WHEAT YEARBOOK March 7, 1997
Approved by the World Agricultural Outlook Board
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WHEAT YEARBOOK is published annually by the Economic Research Service,
U.S. Department of of Agriculture, Washington, DC 20005-4788. WHS-1997.
Please note that this release contains only the text of the WHEAT YEARBOOK
--tables and graphics are not included.
Printed copies of this yearbook are available from the ERS-NASS order desk.
Call, toll-free, 1-800-999-6779 and ask for stock #WHS-1997, $15. ERS-NASS
accepts MasterCard and Visa.
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Contents
Summary
Wheat Prices Likely To Weaken in 1997/98
Outlook for 1997/98
U.S. Winter Wheat Seedings Plummet; But Prices Likely To Fall
Box: Update on Karnal Bunt Situation
by Mark Simone and Sara J. Schwartz
Declining Prices Likely To Slow World Wheat Production Increases
Situation and Outlook for 1996/97
U.S. Prices Weaken Despite Continued Tight Supplies
World Wheat Trade Continues To Decline; 1996/97 Supplies Larger
Box: Market Reforms Cause Shift to Wheat in the NIS (Former Soviet Union)
by Jay Mitchell
U.S. Exports Slump in 1996/97 as the U.S. Market Share Drops
Wheat by Class
Hard Red Winter Supplies Remain Tight; Domestic and Foreign Buyers
Substitute Other Classes
ERS Wheat Information: How To Get It Fast and Often
Special Articles
Wheat and the Conservation Reserve Program: Past, Present, and Future
by C. Tim Osborn
China: Food Security Concerns Affect Wheat Imports
by Frederick W. Crook and Sara J. Schwartz
U.S. Competitors Respond Dramatically to High World Wheat Prices
by Linda Bailey, Chris de Brey, Susan Leetma, Mark Simone, James Stout
Forecasting Feed and Residual Use of Wheat
by James N. Barnes
Farm Characteristics, Income, and Costs in 1994
by Mir Ali
List of Tables
Situation Coordinator
Sara J. Schwartz (202) 219-0768
Principal Contributors
Sara J. Schwartz (202) 219-0768
Edward W. Allen (202) 219-0831 (International)
Jenny R. Gonzales (202) 501-8552 (Statistical)
Summary
Wheat Prices Likely To Weaken in 1997/98
U.S. wheat prices are likely to move lower in 1997/98, despite expectations
that the wheat crop will be little changed from this year. Increased carryin
stocks will lead to a small rise in 1997/98 supplies, but little year to year
growth in use is expected. Thus ending stocks are likely to continue to
accumulate and prices fall. Increased carryin stocks in other exporting
countries and only modest growth in global import demand will pull world wheat
prices lower, pressuring U.S. prices down.
U.S. wheat supplies are expected to rise in 1997/98. Beginning stocks are
projected up 26 percent from 1996/97's low level and imports are likely to
rise. Winter wheat acreage is estimated down 7 percent and spring wheat area
is also likely to decline. However, a much larger proportion of the planted
acres will be harvested for grain than in 1996 and yields should be higher. In
1996/97 adverse weather in the Central and Southern Plains and the Corn Belt
led to below average yields and an unusually small percentage of planted acres
was harvested for grain.
Demand for U.S. wheat is likely to increase only moderately. Domestic use is
likely to fall as feed and residual use declines. Although wheat prices are
expected to be significantly lower in the first quarter of 1997/98 than a year
earlier, prices for corn will also be much lower than a year ago when supplies
were extraordinarily tight. The change in relative prices will make wheat less
competitive in feed rations than in 1996/97.
Unlike 1996/97, competitors will enter the 1997/98 marketing year with large
stocks, providing intense competition for U.S. exporters. Dramatically lower
prices in 1996/97 are expected to curtail acreage planted to wheat in foreign
exporting countries, especially Canada, Australia, and Argentina. However,
most of the major foreign exporters will carry large stocks into the new
marketing year and only moderate import growth is expected. Northern
Hemisphere growing conditions have been mixed. Extreme cold in Europe has been
accompanied by snowfall that has prevented winterkill in many areas. Moisture
conditions have been favorable in Morocco and Spain, but Tunisia and Algeria
have been drier than average. Normal weather conditions prevail in China and
India.
For 1996/97, U.S. wheat supplies are estimated to be the lowest since 1975/76,
due to extremely small beginning stocks and poor winter wheat production.
Total use is projected down 5 percent from 1995/96 because of expanding foreign
production and sharp competition for a smaller global market. U.S. exports are
forecast at 950 million bushels, down sharply from 1995/96. Season average
farm prices are forecast at $4.20 to $4.40 per bushel, but monthly farm prices
have been declining from the record highs achieved in the spring of 1996.
Five special articles are included in this issue. They are "Wheat and the
Conservation Reserve Program: Past, Present, and Future," "China: Food
Security Concerns Affect Wheat Imports," "U.S. Competitors Respond Dramatically
to High World Wheat Prices," "Forecasting Feed and Residual Use of Wheat," and
"Farm Characteristics, Income, and Costs in 1994."
Outlook for 1997/98
Winter Wheat Seedings Plummet; But Prices Likely To Fall
U.S. winter wheat plantings are estimated down 7 percent from 1996/97, and the
lowest since 1978. However, there may be little year-to-year decline in
harvested acreage of winter wheat, assuming normal weather conditions in the
coming months. Spring wheat acreage is likely to drop from last year's near-
record level, but weather conditions this spring and summer will determine
whether total wheat production will fall. Exports are likely to rise, domestic
use to decline, and prices are likely to drop. USDA will release its first
forecast of U.S. and world wheat supply and use for 1997/98 on May 12.
U.S. Winter Wheat Plantings Lowest Since 1978
Winter wheat plantings for the 1997 crop fell to 48.2 million acres, the lowest
since 1978 and well below market expectations. Despite the 7-percent drop in
planted acreage, little year-to-year decline in harvested acreage is expected,
assuming normal weather conditions in coming months. In 1996, an unusually
large portion of the crop was not harvested for grain because of drought and
winterkill.
Several factors explain the decline in winter wheat seedings, including the
late soybean harvest, adverse weather at planting and disease concerns in the
eastern Corn Belt, the late sorghum
harvest in Kansas, dry weather at planting in Montana and Washington, and
increased planting flexibility resulting from the 1996 farm legislation. 1/
1/ For more information on the 1996 farm legislation, see The 1996 U.S. Farm
Act Increases Market Orientation, by C. Edwin Young and Paul C. Westcott,
Commercial Agriculture Division, Economic Research Service, USDA, Agriculture
Information Bulletin, No.726, August, 1996.
Also, in contrast to the fall of 1995 when wheat prices were rising, cash
prices in the autumn of 1996 were falling rapidly and new-crop futures market
prices indicated that producers could expect sharply lower harvesttime prices
than were observed in 1996. Most States that expanded winter wheat acreage in
response to rising wheat prices in the fall of 1995, scaled back wheat
plantings in 1996.
Hard red winter (HRW) wheat plantings are estimated down 5 percent (1.7 million
acres) to 34.1 million acres. Greater planting flexibility, growing demand for
feed grains in the Southern Plains, the late sorghum harvest in Kansas, and dry
weather in Montana contributed to the drop in HRW plantings.
The 1996 farm legislation freed producers from base acreage restrictions,
allowing them to
plant other crops. In the Southern Plains, demand for feed grains is growing.
Feed grain acreage has been expanding in the Central and Southern Plains in
recent years and increased flexibility is likely to hasten the shift. Relative
net returns favor corn over wheat in eastern Kansas and on irrigated land.
Favorable returns from sorghum in 1996 will encourage producers in dryland
areas to incorporate sorghum into crop rotations in 1997. Sunflowers will also
be an attractive rotation crop in parts of Kansas.
Planting was delayed in the Southern Plains because of wet weather. But the
resulting favorable
soil moisture meant that planting conditions were much improved over a year ago
when drought hindered planting and germination. However, farmers in Kansas,
the largest wheat producing State in most years, planted only 11.4 million
acres, 3 percent less than a year earlier, and the lowest since 1988 when 3.4
million acres were idled under annual programs.
Producers in Oklahoma reduced winter wheat acreage 3 percent to the lowest
since 1973. In Texas, winter wheat plantings remained unchanged from a year
earlier. Nebraska winter wheat area continues to trend downward and HRW
plantings in Montana dropped 23 percent because of dry weather. Plantings in
South Dakota are down 17 percent to a more normal level after unusually large
HRW plantings last year.
Soft red winter wheat (SRW) plantings are estimated down 15 percent (1.8
million acres) to 9.97 million acres, the lowest since the 1994 crop. Wet,
cool weather at planting in the fall of 1996 explains much of the decline,
particularly in Arkansas and Missouri, where wheat planted area is estimated
down more than 30 percent from a year ago. By the time the fields had dried
out enough to plant, the temperatures were too cold.
Wet weather was also a factor in the acreage decline in the three largest SRW
producing States, Illinois (down 30 percent), Indiana (down 18 percent), and
Ohio (down 11 percent). The late row crop harvest prevented some producers
from getting into their fields in time to plant wheat, and the 1996 disease
outbreaks in those States likely discouraged some producers from planting wheat
again. Reportedly, spot shortages of seed also occurred. Some SRW area
increases occurred in the Southeastern States, but the declines in the Corn
Belt overwhelm these small gains.
In the eastern Corn Belt, corn and soybeans are likely alternatives to wheat
and bring higher net returns. However, by September, the prices of all three
crops were clearly in decline and producers' experience with low wheat yields
in 3 of the last 5 years may have been a deciding factor in the shift away from
wheat.
Winter white wheat planted acres are estimated down 5 percent (204,000 acres)
to 4.19 million. Most of the drop was in Washington (down 6 percent) where dry
weather in the fall hindered planting.
Spring Wheat Area Likely To Fall
Spring wheat plantings in 1997 are likely to fall from the huge acreage planted
in 1996. Area planted to other spring wheat (hard red spring and spring white
wheat) in 1996 was the largest since 1936. Acreage rose in 1996 because of
extraordinarily high prices at planting, abundant spring rainfall, and
increased flexibility under the 1996 farm legislation. Encouraged by strong
prices at planting and freed from base acre restrictions, producers took
advantage of excellent moisture conditions in the Northern Plains to plant land
that would normally be fallowed.
In 1997, prices are expected to be well below those of a year ago. Other
spring farm prices in February 1997 averaged $0.98 per bushel below a year
earlier. At the end of February, the Minneapolis May futures contract was
$3.86 per bushel and the harvesttime September contract is down to $3.73 per
bushel. Given the expected lower price scenario, it is likely that producers
will return to a more normal crop-fallow rotation.
Total spring wheat plantings (including durum) between 1993 and 1995 when the
acreage reduction program required a 0 set-aside, averaged 20.7 million acres,
with 17.9 million acres planted to other spring wheat. During those years
prices received by farmers averaged $3.86 per bushel for other spring wheat.
If producers are to continue to plant more acreage than the 1993-95 average,
they will need stronger price incentives to plant wheat on land that would
normally be fallowed or to shift area previously planted to feed grains or
oilseeds to wheat.
Durum wheat acreage in the Northern Plains is also expected to decline for many
of the same reasons other spring wheat acreage will fall. In addition,
production of "desert durum," planted in California and Arizona is expected to
be down because of quarantine restrictions that have been in place since Karnal
bunt was discovered in those States last March and April (see box, "Update on
Karnal Bunt Situation"). Desert durum is very high yielding and in 1994 and
1995, durum wheat from California and Arizona represented an average of 15
percent of U.S. durum production. The crop is planted in the fall and winter
and the Winter Wheat and Rye Seedings report showed California and Arizona
winter wheat acres down an aggregate 8 percent from a year earlier.
Winter Wheat Conditions as of End of February
Winter wheat conditions in the Southern Plains are generally favorable. Rain
in September and October led to some planting delays, but to generally good
overall planting conditions and germination. Although there have been some
incidents of severe cold, the region has not experienced the severe temperature
fluctuations that occurred last year. Timely, beneficial rain and snow at the
end of February have eased concerns about winter dryness and will allow the
crop to enter the spring season in good condition.
Exceptionally deep snow is covering the Northern Plains and there will be
abundant soil moisture when spring wheat is planted in late April and May.
However, there is some concern that heavy spring rains or rapid warming could
cause severe flooding.
Wheat Supplies To Rise in 1997/98
Wheat supplies are expected to rise in 1997/98. Despite the sharp drop in
winter wheat acreage and likely decline in spring wheat area, production may
not drop significantly and carryin stocks will be up from a year earlier.
Winter wheat yields were below average in 1996/97 because of adverse weather in
both the Central and Southern Plains and the Corn Belt. Moisture conditions
last fall in the Southern Plains were much better than a year earlier. While
moisture was somewhat limited in much of the Great Plains during the winter,
weather conditions this spring will largely determine yields.
Demand for U.S. Wheat Likely To Remain Weak
Unlike 1996/97, competitors will enter the 1997/98 marketing year with large
stocks, providing continued intense competition for U.S. exporters. While
planting in all the major foreign exporting countries (except the EU) is
expected to decline, it is unlikely that production will drop sufficiently to
offset the larger carryin stocks. Thus, U.S. exports will likely depend on how
much global imports expand. Weather conditions in coming months in North
Africa and India will be critical, but the major factor will be how much
China's imports rebound from the extremely low 1996/97 level.
Food use growth is not expected to be as robust as in 1996/97, but is expected
to continue expanding according to long-term trends. Even though wheat prices
are expected to be significantly lower in the first quarter of 1997/98, feed
and residual use is likely to fall sharply from 1996/97. Prices for corn in
first-quarter 1997/98 are expected to be much lower than a year ago when
supplies were extraordinarily tight. This will make wheat a less competitive
substitute in feed rations in 1997/98 than in 1996/97 (see special article,
"Forecasting Feed and Residual Use of Wheat").
Update on Karnal Bunt Situation
by Mark Simone and Sara J. Schwartz 1/
On March 8, 1996, USDA's Agricultural Research Service announced the discovery
of Karnal bunt fungus in durum wheat seed in Arizona, the first occurrence of
this disease in the United States. The disease was subsequently found in parts
of New Mexico, Texas, and California. Karnal bunt is a fungal disease of
wheat, durum wheat, and triticale that reduces grain yield and quality. Karnal
bunt is harmless to humans but can cause an unpleasant odor and taste in flour
made from high concentrations of wheat affected by it.
1/ Agricultural economists, Commercial Economics Division, Economic
Research Service.
Karnal bunt is caused by a smut fungus and is spread by spores that can also be
carried on plants, soil, farm equipment, and vehicles. Because of the risk to
the reputation of U.S. wheat in both domestic and international markets, USDA
imposed a Federal quarantine on the areas where Karnal bunt was detected. A
regulatory program was established to contain the disease and prevent its
spread to other wheat producing areas. Farmers are being compensated for
certain financial losses resulting from the disease.
In October and November, USDA also detected Karnal bunt-like teliospores in
wheat storage facilities in Georgia, Alabama, Tennessee, South Carolina, and
Florida. So far, the disease has not been detected. There is a possibility
that these teliospores are from a harmless smut of ryegrass. Wheat and
ryegrass are often grown together in pastures in the Southeast. USDA, in
conjunction with the affected States, is taking actions necessary to conduct
appropriate containment.
Twenty-one countries have existing quarantines on wheat imports from countries
where Karnal bunt is present. However, most of them have agreed to accept U.S.
wheat shipments, provided the USDA Animal and Plant Health Inspection Service
(APHIS) certifies that the wheat originates from an area free of the Karnal
bunt fungus.
Final Karnal Bunt Rule Announced for 1996/97 Crop Year
On October 1, 1996, USDA announced a final rule for establishing criteria for
levels of risk for areas under quarantine with regard to Karnal bunt for the
1996/97 crop year. The rule became effective on November 4. To prevent the
spread of Karnal bunt, the final rule creates two distinct and definable areas
of restriction on movement and planting.
"Restricted" areas are those areas of wheat production that are in close
proximity to fields that tested positive in the 1996 pre-harvest survey
(Arizona and California). Wheat moving from these restricted areas must test
negative (twice) for Karnal bunt. In those cases, it may move under limited
permit to approved milling or storage facilities and is subject to safeguard
and sanitation conditions.
"Surveillance" areas are those areas in Arizona, California, New Mexico, and
Texas that have fields that were associated with contaminated seed or
equipment, but did not have fields testing positive in the survey. Wheat
moving from surveillance areas must also test negative (twice) for Karnal bunt.
The grain may be certified for export or unrestricted movement to domestic
markets, and will not be subject to safeguard and sanitary requirements.
Fields in the restricted area or the surveillance area that tested positive
during the 1996 harvest or were planted with contaminated seed in 1995 may not
be planted in a host crop in the 1996/97 crop season. Host crops include
wheat, durum wheat, and triticale.
1997/98 Outlook
Declining Prices Likely To Slow World Wheat Production Increases in 1997/98
Wheat prices on international markets have declined since April, May, and June
of 1996, and futures prices indicate the decline is likely to continue into the
summer of 1997. While some countries are expected to reduce planted area,
others will increase it. Whether 1997/98 world wheat production increases or
decreases hinges on how weather affects yields. Northern Hemisphere growing
conditions have been generally favorable for winter wheat, but most of the
weather that determines yields has not yet occurred.
Wheat Area for 1997/98 Reported Up in India, China, EU, and the NIS 1/
India harvests most of its wheat crop in March-May, providing the first major
wheat harvest of the new marketing year. Area has reportedly increased, water
supplies are adequate, and crop conditions are good. Wheat production in 1997
may be nearly as large or larger than the record 65.5 million tons produced in
1995. The size of the 1997/98 crop and domestic price levels will determine if
India is a significant net exporter as in 1995/96, or a net importer as in
1996/97.
1/ Newly Independent States (NIS) refers to the 12 countries, excluding the
three Baltic nations of Estonia, Latvia, and Lithuania, that comprised the
former Soviet Union.
Area planted in China and the European Union (EU) is increasing in response to
government policies. With three of the world's four largest wheat producers
increasing area planted (U.S. plantings are down), and with reasonably good
growing conditions so far, it is unlikely world
wheat production will decline much in 1997/98 unless some major producers
experience problems and have yields well below expectations (see special
articles, "China: Food Security Concerns Affect Wheat Imports," and "U.S.
Competitors Respond Dramatically to High World Wheat Prices," and box, "Market
Reforms Cause Shift to Wheat in the NIS (Former Soviet Union)".
Weather conditions during planting (in the fall of 1996) and during the winter
have been relatively favorable for winter wheat in most areas of the Northern
Hemisphere. Extremely cold temperatures in Europe were accompanied by good
snow cover for most of the crop. Although some damage has been reported in
Eastern Europe, production there is expected to rebound from 1996/97 when
yields were below average and winterkill was above average.
Yield and production prospects are mixed in North Africa and the Iberian
Peninsula, with better than normal soil moisture in Morocco and Spain. Algeria
and Tunisia, however, are somewhat drier than average.
World Trade Likely To Increase Modestly in 1997/98
Large wheat importers with the most variability in import demand are China, the
NIS, and North Africa. All three are forecast to have relatively low imports
in 1996/97, so imports in 1997/98 are unlikely to drop much because of them.
However, good economic growth in most regions (except Sub-Saharan Africa), is
expected to boost import demand, especially in Asia and Latin America.
Price-Responsive Exporters Expected To Drop Area
World wheat production increases in 1997/98 will be curtailed by several
price-responsive, export-oriented wheat producers. The United States, Canada,
Australia, and Argentina are expected to drop wheat area significantly in
1997/98 (see special article, "U.S. Competitors Respond Dramatically to High
World Wheat Prices" and the U.S. 1997/98 Outlook section). Although these
countries only represented 23 percent of world production in 1995/96, they
account for 75 percent of forecast world wheat exports. These exporters are
expected to carry significantly higher stocks into 1997/98. With world trade
declining for the last 4 years, there is little concern that exportable
supplies will be a constraint to growth in world trade. Rather, there is the
expectation that even if production declines, supplies will be ample, and
prices will be lower in 1997/98 than in 1996/97.
While wheat price prospects are declining, prices for oilseeds and wool have
increased, and feed grain price prospects have dropped less than for wheat.
This will encourage producers in foreign exporting countries to shift area out
of wheat.
Situation and Outlook for 1996/97
U.S. Prices Weaken in 1996/97 Despite Continued Tight Supplies
U.S. wheat supplies in 1996/97 are estimated the lowest since 1975/76, due to
extremely small beginning stocks and poor winter wheat production. Total
disappearance is projected down 5 percent despite expanding domestic use. U.S.
exports are forecast down sharply from 1995/96 and monthly average farm prices
have been falling since May.
The U.S. season average price is forecast to range from $4.20 to $4.40 per
bushel, compared to $4.55 in 1995/96. Monthly average farm prices have been
declining from the record highs achieved in 1995/96 when global export supplies
of wheat were very low relative to import demand. May futures prices indicate
that the market expects prices to continue declining through the end of the
marketing year. However, the projected season average farm price remains
relatively high from a historical perspective.
The apparent slow marketing of the crop contributed to the price strength
early in the marketing year. Although export sales were strong during the
first quarter (June-August) and winter wheat supplies were low, prices were
pressured downwards by expectations of larger global production, especially in
foreign exporting countries, and the second largest U.S. spring wheat harvest
on record. In the fall, generally favorable planting conditions for the hard
red winter wheat crop and declining corn and soybean prices also contributed to
weakening wheat prices.
U.S. 1996/97 Wheat Supplies Down Slightly
Despite a 5-percent increase in production from 1995/96, extremely small
beginning stocks brought total 1996/97 supplies, forecast at 2.7 billion
bushels, slightly below the already low 1995/96 level and the lowest since
1975/76.
Winter wheat production, which between 1990 and 1995 accounted for about 70
percent of U.S. production, fell 4 percent from 1995/96 to 1.478 billion
bushels, the lowest since 1991. Winter wheat planted acres expanded 7 percent
from 1995 in response to rising prices and improved planting conditions in some
States, such as Montana and South Dakota. However, in most of the Southern
Plains, it was dry at planting, germination suffered, and the crop was poorly
established as it entered dormancy. Winterkill was extensive as extremely cold
weather was followed by unseasonably warm temperatures during the winter.
Periods of extreme temperature fluctuations also occurred in the eastern Corn
Belt. Poor emergence and winterkill led to higher than average abandonment.
Tight global supplies and deteriorating conditions of the U.S. winter wheat
crop led to soaring prices in the spring of 1996. At the same time, moisture
conditions in the Northern Plains were exceptionally good. And, the increased
flexibility created under the 1996 farm legislation allowed spring wheat
producers to expand area beyond historical base acreage. Planted other spring
wheat (excluding durum) acreage was the highest since 1936 and the other spring
wheat crop was the second largest on record.
Imports are projected up 18 percent from 1995/96. During the first 4 months of
the marketing year, imports were 27 percent below a year ago, but the import
pace began to accelerate in October. Imports were slow earlier in the year
because Canadian supplies were tight and Canada's new-crop wheat was not in
position to be exported to the United States until the fall. Canada is
forecast to export less wheat to other destinations than in 1995/96, making the
United States an attractive market.
U.S. beginning stocks in 1996/97 were down 26 percent from 1995/96 and the
lowest since 1974/75. Nearly one-third of the total was held by the CCC in
the Food Security Wheat Reserve. These stocks had declined from a year earlier
as some of the wheat was released to supply food aid to a number of countries.
The farmer-owned reserve (FOR) was suspended under the 1996 farm legislation.
No wheat stocks had been held under this program since 1993/94.
Demand Drops Sharply for U.S. Wheat
Total use of U.S. wheat in 1996/97 is forecast to drop 5 percent from 1995/96.
Feed use is projected to nearly double and food use is forecast up 3 percent.
However, exports are forecast down 23 percent from a year earlier.
Exports are projected at 950 million bushels (June/May). Foreign production
has expanded and global trade is forecast down. The U.S. export pace was very
strong in the first quarter of the marketing year because foreign exporters had
limited supplies and some importers had bought U.S. wheat in advance of the
new-crop harvest to insure that supplies would be available. But new sales
dropped off dramatically when competitors' new-crop export supplies moved into
export position at competitive prices in the fall and Southern Hemisphere
exporters began selling their crop for delivery in 1997. The U.S. sales and
export pace slowed even further in the winter, when the large Southern
Hemisphere crops were harvested.
Domestic use is projected up 15 percent as both food use and feed and residual
use are expected to expand. Food use is forecast up 3 percent from 1995/96,
indicating continued growth based on population and changing dietary habits.
Price fluctuations appear to have little impact on food consumption of wheat.
Feed and residual use is projected at 300 million bushels, nearly double the
1995/96 level. First-quarter feed and residual use was the highest since
1990/91. Wheat prices were relatively strong in the first quarter of the
marketing year, but corn and sorghum supplies were very tight and their prices
were extremely high relative to wheat. In addition, the large supply of
diseased and weather-damaged wheat in the eastern Corn Belt probably led to
increased price discounts and more wheat moving into feed channels during those
months. However, even though the first-quarter feed and residual estimate was
strong, similar to last year, the second-quarter feed and residual estimate was
large and negative, indicating that wheat that did not appear in the September
1 stocks report was "found back."
Seed use, based primarily on expected plantings for the 1997/98 crop, is
forecast down marginally from 1995/96 because of the estimated 7-percent drop
in winter wheat planted acreage. Late (after June 1, 1996) seedings of the
1996 spring wheat crop prevented seed use from falling further.
Ending Stocks Increase But Remain Tight
Ending stocks in 1996/97 are forecast at 474 million bushels, up 26 percent
from 1995/96, but still the second lowest since 1974/75. However, with total
use projected to drop 5 percent from 1995/96, the stocks-to-use ratio is
expected to recover to 20.6 percent, up from 15.8 percent in 1995/96. In
addition, in 1995/96 nearly a third of the stocks were held by the government
in the Food Security Wheat Reserve. In 1996/97, only 20 percent of the
projected ending stocks will be held by the government. The strong projected
increase in privately held stocks is contributing to the decline in wheat
prices.
1996/97 Situation and Outlook
World Wheat Trade Continues To Decline; 1996/97 Supplies Larger
Global wheat production increased sharply in 1996/97, boosting supplies and
dropping prices from pre-harvest peaks. But even with wheat prices dropping
from record nominal levels late in 1995/96, export prices remain relatively
high, and world wheat trade is expected to decline for the fourth straight
year.
World Wheat Production Up 8 Percent in 1996/97
Record wheat yields and production were reported or are forecast for China, the
EU, Australia, Turkey, Morocco, Algeria, and Tunisia. Canada, Brazil, and
South Africa posted record yields, but not record production, while Argentina
is forecast to produce a record crop without record yields. (See special
articles, "China: Food Security Concerns Affect Wheat Imports" and "U.S.
Competitors Respond Dramatically to High World Wheat Prices.")
North Africa rebounded from several years of drought and had above normal
rainfall for 1996 production. Government policy decisions to boost area helped
produce record crops in the EU and China. However, it was high prices at
planting that prompted spring wheat producers in the Northern Hemisphere and
Southern Hemisphere producers to sharply expand area. Extremely low stocks in
the major exporting countries and weather and disease problems in U.S. winter
wheat areas caused record high prices in the spring and early summer of 1996.
U.S. and Canadian spring wheat producers and producers in Argentina and
Australia sharply boosted area planted.
World production increases were limited by problems in several major producing
countries. Winterkill and disease reduced area and yields in Eastern Europe
and Ukraine, as well as in the United States, and India did not match the
previous year's record output.
World wheat supplies in 1996/97 are forecast up because production increased 44
million tons, more than offsetting an estimated 14-million-ton drop in beginning
stocks. However, the stocks decline limited the increase in forecast world
1996/97 wheat supplies to less than 5 percent.
World Wheat Consumption Forecast Up 4 Percent in 1996/97
After declining in 1994/95 and growing slowly in 1995/96, world wheat
consumption is expected to rebound, up 22 million tons in 1996/97. Both feed
and food use is expected to increase. High wheat prices compared to feed grain
prices and reduced animal numbers in the NIS 1/ and Eastern Europe caused
world wheat feed use to decline from a peak of 131 million tons in
1990/91 to 94 million in 1995/96. However, in 1996/97 world feed use is
expected to increase to 99 million tons, mostly because of increases in the
United States.
1/ Newly Independent States (NIS) refers to the 12 countries, excluding the
three Baltic nations of Estonia, Latvia, and Lithuania, that comprised the
former Soviet Union.
Global food consumption of wheat in 1996/97 is forecast to increase faster than
population growth, despite relatively high nominal prices. Economic growth in
Asia and Latin America is contributing to demand growth. However, in many
countries increased consumption is associated with increased production more
than with incomes.
Consumption has been robust in India. Despite a large, but not record crop,
government procurements declined in 1996/97. Domestic prices increased in late
1996 when government stocks were dropping, and large imports were authorized to
keep prices from rising further.
In North Africa wheat consumption is expected to increase with record
production in Morocco and Tunisia, but despite increased production in Sub-
Saharan Africa, wheat consumption is expected to be little changed. War and
economic disruption will combine with limited food aid budgets to reduce Sub-
Saharan wheat imports in 1996/97.
World Wheat Ending Stocks Forecast Up Modestly, Exporters Left Holding the Bag
Although world wheat production is expected to increase 44 million tons in
1996/97, global supplies have increased only 30 million due to lower beginning
stocks. Moreover, consumption is forecast to increase 22 million tons,
limiting the increase in world ending stocks to 8 million tons. World ending
stocks as a percent of consumption are projected at 19.5 percent, up marginally
from 18.8 percent a year ago, but lower than any other year covered by the USDA
international data base.
The price effect of the increased stocks is magnified because most of the stock
increase is occurring in the major exporting countries -- Canada, the EU,
Australia, and the United States. The rest of the world is projected to reduce
ending stocks in 1996/97 by 8 million tons, while the four largest exporters
boost stocks by 16 million. This means that at least for the short run there
are increased supplies ready to be exported.
World Wheat Trade Forecast Down for the Fourth Year in a Row
Global wheat trade is forecast at 91 million tons in 1996/97, down 2 million
from the year before, and 25 million below the 1987/88 record. China's imports
are forecast to drop by 8 million tons to only 4 million, the lowest in
decades. Reduced imports by China, North Africa and the NIS account for most
of the decline in world wheat trade (see special article, "China: Food Security
Concerns Affect Wheat Imports," and box, "Market Reforms Cause Shift to Wheat
in the NIS (Former Soviet Union)."
Japan and Egypt are forecast to be the largest wheat importers in 1996/97, but
imports by these countries have been stable in recent years. Brazilian imports
in 1996/97 are expected to decline slightly because of increased domestic
production. Iran is expected to increase wheat imports to 5 million tons,
almost as large as Brazil's. Iran's large imports suggest that Iran is
increasing consumption rapidly while maintaining large stocks, but an unknown
quantity of wheat is likely being shipped to neighboring countries without
being reported. South Korea is expected to increase wheat imports to 4 million
tons in 1996/97, with the increase being feed wheat.
Iraq, Indonesia, Malaysia, Mexico, Pakistan, and Eastern Europe are expected to
increase imports significantly in 1996/97. Iraq is able to increase imports as
arrangements are made with the U.N. to export oil for food and humanitarian
items. However, delays and logistical problems will limit the increase.
Population and income growth are driving increased wheat imports by Indonesia
and Malaysia, while in Mexico, Pakistan, and Eastern Europe, reduced production
also contributed to boost imports. Meanwhile Morocco, Russia, and the EU will
reduce imports because of increased production.
Argentina is expected to more than double wheat exports in 1996/97 to a record
10.5 million tons. Aggressive selling of Argentina's record crop was a major
factor contributing to global price declines in late 1996 and early 1997.
Argentina does not hold significant stocks from one year to the next, so what
was produced is priced to move.
Australia is also forecast to have record wheat exports in 1996/97, reaching
16.5 million tons, up 36 percent from the previous year. Stock building is
expected to be a modest 2 million tons, the highest since 1992/93's 5 million
tons.
Canada is forecast to export only 16 million tons of wheat in 1996/97, down
slightly from the year before, even though production and supplies are up
sharply. China, with sharply reduced wheat imports this year, is normally the
largest customer for Canadian wheat. Moreover, a difficult winter has caused
logistical problems moving grain to export ports, delayed shipments and
prevented aggressive selling. As a result Canada's ending stocks are forecast
up 84 percent to 12 million tons, the highest since 1986/87.
The EU is expected to increase wheat exports modestly in 1996/97, up 2 million
tons to 14.5 million. However, policymakers appear content to keep much of the
increased supplies within the EU, and ending stocks are forecast up 6 million
tons. Although a large increase year-to-year, EU ending stocks at 16.3 million
tons would be significantly less than the record 24.1 million in 1992/93.
Wheat Price Declines Sharply in First Half of 1996/97
Most wheat export price quotes have dropped during the first half of 1996/97.
The decline was enough to move international prices below internal EU prices.
The EU began to subsidize exports in its weekly common wheat tender on
September 19. By December subsidies had almost reached 20 ECU per ton (over
U.S. $22). However, the increase in export volume and subsidies by the EU were
only a part of what forced world wheat prices down. Aggressive forward pricing
of the record Argentine wheat crop was crucial. Apparently the EU was partly
following Argentine prices. Australia also marketed its crop aggressively,
with a record shipment pace shortly after harvest early in 1997. However,
Canadian wheat prices remained somewhat firmer, and U.S. price declines were
limited by tight supplies.
Market Reforms Cause Shift to Wheat in the NIS (Former Soviet Union) 1/
by Jay Mitchell 2/
The economic reforms begun in 1992 after the collapse of the USSR are affecting
the region's grain sector. During the late 1980s and early 1990s, wheat
accounted for about 45 percent of total Soviet grain output, followed by barley
with 25 percent. By 1996, wheat made up more than one-half of total grain
output by the NIS and Baltic countries, while barley's share had declined.
1/ Newly Independent States (NIS) refers to the 12 countries, excluding the
three Baltic nations of Estonia, Latvia, and Lithuania, that comprised the
former Soviet Union.
2/ Millennium Institute Consultant to Europe, Africa, Middle East Branch,
Commercial Agriculture Division, Economic Research Service.
These supply-side trends have contributed to a sharp reduction in NIS net wheat
imports, much of which used to come from the United States, from 22 million
tons in 1991/92 (July/June) to less than 5 million tons in 1995/96. In the
longer term, certain countries such as Ukraine have the potential to become
significant wheat exporters and compete with U.S. exports on the world market.
For the first time in decades, market forces are affecting planting decisions
in Russia and other NIS and Baltic nations. These forces are stimulating
farmers to sow more wheat, reversing a downward trend in pre-reform area sown
to wheat that began in the 1970s and intensified in the 1980s. Total wheat
area sown in the NIS and Baltics rose 12 percent from 43 million hectares in
1994 to 48 million in 1996.
Relative price movements for different types of grains in the region's emerging
markets illustrate why wheat area is increasing. The market has given a large
premium to wheat relative to barley in recent years. Whereas NIS farmgate
barley prices were higher than wheat prices during 1991-92, wheat has sold at a
significantly higher price than barley since 1994. Because for many NIS
countries spring barley is a major alternative crop to winter wheat, these
relative price trends have clearly influenced planting decisions. Between 1994
and 1996, NIS area planted to winter wheat expanded more than one-fifth,
whereas spring barley area dropped nearly one-third. Winter wheat area also
expanded faster than spring wheat area during the same period, partly because
it is higher yielding and better suited to local climate conditions.
Higher wheat prices in NIS countries relative to barley and certain other
grains are partly the result of steady demand for food grain in recent years
while feed grain demand has declined sharply due to shrinking livestock herds.
Demand for food grains has been buoyed by steady or rising bread consumption as
falling incomes necessitate a shift in the population's eating habits away from
meat and other relatively expensive foods into cheaper foods such as bread and
potatoes. Higher world wheat prices during 1995-96 also contributed to NIS
price increases as market reforms expanded the degree of world market price
transmission to domestic markets.
Other factors making wheat popular with NIS farmers include changes in related
food processing industries and its relative ease of marketing. Privatization
of the baking industry, promoted by the proliferation of private mini-bakeries
that have forced former state baking enterprises to become more market savvy,
has provided attractive sales outlets for wheat farmers. High demand for wheat,
particularly food wheat, has made it easy to sell for ready cash, while other
grains such as barley and oats are sold on less attractive terms that often
involve significant payment delays.
Further expansion in Ukraine's wheat area in 1997 is possible, because seeding
of winter grains (the bulk of which is wheat) rose 8 percent this fall.
However, this might be offset by lower Russian wheat area due in part to steady
or falling wheat prices after the 1996 harvest, which was the largest in 3
years and reduced demand for imports. With Russian barley prices closing some
of the gap with wheat over the past year as two poor harvests in a row have
sharply reduced supplies, some farmers may opt to switch a portion of their
wheat area to barley.
Situation and Outlook for 1996/97
U.S. Exports Slump in 1996/97 as the U.S. Market Share Drops
Tight U.S. supplies and higher prices than those of some competitors are
expected to leave the United States with a smaller share of shrinking world
wheat trade.
U.S. Wheat Exports in 1996/97 Start Strong, Then Drop
At the beginning of 1996/97, U.S. export sales were strong and competition was
limited. The United States is the first major wheat exporter in the Northern
Hemisphere to harvest, with new-crop supplies available to be shipped as early
as June. Canada and the EU harvest later and do not generally have new-crop
wheat available for export until the fall. EU and Canadian stocks were low,
limiting old-crop availability. In the summer of 1996, Australia had
previously sold and shipped most of its 1995/96 crop, and likewise, Argentina
was out of the picture because of reduced 1995 production. Importers turned to
U.S. export supplies, even though the winter wheat crop was down and prices
high. U.S. wheat exports in July and August were above the previous year, and
August shipments of 147.7 million bushels almost matched the record shipped in
that month -- 149.9 million bushels in August 1981.
However, U.S. stocks on September 1, 1996, were the lowest in more than 20
years (the period when comparable data exist). U.S. prices reflected tight
supplies. Meanwhile, record crops were harvested in the EU and planted in
Australia and Argentina. Canada also had a near record crop. As Canadian and
EU shipments increased in the fall of 1996, U.S. export sales slumped. In
early 1997 Australia's and Argentina's record export shipments hit the market,
with Argentina's forward sales reducing prices as early as the fall of 1996.
Egypt and Japan Top Customers, But Mexico and Brazil Up in 1996/97
According to U.S. Export Sales, as of February 20, Egypt had taken more U.S.
wheat than any other destination, 2.7 million tons. However, this is down 35
percent from a year ago and outstanding sales to Egypt are very small, down 87
percent. Japan has taken 2.1 million tons from the United States, down 14
percent from a year ago, but is continuing to buy, with outstanding sales at
almost last year's level. Therefore, Japan probably will overtake Egypt by the
end of 1996/97, and become the United States' largest export market.
Pakistan has commitments (shipments plus outstanding sales), of 1.8 million
tons, up 8 percent from a year ago. The United States has maintained a large
share of Pakistan's imports because U.S. prices for white wheat are
competitive, export credits are available, and Australia has large export
commitments to other markets, especially to India.
The Philippines, South Korea, and Mexico all have commitments of 1.4 to 1.5
million tons. The Philippines are lagging last year's pace as they buy more
from Australia. South Korea's commitments are up 12 percent from last year.
Mexico's commitments are up 56 percent as the transportation advantage helps
the United States capture the expanding market. Other countries with
significantly increased commitments from the United States are Brazil,
Bulgaria, and Italy. Bulgaria is increasing total imports, while Brazil and
Italy have bought more wheat for blending from the United States, partly
because of quality problems in Canada.
Many countries, especially China, Turkey, Uzbekistan, Bangladesh, Indonesia,
Jordan, Sri Lanka, and Chile, have reduced purchases from the United States.
Some, like China and Chile, are reducing total imports. Others, like Indonesia
and Bangladesh, are turning to cheaper sources.
U.S. Wheat Export Program Shipments Decline
From 1986 through 1995, between 60 and 80 percent of U.S. wheat exports were
facilitated or assisted by U.S. export programs (see appendix table 31). The
chief export programs for wheat include: food aid programs such as the Public
Law 480 and Food for Progress programs, commercial export credit guarantee
programs (GSM-102 and GSM-103), and the Export Enhancement Program (EEP), an
export price subsidy program. Although final program shipment numbers for
fiscal 1996 are not yet available, several factors have reduced the amount of
wheat shipped under export programs that year. First, higher wheat prices and
declining Congressional appropriations limited overseas food aid programming to
slightly more than 1 million metric tons of wheat in fiscal 1996. In addition,
wheat exports under the EEP were sharply lower in fiscal 1996 as higher world
prices led to a halt in EEP activity in July 1995. As of March 3, the EEP had
not yet been restarted.
Situation and Outlook for 1996/97
Wheat by Class
Hard Red Winter Supplies Remain Tight; Domestic and Foreign Buyers Substitute
Other Classes
Hard red winter (HRW) wheat production was the lowest since 1972. Beginning
stocks were the lowest since the mid-1970s and total supplies have been very
tight since the beginning of the marketing year. HRW has been trading at a
price premium throughout the marketing year, encouraging buyers to substitute
lower-priced hard wheats for HRW.
While HRW planted area expanded 6 percent in the fall of 1995 in response to
rising wheat prices, drought and extreme temperature fluctuations in the winter
and spring reduced yields and led to higher than average abandonment across the
Southern Plains. Production fell 8 percent from the poor 1995 crop.
At harvest, prices fell from the record highs reached in the spring, but
remained strong relative to the other classes of wheat. When spring wheat
supplies became available in the fall, foreign and domestic buyers began to
substitute spring for winter wheat. Total HRW use is projected to fall 11
percent from 1995/96. Exports are projected down the most, 27 percent, as
importers seek lower prices not only by purchasing other classes of U.S. wheat
but by turning to alternative suppliers. HRW food use is forecast down 5
percent, as mills appear to be substituting the lower priced hard red spring
(HRS) wheat. HRW feed and residual use is projected to rise 32 percent.
During the summer quarter, total feed and residual use increased 25 percent
from 1995. Corn and sorghum supplies were even tighter than wheat prior to the
fall harvest and their prices in the Southern Plains were extremely high just
as the new-crop wheat was being harvested. Ending stocks are forecast to
remain low, only 6 percent above the very low level of 1995/96.
Hard Red Spring Stocks Accumulate
Hard red spring production increased 32 percent from 1995/96 and was second
only to the record 1992/93 crop. Despite low beginning stocks, the increase in
production and rise in imports have raised total forecast supplies 12 percent
from a year earlier. A cold, wet spring delayed plantings, but spring wheat
producers, facing record high prices and abundant moisture conditions, were
able to take advantage of increased flexibility under the new farm legislation
to expand planted area 19 percent. Yields increased 11 percent from 1995/96.
When it became clear that the U.S. crop would be large and that Canada and
other exporters would also be producing large crops, hard red spring wheat
prices dropped rapidly, selling at a discount to hard red winter wheat for much
of the marketing year.
Despite the production increase, imports are forecast up 60 percent from
1995/96. Imports from Canada began to accelerate in the fall. Canada has been
slow to export to other destinations and has had difficulties moving grain from
the prairies to port cities this winter, making the United States an attractive
alternative.
Total HRS use is projected down marginally and ending stocks are expected to
nearly double. While HRS food use is projected up 15 percent from 1995/96
because of substitution of HRS for HRW in the milling process, exports are
projected down 17 percent from a year earlier because of reduced global trade
and increased competition. Feed and residual use is projected up, but remains
relatively small compared to the other classes. Seed use is also forecast down
in expectation that less area will be sown to HRS in the coming spring.
While HRS is being sold at a discount to HRW, severe weather conditions in
January prevented movement in a large area of the Northern Plains, causing spot
shortages and high premiums for HRS. This was only a temporary situation,
however, and sales have picked up and premiums have declined as the roads
cleared.
Soft Red Winter Wheat Demand Falls
Soft red winter (SRW) wheat producers responded vigorously to high prices in
the fall of 1995 and expanded planted acreage 11 percent. However, SRW regions
experienced extreme temperature swings over the winter and late freezes in the
spring. Winterkill was severe and greater than average acreage was abandoned.
Yields fell 11 percent from 1995/96. Production fell 7 percent and quality
suffered. Reports at harvest indicated that disease and fungus were
widespread. Beginning stocks were down only slightly from a year earlier and
total SRW supply is estimated down 7 percent from 1995/96.
Total use is projected down 9 percent. Food use is forecast to only equal
1995/96. Feed and residual use nearly tripled from 1995/96. Harvest prices
with discounts for poor quality made SRW an attractive feed grain during the
summer quarter, prior to the corn harvest in the fall.
Exports are projected down 42 percent from 1995/96. Shipments were relatively
strong in the first quarter but then slowed dramatically in the fall. China is
usually a major SRW buyer and China's absence from the market has had a strong
impact on this classes of wheat. Other large, price conscious buyers, such as
Egypt, who typically purchase SRW have been turning to lower cost suppliers.
Reports indicate that while quoted U.S. f.o.b. export prices appeared
attractive, by February, there were relatively few SRW export supplies
available to meet importers' quality specifications.
Total SRW use has dropped much more than production, and ending stocks are
projected up 21 percent from 1995/96. Futures prices for new-crop SRW are also
weak, despite reports of very low planted acreage. SRW exports in the
summer quarter of 1997 will be facing strong competition from other
exporters who will be carrying large stocks into the new year, pressuring
prices down.
White Wheat Production Increases; Exports Expand
White wheat supplies are forecast up 5 percent from 1995/96. Production
increased 9 percent from 1995/96 to a record 355 million bushels. Strong
prices and favorable planting conditions encouraged a 4-percent increase in
planted acres. A mild, wet winter in the Pacific Northwest and favorable
spring weather boosted yields 11 percent. However, carryin stocks were
slightly below a year ago. And imports are projected to be almost half the
1995/96 level, as Canada's 1996 white wheat crop was small and quality
was low.
Total white wheat use is projected up 5 percent from 1995/96 to a record high,
primarily because of a strong increase in food use and feed and residual use.
Food use is forecast up 10 percent, and feed and residual use is projected to
more than double. However, exports are projected to fall 10 percent from
1995/96. The large crop gave white wheat a price advantage in export markets
in the first half of the marketing year, prior to Australia's large harvest.
But, while white wheat prices are low relative to HRW and HRS, white wheat
export prices have not kept pace with competitors' prices in the last half of
the year. In January and February, U.S. exporters lost bids to export wheat to
traditional white wheat customers such as Egypt and Pakistan. But port
congestion in Canada and large nearby shipping commitments by Australia
allowed the United States to capture all of a recent tender by Pakistan for
450,000 tons of white wheat. Thus, while exports are forecast to drop from
last year's level, white wheat will account for a larger share of total U.S. exports.
Ending stocks are projected to rise 5 percent from 1995/96.
Durum Supplies Expand 11 Percent
Durum producers responded to record high prices, increased flexibility under
the new farm legislation, and favorable moisture conditions by expanding durum
acreage 5 percent from 1995/96, and the highest since 1989/90. Yields expanded
7 percent and production rose to the highest since 1990/91. Imports are
projected to increase 14 percent to 21 million bushels, mostly in the form of
grain from Canada. Canada's slow export pace to other countries, large
supplies, and competitive prices are making the United States an attractive
market.
Durum use is projected to expand 5 percent because of a slight rise in food use
and an increase in feed and residual use. Exports are forecast to fall 10
percent from 1995/96. At the beginning of the year, exports were expected to
fall even further because the Canadian and European durum crops were expected
to be large and imports by traditional durum importers such as Algeria and
Morocco were expected to decline. However, the quality of Canada's durum crop
was lower than normal, and some quality conscious importers, such as the EU,
turned to the United States for supplies. Durum prices have been trading at a
strong premium to HRS and other classes of wheat through February. By mid-
February, export sales and commitments for durum nearly matched the USDA
export forecast for the year. But the United States is expected to continue selling
small quantities to selected markets. Despite the stronger than expected
exports, increased supplies and the overall decline in use will raise ending
stocks a projected 38 percent.
ERS Wheat Information: How To Get It Fast and Often
ERS issues 11 monthly Wheat Outlook reports containing brief descriptions of
domestic and international market conditions and outlook, as well as key tables
to keep readers up to date on market developments. The reports are released--in
electronic format only--at 4 p.m. on the first working day following release of
USDA's World Agricultural Supply and Demand Estimates (WASDE) report. In 1997,
the Wheat Outlook will be released on January 13, March 12, April 14, May 13,
June 13, July 14, August 13, September 15, October 14, November 12, and
December 12.
Wheat Data Products
Document
Number Description
12100 List of Available Wheat Data Products
Current Wheat Outlook Report
*12105 Wheat Outlook , Sara J. Schwartz, James N. Barnes, and Ed Allen.
Analytical Reports/Special Articles (12110-12120)
12110 ERS Wheat Information: How To Get It Fast and Often.
12111 Wheat and the Conservation Reserve Program: Past, Present, and
Future, Tim Osborn.
12112 China: Food Security Concerns Affect Wheat Imports, Frederick W.
Crook and Sara J. Schwartz.
12113 U.S. Competitors Respond Dramatically To High World Wheat Prices,
Linda Bailey, Chris de Brey, Susan Leetma, Mark Simone, and
James Stout.
12114 Forecasting Feed and Residual Use of Wheat, James N. Barnes.
12115 Wheat Farm Characteristics, Income, and Costs for 1994, Mir Ali.
12116 Information about Wheat Supply and Demand, James N. Barnes.
Wheat Prices, Receipts, and Returns
12149 Wheat: Farm prices, support prices, and ending stocks,
1950/51-1996/97.
12160 Wheat farm prices for leading classes in U.S. regions,
1977/78-1996/97.
12161 Wheat cash prices for leading classes at major markets,
1950/51-1996/97.
12162 Domestic and foreign wheat prices, 1980-96.
12164 Wheat and flour price relationships at milling centers, annual and by
periods, 1982/83-1996/97.
12165 U.S. wheat production cash costs and returns, 1975-96.
12166 U.S. wheat production economic costs and returns, 1975-96.
12167 On-farm receipts of major crops, United States, 1983-96.
U.S. Supply and Use
12141 Wheat: Marketing year supply, disappearance, area, and price,
1989/90-1996/97.
12142 Wheat: Area, yield and production by major States, 1986-1996.
12143 Wheat: Estimated acreage, yield, and production, 1965-96.
12147 Wheat: Marketing year supply and disappearance, 1960/61-1996/97.
12148 Wheat: Quarterly supply and disappearance, 1975/76-1996/97.
12169 Wheat: Supply and disappearance, United States, 1910/11-1996/97.
U.S. Wheat by Class
12144 Wheat classes: Production, 1950-96.
12145 Wheat classes: Acreage percentage breakdown by State, 1993-96.
12146 Wheat classes: Estimated acreage, yield, and production, 1982-96.
12151 Wheat classes: Marketing year supply and disappearance,
1976/77-1996/97.
U.S. Government Programs and Stocks
12150 Wheat: Status of price support loans on specified dates,
1966/67-1996-97.
12155 Wheat farm programs and participation, 1976-96.
12168 Schedule of wheat base acres released from expiring CRP contracts.
12170 Quarterly government stock activity for wheat, 1990/91-1996/97.
12171 U.S. wheat exports: By selected programs.
U.S. Import and Export Data
12152 U.S. wheat exports: Grain, flour, and products, by month,
1973/74-1996/97.
12153 U.S. wheat imports: Grain, flour and products, by month,
1983/84-1996/97.
12154 Wheat: Inspections for export by class and country of destination,
June-May 1994-96.
*12181 U.S. Import and Export Summary, Crop Years 1995/96 and 1996/97.
U.S. Food Use
12163 Wheat flour: Supply and disappearance, United States, 1960-96.
*12180 U.S. Food Use, 1989/90-1996/97.
World and Foreign Supply and Use
12156 World wheat production, consumption, trade, and ending stocks,
1960/61-1996/97.
12157 Wheat production, trade, and ending stocks, world and United States,
1965-96.
12158 Wheat: Production and exports, major foreign exporters, and total
foreign, 1965-96.
12159 Wheat and wheat flour: World trade, production, stocks and use,
1988/89-1996/97.
12173 Former Soviet Union wheat: Supply and disappearance, 1960/61-1996/97.
12174 China's wheat: Supply and disappearance, 1960/61-1996/97.
12175 European Community wheat: Supply and disappearance, 1960/61-1996/97.
12176 Canada's wheat: Supply and disappearance, 1960/61-1996/97.
12177 Australia's wheat: Supply and disappearance, 1960/61-1996/97.
12178 Argentina's wheat: Supply and disappearance, 1960/61-1996/97.
U.S. Rye Supply and Use
12172 Rye: Supply, disappearance, area, and price, 1985/86-1996/97 and
Rye: Production by major States, 1985-96.
*Updated Monthly
Special Article
Wheat and the Conservation Reserve Program: Past, Present, and Future
by C. Tim Osborn 1/
Abstract: For 12 years the Conservation Reserve Program (CRP) has been one of
USDA's most ambitious program efforts. At the height of the program in 1993-95,
some 36.4 million cropland acres had been enrolled in the environmentally-oriented
land retirement program. Approximately 60 percent of those acres were
located in the Great Plains States where wheat is the main crop. According to
a 1993 survey of participants, nearly 15 million acres or 41 percent of CRP had
been planted to wheat prior to their enrollment. Based on the authority to
continue the program provided by the Federal Agriculture Improvement and Reform
Act of 1996, and against the backdrop of the scheduled 1997 expiration of
contracts covering 21.5 million acres, USDA will hold a signup opportunity
March 3-28, 1997. Simulations of a future 36.4 million acre CRP, based on USDA
program rules, suggest that large regional enrollment shifts are unlikely and
the commodity effects of the CRP in the future may not be very different from
the current CRP.
Key words: Conservation Reserve Program, wheat
1/ Agricultural Economist, Natural Resources and Environment Division, Economic
Research Service.
For 12 years, the Conservation Reserve Program (CRP) has been one of USDA's
most ambitious
program efforts. Under this voluntary program, USDA pays farm owners and
operators to idle highly erodible and/or environmentally sensitive cropland
for 10-15 years. Participants receive annual rental payments during the
contract period, and half the cost of establishing grass or trees on enrolled
acreage.
Begun by the 1985 Food Security Act during a period of excess commodity
supplies, low prices, and farm financial stress, the CRP was initially
conceived as much for supply control as for environmental improvement.
However, beginning with the droughts of the late 1980s, supply control became
less important, and CRP implementation increasingly reflected its environmental
and natural resource objectives.
In April 1996, President Clinton signed into law the Federal Agriculture
Improvement and Reform Act (1996 farm act) that continues the CRP through the
year 2002. Under the act, USDA can re-enroll existing eligible CRP acres as
well as enroll new land, subject to a maximum annual enrollment of 36.4 million
acres. Although the elimination of annual acreage reduction programs by the
1996 farm act makes the CRP the principal remaining program that reduces
cropland availability, USDA has made it clear that it will operate the CRP not
as a supply control program, but to conserve and improve natural resources
including wildlife habitat, water quality, and soil.
Of the major commodities grown in the United States, wheat has historically
been most affected by the CRP. This article looks at the CRP from the
perspective of wheat acres idled by the program from its beginning to the
present, and provides a idea of how the CRP may affect wheat in the future
based on new CRP operating rules.
Wheat and the CRP: 1986-1996
At the CRP's peak in 1993-95, some 36.4 million acres had been enrolled in the
program (table A-1). Approximately 60 percent of the acres was located in the
Great Plains where wheat is the main crop (Great Plains refers here to the
Northern and Southern Plains and also includes CRP acreage in the Mountain
region, where the bulk of enrollment is in the eastern portions of Colorado and
Montana). Of the 36.4 million acres enrolled, 23 million represented commodity
program base acreage, and nearly 11 million of those were wheat base acres.
Corn base was next most prevalent at 4.3 million acres. According to a 1993
survey of CRP participants, nearly 15 million acres or 41 percent of CRP had
been planted to wheat prior to their enrollment, 14 percent had been planted to
corn, 10 percent had been planted to soybeans, 6 percent had been planted to
sorghum, 5 percent had been planted to cotton, and 4 percent had been planted
to barley (Osborn, Schnepf, and Keim, 1994).
During May 15-June 2, 1995, CRP participants, except those with especially
environmentally sensitive acreage or practices, were permitted to request early
contract release without penalty or obligation to refund previous CRP payments.
This early release was offered so that more environmentally sensitive cropland
under new CRP contracts could be enrolled and to allow the released acres to
produce additional grain, given low stocks at that time. Producers requested
early release in 1995 on about 700,000 acres.
Regionally, 1995 early-out acres were greatest in the Corn Belt, followed by
the Lake States and the Northern Plains. To replace these acres, USDA held a
13th signup during September 11-22, 1995. This was the first new signup since
June 1992. To enroll acres with the highest environmental benefits relative to
costs, offers were ranked using an environmental benefits index as was done in
signups 10-12 of 1991-92. Of 1.2 million acres offered by producers, about
600,000 acres were accepted by USDA and ultimately placed under contract.
Thirty-one percent of accepted acres were in the Corn Belt region, while 38
percent were in the Great Plains. Approximately 373,000 base acres were
enrolled of which 139,000 were wheat base and 111,000 were corn base.
Also, in 1995, CRP participants with approximately 2 million acres of contracts
scheduled to expire on September 30, 1995, were allowed to extend their
contracts for one additional year. This opportunity was provided to help these
producers make informed decisions about the future of their CRP acres because
their contracts would expire before passage of the next farm act. As a result,
contracts on all but 173,000 acres were extended. Combined with 1995 early-
out acreage, this meant that approximately 878,000 acres left the CRP in 1995
(table A-2). Of these 158,000, acres were wheat base and 237,000 were corn
base demonstrating, that as a percentage of enrolled base, corn was much
more likely to leave the program than wheat.
On March 14, 1996, USDA announced a second early-out opportunity, only for
contracts scheduled to expire on September 30, 1996, and another 1-year
contract extension opportunity. With enactment of the 1996 act in April, the
early-out opportunity for 1996-expiring contracts was expanded to allow
producers to withdraw most lands from the CRP at any time subject to a 60-
day notice to USDA. Approximately 768,000 acres were removed from the CRP
under the 1996 early-out authority and 912,000 acres expired on schedule. The
remainder were extended through 1997. Of the acres terminated or expired in
1996, 311,000 were wheat base and 599,000 were corn base -- similar to the
commodity mix for acres that left the program in 1995.
As a result of acres originally scheduled to expire in 1997, and the popularity
of the 1-year contract extensions of 1995 and 1996, approximately 21.5 million
CRP acres are currently scheduled to expire on September 30, 1997, of which 6.7
million represent wheat base.
Wheat and the CRP: 1997 and Beyond
Based on the authority of the 1996 farm act, USDA will hold a CRP signup
opportunity during March 3-28, 1997. Producers wishing to enroll land,
including the approximately 21.5 million acres with CRP contracts expiring in
1997 as well as non-CRP acres, must submit an offer and compete with all other
offers for enrollment based on environmental benefits and cost. The results of
this and future signups will determine the composition of the CRP of the
future, including the relative effects on different commodities.
In the first nine CRP signups from 1986 to 1989, more than 60 percent of CRP
enrollment was located in the Great Plains. However, because of the eligibility
and acreage selection procedures laid out in current USDA rules, some have
suggested that future CRP acreage might shift out of the Great Plains to other
parts of the country. This concern stems partly from a decrease in Great Plains
enrollment to 29 percent of new acres during signups 10-12 of 1991-92, while
the Corn Belt and Lake States' share increased to 50 percent from just 22
percent under earlier signups.
The decline in Plains States' CRP enrollment under signups 10-12 resulted from
three influences. First, beginning with signup 10, USDA employed an
environmental benefits index (EBI) to rank bids for CRP acceptance. Although
points were awarded for wind erosion reduction in the EBI's soil productivity
term, water quality protection was emphasized and, due to the lack of an
agreed-upon measure, wildlife habitat improvement was not included in the EBI.
Consequently, many Great Plains acres had lower EBI scores compared with
other parts of the country experiencing water quality problems.
Second, by the 10th signup more than 160 counties could not enroll additional
CRP acres because they had reached their enrollment limit. By law, without
prior approval, CRP enrollment cannot exceed 25 percent of the cropland in a
county to minimize adverse effects on the local economy. Nearly all of these
counties were located in the Great Plains.
Third, more importantly, starting with signup 10, maximum rental rates USDA
would pay were adjusted to better reflect the relative productivity of the soil
offered in each bid. In the early years of the CRP, when the focus was
primarily on reducing soil erosion, CRP rent caps had been uniformly set, well
above local cash market rates in parts of the Great Plains. The 10th signup
adjustment resulted in significant rent cap reductions in these areas. But
because Great Plains producers were accustomed to receiving relatively high CRP
rental rates, many continued to bid at the old rates and were consequently
rejected.
In signup 13 of September 1995, the EBI reflected soil erosion, water quality,
tree planting, and wildlife habitat benefits, and producers were informed of
the rent cap for their cropland based on the soil's productivity. Due to these
changes, the Great Plains' share of new enrollment in the 13th signup increased
to 38 percent, while the percentage enrolled in the Corn Belt and Lake States
fell back to 43 percent.
The EBI for future signups will include criteria reflecting 1) wildlife habitat
improvement, 2) water quality improvement resulting from reduced water
erosion, runoff, and leaching, 3) on-farm benefits of reduced wind or water
erosion, 4) long-term benefits of certain covers beyond the CRP contract
period, 5) air quality benefits from reduced wind erosion, and 6) benefits
of enrollment in conservation priority areas. In addition, future rental
payment caps will continue to be based on local market rates adjusted for
productivity of individual tracts offered for enrollment, and producers will
know those caps prior to signup.
Table A-3 provides results of a simulation of a future 36.4-million-acre CRP
using the Natural Resources Conservation Service's 1992 National Resources
Inventory database. Eligibility, payment rates, and the EBI ranking process
used were consistent with rules in place for future signups. In this
simulation it was assumed that all lands that were eligible and likely to bid,
including currently enrolled lands, are offered for enrollment at one time.
Although the exact regional distribution of future enrollment is uncertain, the
simulation suggests that it is unlikely that regional shifts of the magnitude
of signups 10-12 will occur in the future. In fact, 60 percent of the
simulated future CRP acres are located in the Great Plains, the same as in the
historic CRP, although there is a shift of approximately 1 million acres from
the Southern Plains to the Northern Plains region. In addition, the share of
CRP acreage located in the Corn Belt and Lake States regions remains
unchanged. This implies that the commodity effects of the CRP in the future
may not be very different from the current CRP.
Of the 36.4 million acres, 10.3 million represent re-enrollment of existing CRP
acres, while the remaining 26.1 million would be newly enrolled acres. Of
course, re-enrollment of existing CRP acres could be different because a higher
proportion of existing CRP, relative to non-CRP acres, may actually be offered
by producers. However, considering that not all producers will offer acres
immediately and not all current CRP acres will expire at one time, the EBI
ranking process simulation results suggest that more acres would be located in
conservation priority areas, more erodible acres would be enrolled, rental
costs would decline, and all EBI factor scores would increase, especially for
the wildlife habitat factor and the conservation priority area factor.
Cited literature:
Osborn, C. Tim, Max Schnepf, and Russ Keim, 1994. The Future Use of
Conservation Reserve Program Acres: A National Survey of Farm Owners and
Operators. Soil and Water Conservation Society, Ankeny, Iowa, 47 pp.
Special Article
China: Food Security Concerns Affect Wheat Imports
by Frederick W. Crook and Sara J. Schwartz 1/
Abstract: In 1995, China began moving away from policies liberalizing grain
markets to ones that reassert government control and encourage increased grain
self-sufficiency. Wheat acreage, production, and stocks have risen because of
the new policies, contributing to extremely low wheat imports in 1996/97.
While these policies may continue to affect global trade in the nearterm, the
policies are expensive and there are serious questions about whether they can
be sustained in the long term.
Key words: China, grain policy, wheat production, consumption, stocks, and
trade
China's leaders are transforming their largely centrally planned economy into a
"socialist market economy" with Chinese characteristics, such as using markets
to guide producer and consumer decisions while the central government retains
political control and uses macro-economic mechanisms to manage the economy.
While markets and market forces have become increasingly important to China's
rural economy, government intervention remains significant in agriculture. For
wheat, government policies affect production, marketing, stockholding,
consumption, and international trade.
1/ Agricultural economists, Commercial Agriculture Division, Economic Research
Service.
While China has liberalized much of its economy--including agriculture--since
the early 1980s, its food policy objectives have changed little over the past
40 years. They are to:
o insure adequate urban food supplies (food security),
o accumulate sufficient grain reserves,
o stabilize food prices,
o promote food self-sufficiency,
o participate in world trade, and
o improve farm income.
As with the food policy objectives of many countries, some of China's
objectives are mutually exclusive or at least difficult to accomplish
simultaneously. At various times over the past 40 years, the central
government has emphasized the achievement of certain objectives while
neglecting others. And changes in policies have sometimes had dramatic
effects on China's wheat economy.
From the mid-1950s to the early 1980s, China's rural economy was organized into
people's communes that controlled all aspects of rural life. Government-
owned institutions managed the circulation of agricultural products from farm
gate to consumers and the century-old open marketing system was closed. The
government's Grain Bureau purchased, transported, stored, milled, and retailed
grain, primarily to feed urban consumers.
Then, in the early 1980s, the government disbanded the commune system, allowed
the old open marketing system to revive, and set up the household land contract
system in which farm households were permitted to sign long term land contracts
to cultivate specific plots. As long as farm households delivered specified
quotas to local Grain Bureaus --thus paying their taxes and meeting government
grain procurement requirements--the households were free to produce whatever
they wanted and were permitted to sell their goods through local open markets.
The central government raised the purchase price of wheat to encourage farmers
to produce more, but the Grain Bureau retail shops in the urban areas continued
to sell flour at low prices that had largely remained constant since the early
1960s. By the late 1980s, China's government found that over 20 percent of
total national government revenues was used to finance the gap between the
purchase and retail price of grain.
Starting in 1992, the central government introduced market reforms to reduce
the burden of the grain subsidies and to improve the economic efficiency of
grain markets. By the end of 1993, these market reforms accelerated, as 28 out
of 31 provinces began to phase out the grain ration system that allowed urban
consumers to purchase grain at low fixed prices. Thus, to many observers it
looked as if China would steadily pursue an economic course based on free
markets and comparative advantage.
Three factors appear to have pushed China's leaders from 1994 to 1996 to
reassert government control over grain markets, veer away from the principle of
comparative advantage, and restrict market operations. First, inflationary
pressures in late 1993-early 1994 and a sharp rise in rice and flour prices in
1994 undermined the government's resolve to carry out market reforms. In 1994
and 1995, anti-inflationary measures were instituted, including price controls.
Price stability has always been important to China's central leaders, many of
whom witnessed the devastation of hyperinflation at the end of World War II.
When the objective of price stability came into conflict with the objective of
raising farm incomes, China's leaders chose their traditional urban bias of
pursuing price stability.
Second, while rural reforms brought relatively rapid increases in grain
production in the 1980s, the rate of increase slowed in the 1990s and leaders
became concerned about the decrease in the area sown to grains.
Third, in 1994 and 1995, analysts in and outside of China questioned the
country's capacity to produce enough grain to meet growing consumption
requirements. It is possible that these reports had a sobering effect on the
central leaders, pushing them to limit market reforms and initiate the
"governors' grain bag responsibility system," a policy designed to promote
adequate supplies of domestic grain at provincial levels whenever possible.
Provincial Governments Exercise Control Through "Grain Bag" Policy
In early 1995, the central government initiated a new grain policy in which
provincial governors were given responsibility of maintaining the "grain bag."
The "grain bag" policies apply to all grain crops--especially to wheat, corn,
and rice. Under this policy, governors are responsible for:
o stabilizing area sown to grains;
o guaranteeing investment in inputs like chemical fertilizer to stimulate
grain production;
o guaranteeing that certain quantities of grain are put into stocks;
o insuring that transfers of grain in and out of a province are completed;
o stabilizing urban residents' concerns by supplying grains and edible oils;
o stabilizing grain and edible oil prices;
o controlling 70 to 80 percent of commercial grain sales;
o developing means to control grain markets;
o raising commercial sales as a share of grain sales;
o controlling grain imports and exports; and
o raising the level of grain self-sufficiency.
If the province is grain-deficit, the governor must first attempt to increase
supplies by stabilizing or increasing the area sown to grain (keeping in mind
the overall agricultural development goals, i.e., livestock, cash crops,
forestry, etc.), increasing inputs to raise yields, and/or providing subsidies
to grain producers.
Second, the province provides a list of the amounts and kinds of grains to be
purchased domestically or imported. Third, the governor purchases domestic
grain through wholesale markets or receives imported grain from the central
government. If the province produces a grain surplus, the governor maintains
surplus grain production to support grain sales to deficient provinces.
With regard to natural disasters, local resources should be used first to
offset any grain losses. If the local government cannot handle the situation,
the State Administration for Grain Reserves, which manages government-
owned stocks, provides assistance. The central government chose this
course of action to reduce its financial exposure. Thus, the financial
responsibility for managing grain and edible oil supply and demand balances
has been transferred from the central government to provincial levels.
To achieve these objectives, governors use their provincial Grain Bureaus,
which perform both policy and commercial operations. Policy operations
consist of purchasing grains (and oilseeds) at fixed quota prices (below market
prices) and transporting, storing, milling, transferring, and retailing the
grain. Losses incurred by the Grain Bureau while performing these operations
are subsidized by the central government. For 1995, the central government
planned to purchase 50 million tons of grain (wheat, rice, and corn) via this
operation.
Under the old grain and edible oil rationing system--operated from 1953 to
1993--urban families were issued coupon books that entitled them to purchase
fixed quantities of grain and edible oils at low fixed prices from government-
operated grain stores.
In 1995, various provinces used different systems, such as grain books, grain
coupons, or controlled markets, to help low-income families obtain low-priced
grains in the government-owned grain stores. In making these purchases,
low-income families do not have a lot of consumer choices--they buy whatever
is on the shelf--and the grain in the government stores tends to be older and of
lower quality than grain sold elsewhere. Higher-income urban residents shop in
open markets where the grain is fresher and of higher quality (1).
"Grain Bag" Policy Aims At Self-Sufficiency
The "governors' rice bag responsibility system" has operated for less than 2
years, hence little information has been published with which to evaluate its
success. However, general observations can be made on the policy's effect
on China's grain economy.
First, the policy indicates the government's emphasis on self-sufficiency, on
intervention and control of the grain economy, and a reassertion of old
objectives to support urban constituents. In a like manner, it indicates a
turning away from emphasis on comparative advantage in production decisions,
economic efficiency, participation in world grain markets, and open domestic
markets, and a return to the old policy of relative neglect of the agricultural
economy.
Second, by using government administrative measures, local authorities were
able to halt the downward trend of area sown to grains. Plantings for all
grains in 1995 increased 516,000 hectares from 1994. Area sown to grain also
increased in 1996.
Third, the policy encouraged local leaders to pay increased attention to grain
production in 1995 and 1996, led to greater government investment in the grain
economy, and saw total grain production rise from 445 million metric tons in
1994 to 467 million in 1995 and to a projected record 480 million in 1996/97.
Fourth, again by using administrative measures, government authorities were
able to halt increases in grain prices and stabilize grain markets. Fifth, in
1995 and 1996 China's participation in international grain trade decreased. In
marketing year 1994/95, China imported 18.78 million tons of grain (10.2
million of wheat) and exported 1.66 million. But in 1995/96, China imported
15.95 million tons (12 million of wheat) and exported 860,000 tons. In 1996/97
China is projected to import only 6.22 million tons (4 million tons of wheat)
and export 1.6 million tons.
Wheat Acreage Expands In Response to New Policy
China reaped a record 109-million tons of wheat in 1996/97. Under the "grain
bag responsibility system" provincial governors in fall 1995 used
administrative and price mechanisms to encourage farmers to increase area
sown to winter wheat. Farmers planted 2.3 percent more winter wheat in 1
996 than in 1995. Yields increased from 3.54 metric tons per hectare in 1995
to 3.7 tons in 1996.
Production could rise again in 1997/98 because of increased area. China's
State Statistical Bureau's winter planting surveys suggest that in fall and
winter 1996 farmers intended to increase winter grain (mostly wheat) area 1.6
percent from the previous year. Farmers in south China who in the last few
years left their land fallow to work in more lucrative jobs in towns and
villages are now being encouraged to increase the area sown to winter wheat
(2).
The state still purchases wheat from farmers. In an effort to encourage
farmers to raise more wheat and to support increases in farm income,
authorities raised the government's fixed quota price from US$131 in January
1995 to US$160 in June 1996.
Domestic market prices for wheat more than doubled from US$100 in January
1993 to US$ 211 in September 1996, but declined to $202 by December . The
gap between the fixed quota price and the market price narrowed in fall 1993
and in July 1994. From July 1994 to spring 1996 there was a substantial
US$30 to $80 gap between these two prices. But with the increase in the
fixed quota price in spring 1996, the gap closed.
World prices (as represented by U.S. f.o.b. hard red winter, No. 2, Gulf ports)
have been well below the domestic market price. The gap narrowed in spring
1996 and exceeded the domestic market price from March through June, when
world wheat prices soared. However, by September, the U.S. export price was
again well below China's domestic market prices for wheat and remained so
through the end of 1996.
China's Wheat Consumption Stabilizing
A significant imbalance exists between urban and rural areas and between
coastal and inland regions. Rural and inland poverty remain a serious concern
to policy makers. Poverty alleviation programs are a priority for the central
government and international lending agencies. The purchase and redistribution
of food grains, mandated by the central government in part to alleviate the
urban-rural, coastal-inland income and food imbalances, remain important
components of China's agriculture policy.
China's wheat consumption rose rapidly between the mid-1970s and the mid-1980s
because of population growth, rising incomes, and large government subsidies
for urban wheat consumers. Total consumption more than doubled from an average
of 44 million tons in the mid-1970s to 101.5 million tons by the mid-1980s,
rising to a projected 113 million tons in 1996/97. At the same time, food
consumption of other grains, such as barley and corn, declined. Per capita
growth also expanded but leveled off in the late 1980s when urban consumers
began diversifying their diets towards more vegetables, fruit, and meat
products. However, rural wheat demand is still rising as the shift from coarse
grain and potatoes to wheat consumption continues. Per capita wheat
consumption in 1996/97 is estimated at 90 kg, compared to 90.9 kg in the United
States and 50.7 kg in Japan.
Urban consumers are more quality conscious than rural residents who largely
rely on domestic supplies. As urban incomes have grown and free markets
developed, demand has increased for "special grade" flour that meets specific
baking needs. Between 10 and 20 percent of China's wheat consumption now
consists of "special grade" flour and the percentage is rising. As a result,
mills are demanding higher quality wheat to produce this flour. Preference is
for imported wheat because classes and grades of domestically produced wheat
are usually not homogeneous, making it difficult for millers to produce a
specific quality of flour.
State Stocks Increasing; On-farm Stocks Large
One of the big concerns in China in summer 1996 was whether the government
managed grain purchase system would purchase the proper quantities from the
record wheat crop. Authorities worried that if the central government failed
to allocate sufficient funds to support wheat purchases or if the Grain Bureaus
downgraded quality, offered lower prices, closed their doors to sellers, or
issued IOUs to farmers, farmers would be less enthusiastic, less responsive to
directives in planting wheat for the 1997 harvest. From available evidence it
appears that at least for the wheat crop, Grain Bureaus were able to purchase
the requisite quantity of wheat (we are not certain yet about the purchases for
other crops). Because the 1996 crop was a record, purchases likely were
greater than consumption, making it very likely that some of the crop ended up
boosting wheat stocks that are owned and controlled by the government.
Vice Premier Zhu Rongji, in January 1997 made a rare comment on China's
grain stock situation, noting that at yearend China's state grain reserves totaled
a record 148.5 million tons, up 34.4 million tons from yearend 1995. In 1991
state grain reserves were reported to be around 120 million tons. While the
sources of this information disclosed total grain stock numbers, they did not
give a breakdown between wheat, rice, and corn, the primary grains held in
state stocks. The increase in state-owned wheat stocks, which are primarily
used to meet wheat consumption requirements in urban areas, probably was one
reason wheat imports are expected to decline in 1996/97.
In China, some estimates indicate that 1995/96 wheat on-farm ending stocks may
be much higher than the 23 million tons reported in USDA's World Agricultural
Supply and Demand Estimates (3). Farmers hold wheat stocks for their own food
security. They store grain as a hedge against crop failures, injury,
sickness, disruption in transportation and market systems, and as a hedge
against inflation. Farmers tend to meet their food security requirements
first and then sell a portion of their wheat and are very hesitant in the
present economic environment to reduce their wheat stocks as local wheat
market prices rise. Our conclusion is that, for now, the very large wheat stocks
in rural areas have little effect on urban wheat supply conditions and import
demand (4).
China's Imports Plummet in 1996/97
China was the world's largest wheat importer in 1995/96 and while it will drop
to around fifth place in 1996/97, it is and will continue to be a major source
of uncertainty in global wheat trade. The uncertainty exists because the
volume of wheat imported each years depends on China's government
procurement, annual wheat production, stocks, domestic prices, and foreign
trade policies.
China's wheat imports have fluctuated dramatically. Since 1987, China's annual
imports have ranged from 4.3 million tons in 1993/94 to 15.9 million tons in
1991/92. In 1996/97 China is projected to import 4 million tons of wheat, one-
third of the 1995/96 volume and the lowest since 1976/77. Since 1987, the
equivalent of between 4 and 15 percent of China's wheat consumption has been
imported each year, mostly to the urban centers on China's eastern seaboard.
China generally buys high-protein wheats from Canada and Australia to blend
with its own and foreign soft wheat. While the United States is able to export
five classes of wheat to meet China's diverse requirements, it has been a
residual supplier. U.S. exports have been soft red winter and, to a lesser
extent, hard red winter wheat. China intermittently buys wheat from Argentina
and the EU when their prices are competitive with US wheat. As a result, the
U.S. share of China's imports has been variable (5). Since 1987, it has ranged
from 47 percent (in 1989/90) to 23 percent (in 1995/96). In 1996/97, the
U.S. share could drop even lower.
While wheat imports enter China tariff free, phytosanitary regulations have
been a barrier to certain classes of U.S. wheat. No U.S. wheat from the
Pacific Northwest has been imported by China since the beginning of the 1970s
and no U.S. white wheat from any source has been imported since 1981 because
of concerns about the spread of Telletia Contraversa Kuhn (TCK), a winter wheat
disease.
In spring 1996, Chinese officials indicated that TCK had been detected in U.S.
shipments of wheat to China originating from Gulf ports. Reportedly, China
canceled contracts for about 2 million tons of wheat on that basis and since
then, China has not purchased any U.S. wheat. China claims that importing
wheat with TCK would threaten domestic production.
However, the cancellations last spring coincided with reports that China's
wheat crop would be close to a record and the need for imports would be far
less than in 1995/96. And China has not bought wheat significant quantities
from any major exporter in many months. Negotiations to resolve the TCK
impasse are on-going between the United States and China.
China's Wheat Outlook for 2005
Up to 2005, China's wheat output is projected by USDA to increase at an annual
rate of about 0.6 percent. While area is projected to fall 0.1 percent a
year, yields likely will increase at a much faster pace of around 0.8 percent a
year. China's seed breeders have developed several hybrid winter wheat
varieties that are being field tested in major winter wheat producing
provinces. In 1995, the Ministry of Agriculture field test results showed
yield increases of 25 percent (6). Rapid economic growth rates, rising
incomes, and changes in consumer preferences for quality wheat products, and
a projected population growth of 100 million for the coming decade, will boost
domestic demand above supply. Over the next 10 years, China's per capita food
consumption is expected to level off. Rural per capita consumption wheat is
expected to continue to rise, while urban per capita consumption is expected to
decline as residents continue to diversify their diets.
USDA projections place China's wheat imports in 2005/06 at about 15 million
tons, compared with an average of 9.8 million tons during the Eighth Five Year
Plan (1991-95) (7).
Conclusions
The implementation of the "grain bag" responsibility system created conditions
in China that helped lead to reduced wheat imports in 1996/97. The policy
stimulated provincial governors to use financial and administrative means to
push farmers to expand area sown to wheat. At the same time the governors
used their political and administrative powers to insure that appropriate quantities
of inputs were available to farm families to raise wheat. Wheat growers were
blessed with favorable weather conditions and farm families reaped a record
wheat crop.
Provincial governors insured that financial assets were available for their
state owned Grain Bureaus to purchase wheat from farmers. Both on farm and
state-owned stocks of wheat rose. The implementation of the "grain bag"
policies meant that in 1996/97 China became more self-sufficient with regard to
wheat production, consumption, and trade. Wheat imports for 1996/97 are
forecast at 4 million tons, down substantially from 12 million in 1995/96.
This drive to increase self-sufficiency has been expensive. Considerable
energy was expended by government administrative entities to implement the
policy. Land that should have been planted with more competitive crops ended
up in wheat, delaying China's transition to producing a mix of agricultural
products in which it has a comparative advantage. Large sums of money are
required to underwrite the grain storage system. Some of the wheat stored in
both state and on-farm storage is damaged each year and is a deadweight loss
in the system.
Sources
1. Crook, Frederick W., "December 1995 China Trip Report," FAS and ERS,
USDA, Washington, DC, December, 1995.
2. China Daily, December 3, 1996, page. 2.
3. Ke Bing-sheng. "On-farm Grain Stocks in China and Its Impacts on Market
Balance," paper presented at International Symposium on Food and
Agriculture in China: Perspectives and Policies, October 6-8, 1996,
Beijing, China.
4. Crook, Frederick W. "The Impact of China's Grain Reserve System on
Import Demand," unpublished paper, USDA, ERS, September 1996.
5. Crook, Frederick, William Lin, and Hunter Colby. "Determinants of Wheat
Import Demand," ERS, USDA, Washington, D. C., Staff Analysis Report No.
AGES 9329, December 1993.
6. "Hybrid wheat to increase harvest," China Daily, June 1, 1996, p. 2.
7. Agricultural Baseline Projections to 2005, Reflecting the 1996 Farm Act.
Interagency Agricultural Projections Committee, World Agricultural Outlook
Board, U.S. Department of Agriculture, Staff Report WAOB-97-1, February,
1997.
Special Article
U.S. Competitors Respond Dramatically to High World Wheat Prices
by Linda Bailey, Chris de Brey, Susan Leetma, Mark Simone, and James Stout
Abstract: During 1996/97 all of the United States' major export competitors
increased acreage in response to the sharp increase in world wheat prices that
began in the 1995/96 crop year. Increased wheat plantings and generally
favorable growing conditions in these countries mostly contributed to the
second largest world wheat output on record and provided sharp competition for
U.S. wheat exports in a smaller global market. The USDA baseline projections to
2000 indicate lower wheat prices in the coming years relative to 1995/96 and
1996/97, which should cause competitors to shift some area to alternative
crops. However, the projected wheat area for these countries as a group is
expected to stay relatively stable because wheat prices are expected to remain
attractive compared to the late 1980s and early 1990s. The projected wheat
prices are based on the USDA baseline assumptions that strong global demand
growth, particularly in East Asia, will continue and the GATT Uruguay Round
Agreement disciplines on agricultural trade will be fully implemented.
Keywords: Wheat prices, baseline, Argentina, Australia, Canada,
European Union, Uruguay Round Agreement
Introduction
A key question in the spring and summer of 1996 was how the major world
wheat producers would respond to the record high prices and tight exporter
stocks. Furthermore, with world consumption exceeding production in each
of the previous 3 crop years, the global stocks-to-use ratio for 1995/96 was the
lowest on record, according to the USDA database.
This article details how the United States' major competitors (Argentina,
Australia, Canada, and the European Union) responded to high international
wheat prices for the 1996/97 crop year and projects wheat production and
exports for these major competitors to the year 2000. The projections were
prepared for the annual USDA projections of long-term agricultural supply,
demand, and trade for agricultural commodities. Known informally as the
"baseline," the projections combine model results and judgmental analysis in
arriving at the outcomes. The baseline is not a forecast, but rather a
conditional, long-run scenario about what would be expected to happen under a
specific set of assumptions.
The USDA baseline makes many assumptions about the United States and other
countries. Changes in any of the assumptions can significantly alter the
projections, and actual conditions that emerge will alter the outcomes.
Therefore, the baseline provides a point of departure for analysis of
alternative agricultural trade and policy scenarios. Some of the more
important assumptions of the current USDA baseline include:
o Normal weather, meaning there are no year-to-year supply shocks due to
abnormal weather;
o Robust population and income growth in developing countries, especially
East Asia;
o Further enhancement of incomes by the full cumulative impact of trade
liberalization under the Uruguay Round Agreement of the General
Agreement on Tariffs and Trade (GATT);
o Full compliance with all bilateral and multilateral agreements affecting
agriculture and agricultural trade; and
o No accession to the World Trade Organization (WTO) by China, Taiwan,
and the Newly Independent States (the former Soviet Union); no
enlargement of the European Union beyond its current 15 member
countries; and no expansion of the North American Free Trade
Agreement (NAFTA).
As a group, the four major U.S. competitors reacted to high wheat prices by
raising 1996/97 output 23 percent from the preceding year. Their 1996/97
(July/June) exports are expected to be up 24 percent. Although world wheat
trade is forecast down in 1996/97, the major U.S. competitors increased their
exports, in the aggregate, because of sharply larger supplies and tight U.S.
wheat supplies. Under the USDA baseline, aggregate wheat exports by the four
major competitors in 2000/01 are projected to be 58.8 million tons, accounting
for 55 percent of projected world wheat trade. U.S. wheat exports are
projected to be 36.7 million tons in 2000/01, comprising 34.5 percent of world
wheat trade. However, wheat export potential in Argentina, Australia, and
Canada is expected to be limited by land constraints and attractive prices for
competing crops. Additionally, the Uruguay Round Agreement export subsidy
limits are gradually reducing allowable European Union (EU) subsidized exports
in coming years. World prices are expected to remain below levels that would
permit the EU to export without subsidies.
Argentina's Production and Exports Forecast at Record Highs
Argentina's wheat production for 1996/97 is forecast at a record 15.5 million
tons, based on a strong area response to high world prices, fairly good
weather, and increased use of fertilizers and pesticides that produced close to
record yields. Farmers planted almost 7 million hectares, up 40 percent from
the previous year and the highest since 1982/83. Weather in many areas was
normal to good, partly accounting for the record crop. Farmers, encouraged by
favorable prices, increased fertilizer use to an estimated 70 percent of wheat
area, compared with slightly over 50 percent last year. With the increase in
planted area, the actual area fertilized doubled in a year. Producers also
increasingly adopted other cultural practices, such as systemic fungicides and
herbicides, as well as minimum and no-till practices to conserve soil moisture.
Exports for the local 1996/97 December/November marketing year are forecast at
a record 11 million tons. Argentine exporters and the government, at times,
have been aggressively marketing wheat in international markets. Although
Brazil is again expected to take the largest volume of exports, other markets,
notably North Africa, Eastern Europe, and East Asia, have been purchasing
Argentine wheat this marketing year. Brazil, as a member of the Mercosur
customs union formed by Argentina, Brazil, Paraguay and Uruguay, levies no
tariffs on wheat imported from Argentina, while wheat from other origins,
including the United States, are subject to a 10- percent ad valorem tariff.
The decline in world wheat prices in late 1996 and early 1997 resulted partly
from the aggressive marketing of the record Argentine crop.
Argentina's wheat prospects continue to be closely tied to world developments,
particularly since the government opened up the economy in the early 1990s.
USDA's projections for lower wheat prices through the year 2000 relative to the
unusually high levels of 1995/96 and 1996/97 should produce corresponding
downward adjustments in Argentina's wheat area. However, for the remainder of
the decade, harvested wheat area is projected to remain above the average of
5.6 million hectares during the 1980s and 4.9 million in the early 1990s. A
more neutral agricultural policy, compared to an anti-farm policy of export
taxes that existed until 1991, will help sustain Argentine wheat area, as will
world wheat prices that are anticipated to remain sufficiently attractive from
a producer standpoint.
The increased adoption of technology should raise Argentine yields and
contribute to rising production prospects, including possible records in years
of favorable weather. However, because the USDA baseline assumes normal
weather, wheat output and exports for 2000/01 are projected at 13.9 and 9.4
million tons, respectively, up from 10.1 and 5.6 million tons averaged in the
early 1990s. Most of the changes in wheat area come from land competing and
rotating with cattle, for which profitability and productivity gains have
lagged relative to crops. Most other major grains and oilseeds are expected to
see increases in area for similar reasons. Cattle are projected to occupy
smaller areas, although on much of the less-than-prime cropland they will still
be extensively used in rotation with wheat and other crops. Nevertheless,
given the projected price scenario, the introduction of new land for wheat in
Argentina is unlikely, given the high costs involved to bring such lands into
productive use.
Can Canada Soon Repeat Its Large 1996 Crop?
Extremely low carryin stocks and high wheat prices in early 1996 encouraged
significantly larger plantings of wheat in Canada at the expense of
alternative crops such as canola (rapeseed) and flaxseed. More than 12.9
million hectares were devoted to wheat in 1996, in contrast to an average of
11.5 million in the previous 3 years. Area planted to durum wheat (2.1
million), and non-durum wheat (10.8 million), exceeded the averages of the past
3 years.
Although spring planting was delayed due to wet weather, and despite an
outbreak of yield- and quality-reducing Fusarium Head Blight in eastern Canada,
generally favorable weather throughout the growing season led to record yields.
As a result, Canada's 1996 wheat production was the largest since 1991.
The particular circumstances that contributed to the large 1996 crop are
unlikely to repeat themselves, however, and Canadian wheat production prospects
for the rest of the decade are closer to 1995's 25.4 million tons than 1996's
30.5 million. Production of other crops, particularly new varieties of canola,
are becoming increasingly competitive with wheat. During 1994 and 1995, canola
acreage rose to 5.75 and 5.3 million hectares, respectively, after ranging
between 2.5 and 3.7 million hectares during 1984-92. In 1996, higher wheat and
barley prices relative to canola strongly encouraged plantings of these grains
at the expense of canola. After 1996, however, lower projected prices for
wheat and barley will help restore canola production to near 1994 and 1995
levels.
A second factor that will favor alternative crops such as canola and barley
over wheat is the removal of the Western Grain Transportation Act (WGTA) on
August 1, 1995. The WGTA subsidized the transportation of grains and oilseeds
in western Canada for export. Under the WGTA, Canada's railways were permitted
to charge shippers approximately CAN$19 per ton to move grain from a midpoint
of Prairie Provinces to an export position, while the government paid the
railroads an additional CAN$12 to CAN$19 per ton. A freight rate cap, adjusted
for inflation, was established on August 1, 1995 to last until July 31, 2000 to
protect farmers shipping grain from large rate increases. The current range of
maximum freight rates for wheat in the 1996/97 marketing year are estimated
between CAN$35 and CAN$48, varying by delivery point and date of delivery. The
WGTA encouraged production and export of lower-valued grains and oilseeds from
the Prairie Provinces at the expense of processed products. Its elimination
encourages reallocation of resources to other farm output such as livestock and
value-added products and to crops, such as malting barley and canola that
support these activities, as opposed to export-oriented wheat. Feed barley and
canola are more likely to be sold and consumed in the Prairie Provinces as
processing industries and livestock production expand.
Beginning in 1997, moderating grain prices are expected to lead to a shift from
wheat toward alternative crops, such as canola. After 1997, alternative grains
such as malting barley and oats will compete strongly for acreage as well. All
of these crops have unique characteristics that are likely to guarantee certain
export markets for the future. Canadian canola is preferred by Japanese
importers. Canadian oats are indispensable to U.S. oats processors. Canadian
and Australian malting barley are positioned to benefit from increasing demand
from importers in China and Latin America. For these reasons, wheat area is
expected to decline in 1997 and remain near the 1993-95 level of 12 million
hectares through 2000. Production is projected to expand slowly to slightly
more than 26.5 million metric tons as yields gradually increase. Through 2000,
Canada's wheat exports are limited to slightly over 18 million tons.
Australia's Wheat Production Highest on Record
Australia's 1996/97 wheat crop, harvested in October-December 1996, is forecast
to be a record large 23 million tons. World wheat prices were high when
planting began in April 1996. Harvested area rose 14 percent from 1995/96 to
11.1 million hectares, far greater than the previous 9-year average of 8.7
hectares. Area was shifted out of sorghum and pasture (largely for sheep
grazing) as well as other uses to take advantage of the relatively more
attractive returns for wheat. In addition, favorable weather boosted yields in
Australia to the highest level on record, according to the USDA database.
Australia's October/September marketing year wheat exports are forecast to
rise 36 percent from 1995/96 to 16.5 million tons in 1996/97. Australia is
attempting to export as much as possible before 1997 new-crop supplies come
on the market from the Northern Hemisphere countries, but the huge crop means
Australia will have to continue to export large supplies in the summer and fall
of 1997. Despite the push, Australia's end-of-year wheat stocks are forecast
to increase dramatically. Australia began 1996/97 with low stocks because of
the devastating drought in 1994/95 when production fell to 8.9 million tons,
about half the previous year's output.
Because world wheat prices have declined significantly since spring 1996,
when Australia's 1996/97 crop was planted, wheat growers will likely
receive lower returns than they expected at that time. Lower world prices
are expected to continue into 1997 and as a result, Australia's wheat
planting for 1997/98 is anticipated to be reduced. However, if prospects
continue to be relatively favorable in the next two to three months of 1997,
wheat area will remain strong relative to recent years, other than 1996/97.
As world grain trade is liberalized under the provisions of the GATT Uruguay
Round Agreement on Agriculture and as global economic and population
growth continues, Australia's wheat exports are projected to continue to
average nearly 15 million tons in the 1998/99-2000/01 period. Wheat area
is projected to continue to grow modestly to 2000 and yields are likely to
rise also. Constraining growth is the relatively higher returns to wool
projected during the next few years. There has been some adoption of
higher yielding wheat varieties better suited for feed for Australia's
expanding dairy cattle operations, but feed demand from the beef industry
is not expected to increase much. Although output and exports of beef
are projected to increase, poor returns and large competing supplies of meat,
mainly from the United States, will slow herd rebuilding.
EU Export Tax Removed with Bountiful 1996 Wheat Harvest
The European Union (EU) in 1992 revamped its Common Agricultural Policy
(CAP) for grains in order to reduce burdensome grain stocks, increase domestic
grain consumption (primarily as feed) and lower budgetary outlays. Under CAP
reform, internal grain prices were lowered and a mandatory land set-aside was
implemented. To compensate farmers for lost income from lower prices, direct
payments were provided.
Since the first year of CAP in the 1993/94 crop year, the objectives of
increasing internal grain consumption and stock reduction have been achieved
with great success. However, the decline in wheat stocks became so serious
during 1995/96 that the EU imposed a $32-per-ton export tax on soft wheat
exported outside the EU in December 1995, in order to keep internal wheat
prices from rising along with world prices. This was the first time the EU
taxed grain exports since 1974. With domestic consumption on the rise, the EU
wanted to prevent any decreases in domestic supply that would further drive up
EU grain prices and limit feed use. As world prices increased, the export tax
increased as well, reaching a high of $58-per-ton in late April 1996. The
export tax kept wheat on the domestic market, causing the EU's 1995/96 wheat
exports to fall a third from the previous year.
The sharp rise in world wheat prices during 1995 and early 1996, a decrease
in the rotational EU set-aside for grains under CAP Reform to 10 percent for
1996/97, and much improved weather in Spain raised EU wheat production
more than 13 million tons from 1995/96. Larger wheat supplies in the EU
and in other countries have caused world wheat prices to decline since spring
1996 and the EU correspondingly decreased its export tax. The export tax
was completely eliminated this past September, when the world price of wheat
fell below the internal EU price, and the EU began subsidizing its wheat
exports once again. EU exports in 1996/97 are projected to increase 16
percent from 1995/96 but remain significantly below the levels of the early
1990s.
EU policy changes implemented under CAP Reform and the GATT Uruguay
Round Agreement commitments on reductions in subsidized exports mean
that the EU can be expected to play a less prominent role in world wheat
trade through 2000, relative to the late 1980s and early 1990s. The 5-percent
set-aside rate in place for 1997/98 will result in ample wheat production but
EU wheat consumption is also expected to increase, due to stronger
demand for wheat in feeding. Feed demand for grains has been increasing
in recent years due to internal price reductions resulting from the 1992 CAP
reform. The EU Commission's concerted effort to keep grain prices low
enough to make grain an attractive feed, thereby keeping the EU within its
subsidized export limits without building large stocks, has also spurred feed
demand. Further increases in feed use are expected because the bovine
spongiform encephalopathy (BSE) scare has led to an increase in demand
for pork and poultry, which consume much more grain than cattle. For the
remainder of the decade, USDA projects the set-aside rate to be set at 12
percent. Each year, lower GATT export bounds will increasingly constrain
the EU's wheat output, but strong domestic demand will keep the exportable
surplus from depressing price much below the intervention price. The world
market price for wheat is not projected to equal or exceed the EU market price
again until 2001, preventing the EU from exporting marginal amounts of wheat
without subsidy until then.
Special Article
Forecasting Feed and Residual Use of Wheat
by James N. Barnes 1/
Abstract: In recent years, feed and residual use of wheat has been large both
during the summer quarter and for the entire year. Equations were developed to
estimate both quarterly and the annual feed and residual use of wheat.
Previous research (Allen and Westcott, 1991) estimated linear equations using
price and non-price factors. Many alternative functional forms were examined
using price and non-price factors for this analysis. USDA price forecasts
presented at the Agriculture Outlook Forum in February 1997 (P. Riley) along
with the estimated equations, imply a 1997/98 feed and residual use of 397
million bushels in the summer quarter and between 286 and 331 million bushels
for the year.
Keywords: Wheat feeding, forecasting, prices
In the Southern Plains and the Southwest, where wheat and livestock are
produced together, wheat is commonly used as a feed source. Most of the
wheat fed is lower quality wheat which is used in feed rations. Factors
supporting the feeding of wheat include: (1) wheat prices are lower during the
summer quarter (June through August) relative to other feed grains due to the
newly harvested winter wheat crop, (2) transporting feed grains in from other
regions is costly, and (3) supplies of winter wheat are generally available in these
areas. In 1990/91, low wheat prices relative to corn and sorghum led to a
record wheat feeding of 399.7 million bushels for the summer quarter. More
recently, in the summer quarter of 1996, wheat feed and residual disappearance
reached 381 million bushels, the second highest on record.
1/ Agricultural economist, Oklahoma State University.
Feed and Residual Use of Wheat
The feed and residual use category for wheat includes all nonfood and nonseed
domestic uses, including statistical residuals (errors) from all categories of
wheat supply and demand. From the supply and demand balance sheet, wheat
feed and residual use is simply a residual calculation. Supply (beginning stocks,
production, and imports) minus ending stocks gives total disappearance.
Subtracting exports and use leaves an unexplained disappearance labeled feed
and residual use. Patterns of feed and residual use tend to be large and
positive in the first quarter, negative in the second, and positive or negative
in the third and fourth quarters. All the estimates of uses mentioned above,
except feed and residual use, come from various government surveys. There are
no reports, either government or private, that estimate the actual feeding of
any grain, including wheat.
Wheat feeding in the summer quarter occurs primarily because winter wheat is
harvested in June and July. At this time, wheat is generally priced lower than
other feed grains. Most feed grains are not harvested until fall, so during
the summer, their prices have not declined to harvesttime lows. The seasonal
combination of low wheat prices and higher corn and sorghum prices often makes
it attractive to use wheat in concentrate feed rations in wheat growing areas.
Also, poor quality wheat is more likely to be discounted for feed use rather
than put into storage.
Second-quarter (September through November) feed and residual use of wheat is
often negative. Within the supply and demand balance sheet, this would be
caused by the sum of domestic use, exports, and ending stocks exceeding the
supply (second quarter beginning stocks plus imports) of wheat. Because the
wheat harvest occurs in the first quarter and beginning stocks are fixed,
excluding any revisions by the National Agricultural Statistics Service (NASS),
only imports could increase enough to offset the gains found in demand. Often
this does not occur and therefore the feed and residual use of wheat is
negative in the second quarter. The same result could occur in the third
(December through February) as well as the fourth quarter (March through
April).
The interpretation of feed and residual use is often difficult because the feed
and residual use of wheat is determined by other factors in the supply and
demand balance sheet.
Economic Model
Feed demand hinges upon derived demand theory. In other words, feed wheat is
used as an input to produce a desired output product. In this case, the
output product is livestock. Under these circumstances, input demand depends
upon the prices of the input, substitute inputs, and the output. Since there
isn't any data for actual feeding of wheat, the historical feed and residual
estimates were used as a proxy.
Wheat price represents the input price and corn price represents a substitute
feed grain price. Sorghum and other feed grain prices tend to follow corn
prices. For this analysis, season average farm prices were used. The value of
the output can be measured as the price of fed beef. In this case, an index of
prices received by farmers for livestock and products (as published by NASS in
Agricultural Prices) was used.
Using only prices could potentially underestimate the amount of wheat feeding.
Aggregate prices often do not fully capture regional quality differences among
the classes of wheat. Consequently, non-price factors were examined also.
These included the number of animals on feed as well as the size of the wheat
supply. Two variables were developed to represent the number of animals on
feed. The Southern Plains represent a major wheat growing area of hard red
winter wheat and because it has large cattle-feeding operations, a cattle on
feed (CAOF) variable on July 1 was examined. Because some wheat is fed to
poultry, especially soft red winter, a variable was developed to capture this
effect. Broiler production numbers in Arkansas (ARKB) were chosen because
that State is a large broiler and wheat producer, and is located close to larger
wheat producers. Wheat supply was measured by two variables: beginning
stocks plus winter wheat production (Sw), and beginning stocks plus total wheat
production (St). A time trend variable was also used to capture the growth in
the scale of the sector.
The non-price variables, CAOF and ARKB, are expected to have a positive effect
on the feeding of wheat. As the number of cattle on feed and broilers
increase, more feed wheat is expected to be used. In theory, the supply of the
wheat crop is also expected to have a positive effect upon the feeding of
wheat. As the wheat supply increases, generally price is expected to decline,
therefore making it economically attractive to feed wheat rather than corn or
some other feed grain. In practice, some analysts feel that the supply of
wheat may be correlated with the residual component rather than actual wheat
feeding.
In an attempt to capture the interaction between the price variables, corn and
wheat, several different variables were examined. These included: SPRD, WhCn,
and WCinv. The SPRD variable equals the spread between wheat price and corn
price. This variable is expected to have a negative effect on wheat feeding.
As the price of wheat increases so does the spread, causing the amount of wheat
feeding to decrease as corn becomes more attractive to feed. The WhCn variable
equals wheat price divided by corn price. It is expected to have a negative
effect as well because as the wheat price increases so does the ratio, causing
wheat feeding to decline. The WCinv variable equals one divided by the WhCn
variable. This variable is, however, expected to have a positive effect on
wheat feeding. As the price of wheat increases, the WCinv value would
decrease. This would cause wheat feeding to decrease as it becomes cheaper
to feed corn than wheat.
Model Estimation Results
Considering linear, log-linear, log-log and inverse functional forms, Ordinary
Least Squares (OLS) was used to estimate quarterly and annual equations. Data
from 1977 to 1996 were used to estimate equations for quarters one and two. To
estimate equations for quarters three and four and also the annual, data from
1977 to 1995 were used. The quarterly and annual equations are shown in table
1. Each annual and quarterly model was evaluated given the selected functional
forms. The models shown in table 1 perform the best, based on correct signs of
the independent variables, significance, and overall explanatory power. The
models shown in table 1 also used only price variables and a time trend
variable in some combination. Although some non-price factor variables were
developed and examined, overall model performance was better without them.
The summer quarter (quarter 1) model yielded the highest R square value of
0.96. The explanatory power of the other quarters are not as high, with the
quarter four model yielding the lowest explanatory power of 0.65. The signs of
the independent variables in each quarterly equation are as expected and
statistically significant. The annual model performed quite well yielding a R
square of 0.85. The signs of the independent variables are as expected and
their associated t-statistics are quite significant due to their low standard
errors.
As shown in table 2, the models' predicted power was quite strong . In the
early 1990's, the models seem to perform better, even when feeding was very
large. For example, in 1990/91 when summer quarter feeding reached a record
399.7 million bushels, the model predicted 395.4, only a -4.3 million bushel
error for the model. In 1991 and 1992, the summer quarter models performed
quite well where the errors were only +11.3 and -12.5 million bushels,
respectively. Generally speaking, the other models did well in these 3 years
also, but from 1993 to 1995 model error increased.
The development of the quarterly and annual models could be used together to
estimate a range for the annual feed and residual use of wheat. An annual
estimate could be derived either by summing each quarter or by evaluating the
annual model. Although the quarterly models could be used to derive an annual
estimate, the original motive for their development is primarily for short term
forecasting. For longer term forecasting, the annual model was developed.
Although all these models with their respective functional forms perform quite
well when evaluating predicted versus actual values, their worth as forecasting
tools has yet to be evaluated.
Model Forecasting
A more difficult test upon all these models and their respective functional
forms consists of going back in time and using the same variables and
functional forms to forecast a future year. Actually, this is more of a
functional form test than a model test because in specified years each model
may have performed better using a different combination of independent
variables. Nonetheless, this type of test reveals over time how well each
functional form forecasts.
For example, to forecast 1990, regression equations would be based upon data up
to 1989. Then using expected prices, a forecast for 1990 could be derived. To
forecast 1991, regression equations would consider data up to 1990, and again
using expected prices, a forecast for 1991 could be reached. Data in table 3
show these results from 1990 to 1997 for the summer quarter and annual models.
Once again, in the early 1990s the forecast power of the summer quarter model
performed well, only missing the record feeding year in 1990 by +14.3 million
bushels. In 1991, the error was less than +4 million bushels. However, closer
to 1995 the error did increase. The annual model performed quite well also.
In table 3, there are two annual forecasts. One is derived by the annual model
and the other represents the sum of each quarter. Aside from 1994, these two
forecasts perform better in the latter part of the 1990s. In 1993 and 1995, the
errors were only +2.6 and +7.9 million bushels for the quarterly sum and annual
forecast, respectively.
Forecast 1997/98 Feed and Residual Use of Wheat
For this analysis, wheat and corn prices are assumed to be $3.45 and $2.50,
respectively. Using these expected prices, the equations imply a feed and
residual use ranging between 286 and 331 million bushels for crop year 1997/98.
Also, these equations imply a feed and residual use of 397 million bushels for
the 1997 summer quarter and if realized it would be the second highest on
record.
Special Article
Wheat Farm Characteristics, Income, and Costs in 1994
by Mir Ali 1/
Abstract: Data for 1994, from the most recent Farm Costs and Returns Survey
(FCRS) for farms producing wheat show that wheat farms averaged 1,062 acres
with 214 acres of wheat. Yields were 16 percent below producers' expectations.
Sixty-two percent of farms were found to be in a favorable financial position
(positive net farm income and low debt). Costs of producing wheat per acre and
per bushel varied considerably among wheat growing regions, due primarily to
differences in yields, input use, irrigation, and cropping practices. In 1994,
the Central and Southern Plains, a major wheat region, produced wheat at an
average economic cost of $4.83 per bushel ($137 per acre). On a bushel basis,
the Southeast produced wheat at the lowest costs, $3.24 per bushel.
Key words: Wheat, costs of production, income, Farm Costs and Returns Survey.
In early 1995, USDA surveyed wheat growers in 21 States about the 1994
production year. Farms in these States accounted for about 82 percent of the
U.S. wheat crop in 1994. This article contains some of the preliminary findings
from the survey. A later report will more fully explain input use, farm
characteristics, costs, and other production factors by size, region, and cost
level.
1/ Agricultural Economist, Rural Economy Division, Economic Research Service.
1994 Production Costs
Based on USDA's survey, cash costs of producing the 1994 wheat crop averaged
$2.47 per bushel ($82 per planted acre), and total economic costs averaged
$4.63 per bushel ($155 per acre) 2/. Fertilizer, seed, and chemicals accounted
for half of the variable costs. At the average harvest-month price of $3.16 per
bushel, 78 percent of wheat growers were able to cover cash costs. When capital
replacement costs were included, 62 percent of growers were able to cover
costs, and when a charge for unpaid labor was also included, 51 percent of
growers were able to cover costs.
2/ ERS prepares production costs estimates on a per-planted acre basis. Costs
are included only for acreage that was planted with the intention of being
harvested for grain. Wheat planted only as a cover crop or for grazing is
excluded. However, costs are included for production that is abandoned because
of crop damage. Per-planted acre basis preferred also for making comparisons
across crops because yield differ across commodities and not all commodities
are measured in the same units of output.
At the regional level, survey results showed that cash costs in 1994 varied due
to differences in cropping practices, input use, and irrigation. Total cash
costs ranged from a low of $70 per acre in the Northern Plains to $147 in the
Pacific region. The Pacific region had the highest costs due primarily to
irrigation-related expenses. According to the survey, about one fourth of
Pacific
wheat acreage was irrigated, compared with almost no irrigation in other
regions.
The survey showed that in 1994, on average, the value of wheat at harvest-time
covered the cash costs in every region, while the value covered cash costs plus
capital replacement in all regions except the Central and Southern Plains.
Total economic costs were covered only in the North Central region, where
wheat growers also had positive returns to management and risk. Relatively higher
grain yields in the North Central region and a large portion of wheat acres
harvested for straw, which had a high value as a secondary product, contributed
to the positive returns.
On a per bushel basis, cash costs varied greatly among regions due to yields,
ranging from $1.94 to $2.67. Economic costs ranged from $3.24 to $5.14 per
bushel. Although the Plains had the lowest costs per acre, they had the highest
per-bushel costs in 1994 due primarily to poor yields. In 1994, this region's
growers harvested about 20 percent less wheat than what they expected.
Other Relevant Regional Factors
The most important region in terms of wheat production was the Central and
Southern Plains, followed by the Northern Plains. Together these two regions
typically account for two-thirds of U.S. production. The region with the least
wheat was the Southeast, accounting for less than 5 percent of the total wheat
crop. The predominant type of wheat grown varied among the regions--hard red
winter wheat in the Central and Southern Plains, soft red winter in the North
Central region and Southeast, and white wheat in the Pacific region, with a
mixture of hard red winter and spring wheats in the Northern Plains.
Summer fallow and double cropping were two other important practices that
varied among regions. Pacific growers planted more than half their wheat on
previously fallowed land, compared with one-third in the Plains regions and
none in eastern regions. On the other hand, double cropping was only reported
in eastern regions. In the Southeast, three-fourths of the wheat was double
cropped, most likely with soybeans. Wheat pasture in the Central and Southern
Plains and wheat straw in the North Central region were important secondary
products.
Distribution of Costs
Estimated 1994 variable costs were converted to a per bushel basis and ranked
from lowest to highest to form a weighted cumulative distribution of farms and
production. These costs were then compared with the distribution estimated
from 1989 costs. Drawing conclusions about efficiency is not appropriate
because of the differences in yields.
In 1994, twenty-five percent of farms had per bushel variable costs of $1.12 or
less (low-cost), and accounted for 19 percent of total production. A majority
of these low-cost growers were in the North Central region. At the other end
of the distribution, 25 percent of farms had variable costs of $2.22 or more
per bushel (high-cost) and accounted for 21 percent of wheat production. In
1994, three-fourths of these growers were in the Plains regions.
Variable costs varied greatly among cost groups, ranging from $0.93 to $3.21
per bushel, due primarily to differences in expected vs. actual yields. In
1994, high-cost growers expected 37 bushels, but harvested 22 bushels of wheat
per acre. Low-cost growers harvested 44 bushels per acre, 3 bushels more than
what they expected.
When compared with prior cost distributions, low-cost growers in 1989 had
variable cash costs of $1.37 or less and accounted for a higher share of wheat
production (31 in 1989 vs. 19 percent in 1994). On average, the low-
cost group planted wheat on 219 acres as part of 1,348 operated acres. This
indicates that the low-cost group had a relatively larger-sized operation in
1989 than their counterparts in 1994, due primarily to a large number of these
growers being located in the Plains regions (53 percent in 1989 vs. 36 percent
in 1994).
High-cost growers in 1989 had variable costs of $3.49 or more and accounted for
slightly less of the wheat crop when compared with 1994. These growers
expected 29 bushels of wheat per acre, but harvested only 7 bushels. Note that
wheat yields in 1989 were the lowest since 1978 (a total of 2.04 billion
bushels were produced on 76.6 million planted acres). Three-fourths of
high-cost growers were in the Central and Southern Plains region.
Other distinctions include: wheat growers in 1994 had higher yields, were in a
relatively better financial position and carried less debt. Low-cost growers
owned more and rented less land on a share basis, and, although the value of
all commodities produced on the low-cost farms included in the survey
increased, wheat's contribution to the total value declined from 21 percent in
1989 to only 9 percent in 1994.
Differences in operator characteristics, input use, and cropping practices such
as use of irrigation, summer fallow, double cropping, and grazing did not
change significantly between the two surveys.
List of Tables
Text Tables
The Wheat Situation at a Glance
1. Wheat supply, disappearance, and stocks, June-May
2. HRW supply and demand
3. HRS supply and demand
4. SRW supply and demand
5. White wheat supply and demand
6. Durum supply and demand
Special Articles
A-1. Acres in the CRP at the height of the program, 1993-95
A-2. Recent and projected CRP contract terminations/expirations
A-3. Simulation of a future 36.4-million-acre CRP
B-1. Regression results for quarterly and annual feed and residual use of wheat
B-2. Quarterly and annual actual versus predicted feed and residual values,
1977-1995
B-3. Forecast summer quarter and annual feed and residual use of wheat
C-1. Production costs and input use of average wheat farms, by region, 1994
C-2. Characteristics of average wheat farms, by region, 1994
C-3. Income and balance sheet statements for average wheat farm, by region,
1994
C-4. Wheat production costs per planted acre, 1994-95
Appendix
1. Wheat: Marketing year supply, disappearance, area, and price,
1990/91-1996/97
2. Wheat: Area, yield, and production by major States, 1987-96
3. Wheat: Estimated acreage, yield, and production, 1965-96
4. Wheat classes: Production, 1950-96
5. Wheat classes: Acreage, percentage breakdown by State 1994-96
6. Wheat classes: Estimated acreage, yield, and production, 1982-97
7. Wheat: Marketing year supply and disappearance, 1960/61-1996/97
8. Wheat: Quarterly supply and disappearance, 1975/76-1996/97
9. Wheat: Farm prices, support prices, and ending stocks, 1950/51-1996/97
10. Wheat: Status of price support loans on specified dates, 1966/67-1996/97
11. Wheat classes: Marketing year supply and disappearance,
1976/77-1996/97
12. U.S. wheat exports: Grain, flour, and products, by month, 1973/74-1996/97
13. U.S. wheat imports: Grain, flour and products, by month, 1983/84-1996/97
14. Wheat: Inspections for export by class and country of destination,
June-May 1995/96
15. Wheat farm programs and participation 1976-96
16. World wheat production, consumption, trade, and ending stocks,
1960/61-1996/97
17. Wheat production, trade, and ending stocks, world and United States,
1965-96
18. Wheat: Production and exports, major foreign exporters, and total foreign,
1965-96
19. Wheat and wheat flour: World trade, production, stocks, and use,
1989/90-1996/97
20. Wheat farm prices for leading classes in U.S. regions, 1977/78-1996/97
21. Wheat cash prices for leading classes at major markets, 1950/51-1996/97
22. Domestic and foreign wheat prices, 1980-1996
23. Wheat flour: Supply and disappearance, United States, 1960-96
24. Wheat and flour price relationships at milling centers, annual and by periods,
1982/83-1996/97
25. U.S. wheat production cash costs and returns, 1976-97
26. U.S. wheat production economic costs and returns, 1976-97
27. On-farm receipts of major crops, United States, 1983-97
28. Schedule of wheat base acres released from terminated or expiring CRP
contracts
29. Wheat: Supply and disappearance, United States, 1910/11-1996/97
30. Quarterly government stock activity for wheat, 1991/92-1996/97
31. U.S. wheat exports: By selected programs
32. Rye: Supply disappearance, area, and price, 1986/87-1996/97
33. Rye: Production by major states, 1986-1996
34. NIS and the Baltics (Former Soviet Union) wheat: Supply and
disappearance, 1960/61-1996/97
35. China's wheat: Supply and disappearance, 1960/61-1996/97
36. European Union wheat: Supply and disappearance, 1960/61-1996/97
37. Canada's wheat: Supply and disappearance, 1960/61-1996/97
38. Australia's wheat: Supply and disappearance, 1960/61-1996/97
39. Argentina's wheat: Supply and disappearance, 1960/61-1996/97
END_OF_FILE