Grain Market Outlook

Wheat Market Outlook in May 2013  

May 15, 2013

Summary

On May 10, 2013 the USDA released its May Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports – providing forecasts of 2013 U.S. wheat production with associated supply-demand balance sheets and prices for the “new crop” 2013/14 marketing year (i.e., MY 2013/14).  “New crop” MY 2013/14 for U.S. wheat runs from June 1, 2013 through May 31, 2014.

USDA Projections: The USDA projected that 2013 U.S. wheat production would decline to 2.057 billion bushels (bb) – down from 2.269 bb in 2012 base on planted acreage of 56.440 million acres (ma), nearly 46.644 ma harvested, a historically low harvested to planted acreage ratio of 82.6%, and an average U.S. wheat yield of 44.1 bushels per acre (bu/ac).   Total 2013 U.S. winter wheat production is forecast to be 1.486 bb, down 10% from 1.645 in 2012.  On a winter wheat subclass basis, the USDA forecast that 2013 U.S. hard red winter (HRW) wheat production would be 768 million bu (mb), down 236 mb or 23% from 1.004 bb in 2012.  Soft red winter (SRW) wheat production in the U.S. in 2013 is forecast to be 501 mb, up 81 mb or 19% from 420 mb in 2012.  White winter (WW) wheat production in the U.S. in 2013 is forecast to be 217 mb, down 2% from 2012.  The USDA also projects 2013 U.S. spring and durum wheat production prospects to be lower than a year ago.

For “new crop” MY 2013/14 the USDA projected lower total supplies, higher food use, lower exports, seed, feed and residual use, ending stocks (670 mb – down from 731 mb last year), and % ending stocks-to-use (29.82% - down marginally from 30.38% in “old crop” MY 2012/13).   With larger supplies of U.S. feedgrains anticipated for fall 2013 and less cross-market support for wheat prices, the USDA projected U.S. average wheat prices of $6.15-$7.45 bu/ac (midpoint = $6.80), down from $7.80 in “old crop” MY 2012/13. 

KSU Projections: With risky prospects for U.S. winter wheat growing conditions in the western plains, the following analysis estimates that there is a 30% chance of a “low yield” wheat crop in the U.S. for the “new crop” 2013/14 marketing year, along with a 65% probability of an average “trend yield” crop, and a 5% probability of a “high yield” crop.  KSU projections of 2013 U.S. wheat production and “new crop” MY 2013/14 supply-demand and price scenarios are as follows:  A) “Short Yield” Crop Scenario: 30% probability of 46.1 ma harvested, 38.6 bu/ac yields, 1.778 bb 2013 U.S. wheat crop, 25.6% S/U, $7.50-$8.50 /bu prices;  B) “Trend Yield” Crop Scenario: 65% probability of 46.7 ma harvested, 45.2 bu/ac yields, 2.082 bb 2013 U.S. wheat crop, 29.3% S/U, $6.50-$7.50 /bu prices; and C) “High Yield” Crop Scenario: 5% probability of 46.7 ma harvested, 46.3 bu/ac yields, 2.132 bb 2013 U.S. wheat crop, 30.6% S/U, $6.00-$7.00 /bu prices.  

World Wheat production in “new crop” MY 2013/14 is projected to be 701 mmt, up sharply from 656 mmt in “old crop” MY 2012/13 – with sizable increases in exports projected for a number of key wheat producing and exporting countries (i.e., Russia, Ukraine, Kazakhstan, Argentina, and India).  These increases foreign wheat export prospects result in diminished U.S. wheat export prospects.  World wheat % ending stocks-to-use for “new crop” MY 2013/14 are forecast to be 26.8% - up marginally from 26.7% for “old crop” MY 2012/13, but down from 28.6% in MY 2011/12, 30.5% in MY 2010/11, and 31.0% in MY 2009/10, and 26.5% in MY 2008/09. The historic record low World wheat supply-demand balance was 20.9% in MY 2007/08. 

I. U.S. Wheat Market Situation and Outlook

On May 10, 2013 the United States Department of Agriculture (USDA) released its May Crop Production report from the National Agricultural Statistics Service (NASS), and the World Agricultural Supply and Demand Estimates (WASDE) report from the World Agricultural Outlook Board (WAOB).  In the May WASDE report the USDA made its first projection of 2013 U.S. corn, grain sorghum, wheat and soybean production with associated supply-demand balance sheets and prices for the “new crop” 2013/14 marketing year (i.e., MY 2013/14).  “New crop” MY 2013/14 for U.S. wheat runs from June 1, 2013 through May 31, 2014.  

USDA Projections for “New Crop” MY 2013/14: The USDA projected that 2013 U.S. wheat production would decline to 2.057 billion bushels (bb) – down from 2.269 bb in 2012.  This projection is based on planted acreage of 56.440 million acres (ma), nearly 46.644 ma harvested, a historically low harvested to planted acreage ratio of 82.6%, and an average U.S. wheat yield of 44.1 bushels per acre (bu/ac).   This U.S. wheat yield projection of 44.1 bu/ac is down from the USDA projection of 45.2 bu/ac at its February 22^nd Outlook Forum due to “persistent drought impacts and April freezes in hard red winter Wheat producing areas” (Source: USDA May WASDE report).   

The USDA projected total 2013 U.S. winter wheat production to be 1.486 bb, down 10% from 1.645 in 2012.  On a winter wheat subclass basis, the USDA forecast that 2013 U.S. hard red winter (HRW) wheat production would be 768 million bu (mb), down 236 mb or 23% from 1.004 bb in 2012.  Soft red winter (SRW) wheat production in the U.S. in 2013 is forecast to be 501 mb, up 81 mb or 19% from 420 mb in 2012.  White winter (WW) wheat production in the U.S. in 2013 is forecast to be 217 mb, down 2% from 2012.  The USDA also projects U.S. spring and durum wheat production prospects to be lower than a year ago.

Following from this projection of smaller total 2013 U.S. wheat production, the USDA projected for “new crop” MY 2013/14 that there would be lower total supplies (2.917 bb – down from 3.137 bb in “old crop” MY 2012/13), higher food use (958 million bushels or ‘mb’ – up from 945 mb a year ago), lower exports (925 mb – down from 1.025 bb a year ago), lower seed use (74 mb – down from 76 mb), and lower feed and residual use (290 mb – down from 360 mb last year).  

Following from these projected U.S. wheat supply-demand changes, the USDA projected lower “new crop” MY 2013/14 U.S. wheat ending stocks (670 mb – down from 731 mb last year), and lower % ending stocks-to-use (29.82% - down marginally from 30.38% in “old crop” MY 2012/13).   With larger supplies of U.S. feedgrains anticipated for fall 2013 and less cross-market support for wheat prices, the USDA projected U.S. average wheat prices for “new crop” MY 2013/14 of $6.15-$7.45 bu/ac (midpoint = $6.80), down considerably from $7.80 in “old crop” MY 2012/13. 

KSU Projections for “New Crop” MY 2013/14: Kansas State University projections of U.S. wheat supply-demand balances for “new crop” MY 2013/14 are based on U.S. planted acreage projections from the March 28^th USDA Prospective Plantings report, alternative U.S. wheat yield scenarios, and assumptions about % harvested-to-planted acreage across these differing prospective U.S. wheat yield outcomes. 

Given these assumptions about U.S. wheat planted and harvested acreage in 2013, if either “trendline” or “high” U.S. wheat yields occur in the coming year then U.S. wheat ending stocks in “new crop” MY 2013/14 will be largely unchanged from the current “old crop” MY 2012/13 marketing year.  However, with the expectations of sharply larger U.S. corn supplies and lower prices in the fall of 2013, U.S. wheat prices are projected to be approximately $1.00 per bushel lower for the same level of % ending stocks-to-use as occurred in the current “old crop” marketing year as the markets move into “new crop” MY 2013/14. 

In assessing the uncertainties associated with 2013 wheat growing conditions in the western U.S. Corn Belt (particularly for hard red winter wheat), it is estimated here by KSU that there is a 70% chance of trendline or higher U.S. wheat yields,with production of 2.082-2.132 bb projected for 2013, with U.S. wheat % ending stocks-to-use in the range of 29.3%-30.6%, and prices in the range of $6.00-$7.50 per bushel for “new crop” MY 2013/14.  However, there is also an estimated 30% chance of a short U.S. wheat crop in 2013 of 1.778 bb, with % ending stocks-to-use of 25.6%, and U.S. average wheat prices in the range of $7.50-$8.50 per bushel. 

USDA Projections for “Old Crop” MY 2012/13: For the “old crop” 2012/13 marketing year, the USDA lowered its projection of U.S. wheat imports (125 mb – down 5 mb) and total supplies (3.137 bb – down 5 mb), and also lowered its forecast of food use (945 mb – down 5 mb), and total use (2.406 bb – down 5 mb).  No changes were projected for ending stocks (731 mb), while % ending stocks-to-use was increased only marginally (30.38% - up from 30.32% last month). 

This level of U.S. wheat % ending stocks-to-use of 30.4% for “new crop” MY 2013/14 is still markedly larger than the record low of 13.2% ending stocks-to-use in MY 2007/08.  The USDA essentially left unchanged its projection of U.S. average farm prices for wheat in “old crop” MY 2012/13 at $7.80 per bu, collapsing the range of $7.70-$7.90 from April to its midpoint in the May WASDE report.    

U.S. Wheat Price Prospects for 2013

Given that at this time World wheat production prospects for the coming year are positive for most of the World’s major wheat exporters, the USDA has projected that World wheat supplies and ending stocks will grow in “new crop” MY 2013/14.  However, much uncertainty still exists regarding what final harvested 2013 World wheat production will be over the June 1, 2013 through May 31, 2014 period. 

U.S. wheat prices in 2013 are likely to continue to find support through at least late spring-early summer 2013 due to a) cross market support from extremely tight U.S. feedgrain supplies and wheat’s potential substitutability for feedgrains in domestic and foreign livestock rations – and even domestic U.S. ethanol production, and b) short and possibly declining U.S. hard red winter wheat production prospects.  In the broader picture, these trends indicate that outside or non-wheat market influences are impacting wheat prices – with the most likely causal factor being cross market / arbitrage impacts from historically tight U.S. and World feedgrain supplies and associated record high feedgrain market prices through the summer months.  It is expected that feedgrain supply-demand balances will increase dramatically in the fall of 2013. 

U.S. Wheat Planted & Harvested Acreage

USDA Planted Acreage Forecast for 2013

In its March 28^th National Agricultural Statistical Service (NASS) Prospective Plantings report the USDA projected U.S. winter wheat seedings in fall 2012 for harvest in 2013 to be 56.440 million acres (ma), up 1.3% or 704,000 acres from 55.736 ma in 2012, and also up from 54.409 in 2011 (Table 1 and Figure 1). 

In the May 10^th Crop Production report the USDA maintained its earlier projection that U.S. winter wheat seedings in the fall of 2012 for 2013 harvest would total 41.988 ma, up 1.6% or 664,000 from 41.324 ma a year ago (i.e., fall 2011 seedings for 2012 harvest), and up from 40.646 ma two years ago.  Winter wheat classes include hard red winter (HRW), soft red winter (SRW), and white wheat (WW) varieties in the United States. 

Forecast U.S. “other spring wheat” seedings in the spring of 2013 for 2013 production were projected to be 12.701 ma by the USDA, up 3.4% or 412,000 acres from 12.289 ma in 2012, and up from 12.394 ma in 2011.  Spring wheat classes include hard red spring, and white wheat varieties in the United States.  Forecast U.S. durum wheat seedings for 2013 production were projected to be 1.751 ma by the USDA, down 17.5% or 372,000 acres from 2.123 ma in 2012, but up from 1.369 ma in 2011. 

Figure 1. U.S. Wheat Planted Acreage – All Winter, Spring & Durum Wheat Classes (1973-2012) & Projected 2013 (USDA Prospective Plantings Report)

USDA Harvested Acreage Forecast for 2013

In its May WASDE report the USDA projected 2013 U.S. wheat harvested acreage to be approximately 4.64 million acres – representing a harvested-to-planted ratio of 82.7% - “the lowest harvested-to-planted ratio since 2006/07” (source: May 2013 USDA WASDE report).  United States’ winter wheat harvested acres are projected to be 32.709 ma compared to 34.834 ma in 2012.  Winter wheat % harvested-to-planted acreage in 2013 is projected to be 77.9% - down to a level that has been matched only 19% in the U.S. of the time since 1973.  Regarding other U.S. wheat classes, the USDA indicated that “.harvested acres & yields for other spring wheat & durum are projected using 10-yar harvested-to-planted ratios by state...” (source: May 2013 USDA WASDE report).

KSU Harvested Acreage Forecast for 2013

The projection of U.S. wheat seeded acreage in 2013 of 56.440 ma from the March 28^th USDA Prospective Plantings report can be used to estimate 2013 U.S. wheat harvested acreage (Table 1 & Figures 1 and 2).  For the KSU projections of 2013 U.S. “trend” or “high” wheat yield scenarios, it is assumed that the USDA’s projection of 82.7% harvested-to-planted acres would occur.  The KSU projection of harvested acreage equals the USDA’s for these two higher yielding scenarios, with 46.644 ma of U.S. wheat being harvested in the coming year (i.e., 56.440 ma planted times 82.7% harvested-to-planted acreage equals 47.522 ma). 

However, if a “low yield / short crop” yield scenario occurs in 2013 due largely to drought and associated poor growing conditions in the U.S. central and southern plains, a lower percentage of harvested-to-planted acreage would also be expected to occur.  It is assumed in this KSU projection that in a 2013 “low yield / short crop” scenario that 81.6% of planted acres would be harvested, equal to 2006 (but not as low as 76.0% harvested-to-planted acreage as occurred in 2002, the historic low since year 2000).  This would lead to 46.055 ma of U.S. wheat being harvested in the coming year, i.e., 56.440 ma planted times 81.6% harvested-to-planted acreage (see Figure 1a and Table 1). If the historic low in 2002 of 76.0% harvested/planted acres were assumed instead, 2013 U.S. wheat harvested acreage would equal 42.894 ma.

Figure 1a. U.S. Wheat Planted Acreage (1973-2012) and USDA-KSU Projections for 2013

U.S. Wheat Yields

USDA Yield Forecast for 2013

The USDA projected 2013 U.S. average wheat yields to be 44.1 bu/ac – down from 46.3 bu/ac in 2012 but up from 43.7 bu/ac in 2011 (Table 1 & Figure 2).  The USDA also projected 2013 U.S. winter wheat yields to be 45.2 bu/ac, down from 47.2 bu/ac in 2012, and from 46.2 bu/ac in 2011.  The USDA has not yet made an official, public projection of 2013 U.S. yields for other spring wheat or durum wheat.   

Figure 2. U.S. Wheat Yield Trend (1973-2012) and Projection for 2013 (May 10, 2013)

KSU Yield Forecasts for 2013

For 2013, the 1973-2012 U.S. wheat trend yield projection (with the U.S. 2012 yield of 46.3 bu/ac and all years included) would be approximately 45.2 bu/ac (Figure 2).  The minimum average U.S. wheat yield in the last 10 years (since 2003) is 38.6 bu/ac in 2006, while the maximum yield of 46.3 bu/ac over the same period occurred in 2010 and again in 2012.  In the KSU forecasts for 2013 that follow, it is assumed that there is a 30% likelihood of 38.6 bu/ac U.S. wheat yields in 2013, with a 65% likelihood of trend yields of 45.2 bu/ac, and a 5% likelihood of yields equal to the record high of 46.3 bu/ac again in 2013.

U.S. Wheat Production

USDA Production Forecast for 2013

In its May WASDE report the USDA projected 2013 U.S. wheat production to be 2.057 billion bu (bb) – down from 2.269 bb in 2012, and comparable to 1.999 bb in 2011, 2.207 bb in 2010, and 2.218 bb in 2009, and 2.499 bb in 2008 (Table 1).  Estimated 2013 U.S. winter wheat production of 1.486 bb is down from 1.645 bb in 2012, and down marginally from 1.494 bb in 2011.  United States’ 2013 other spring wheat production is projected to be approximately 498.6 mb, down 8% from 542.0 mb in 2012, but still up from 455.2 mb in 2011.  Implicitly, 2013 U.S. durum wheat production is projected to be approximately 72.4 mb, down from 82.0 mb in 2012, but up from 50.5 mb in 2011.   

KSU Production Forecasts for 2013

Trend Yield & Harvested Acre Scenario: Probability weighted projections of 2013 U.S. wheat acreage, yields and production are shown in Table 1. A “trend yield” scenario for 2013 U.S. wheat production can be calculated using an estimate of 56.440 million acres of wheat planted in the U.S. in 2013, with 46.664 ma harvested and a 1973-2012 U.S. wheat trend yield projection of 45.2 bu/ac.  In this scenario the U.S. would produce 2.082 bb of wheat in 2013.  It is estimated that there is a 65% probability of this scenario occurring.

High Yield & Harvested Acre Scenario: Alternatively, an “over trendline” or “high yield” scenario for 2013 could assume the same acreage as the “trend yield” scenario along with higher U.S. wheat yields of 46.3 bu/ac – equal to recent historic record high yields in 2010 and 2012.  In this scenario, 2013 U.S. wheat production would equal 2.132 bb (Table 1).  It is estimated there is a 5% probability of this scenario coming true.

Short Yield & “Low” Harvested Acre Scenario: A “short yield” scenario in 2013 would likely involve both a) reduced harvested acreage relative to planted due to increased acreage abandonment – especially in the central and southern plains hard red winter Wheat (HRW) regions, and b) lower U.S. winter wheat and aggregated U.S. average yields.  If 2006 U.S. wheat short production year lows of 81.6% harvested-to-planted acreage are assumed on 56.440 million planted acres – equaling 46.055 ma harvested acres – and U.S. average yields equal recent lows of 38.6 bu/ac, then 2013 U.S. wheat production would be 1.778 bb.  It is estimated that there is a 30% probability of this scenario occurring.

U.S. Wheat Total Supplies

USDA Total Supply Forecast for “New Crop” MY 2013/14

With projected MY 2013/14 beginning stocks of 741 mb (the lowest since 657 mb in MY 2009/10), 2013 production of 2.057 bb, and imports of 130 mb, total supplies of U.S. wheat are projected to be 2.917 bb for “new crop” MY 2013/14 (Table 1).  This amount of total supplies is down from 3.137 bb in “old crop” MY 2011/12, and is down from 3.279 bb in MY 2010/11, but is 147-520 mb greater than total U.S. wheat supplies for the MY 2007/08 through 2009/10 period. 

KSU Total Supply Forecast for “New Crop” MY 2013/14

Based on potential U.S. wheat acreage, yield and production scenarios given above, probability weighted projections of 2013/14 U.S. wheat marketing year total supplies are provided in Table 1.  Given weather and soil moisture information available at this time from climatologists, and the author’s judgment, probabilities of alternative U.S. corn yield scenarios are provided – with a leaning toward “mean reversion” in markets and weather patterns.  “Mean reversion” is the idea that various physical and economic processes tend to revert to their average or “mean” values over time.  In the case of U.S. wheat yields, the average expected yield for 2013 is assumed to be equal to the long term trend projection of 45.2 bu/ac.

It is assumed here that a) U.S. wheat beginning stocks for MY 2013/14 equal projected ending stocks for MY 2012/13 of 731 mb, and b) that MY 2013/14 U.S. wheat imports would be 115 mb for the “trendline yield” and “over trendline yield” crop scenarios, but increase to 130 mb for the “short yield” crop scenarios due to competitive market flows in reaction to tighter U.S. domestic wheat supplies. 

These KSU projections indicate that there is 1) a 30% chance of a 1.778 bb wheat crop with “new crop” MY 2013/14 total supplies of 2.639 bb, 2) a 65% chance of a 2.082 bb wheat crop with “new crop” MY 2013/14 total supplies of 2.923 bb, and 3) a 5% chance of a 2.132 bb wheat crop with “new crop” MY 2013/14 total supplies of 2.978 bb (Table 1).

The USDA lowered its projection of U.S. wheat total U.S. wheat use (2.247 bb) for “new crop” MY 2013/14 from 2.406 bb in “old crop” MY 2012/13 (Table 1 & Figure 3). While U.S. wheat exports in MY 2013/14 are projected to decline for the third consecutive year since MY 2010/11, food use is projected to increase gradually for the fourth year in a row (trending upward from MY 2009/10).  Feed and residual use is projected to decline in “new crop” MY 2012/13 from near-term highs in “old crop” MY 2012/13. Ending stocks of U.S. wheat are projected to decline for the fourth consecutive year since recent historic highs in MY 2009/10.

Figure 3. Trends in U.S. Wheat Use and Ending Stocks: MY 2004/05 - “New Crop” MY 2013/14

                    (May 10, 2013 USDA WASDE Report)

Food Use = 958 mb in “new crop” MY 2013/14: The USDA projected that U.S. wheat usage for domestic food consumption in “new crop” MY 2013/14 will be 958 mb, up from 945 mb in “old crop” MY 2012/13, from 941 mb in MY 2011/12, and 926 mb in MY 2010/11, up to the highest level since 948 mb in MY 2007/08.  Wheat food use in “old crop” MY 2012/13 of 945 mb was lowered 5 mb from the April WASDE.  Regarding “new crop” MY 2013/14 food use of U.S. wheat, the USDA indicated that “…a 13 mb increase in domestic food use (occurred) as flour extraction rates fall from a very high level in 2012/13 and consumption grows with population.” (source: May 2013 USDA WASDE report).  This is the fourth consecutive year of at least marginal growth in U.S. domestic food use, with this use category being consistently in the 910-950 mb range since at least MY 2004/05 (Table 1 & Figure 3). 

Seed Use = 74 mb for “new crop” MY 2013/14: The USDA projected seed use of wheat in “new crop” MY 2013/14 to be 74 mb, which is comparable to 76 mb in both “old crop” MY 2012/13 and MY 2011/12, and 71 mb in MY 2010/11 (Table 1 & Figure 3).     

Export Use = 925 mb in “new crop” MY 2013/14: The USDA projected U.S. wheat exports to be 925 mb for “new crop” MY 2013/14, down from 1.025 bb in “old crop” MY 2012/13, and comparable to 1.050 bb in MY 2011/12, 1.289 bb in MY 2010/11, and 879 mb in MY 2009/10 (Table 1 & Figure 3).  The USDA indicates that “Large crops for major export competitors limit opportunities for U.S. wheat (exports)” in “new crop” MY 2013/14.  (Source: USDA May 2013 WASDE report)  

Comments on U.S. wheat export sales for “old crop” MY 2012/13 to date: On May 2^nd cumulative U.S. wheat export shipments for “old crop” MY 2012/13 totaled 876.0 mb, 86.5% of projected MY 2012/13 exports of 1.025 bb with 94.2% (49 of 52 weeks) of the marketing year completed.  United States’ export shipments will need to average 49.7 mb per week to attain the USDA’s projection of 1.025 bb in the old crop marketing year.  United States’ wheat export shipments during the weeks ending April 25^th and May 2^nd were 31.0 mb and 20.6 mb, respectively.

Accounting for additional forward export sales of 107.5 mb in U.S. wheat that had not yet been shipped as of May 2, total U.S. wheat shipped plus outstanding shipments added up to 983.5 mb (i.e., 876.0 mb shipped plus 107.5 mb forward sales) for “old crop” MY 2012/13.  This amounts to 96.0% of the USDA’s projection of 1.025 bb for “old crop” MY 2012/13 with 94.2% of the marketing year having already occurred (49 of 52 weeks). 

Feed & Residual Use = 290 mb for “new crop” MY 2013/14: The USDA projected “new crop” MY 2013/14 U.S. wheat feed and residual use to be 290 mb, down from 360 mb in “old crop” MY 2012/13, but still up from 164 mb in MY 2011/12, 132 mb in MY 2010/11, 150 mb in MY 2009/10, 255 mb in MY 2008/09, and 16 mb in MY 2007/08.  “Old crop” MY 2012/13 feed use of 390 mb is the the largest amount of U.S. wheat feed and residual use since 391 mb in MY 1998/99.  Continued high levels of U.S. wheat feed use are anticipated for June-August 2013 – prior to the availability of new crop U.S. feedgrain suppliers during the late summer-fall 2013 period.  

Total Wheat Use = 2.247 bb for “new crop” MY 2013/14: The USDA projects that “new crop” MY 2013/14 U.S. total use of wheat will be 2.247 bb, down from 2.406 bb in “old crop” MY 2012/13, up from 2.231 bb in MY 2011/12, and down marginally from 2.417 bb in MY 2010/11 (Table 1). 

Projected U.S. wheat usage of 2.247 bb in “new crop” MY 2013/14 compares to a) a high of 2.684 bb in MY 1987/88, b) the range of 2.414-2.475 bb over the MY 1990/91-1994/95 period, c) the range of 2.386-2.427 bb over the MY 1998/99-2000/01 period, d) 2.352 bb in MY 2003/04, and e) 2.018-2.314 bb during the MY 2007/08 – MY 2009/10 period.  

Ending Stocks = 670 mb for “new crop” MY 2013/14: The USDA projected “new crop” MY 2013/14 ending stocks of U.S. wheat to be 670 mb, down from 731 mb in “old crop” MY 2012/13, 743 mb for MY 2011/12, 862 mb in MY 2010/11, and 976 mb in MY 2009/10 (Table 1 and Figure 3).  This is the fourth consecutive decline in marketing year ending stocks for U.S. wheat since MY 2009/10.

% Ending Stocks-to-Use = 29.8% for “new crop” MY 2013/14: The USDA implicitly projected that “new crop” MY 2013/14 ending stocks-to-use would equal 29.8%, which is down marginally from 30.4% in “old crop” MY 2012/13, 33.3% for MY 2011/12, 35.7% in MY 2010/11, and 48.4% in MY 2009/10 (Table 1 & Figure 4).   Declining U.S. wheat % ending stocks-to-use follow the 4 year pattern of decline for U.S. wheat ending stocks.

These projected ending stocks and % ending stocks-to-use levels for “new crop” MY 2013/14 are markedly above the historic 60 year lows in MY 2007/08 of 306 mb ending stocks and 13.2% ending stocks-to-use, respectively, which remains the benchmark historical wheat market scenario for a “tight supply-demand balance” marketing year in the U.S. since the early 1970s. 

The USDA projected “new crop” MY 2013/14 U.S. average wheat prices to be in the range of $6.15-$7.45 per bushel (midpoint = $6.80), down from the record high of $7.80 in “old crop” MY 2012/13, and down from $7.24 in MY 2011/12, and comparable 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 (Table 1 & Figure 4).   

Comment on Current Market Price Incentives for feeding Wheat versus Feedgrains: The ratio of wheat-to-corn prices historically has been in the range of 110-115% - at a level that has typically discouraged wheat feeding relative to corn.  However, current local wheat-to-corn price relationships have been strongly encouraging the feeding of wheat in livestock rations.  Near Garden City, Kansas – a major beef cattle feeding center in southwest Kansas – the cash price for wheat on Wednesday, May 14, 2013 was $7.35 per bushel.  In comparison, the cash price for corn at the same location on that day was $7.09 per bushel, i.e., a ratio of 104% - a level that would encourage wheat feeding.  Conversely, in Hutchinson, Kansas – located in the south central part of the state, and generally less of a livestock feeding area but more of a wheat export and processing-oriented region, the cash price for wheat on Tuesday, May 14, 2013 was $7.63 per bushel.  In comparison, the cash price for corn at the same location on that day was $6.85 per bushel, i.e., a ratio of 111% - a level that would discourage wheat feeding. 

Figure 4. U.S. Wheat Ending Stocks vs U.S. Avg. Cash Prices: MY 1973/74 through MY 2012/13      
(May 10, 2013 USDA WASDE Report)

U.S. Wheat Prices vs % Ending Stocks-to-Use:  The May 2013 USDA WASDE report indicates that a negative relationship exists between U.S. wheat % ending stocks-to-use and U.S. farm season average wheat prices.  Larger U.S. wheat supply-demand balances (i.e., higher U.S. wheat percent ending stocks-to-use) are typically associated with lower prices, while smaller supply-demand balances are usually associated with higher wheat prices – all else being equal (Figure 5).  Wheat prices in Figure 5 are reported on a nominal basis (i.e., not adjusted for inflation). 

Figure 5 also provides support for the idea that U.S. farm marketing year average wheat prices have moved to a higher level or “jumped out to the right” on this chart since MY 2007/08.  Since an average U.S. wheat price of $4.87 /bu in MY 2007/08, prices have risen to a projected level of $7.80 /bu in “old crop” MY 2012/13 and $6.80 /bu in “new crop” MY 2013/14.  This recent price trend compares to a price range of $2.33 to $4.50 /bu during the MY 1973/74 – 2006/07 period. 

This shifting of U.S. wheat prices to a higher range is likely due to a number of factors, including: a) periodic trends toward tight stocks in U.S. and World wheat supply-demand, b) historically tight stocks, strong prices, and cross-market price support from higher U.S. feedgrain and soybeans markets, c) other factors contributing to general commodity price inflation such as rising cost of production and energy prices, and/or d) declines in the relative value of the U.S. dollar in comparison to other major currencies. 

Figure 5. U.S. Wheat Price vs U.S. % Stocks-to-Use (MY 1973/74 through projected MY 2012/13)  

KSU Stocks/Use & Price Forecasts for “New Crop” MY 2013/14

Based on KSU forecasts of potential U.S. wheat acreage, yield, production and total supply scenarios, probability-weighted projections of “new crop” 2013/14 U.S. wheat marketing year total usage, ending stocks and prices are provided in Table 1.  The following KSU forecasts of probability-based U.S. wheat supply-demand scenarios are based on the author’s best judgment regarding the responsiveness of U.S. wheat use and prices to varying amounts of total U.S. wheat supplies in the coming “new crop” 2013/14 marketing year.

This analysis assumes a return to normal historic U.S. corn yields and higher production levels of 13.0-14.0 bb in 2013.  This leads to less arbitrage-driven, cross-market support from corn prices resulting in less pressure to feed U.S. wheat after what is expected to be a large U.S. corn harvest in fall 2013.  If a short U.S. corn crop does occur in “new crop” MY 2013/14, these price projections will be approximately $0.75-$1.25 too low.

A.       “Low Yield” Crop Scenario for MY 2013/14:  25.6% S/U & $7.50-$8.50 /bu (30% chance)

Earlier analysis in this paper indicated that there is a 30% likelihood of 2013 U.S. wheat plantings of 56.4 ma, 46.1 ma harvested, 38.6 bu/ac yields, and 1.778 bb of production (Table 1).  Based on projected total supplies of 2.639 bb and total use of 2.100 bb, ending stocks are forecast to be 539 mb with ending stocks-to-use of 25.6%.  Based on recent history of the relationship between U.S. wheat % ending stocks-to-use and U.S. wheat season average prices (see Figure 5 above), 25.6% stocks-to-use would lead to U.S. wheat prices in the range of $7.50-$8.50 per bushel (midpoint of $8.00).

B.      “Trend Yield” Crop Scenario for MY 2013/14: 29.3% S/U & $6.50-$7.50 /bu (65% chance)

It was projected earlier that there is a 65% likelihood of 2013 U.S. wheat plantings of 56.4 ma, 46.7 ma harvested, 45.2 bu/ac yields, and 2.082 bb of production (Table 1).  Based on projected total supplies of 2.923 bb and total use of 2.260 bb, ending stocks are forecast to be 663 mb with ending stocks-to-use of 29.3%.  Based on recent history of the relationship between U.S. wheat % ending stocks-to-use and U.S. season average wheat prices, 29.3% stocks-to-use would lead to U.S. wheat prices in the range of $6.50-$7.50 per bushel (midpoint of $7.00). 

C.      “High Yield” Crop Scenario for MY 2013/14: 30.6% S/U & $6.00-$7.00 /bu (5% chance)

Previous estimates indicated that there is a 5% likelihood of 2013 U.S. wheat plantings of 56.4 ma, 46.7 ma harvested, 46.3 bu/ac yields, and 2.132 bb of production (Table 1).  Based on projected total supplies of 2.978 bb and total use of 2.280 bb, ending stocks are forecast to be 698 mb with ending stocks-to-use of 30.6%.  Based on recent history of the relationship between U.S. wheat % ending stocks-to-use and U.S. season average wheat prices, 30.6% stocks-to-use would lead to U.S. wheat prices in the range of $6.00-$7.00 per bushel (midpoint of $6.50).

Combining the “Trend Yield” and “High Yield” crop scenarios together, for “new crop” MY 2013/14 there is a 70% likelihood of 2013 U.S. wheat production of 2.082-2.132 bb, with ending stocks in the range of 663-698 mb, ending stocks-to-use of 29.3%-30.6%, and U.S. wheat prices in the range of $6.00-$7.50 /bu.

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 “old crop” 2012/13 marketing years. 

For “old crop” MY 2012/13, a projected decrease occurred in U.S. hard red winter (HRW) wheat imports (17 mb – down 7 mb), and total supplies (1.338 bb – down 7 mb), while increases occurred in exports (410 mb – up 10 mb), and total use (998 mb – up 10 mb).  As a result, decreases occurred in projected ending stocks (347 mb – down 10 mb) and % ending stocks to use (34.1% - down from 36.2% in April) (Table 2). 

“Old crop” MY 2012/13 total supplies of 1.338 bb are up from 1.166 bb in MY 2011/12, down from 1.404 bb in MY 2010/11, and up from the range of 1.121-1.176 bb over the MY 2007/08 - 2009/10 period.   “Old crop” MY 2012/13 total use of 997 mb is up from 849 mb in MY 2011/12, down from 1.018 bb in MY 2010/11, and up from the range of 791-984 mb over the MY 2007/08 - 2009/10 period.

“Old crop” MY 2012/13 ending stocks of 340 mb (34.1% S/U) compare to 317 mb (37.3% S/U) in MY 2011/12, 386 mb (37.9% S/U) in MY 2010/11, 385 mb (48.7% S/U) in MY 2009/10, 254 mb (27.7% S/U) in MY 2008/09, and to extremely tight ending stocks of 138 mb (14.0% S/U) in MY 2007/08.

Table 2. U.S. Hard Red Winter Wheat S-D Balance Sheet: MY 2007/08 through MY 2012/13

                  (May 10, 2013 USDA WASDE Report)

For “old crop” MY 2012/13 the USDA raised its projection of hard red spring (HRS) wheat imports (44 mb – up 2 mb), total supplies (700 mb – up 2 mb), and food use (228 mb – down 2 mb), while decreases occurred in exports (220 mb – down 5 mb) and total use (500 mb – down 7 mb), leading to an increase in ending stocks (199 mb – up 9 mb) and larger % ending stocks-to-use (39.8% - up from 37.5%) (Table 3).    

“Old crop” MY 2012/13 total supplies of 700 mb are up from 618 mb in MY 2011/12, but down from 832 mb in MY 2010/11 and 731 mb in MY 2009/10.  “Old crop” MY 2012/13 total use of 500 mb is up from 467 mb in MY 2011/12, down from 647 mb in MY 2010/11, and comparable to the range of 483-547 mb during the MY 2007/08 to MY 2009/10 period.  

“Old crop” MY 2012/13 ending stocks of 199 mb (39.8% S/U) compare to 151 mb (32.3% S/U) in MY 2011/12, 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 extremely tight ending stocks 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 2012/13

                  (May 10, 2013 USDA WASDE Report)

For “old crop” MY 2012/13 decreased U.S. SRW wheat food use (152 mb – down 3 mb), exports (195 mb – down 5 mb) and total use (510 mb – down 8 mb) led to an associated increase in ending stocks (115 mb, up 8 mb) and in percent ending stocks-to-use (22.5% - up from 20.7% in April) (Table 4).   

Table 4. U.S. Soft Red Winter Wheat S-D Balance Sheet: MY 2007/08 through MY 2012/13

                  (May 10, 2013 USDA WASDE Report)

 “Old crop” MY 2012/13 total supplies of 626 mb are down from 661 mb in MY 2011/12, but up from 508 mb in MY 2010/11 and 607 mb in MY 2009/10.  “Old crop” MY 2012/13 total use of 510 mb is the largest in four years, being comparable to 476 mb in MY 2011/12, 337 mb in MY 2010/11, 365 mb in MY 2009/10, and 531 mb in MY 2008/09.

“Old crop” MY 2012/13 ending stocks of 115 mb (22.5% S/U) are the lowest in five years, comparable to 185 mb (38.9% S/U) in MY 2011/12, 171 mb (37.9% S/U) in MY 2010/11, 242 mb (48.7% S/U) in MY 2009/10, 171 mb (27.6% S/U) in MY 2008/09, and to extremely tight ending stocks of 55 mb (14.0% S/U) in MY 2007/08.

Consistent growth occurred in World wheat usage over the MY 2007/08 – MY 2011/12 period (Figure 4).  However, projected wheat production problems in key areas and expectations of continued high feedgrain and wheat prices caused the USDA to lower its estimates of World wheat usage in “old crop” MY 2012/13.  A resumption of the longer term growth trend occurred in “new crop” MY 2013/14 – following from expected increases in World wheat supplies.  Overall, World wheat production, total supplies, trade, total use, and ending stocks are projected to increase in “new crop” MY 2013/14 from “old crop” MY 2012/13.  

Figure 4. World Wheat Usage & Ending Stocks: MY 2007/08 thru MY 2012/13                                            
(May 10, 2013 USDA WASDE Report)

Global wheat production in “new crop” MY 2013/14 is projected to be 701.1 mmt, up from 655.6 mmt in “old crop” MY 2012/13, from 696.9 mmt in MY 2011/12, and is above the range of 612-697 mmt over the MY 2007/08 through MY 2011/12 period (Figure 4).  Since MY 2008/09, World wheat production is projected to increase by an annual average of 0.4% or 2.9 mmt per year. 

Foreign (non-U.S.) wheat production is projected to be 645.1 mmt in “new crop” MY 2013/14, up from 593.9 mmt in “old crop” MY 2012/13, and up marginally from 642.5 mmt in MY 2011/12. 

Higher “new crop” MY 2013/14 wheat production is projected for: a) the EU-27 (138.8 mmt, up from 132.1 mmt last year and from 137.2 the year before), b) Russia (56.0 mmt, up from 37.7 mmt last year, and 56.2 mmt the year before), c) Canada (29.0 mmt, up from 27.2 mmt last year and 25.3 mmt the year before), d) Australia (24.5 mmt, up from 22.1 mmt last year, but down from 29.9 mmt the year before), e) Pakistan (24.0 mmt, up from 23.3 mmt last year, but down from 25.0 mmt the year before), f) Ukraine (22.0 mmt, up from 15.8 mmt last year, but down from 22.3 mmt the year before), g) Turkey (17.6 mmt, up from 15.5 mmt last year, but down from 18.8 mmt the year before), h) Kazakhstan (15.0 mmt, up from 9.8 mmt last year, but down from 22.7 mmt the year before), and i) Argentina (13.0 mmt, up from 11.0 mmt last year, but down from 15.5 mmt the year before).

Lower or unchanged “old crop” MY 2012/13 wheat production is projected for a) China (121.0 mmt, up only marginally from 120.6 mmt in “old crop” MY 2012/13, and from 117.4 mmt the year before), b) India (92.0 mmt, down from 94.9 mmt last year, but up from 86.9 mmt the year before), and c) the United States (56.0 mmt, down from 61.8 mmt last year, but up from 54.4 mmt the year before).

Global wheat usage in “new crop” MY 2013/14 is projected to be 692.0 mmt, up from 679.5 mmt in “old crop” MY 2012/13, and up from 687.8 mmt in MY 2011/12 (Figure 4). World wheat total use is projected to increase by an annual average of 1.8% or 10.8 mmt per year from MY 2007/08 through “new crop” MY 2013/14.  Foreign (non-U.S.) wheat use for “new crop” MY 2013/14 is projected to be 658.9 mmt, up from 637.4 mmt in “old crop” MY 2012/13, but down from to 664.8 mmt in MY 2011/12.  (Note: USDA Foreign Ag Service projections from psdonline on May 10^th are quoted for the World total use estimates, while May WASDE report figures are quoted for foreign wheat usage).

For “new crop” MY 2013/14, China is projected to be the largest domestic user of wheat at 120.5 mmt (up from 120.0 mmt are year ago, but down from 122.5 mmt two years ago).  China is closely followed by 2) the European Union (EU-27) (123.8 mmt – up from 120.0 mmt last year, but down from 126.3 mmt two years ago), 3) India (87.0 mmt), 4) North Africa (41.1 mmt), 5) Russia (37.5 mmt), 6) the United States (36.0 mmt), 7) selected Middle Eastern Countries (34.6 mmt), 8) Pakistan (23.5 mmt), 9) Southeast Asia (16.1 mmt), 10) Ukraine (12.0 mmt), 11) Brazil (11.2 mmt), 12) Canada (9.7 mmt), 13) Kazakhstan (7.2 mmt), 14) Australia (7.1 mmt), and 15) Argentina (6.1 mmt).

Projected World wheat exports in “new crop” MY 2013/14 of 143.3 mmt are up from 137.4 mmt in “old crop” MY 2012/13, and are comparable to 157.8 mmt in MY 2011/12, and 133.2 mmt in MY 2010/11.  Foreign (non-U.S.) wheat exports for “new crop” MY 2013/14 are projected to be 118.2 mmt, up from 109.5 mmt in “old crop” MY 2012/13, and comparable to 129.2 mmt in MY 2011/12.

Larger exports in “new crop” MY 2013/14 are projected for: 1) Russia (18.0 mmt, vs 10.7 mmt last year and 21.6 mmt the year before), 2) Ukraine (9.5 mmt, vs 7.0 mmt last year and 5.4 mmt the year before), 3) India (8.0 mmt, vs 6.5 mmt last year and 0.9 mmt the year before), 4) Kazakhstan (7.5 mmt, vs 6.5 mmt last year and 11.8 mmt the year before), and 5) Argentina (7.0 mmt, vs 5.0 mmt last year, and 12.9 mmt the year before). 

Smaller or unchanged exports in “old crop” MY 2012/13 are projected for: 1) the United States (25.2 mmt, down from 27.9 mmt last year, and down from 28.6 mmt two years ago), 2) Canada (18.5 mmt, vs 18.5 mmt last year, and 17.4 mmt the year before), 3) the EU-27 (17.0 mmt, vs 21.5 mmt last year and 16.6 mmt the year before), 4) Australia (17.0 mmt, vs 18.0 mmt last year, and 24.7 mmt the year before), and 5) Brazil (1.0 mmt, vs 1.7 mmt last year and 2.0 mmt the year before). 

Projected World wheat imports for “new crop” MY 2013/14 of 140.3 mmt are down from 142.0 mmt in “old crop” MY 2012/13, and 148.7 mmt in MY 2011/12.

Larger imports in “new crop” MY 2013/14 are projected for: 1) Southeast Asian countries – including Indonesia, the Philippines, Thailand and Vietnam (16.6 mmt, vs 15.3 mmt last year, and 17.4 mmt the year before), 2) the EU-27 (6.5 mmt, vs 5.7 mmt last year, and 7.4 mmt the year before), 3) other Former Soviet Union countries – excluding Russia, Kazakhstan and the Ukraine (6.2 mmt, vs 5.7 mmt last year, and 7.4 mmt the year before), and 4) China (3.5 mmt, vs 3.2 mmt last year, and 2.9 mmt the year before).

Smaller imports in “old crop” MY 2012/13 are projected for: 1) North African countries – including Egypt and Libya (20.6 mmt, vs 20.7 mmt last year, and 24.2 mmt the year before), 2) selected Middle Eastern countries – including Iraq, Iran, Saudi Arabia and Israel (15.8 mmt vs 20.0 mmt last year, and 16.3 mmt the year before), 3) Brazil (7.5 mmt, vs 7.7 mmt last year, and 7.3 mmt the year before), and 4) Russia (0.5 mmt, vs 1.0 mmt last year, and 0.5 mmt the year before).

World Wheat Ending Stocks

The USDA projected World wheat ending stocks in “new crop” MY 2013/14 to be 186.4 mmt (Figure 4), up from 180.2 mmt for “old crop” MY 2012/13, but less than 199.5 mmt for MY 2011/12, 199.2 mmt in MY 2010/11, and 201.7 mmt in MY 2009/10. 

Foreign (non-U.S.) wheat ending stocks for “new crop” MY 2013/14 are projected to be 168.1 mmt, up from 160.3 mmt in “old crop” MY 2012/13, but down from 179.3 mmt in MY 2011/12. 

World Wheat % Ending Stocks-to-Use

The USDA also projected that World wheat % ending stocks-to-use for “new crop” MY 2013/14 will be 26.9%, up from 26.5% in “old crop” MY 2012/13, but less than 29.0% for MY 2011/12, and 30.5% for MY 2010/11, and 31.0% in MY 2009/10.  The tightest supply-demand balances in the World wheat market since at least the early 1970’s occurred in MY 2007/08, when ending stocks declined to 128.8 mmt, and % ending stocks to use dropped to 21.0%.

Foreign (non-U.S.) wheat % ending stocks-to-use for “new crop” MY 2013/14 are projected to be 25.5%, up from 25.1% in “old crop” MY 2012/13, and 27.0% in MY 2011/12.

Relationship Between World Wheat % Ending Stocks-to-Use & U.S. Wheat Prices

Similar to the relationship between U.S. wheat ending stocks-to-use and U.S. average wheat prices (see Figure 3 above), since MY 1973/74 a negative relationship has existed between U.S. wheat season average cash prices and World wheat % ending stocks-to-use – but with a notable adjustment or “jump” after MY 2007/08 (Figure 5).  As expected from economic theory, larger World wheat supply-demand balances (i.e., higher percent ending stocks-to-use) are typically associated with lower U.S. wheat prices, while smaller supply-demand balances are usually associated with higher wheat prices – all else being equal. 

The notable “adjustment” to higher prices for the same range of percent World wheat ending stocks-to-use levels since MY 2006/07 is likely due to cross market impacts from both increased World soybean export demand (mainly from China), and expanded use of U.S. corn for renewable energy production.  As in Figure 3 earlier, U.S. wheat prices in Figure 5 are reported on a nominal basis (i.e., not adjusted for inflation).  

Whereas the minimum U.S. wheat percent stocks-to-use since MY 1973/74 was 13.2% in the historic tight stocks year of MY 2007/08, the historic minimum in World wheat percent stocks-to-use occurred in that same marketing year at 21.0%.  Since that time, World wheat ending stocks-to-use have not gotten below the vicinity of 26.5% in both MY 2008/09 and the current “old crop” 2012/13 marketing year %.

Figure 5. U.S. Wheat Price vs % World Stocks-to-Use (MY 1973/74 through projected MY 2012/13)