Monday, May 16, 2011
US Wheat Production Is Challenged As The World Returns To Normal
“Amber waves of grain” may be more poetic than anything else this year as the US wheat crop will have substantial variation in quality when combines begin the 2011 new crop harvest. The outlook for the 2011-2012 marketing year calls for reduced supplies of wheat in the US, but sufficient supplies to meet global demand.
Compared to the marketing year that will soon end, the domestic wheat carryover will decline 16% as wheat supplies will drop 9% due to lower production. In its monthly Wheat Outlook, USDA’s Economic Research Service says total production in 2011 will be 2.043 bil. bu. which is a 7% decline from the old wheat crop. Winter wheat production will drop 4% to 1.424 bil. bu. Based on the May 1 crop conditions, the yield is expected to be 44.5 bushels per acre, which is 2.3 bushels lower than 2010.
1) Hard red winter wheat will be down 25% from a year ago due to high abandonment rates and a severe drought in the Central and Southern Plains, with a 35.6 bushel per acre average yield.
2) Soft red wheat production will be up 79% from last year, all due to the field conditions at planting. Conditions were near perfect in the fall of 2010, and were just the opposite in the fall of 2009 which kept many farmers from harvesting corn and soybeans and were unable to get soft wheat planted in the Eastern Cornbelt.
3) White winter wheat will be up 3%, with 12 mil. bu. of hard white and 224 mil. bu. of soft white, compared to the 2010 production of 13 mil. and 216 mil. respectively.
Crop conditions vary widely, with particularly poor crops in the southern portion of the wheat belt. USDA says, “Conditions are the worst in Texas and Oklahoma, but Colorado and Kansas are not far behind. In Texas and Oklahoma, 76 percent and 77 percent, respectively, of the wheat crop is rated poor to very poor. In Colorado and Kansas, 41 percent and 50 percent, respectively, of the wheat crop is rated poor to very poor. Fifteen percent of the Nebraska crop is rated poor to very poor.” In recent weeks, flooding conditions have impacted crops in Missouri and Arkansas where nearly one quarter of their crops are rated poor to very poor.
Spring wheat production is projected at 619 mil. bu. which is down 14% from last year based on acreage and trend yield. However, planting has been delayed by wet conditions, and is well behind averages for this point in the year.
On the USDA’s production balance sheet, lower carry-in and lower production will erode the surplus at the end of the marketing year, but stocks will still be abundant. For the new crop, use will decline 7% due to fewer exports. Exports will be down 225 million bushels from the current year, a function of the increased volume of wheat being produced in the Black Sea region that was struck by drought a year ago. Domestic use will be up slight from the current year, and ending stocks will be 702 mil. bu. which is a 137 mil. bu. decline. USDA is forecasting the season average price to range from $6.80 to $8.20, compared to the $5.65 average price for the marketing year that will soon end.
Globally, production will be increasing 3% from last year with the help of a more normal crop in the Former Soviet Union, which sustained drought problems in the spring of 2010. USDA sources say the 2011 crop could be the third largest ever if yield projections remain on track. Plantings have increased due to prices, and they should expand everywhere except for steady acreage in the European Union and reduced acreage in the former Soviet Union. USDA says the acreage would have increased more, had it not been for competition from other high value crops, poor planting conditions last fall in some areas, and government interference in prices.
The EU will remain the world’s largest producer with 20% of the crop, and a 2% increase in production. China is in second place with 17% of global production and 0.5% increase in expected production. Globally, wheat use from the new crop is expected to increase about 1%, with ending stocks declining slightly due primarily to the decline in US stocks. Even though US exports will be down in the coming year, world wheat trade will be nearly unchanged from the old crop. The resumption of exports from the Former Soviet Union is expected to replace US exports, which filled in the gap left a year ago, according to USDA, “The main reason for the increase for all 3 countries is the recovery of wheat production after last year’s extremely adverse weather. In Russia and Ukraine, government intervention into grain markets (a complete ban in Russia, and restrictive export quotas in Ukraine) drove domestic wheat prices down to about $200/ton, $100 or more below current world prices.”
Summary:
Global wheat production will return to normal following the Russian drought a year ago, and that means fewer exports for the US wheat producer. However, US wheat farmers are having production problems of their own with drought that has reduced yields in the central and southern wheat belts. US production will be down, but there will be sufficient supplies to meet all domestic needs as well as provide some exports.
Posted by Stu Ellis on 05/16 at 12:00 AM | Permalink
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Posted by: Jib at May 17, 2011 11:11AM
Low Priced Sweetness may Sour Corn Prices
Sugar prices, at the NYMEX, have dropped from just under $0.30 in February 2011, to just under $0.22 a pound today. This is around a 25% decline. Corn’s decline from highs to current levels was about a third of sugar on a percentage basis. July 2011 sugar contract traded the last half of 2009 in the $0.17 to $0.18 per pound range. The reason for the price raise and subsequent decline is attributed to worldwide sugar production levels.
The increase in sugar prices is believed to be a major reason for the increase in corn based ethanol exports. The return of sugar prices to the teens might mean Brazilian sugarcane based ethanol could be in a position to displace US corn based ethanol in the world market. Current estimates place US ethanol exports at around 6% of production. Should sugarcane based ethanol displace half of the US’s corn based ethanol in the export markets, 150 million bushel of corn could become available; allowing for other uses or increasing ending stocks. Many factors come into play when trying to predict US corn based ethanol’s competiveness in the world market including but not limited to: currency relationship, trade and tariff barriers for sugar and ethanol, petroleum prices and ethanol supply and demand. So even with a decline in sugar prices, it is not a forgone conclusion that US ethanol exports will decline.
May’s WASDE report projects 2011-12 US sugar stocks at half the level in 2010-11; a low for resent years. (Production numbers are based on March estimates.) Sugar beets account for almost 60% of the sugar produced. The balance is from sugarcane. (The US is about 5% of World sugar production and Brazil is about 25%.) Over half of the sugar beet production comes from the Red River Valley of Minnesota and North Dakota; about 30% of total US sugar production. The optimum planting widow for sugar beets ends May 10 for this northern growing region. The last crop progress report had sugar beet planting in Minnesota and North Dakota at about a third of the 5 year average. The late planting in this area might reduce US sugar production by 2% if a return to “normal” planting rate is accomplished this week. A production decline with the tight projected ending stocks may warrant an increase in imports. The US imports about 20% of its domestic consumption; about 1.25% of world production. So a possible reduction in northern sugar beet production should not be a major market mover as long as the beets are planted. (Each 10% increase in prevented planting, about 67,000 acres, would indicate a 10% increase in imports from current projections.)
A return to “normal” worldwide sugar production indicates lower sugar prices. These lower prices may move more of Brazil’s sugarcane production to ethanol production rather than being exported as sugar. This has a chance of placing US corn based ethanol exports at a competitive disadvantage; reducing production, allowing for other use or increasing ending stocks. The challenges of the Red River Valley may increase US import but will probably not be a large factor in world sugar prices. Many factor come into play when looking at these relationships, so a clear-cut indication of price movement is not forth coming. A continued decline in sugar prices maybe one factor that provides downward pressure on corn prices.
Jib aka Gibberish