports by Syria and Mongolia.

The three biggest 2011/12 revisions in export prospects are for Australia, Brazil, and Kazakhstan. In Australia, higher exportable supplies and the pace of exports boost prospects by 0.5 million tons to 21.0 million. In Brazil, exports are also up 0.5 million tons to 1.5 million, tracking the pace of auction sales within its subsidized program, as well as its reported sales to Iran. Kazakhstan’s wheat exports are up 0.5 million tons to 9.0 million, as the country managed to accelerate the pace of trade to about 1.2 million tons per month by subsidizing grain transportation to ports and improving the efficiency of rail car use. Exports are raised for Turkey and Serbia by 0.3 and 0.2 million tons, respectively, reflecting trade data.

With a continuing stronger-than-expected pace for wheat sales and shipments, U.S. exports are projected 1.0 million tons higher to 26.5 million for the international July-June trade year. Projected U.S. exports are up 25 million bushels to 1.0 billion for the June-May local marketing year. The United States continues to sell additional wheat, both hard and feed quality wheat (mainly white), to Asia (South Korea, Philippines, and China) and Mexico. With commitments (shipments plus outstanding sales) standing at 22.4 million tons as of March 1, down 25 percent on the year, U.S. wheat exports are on pace to reach the new forecast of 9.5 million tons, which is 26 percent lower than last year’s final results.

March 2012

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