Wheat prices could be substantially better than expected this year, says a United States Department of Agriculture report.
The USDA is estimating a 16 percent price increase because of small crops in the U.S. and generally tightening world wheat stocks.
And bad weather in the U.S., Canada and China has pushed wheat futures higher as traders have begun worrying about supply.
“There’s a lot less wheat than they were expecting,” said Canadian Wheat Board analyst Bruce Burnett.
“It’s significantly smaller production.”
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The USDA report, released May 10, stunned most traders and market analysts. It forecast a 14 percent drop in 2001 winter wheat production, making it the smallest crop since 1978.
Total U.S. wheat production is expected to be about 12 percent down, which would make it the smallest crop since 1996-97.
The biggest decline in U.S. winter wheat production is in hard red winter wheat, which competes with Canada’s hard red spring wheat. That’s good news for Canadian growers, said Burnett.
“It’s dropping faster than the other wheats.”
U.S. hard red winter wheat production is forecast to be the smallest since 1989.
The USDA also forecasts significantly lower world wheat stocks, dropping from 167 million tonnes in 1999-2000 to 158.7 million tonnes in 2000-2001 to 139.6 million tonnes in 2001-2002.
Burnett said world markets will now be much more touchy to any weather events that could reduce supply.
Traders are beginning to worry about continued heat stress on the U.S. hard red winter wheat crop and poor conditions in Western Canada and China.
“It’s taken some of the comfort about supply out of the market,” said Burnett.
That should strengthen grain prices by limiting downside potential, as buyers begin to try to guarantee supply.
“The market’s going to factor in a lot of that uncertainty,” he said.
The other big news in the USDA report was of a huge U.S. soybean crop, which it forecasts to be almost eight percent higher this year than last year.
That will increase supplies by seven percent and double U.S. soybean carry-over. USDA estimates soybean prices will fall by seven percent in the next year.
That wipes out a lot of hope for any price recovery for soybeans, and continues to provide a gloomy outlook for world oilseeds.
Canola prices on the Winnipeg Commodity Exchange, however, held their own after the USDA report was released because of dry soils in western Saskatchewan and Alberta, which could limit supply. Statistics Canada’s seeding intentions survey, conducted in late March, estimated prairie farmers will plant 23 percent fewer canola acres.
The U.S. corn crop is forecast to be four percent down, but it will still be the fourth largest crop in history. Its price should remain about the same.
Carol Gunvaldsen, a Manitoba Agriculture grain market analyst, said that apart from wheat, the report mainly brought bad news for farmers.
“It’s about what we expected.”
The wheat crop size was the one factor that analysts were unsure of, and that’s why markets and the trade reacted so strongly to USDA numbers.
“This is the first real estimate of the year for winter wheat,” said Gunvaldsen.
While huge supplies of corn and soybeans are hanging over the market, commodity prices are unlikely to generally rise. Even good news like the small U.S. winter wheat crop only has limited effect.
“It’s going in the right direction, but only very slowly,” said Gunvaldsen.
Burnett said the USDA domestic wheat crop estimate may start a general rise in wheat prices, since everyone takes it seriously.
“This is the largest wheat crop in the world,” said Burnett.
“It’s a bellwether. It can influence traders. This certainly is very supportive for the market.”
Dave Boehm, a Saskatchewan Agriculture economist, said the small U.S. crop should help prairie producers.
“It can’t help but put upward pressure on prices,” he said.
That may work out even better now that many producers in Saskatchewan and Alberta may have to seed into dry fields. If they’re switching from small-seeded crops to wheat, a wheat price hike would be perfectly timed.
