Grain market review: Wheat

by Teresa Acklin
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   Although the 1993-94 world wheat situation in total looks similar to 1992-93, different supply/demand fundamentals within specific countries could change trade and price prospects.

   As the 1993-94 crop year in most countries began in July, analysts predicted little variance from the previous year in total world production, consumption, trade and ending stocks.

   International Wheat Council analysts indicate production, consumption, trade and stock totals will decline in 1993-94, but only by 1% or less in each case. The U.S. Department of Agriculture estimates world consumption will increase — but by a mere 1.1% — and ending stocks will dip by less than 2%.

   Despite these nominal changes in the total outlook, significant differences from last year are projected within individual countries. These changes could make trade and price patterns behave quite differently from last year.

   For instance, even though world ending stocks should decline slightly, U.S. stocks are expected to jump by some 40% amid a projected 6% production increase and a 13% drop in exports. Meanwhile, Australia's exports are projected up 30% from the previous year.

   China is expected to import about 30% more wheat in 1993-94 than in the previous year, but import needs in India, Africa and Oceania are forecast to decline because of markedly increased harvests.

   Modest changes are foreseen elsewhere. In the former Soviet Union, total production should drop by about 5%, but that is not likely to result in more imports. Indeed, imports are expected to decline slightly in light of continuing economic adjustments and financial problems.

   European Community production is expected to decline by about 3%, a result of the Common Agricultural Policy's land set-aside program. E.C. exports should be near unchanged or slightly lower.

   U.S. wheat quality this year again may become problematic because of persistent rains in the U.S. midsection. Spring rains and cool temperatures have reduced protein in the U.S. hard red winter wheat crop.

   As the hard red wheat harvest passed the halfway point, average protein was lower than normal, at less than 12%. Any similar problems in the North American spring wheat harvest could bring a repeat of last year's protein shortages.

   July rains also were beginning to affect the overall quality of unharvested wheat, with lower test weights and higher moisture content reported.

   These quality issues complicate efforts to assess the potential course of world wheat prices this year.

   Many analysts expect prices to come under pressure, partly because of fierce competition among major exporters. Indeed, the U.S. announcement of a 32-million-tonne 1993-94 wheat Export Enhancement Program drew criticism from other exporters, indicating the battle for export share will continue.

   Those anticipating price pressure also point to larger harvests in the U.S., Australia and in some importing countries. Additional pressure could develop if the former Soviet Union and China failed to import as much as expected.

   On the other hand, many analysts have turned cautious about predicting significant price pressure because of adverse weather in the U.S. this summer. In addition to the threat to wheat quality, flooding rains are expected to curtail the 1993 harvest of U.S. maize and soybeans.

   As of mid-July, floods and rain had damaged or destroyed nearly 5 million ha, or about 10% of planted area, in seven prime producing states in the middle U.S., and final losses were expected to be larger. These states account for more than 55% of all U.S. crop land planted to grains and oilseeds.

   Any sustained flood-related strength in U.S. maize and soybean prices would tend to limit pressure on U.S. and world wheat prices, regardless of wheat fundamentals.