The recent USDA World Agricultural Supply and Demand Estimates showed further reductions in global wheat production as poor growing conditions around the world undermine harvests and further reduce global stocks, already at the lowest level seen in 36 years.
Adverse weather has hurt quality in parts of the U.S. Hard Red Winter (HRW) region, and the EU, further tightening availability of milling quality grain. Reduced exportable supplies are keeping import demand for U.S. supplies very strong despite the highest export values in 11 years. As a result, USDA increased U.S. export and farm-gate price estimates from already historically high levels.
USDA lowered expectations for global production by nearly 2 million metric tons (MMT) from last month's forecast due to weather problems in the U.S., Canada, EU-27, and several other countries.
The harvested area estimate in top HRW-producer Kansas was reduced by nearly 162,000 hectares, from a total 3.6 million hectares, due to freeze and flood. Kansas has harvested 40,000 hectares less than last season, despite planting 200,000 more hectares last fall.
The total crop in Kansas is estimated at 7.8 MMT, down 100,000 MT from last year's drought-stricken crop. Extreme heat in Canada reduced the harvest potential there by 1 MMT to 21.5 MMT, while drought in Eastern Europe combined with persistent rains in Western Europe to reduce the EU-27 production forecast by 1.7 MMT. Good weather in Russia and Kazakhstan was the only positive production news, reflected in a 500,000 MT increase in expected exports from the Black Sea region.
Although USDA expects global production to exceed 2006-2007 output by more than 17 MMT, it predicts world use will exceed production for the third year in a row, thus reducing global stocks to 115 MMT. The stocks-to-use ratio of 19 percent is the lowest since USDA began keeping track in 1960.
The supply situation has fostered price rationing in U.S. futures markets, and pushed prices to their highest level in 11 years. Prices for December delivery Spring Red Wheat (SRW) at the Chicago Board of Trade breached $7/bushel recently.
The record price for any delivery month is $7.50/bushel and $7.17/bushel for nearby delivery, both set in 1996. USDA forecasts that the average farm-gate price for this marketing year will set a new record between $5.10 and $5.70/bushel.
The U.S. export pace is currently 80 percent higher than at this time last year.
Sales are up for every reported class of wheat and USDA increased its U.S. export forecast by 680,000 MT from last month, now 4.5 MMT above last season.
Sales of SRW are nearly three times larger than last year, as Egypt has only received offers from U.S. and Black Sea suppliers. HRW sales are currently 167 percent higher than last year, largely on increases to Iraq and continued strong sales to Nigeria. Hard Red Spring (HRS) sales to the EU-27 are more than 10 times greater than this time last year and durum exports are up by 27 percent.
Sales of white wheat are just above last year's pace even though prices are 70 percent higher than they were last year at this time.
USDA reports that total known sales for MY 2007-2008 are about 13 million metric tons, 80 percent greater than sales last year at this time.
The SRW sales pace is nearly three times higher than last year and HRW sales are 167 percent higher. The HRS sales pace exceeds last year by 21 percent, durum by 23 percent, and white wheat by 3 percent.