NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
August 24, 2000
George Flaskerud, Extension Crops Economist
Historically tight supplies of wheat outside of the U.S. will likely bring increased price volatility later in the marketing year. Ending stocks of wheat outside the U.S. were projected by USDA in the August Supply and Demand Report to be the lowest in two decades. You have to go back to 1981 to find lower ending stocks for foreign producers as a group.
Increased volatility is more likely than a sustained move to substantially higher wheat prices unless there is a significant production shortfall someplace in the world. USDA's export projections are not much different than exports for the last two years. Ending stocks in the U.S. were projected to be about 41 percent of total use, about the same as in the July report.
Market conditions suggest that the Loan Deficiency Payment (LDP) should be captured if it has not been already. Although higher wheat prices may materialize because of threats to growing conditions for 2001 wheat crops, it is not likely that prices will move lower than observed during August. In effect, the risk of much lower prices is minimal.
Most of the changes noted in the USDA report, relative to the report in July, took place in production. Hard red winter production was reduced 3 million bushels to 883 million, soft red winter was increased by 4 million to 471 million, white winter was increased 5 million to 240 million, other spring wheat was increased 28 million to 554 million, and durum was reduced 13 million to 115 million bushels. Hard red spring wheat production was pegged at 499 million bushels versus 448 million a year ago.
The corn crop will be huge. A crop of 10.369 billion bushels is expected, 300 million over the previous record. An average yield of 141.9 bushels per acre was projected. Ending stocks as a percentage of total use is expected to be 24.4 percent versus 19 percent a year ago.
USDA continues to expand its export projections for the 2000 corn crop primarily because of a smaller crop in China. The crop there was projected to be 5.7 percent smaller than July's projection, and 10.2 percent smaller than a year ago.
Although China's crop is expected to shrink, China is still exporting, but exporting less. Their exports are projected to be 157 million bushels, down from 354 million this past year.
Taking the LDP for corn at harvest continues to look like a good plan since cash prices should bottom out at that time. USDA is projecting a seasonal average price of $1.45 to $1.85 per bushel, a nickel lower than last month's projection, and compares to the average for this past marketing year of $1.80.
The soybean crop is also expected to be huge. It was projected to be 2.989 billion bushels, 248 million larger than the previous record. An average yield of 40.7 bushels per acre was projected, slightly below the record.
The soybean stock-to-use ratio is certainly not attractive (16.5 percent) but less foreboding than a month ago (17.4 percent). It is expected to be 10.3 percent for the 1999-2000 marketing year.
USDA continues to expand crush and export projections, at least partly because of China. The Chinese crop is expected to be 5 percent smaller than the estimate last month. Although smaller than projected last month, it is still expected to be 5 percent larger than last year's crop. So, while soybean imports by China are expected to be up from a month ago, they are expected to be about 20 percent below the 330 million they imported last year. The South American situation is also lending support to our exports. Strong domestic use is soaking up their bigger crop and limiting supplies available for export.
Taking the LDP for soybeans at harvest also looks like a good plan. Prices are so low they are much more likely to go up after harvest than down. USDA is projecting a seasonal average price of $3.90 to $4.80 per bushel, about the same as last month's projection, and compares to the average for this past marketing year of $4.65.
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Source: George Flaskerud, (701) 231-7377
Editor: Tom Jirik, (701) 231-9629