Source: U.S. Wheat Associates Wheat Letter
by Joe Sowers, USW market analyst

USDA released its first U.S. and world wheat supply and demand estimates for the 2005/06 marketing year, and their world wheat outlook is characterized by a large 2005/06 crop coming on the heels of last year’s record production, resulting in the world’s major wheat exporters holding high stocks. U.S. wheat exports are projected down in 2005/06. European and Black Sea exporters will be competing for the North African markets while import demand in the Chinese and other Asian markets appears to be decreasing in this next marketing year.

USDA expects world wheat area harvested to be essentially the same this year, increasing only about 1 million hectares (MHA) or 0.4 percent. USDA has revised the expected yield down slightly from last year’s well-above-trend yield of 2.88 MT/HA (43 bu/ac) to 2.82 MT/HA (42 bu/ac). The lower expected yield leads to a 615.2 million metric ton total world production estimate, a 1.6 percent (9.7 MMT) decline from 2004/05. If the forecast proves accurate, it will be the second highest crop of all time. Crop conditions and weather around the world have been good to excellent. The only weather problems that have developed are a severe drought on the Iberian peninsula that will increase import demand from Spain and Portugal, a persistent lack of rain in eastern Australia which could limit their exports, and recent dryness concerns in the U.S. winter wheat belt.

Reduced seeded acreage and a return to average yields in Canada and the EU-25 will result in unchanged or decreased production in those areas in 2005/06. Canadian and European production is expected to decline by 9.3 percent (2.4 MMT) and 6.7 percent (9.2 MMT) respectively. Considering the drought in Australia, USDA’s estimate of a 7 percent (1.5 MMT) increase in Australian production could prove optimistic. Production by the other major traditional exporters should remain nearly unchanged this year: U.S. up 1.3 percent, Argentina down 3.1 percent.

Important production changes in traditional importing countries for the coming year are 2 MMT increases in both China (2.2 percent) and Pakistan (10.5 percent), and a 48 percent (2.6 MMT) decrease in Morocco. These changes are expected to cause a an elevation of the importance of the market in North Africa in 2005/06. Other production changes that could affect international markets are increases in India by 2.7 percent (1.9 MMT), Mexico 20.7 percent (550,000 MT), and Egypt 2.5 percent (170,000 MT). Production declines are expected in Brazil 16.9 percent (1 MMT), Turkey 5.6 percent (1 MMT), and Chile 14 percent (260,000).

World consumption is forecast to set a new record of 612.9 MMT, up 8.0 MMT from 2004/05 and will exceed production again. Crop year 2004/05 was the first year since 1999/00 that stocks were rebuilt. USDA expects population growth, especially in South Asia and North Africa, to drive food use increases while ethanol plants in Europe will lead to additional industrial use. Feed use will be up throughout Europe and the Former Soviet Union due to smaller corn and barley crops. With consumption again expected to outpace production, world ending stocks are forecast down 2.1 MMT to 147.4 MMT. With the exception of 2003/04, it would be the lowest stock levels seen since 1989/90.

World wheat trade is forecast to increase 1.9 MMT to 108.2 MMT in 2005/06. Among the five major wheat exporting countries, exports are forecast to increase substantially only in the European Union (up 2.5 MMT to 16 MMT). Australia and Canada are both expected to increase exports by 500,000 MT to 16.5 MMT and 15.5 MMT respectively. Argentine exports are expected to stay unchanged at 10.5 MMT. U.S. exports are expected to decline from 2004/05 by 2.7 MMT to 25.9 MMT.