Urbana, Illinois
March 19, 2007
University of Illinois
Extension - Weekly Outlook
Wheat price volatility will likely
continue due to the uncertainty about U.S. and world production
of wheat and other crops, said a
University of Illinois
Extension marketing specialist.
"However, the longer term price trend may be lower as current
high prices will likely lead to large crops and more abundant
world stocks," said Darrel Good. "If so, pricing opportunities
may be best early in the 2007-08 marketing year."
Good's comments came as he reviewed the U.S. and world wheat
situation which has taken a back seat in terms of market focus
to corn and soybean planting intentions in the United States.
"In the big picture, the question is whether the short crop,
tight wheat supply situation of the current marketing year will
give way to a more abundant U.S. and world supply scenario," he
said.
In January, the USDA reported that U.S. producers seeded 44.089
million acres of winter wheat for harvest in 2007. That estimate
is 3.514 million above the area seeded for harvest in 2006. Area
seeded to soft red winter wheat was estimated at 8.33 million
acres, about 13 percent more than seeded a year earlier.
"The increase was stimulated by relatively high wheat prices,
even though supplies of soft red winter wheat remained abundant,
and generally favorable seeding conditions," said Good. "The
exceptions to favorable seeding conditions were in Indiana,
Kentucky, and Ohio where wet weather delayed the fall harvest
and prevented wheat seeding. The largest increases in soft red
winter wheat acreage were in the Delta states and southeastern
states."
Area seeded to hard red winter wheat for harvest in 2007 was
estimated at 31.9 million acres, up 9 percent from area seeded
the previous year. Increases were registered in all major
producing states as high prices encouraged seedings even in
areas of moisture deficits. Acreage increases were especially
large in the Dakotas, following declines the previous year.
"There has been some speculation that winter wheat producers
might choose to replant some acreage to spring-planted row
crops, particularly corn, due to high prices of these other
commodities," Good noted. "However, wheat prices remain
relatively high and the wheat crop is thought to be in generally
good condition. Current weather patterns maintain the potential
for relatively high wheat yields, making replacement with
spring-planted crops a very risky decision."
The USDA's March 30 Prospective Plantings report will reveal
producers' intentions for seeding spring wheat. Spring wheat,
including durum, is seeded primarily in the Dakotas, Montana,
and Minnesota with lesser amounts in Idaho and Washington.
Good said that the general expectation is that producers will
reveal intentions to reduce seedings of spring wheat in favor of
corn and perhaps oilseeds.
"The decline is anticipated even though spring wheat prices
remain relatively high because of the increase in winter wheat
seedings and the high prices of other crops," he said.
The 2006-07 world wheat crop is estimated at 21.79 billion
bushels, 4.4 percent smaller than the crop of 2005-06 and 5.6
percent smaller than the record harvest of 2004-05. Large
year-over-year production declines were registered in the Unites
States, Russia, Ukraine, Europe, and Australia. The largest
decline occurred in Australia, where the crop totaled 386
million bushels, only 42 percent of the size of the previous
harvest.
"As a result of the small world harvest, world consumption,
trade, and ending stocks have declined significantly this year,"
said Good. "The USDA projects the 2006-07 U.S. average farm
price for all classes of wheat at $4.25 per bushel, the third
highest behind the $4.55 of 1995-96 and $4.30 of 1996-97.
"History suggests that period of reduced supply and high prices
are followed by a fairly significant world production response."
The high prices of 1974-75, 1980-81, 1988-89, and 1995-96 were
followed by relatively large increases in world wheat acreage.
Acreage tended to stay large in the second year following high
prices and then declined as world supplies became more abundant.
"It should be expected, then, that world wheat acreage will
increase this year, but production will be dependent on weather
and average yields," he said. "Much of the focus will be on
Australia to see if precipitation returns to more normal levels
following the recent drought conditions.
"Wheat prices have been quite volatile over the past year as the
short crops unfolded. July 2007 wheat futures at Chicago moved
above $4 in February 2006 and broke above $5 in November 2006.
That contract reached a high near $5.18 in late February 2007,
but is currently trading near $4.70." |
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