USDA’s Early S/D Outlook for ‘06

Markets look to be shaped by large supplies of oilseeds, relatively tight U.S. wheat supplies, and a strong expansion in corn use, although corn supplies are expected to remain large enough to limit price increases.

The early market outlook for the three major field crops in 2006 is shaped by large supplies of oilseeds, relatively tight U.S. wheat supplies, and a strong expansion in corn use, although corn supplies are expected to remain large enough to limit price increases.

USDA released 2006/07 projections at its annual Outlook Forum held recently in Washington, D.C. More than 130 speakers participated in the 2006 Forum discussing a wide variety of topics relating to U.S. agriculture. To view the presentations, go to: www.usda.gov/oce/forum/2006_speeches.htm.

Initial production projections by USDA for 2006 assume normal weather conditions for spring planting and summer crop development. With normal weather and trend yields, 2006 corn production is expected to fall from last year’s near-record level. However, following successive record crops in 2003 and 2004, growth in supply outpaced demand, boosting 2006/07 beginning stocks to 2.4 billion bushels.

At trend, soybean yields are expected to fall below last year’s record, but with increased area and large carryin stocks, supplies will be up. With a record 2005 South American crop, competition for exports will remain strong, and U.S. exports will increase only as prices decline. Even with lower prices boosting demand, 2006/07 soybean ending stocks are expected to remain record large.

Despite a small increase in winter wheat seedings, trend abandonment and yields are expected to keep 2006 wheat production about the same as in 2004.  U.S. wheat production is expected to decline somewhat from last year.  Imports are expected to increase modestly in 2006/07, although at the highest amount in five years. Domestic use is expected to be up slightly, while exports are expected to decline due to increased competition for high quality, high protein wheat.

Ending stocks and stocks-to-use are projected to be largely unchanged in 2006/07 compared to 2005/06, with little change projected for wheat prices in 2006/07.

Although prices received by farmers are expected to be down for soybeans, flat for wheat, and up modestly for corn, projected 2006/07 prices for all three commodities reflect expected gains from forward pricing. Strong investment in commodity futures by index and other types of fund traders are expected to continue to provide producers with opportunities to lock in returns above loan rate levels and projected local cash market prices at harvest.

As always, growing season weather affecting ’06 production and unexpected demand could affect these projections.

USDA projects combined wheat, corn, and soybean plantings in 2006 to be slightly above 2005, but below the previous 3 years.   While planted area is expected to increase slightly in 2006, harvested area for the three crops is expected to decline. The harvested-to-planted ratio was higher than normal for all three crops in 2005, so a return to a normal abandonment reduces acres.

Spring wheat acreage is expected to decline slightly to 16.6 million acres, according to USDA, unless U.S. winter wheat production problems or other events cause a significant rally in wheat prices before spring wheat planting (mostly in May). Relatively attractive returns for soybeans, corn, sunflower, dry peas, and lentils are expected to limit spring wheat area in the northern Plains. 

Table 1. Wheat, Corn, and Soybean Acreage, 2001-2006

	2001	2002	2003	2004	2005	2006p	Change
	- Million Acres -
Wheat Planted	59.4	60.3	62.1	59.7	57.2	58.0	+0.8
Wheat Harvested	48.5	45.8	53.1	50.0	50.1	48.7	-1.4
Corn Planted	75.7	78.9	78.6	80.9	81.8	80.5	-1.3
Corn Harvested	68.8	69.3	70.9	73.6	75.1	73.2	-1.9
Soybeans Planted	74.1	74.0	73.4	75.2	72.1	74.0	+1.9
Soybeans Harvested	73.0	72.5	72.5	74.0	71.4	72.9	+1.0
Total Planted	209.2	213.2	214.1	215.8	211.1	212.5	+1.4
Total Harvested	190.3	187.6	196.5	197.6	196.6	194.8	-1.8
p = Projection     Note: Totals may not add due to rounding.     Source: 1998-2004 National Agricultural Statistics Service

Table 2. Wheat Supply, Demand, and Price, 2002/03-2006/07

	02/03	03/04	04/05	05/06f	06/07p
Area planted (mil ac)	60.3	62.1	59.7	57.2	58.0
Area harvested	45.8	53.1	50.0	50.1	48.7
Yield (bu./ac.)	35.0	44.2	43.2	42.0	42.6
Production (mil bu)	1,606	2,345	2,158	2,105	2,075
Beginning stocks	777	491	546	540	542
Imports	77	63	71	85	95
Supply	2,460	2,899	2,775	2,730	2,712
Feed & residual	116	203	189	200	200
Food, seed, indust	1,003	992	984	988	994
Total Domestic Use	1,119	1,194	1,172	1,188	1,194
Exports	850	1,158	1,063	1,000	975
Total use	1,969	2,353	2,235	2,188	2,169
Ending stocks	491	546	540	542	543
Stocks/use (percent)	25.0	23.2	24.1	24.8	25.0
Season average farm price ($/bu.)	3.56	3.40	3.40	3.40	3.40
f/ Acreage, yield, production, and beginning stocks are estimates from the National Agricultural Statistics Service. Imports, use, ending stocks, and season average farm price are projections from the World Agricultural Supply and Demand Estimates, Feb 9, 2006. The season average price is the mid-point of the projected range from the same report. p/ Projections based on analysis by the Wheat Interagency Commodity Estimates Committee. Note: Totals may not add due to rounding.