by Joe Sowers, US Wheat Associates market analyst

While USDA’s initial estimates for U.S. wheat production in the 2006/07 marketing year confirm a dire situation for U.S. HRW supplies, the situation for soft wheats isn't so dire. Forecasts indicate a strong rebound in soft red winter wheat production. Soft white wheat production, generally grown in the Pacific Northwest, is expected to fall by only 135,000 MT or 2 percent of the total U.S. SW crop.

USDA's most recent World Agriculture Supply and Demand Estimates (WASDE) also shows an expansion in world soft wheat import markets, while production in the Black Sea region -- a major source of soft wheat -- is expected to fall. Expanded U.S. production combined with weakened international competition and stronger world markets provides optimism for U.S. soft wheat exports -- both white and red -- this year.

U.S. soft wheat producing states have had nearly ideal growing conditions this year. After wet conditions kept plantings very low for the 2005/06 crop year, SRW production this year is projected to rise substantially. The top three SRW producers -- Ohio, Illinois and Missouri -- are expected to increase production by 12, 50 and 58 percent respectively, representing a combined 1 MMT increase over last year’s production in those states. USDA projections indicate that total SRW production will be 10.1 MMT, 20 percent above last year.

During years with strong harvests, the Black Sea region is a major competitor in soft wheat markets, particularly in the Middle East. Due to extensive winterkill this year, USDA projects production in Russia and Ukraine to fall by 12 and 47 percent respectively, or 15 MMT. Due to the production decline in the region, exports are projected to decline by 35 percent or 7 MMT.

On the import side the biggest story is India. After 5 years of self-sufficiency, this year India’s import program is forecast to explode to 4.5 MMT. The WASDE projects imports by major soft wheat buyers Egypt, Mexico and Yemen to remain stable with last year.

On a FOB basis, U.S. soft white supplies are currently the most competitively priced milling wheat in the world. According to offers made to Egypt’s GASC (General Authority for Supply Commodities) on April 26, U.S. soft white wheat was priced at $134.54/MT compared to $135.95/MT for Canadian, $137.47/MT for French, $139.00/MT for Russian and $143.00/MT for Australian.