2003-04 Wheat Market Outlook

Market to be pressured by largest U.S. wheat crop expected since 1998/1999, though “hiccups” in anticipated production or larger than expected export business could result in modest rallies.

While the current world wheat stocks-to-use situation favors the bulls, the supply/demand situation in the U.S. favors the bears.  Thus, the wheat price can be expected to be pressured down, though “hiccups” in anticipated production or larger than expected export business could result in modest rallies.

Foreign 2003/04 wheat production is forecast to decline from 2002/03, including a sharp decline in the former Soviet Union, mostly in feed use.  World stocks remain fairly tight, but U.S. stocks are adequate (see chart  below).

Wheat planted area in the U.S. is estimated only slightly higher than 2002, but 2003 harvested area is expected to total 52.68 million acres, up 6.86 million acres from last year. 

In July, USDA raised its projected U.S. 2003/04 estimated ending stocks of wheat by 134 million bushels, due to a forecasted sharply larger supply and only a small increase in expected use.

Winter wheat production is up 90 million bushels above the June estimate due to higher yields, and is expected to be 50% above 2002.  As well, USDA forecasts spring wheat (including durum) production to be higher as well, despite lower planted area estimates in the June 30 acreage report. USDA could be prompted to revise its production estimates for spring wheat, however, as hot, dry weather in the western spring wheat growing region may result in fewer bushels than anticipated.

Nevertheless, U.S. wheat yields as of mid-summer were forecast at a record 43.9 bushels per acre, up 8.6 bushels from 2002.  Total wheat production is forecast at 2 .311 billion bushels, up 694 million bushels or more than 40% from last year and the largest crop since 1998/1999.

U.S. supplies are also boosted by larger reported carry-in stocks than forecast in June. Projected 2003-04 exports are up slightly from 2002-03 (about 150 million bu) due to larger U.S. supplies and lower U.S. prices, spurred in part by a weaker U.S. dollar. However, the world’s leading wheat exporters are expected to bolster their shipments this year as well (see chart on below).

World Wheat Stocks Tight But U.S. Adequate

Ending Stocks of Wheat Relative to Total Use

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Expect seasonal harvest lows, but possibilities for modest post-harvest rallies. “The lowest world wheat stocks in 14 years and the tightest ratio of world wheat ending stocks/use in 28 years means that any additional problems that may develop with the southern hemisphere’s wheat crop could also provide support to the market,” according to Bill Tierney, Kansas State University extension ag economist.

Spring wheat producers with marketing plans in place should have had one-third of their production already sold, says George Flaskerud, extension crops economist at North Dakota State University.

Flaskerud says an LDP is unlikely for spring wheat at harvest, but if it’s triggered, take it.  Otherwise, use CCC loans to provide cash flow.  If cash sales are made and you want to speculate on higher prices down the road, consider May call options three strikes out-of-the-money.  Don’t anticipate the purchase of a call to be profitable; consider it as insurance in case prices move higher later. Consult with a grain marketing professional about other strategies that may help you capitalize on potential post-harvest rallies.

Protein Premium of About 50 Cents

May Occur in September for 15 Pro Mpls Cash

Wheat Protein Levels (12% Moisture)

Premiums & Discounts Mpls Cash Market

CBT December Wheat Could Trade Under $3.00 in November

Planted ---------------------- 60.9

Harvested --------------------52.7

Yield -------------------------43.9

Beg. Stocks ------------------492

Production ------------------2,311

Imports -----------------------100

Supply ----------------------2,903

Domestic --------------------1,190

Exports -----------------------975

Use -------------------------2,165

Ending Stocks ----------------738

S/U Ratio ---------------------34.1%

Note the projected 34% stocks-to-use ratio for wheat in the USDA July report, and where that might place Chicago wheat futures on the curve in relation to other S/U estimates in the past 10 years.  Stocks-to-use is a ratio that measures projected crop use (demand) versus crop available (supply).