Even if corn and soybean prices drop below the loan rate this fall, it's difficult to envision an increase in planted wheat acres for the 2006 crop, says Delton Gerloff, University of Tennessee agricultural economist.
Gerloff made his remarks at the recent Southern Region Agricultural Outlook Conference, held in Atlanta.
“The only year since 1996 when there was a significant rise in planted wheat acres was in 2003, following the low production of 2002,” says Gerloff. “The marketing year average price was $3.56 in 2002/03. In the two years since, wheat prices have averaged $3.40, and in both years, planted acreage has dropped.”
The United States has dropped more than 12 million harvested wheat acres from its production base since the mid-1990s, says Gerloff. Higher yields have offset the drop in acres to some extent, as the U.S. average yield has been above 40 bushels per acre in seven of the last eight years, he adds. The last sub-40 bushel year was 2002, when yields averaged only 35 bushels per acre.
Carryover stocks in 2003 dropped to 491 million bushels in the United States, and the marketing year average price rose to $3.56, he says. Stocks have risen slowly since 2003, with the 2005/06 ending stock level projected to be 624 million bushels.
“Foreign stocks have dropped by more than 2 billion bushels since 2001, with a large portion of the decline coming from lower stocks in India and China,” says Gerloff. “Both U.S. domestic use and exports have been fairly constant, with the exception of the 2002/03 marketing year. The 2005/06 marketing year is projected to be the fourth year in a row in which prices will average $3.20 or higher.”
Looking at 2005/06, Gerloff says U.S. ending stocks are projected to increase by 84 million bushels this year, to 624 million bushels. Probable stock levels range from 538 to 710 million bushels, based on USDA historical data.
There still is some uncertainty regarding the spring wheat harvest, he says, but even at the lower end of the range, stocks would be at the same level as in the past two years.
“The marketing year average price is projected to drop 20 cents, to $3.20 per bushel compared to last year. Support in December at $3.15 (contract low) has held as of the middle of September. A break below $3.15 could send prices down to the $2.95 to $3 level near weekly support,” says Gerloff.
There may be room, he says, for USDA to upgrade exports over the next two to three months. “If exports can exceed 1 billion bushels, support should hold. This fall also will bring reports of winter wheat planting conditions in the Southern Plains.”
The top four foreign wheat-exporting countries report static to lower production compared to last year, notes Gerloff.
“Both production and imports show little change over the past 10 years. The drop in both world and U.S. stocks adds more uncertainty to the market. A short-term drop in U.S. yields likely would result in significantly higher prices. But with the United States holding only 12 percent of world stocks, any price increase would also likely be met with diminished exports,” he says.
If planted acres in the United States total 58 million or less in 2006, the U.S. yield must average 43 bushels or higher to meet the 2005 demand, says Gerloff. Any hint of production problems likely would result in significant price rallies in the short run, he adds.
“The July 2006 futures price reflects that uncertainty, trading near $3.50 in mid September. Late winter/early spring price rallies have occurred in the past two years and could happen again in 2006.
“But farmers may want to take advantage of current prices on at least a portion of expected 2006 production. Depending on local basis, cash-forward contracting for July delivery and buying an out-of-the-market July call should be considered.”
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