Outlook for Wheat

by Chrystal Shannon
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Economists look for prices to trend higher amid changing fundamentals.

Plentiful wheat supplies and intense competition among major exporters have led to consistent pressure on wheat prices in recent years. But that downward trend could be set for a reversal, according to some analysts, as wheat supply/demand fundamentals appear to be changing.

The monthly average U.S. spring wheat price at the end of January was U.S.$130 a tonne, 6.3% lower than it was at the same time in 2001 and some 15% below the average since 1990, according to economists at the Bank of Montreal. But longer-term fundamentals are much stronger than they have been for some time, they said, and prices are expected to advance over the next two years.

The U.S. Department of Agriculture in mid-February projected 2001-02 world wheat ending stocks at 152.31 million tonnes, off 7% from 164.18 million tonnes held in world stores at the end of 2000-01. If the 2001-02 projection is realized, global ending stocks would be the smallest since 145.4 million tonnes in 1996-97.

The decline in the carryover projection from January resulted from an increase in projected world consumption that more than offset a narrow increase in projected 2001-02 production, USDA said.

The lower ending stocks figure would result in a stocks-to-use ratio of 25.8% and would mark the third consecutive season of declines in the ratio. That ratio also would be the lowest since 1996-97, when it was 25.3%. The ratio’s recent peak was 30.2% in 1998-99.

World wheat use in 2001-02 was projected at 590.51 million tonnes, up 1.26 million tonnes from 2000-01. Feed use is expected to reach slightly more than 103 million tonnes, the highest since 1993, when feed use was 108 million. The record for feed use of wheat was set in 1990-91 at 130.6 million tonnes.

World imports of wheat in 2001-02 were projected at 128.11 million tonnes, up 2.27 million tonnes from 125.84 million tonnes the year before.

Projected E.U. wheat imports were put at 28.33 million tonnes, the highest since at least 1961-62, despite the E.U.’s status as one of the world’s largest exporters. Indeed, E.U. wheat import licenses in the first six months of the year exceeded export licenses.

High domestic prices, largely stemming from a sharply reduced crop and strong demand combined with import duties falling to zero, have resulted in the significantly increased E.U. imports, USDA said.

For the 2002-03 crop, the weather in the U.S. Plains is a continuing concern, as moisture shortages have resulted in poorly developed root systems in some areas.

As of the end of January, the Kansas wheat crop was rated 27% good to excellent and 32% poor to very poor. At the same time last year, the crop had a better rating, with 41% rated good to excellent and 29% rated poor to very poor.

In Texas, the wheat crop was rated 25% good to excellent and 40% poor to very poor versus 2001 ratings of 23% good to excellent and 25% poor to very poor. Similarly, Oklahoma wheat was rated 14% good to excellent and 56% poor to very poor against 48% rated poor to very poor at the same time last season.

Nebraska was the only Central Plains wheat state to report better conditions than last season. The Nebraska wheat crop was rated 54% good to excellent and 6% poor to very poor, compared with 36% rated good to excellent and 18% poor to very poor in 2001.