The U.S. Department of Agriculture issued a report last week confirming what most analysts were already expecting, a bullish year for wheat.
Contained within the department’s world agricultural supply and demand estimates was some especially good news for prairie growers, said Agriculture Canada wheat analyst Glenn Lennox.
“The outlook is actually a lot stronger for high quality wheat than it is for medium or low quality wheat.”
That’s because North American crop prospects are relatively poor compared to those in the European Union and former Soviet Union.
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The United States is expected to produce 56.62 million tonnes of wheat, down 11 percent from last year’s harvest. Winter wheat production is forecast to be down nine percent due to lower seedings, higher abandonment and lower yields. Durum and spring wheat acreage have also declined.
On the flip side, global wheat production is projected to rise 39 million tonnes to 588.67 million tonnes. The EU will lead the way, harvesting 20 million more tonnes than last year, while Ukraine and Russia will be up a combined 17 million tonnes.
“If you look at a European Union wheat production graph, it looks like a saw. It goes up one year and down the next almost without exception, and this is the up year,” said Lennox.
The EU’s primary wheat growing countries, France and Great Britain, produce soft red wheat, similar to that grown in the eastern U.S., which does not compete with Western Canada’s higher quality milling wheat.
Darrel Good, agricultural economist at the University of Illinois, said the wheat portion of the report inflates the potential for the availability of feed grains, but that is more than offset by an expected decrease in corn exports out of China and Brazil.
What caught his attention in the report was the 39 million tonne number, which represents a substantial seven percent rebound in world wheat production.
“This is really going to be the story of the year, whether we can get that kind of rebound or not,” said Good.
“That’s what we kind of expected the USDA to show, but now that production has to prove itself.”
Despite the rise in output, global wheat stocks are forecast to decline 5.5 million tonnes due to increased consumption, putting upward pressure on prices.
The projected price range for wheat in 2004-05 is $3.25-$3.85 US per bushel, compared to $3.40 last year.
Lennox said the USDA’s price projections incorporate all classes of wheat, but not all of them will rise.
“When the USDA says the overall farm price is up, well that increase is going to be mainly in the spring wheat and to some degree in the hard red winters, but probably down in the soft reds.”
He said the market bullishness in the USDA report has already been reflected in the Canadian Wheat Board’s pool return outlook, with milling wheat up about $17 per tonne since the initial 2004-05 PRO was released in February.
Good said if there is one message in the report about price, it is to expect the unexpected.
“It does continue to show, even with rebounds in production, the world supply-demand balance stays pretty tight for another year. That means anything can happen,” said the analyst.
“I think we’re a long way from having settled markets. It’s shaping up as another pretty volatile year.”
