Washington, DC, USA
December 10, 2009
Source: U.S. Wheat Associates Wheat Letter
by Chad Weigand, USW Market Analyst
In its latest Grains Market Report, the International Grains Council (IGC) forecasts a one percent reduction in global wheat plantings, down from 223.5 million hectares (MH) this year to 222 MH in 2010/11. The IGC anticipates lower production for two of the world’s largest exporters, the U.S. and Russia. With markets reacting with generally sideways movement at relatively low prices, U.S. wheat value remains strong.
According to IGC, U.S. planted area should decrease by 2.5 percent, the largest decrease among major wheat producers, but it forecasts U.S. winter wheat plantings down 4.0 percent. Lower prices are the primary factor discouraging wheat sowing. Average wheat prices in October, when most winter planting decisions are made, indicated a price drop from $6.64/bu in 2008 to $4.57/bu in 2009.* IGC said soft red winter wheat (SRW) should see the largest decrease because of weather-delayed plantings and upside profit potential in alternative crops. U.S. market analysts agree. Their downside projections for SRW plantings range from 15 percent to 30 percent.
Prices are also likely to affect plantings in southern California and Arizona desert regions that produce high quality durum. “With the durum wheat price at or below the cost of production, we expect planted area in the Imperial Valley to drop from 110,000 acres to between 50,000 acres to 60,000 acres,” California producer Roy Motter said. USW Past Chairman Michael Edgar is based in Yuma, AZ. He predicted a 30 percent to 40 percent decline and said he would not be surprised if Arizona Desert Durum® plantings dropped even more.
In the Black Sea region, IGC estimates 2010/11 planted area to be similar to 2009/10, but is expecting a two percent decrease in harvested area for both Russia and Ukraine due to winterkill. Mild winters the past two years have decreased abandonment, but a return to average winterkill losses could reduce production in the Black Sea.
Winter wheat production in eastern Canada may also fall. Similar to the U.S., eastern Canadian producers experienced soybean harvest delays that reduced wheat planting to an estimated 0.3 MH, down from 0.4 MH last year. In China, the largest wheat-producing country, plantings will be similar to last year, but freezing temperatures in the north could damage the crop.
The bullish IGC report reiterates the point that U.S. wheat remains an excellent value. As lower production levels draw down global stocks in the face of steady demand growth, there remains more upside price risk than downside potential to buyers.
USW and its state wheat commission members continue working closely with customers to identify innovative ways to increase returns from U.S.-sourced wheat. For example, USW Regional Technical Director Peter Lloyd recently traveled to South America to demonstrate the value of blending soft white (SW), donated by the Washington Grain Commission, with dark northern spring (DNS) or hard red winter (HRW). Lloyd reports initial results show high milling yields and bread products with loaf volumes comparable to standard blends, and expects excellent returns compared to competitive origin wheats.
You can monitor U.S. wheat export prices and basis levels in the USW Price Report section of the organization’s Web site at http://www.uswheat.org/reports/prices.
*Source: USDA Economic Research Service
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