CAN WHEAT PRICES OVERCOME INFLUENCE
OF CORN AND SOYBEAN PRICES?
Most of the recent news in the
corn and soybean markets has been negative, resulting in sharp
price declines. March corn futures declined $.145 and December
futures have declined $.12 since January 10. March and November
futures have declined about $.27. During the same time period,
July wheat futures at Chicago declined only about $.03. Chicago
wheat futures are back near the level of last October.
Wheat prices have been supported
by prospects of declining world production and stocks. The USDA
now projects world ending stocks for the current marketing year
at about 110 million tons, representing about 18.4 percent of
projected world consumption. The recent high in the world wheat
ending stocks was about 139 million tons at the end of the 1997-98
marketing year. World wheat production has declined for three
consecutive years, with the 2000-01 decline led by a shortfall
in the Australian and Chinese crops.
Further support has come from
on going concerns about the U.S. winter wheat crop. Much of
the hard red winter crop was planted in dry soil conditions.
On January 11, the USDA released the Winter Wheat Seedings report
estimating winter wheat acreage at 41.3 million acres, about
2 million acres less than was seeded in each of the two previous
years. Compared to last year, the largest declines came in Oklahoma
(700,000), Texas (400,000), and Montana (300,000). Acreage declined
by 100,000 in Illinois and was unchanged in Indiana. Acreage
in Kansas, the largest wheat producing state, increased by 100,000.
Harvested acreage of winter wheat
is difficult to predict since some of the acreage is grazed
by livestock and the magnitude of abandonment varies significantly
from year to year. Over the past three years, the difference
between planted and harvested acreage of winter wheat ranged
from 6.3 to 8.3 million acres. The average winter wheat yield
has been relatively high the past four years, but has varied
by 3.2 bushels per acre. The average yield last year was at
44.6 bushels, compared to 47.8 bushels in 1999. The potential
size of the 2001 winter wheat crop is still very uncertain.
The size of the 2001 wheat crop
in the U.S. will also be influenced by the size of the spring
wheat crop. Intentions for spring wheat acreage may be significantly
impacted by prices over the next several weeks. Combined acreage
of durum and other spring wheat has been relatively stable for
the past three years, ranging from 19.2 to 19.4 million acres.
That average is well below the 22.4 million acres seeded in
1997. Average yields over the past four years have varied by
9.2 bushels for durum and 8.3 bushels for other spring wheat.
It will be several months before the potential size of the 2001
U.S. wheat crop is known. Since the U.S. produces only about
10 percent of the world wheat crop, the magnitude of production
in other countries will be extremely important for prices over
the next year.
The primary negative factor for
U.S. wheat has been the slow pace of exports. The USDA projects
exports for the current marketing year (ending May 31, 2001)
at 1.125 billion bushels, 35 million more than exported last
year. Through January 18, 2001, cumulative export inspections
were estimated at 690 million bushels, about 52 million less
than on the same date last year. As of January 11, unshipped
sales were only 7 million bushels larger than on the same date
last year. Sales will have to accelerate if the USDA projection
is to be reached.
Wheat market fundamental are clearly
more positive than current fundamentals for the corn and soybean
markets. The size of the 2001 wheat crop will be the primary
price factor over the next several months. With so much uncertainty
surrounding crop size, wheat prices may have difficulty moving
higher in the very near term without some help from corn and
soybean prices. Prospects for higher soybean prices are not
very good. Some support for corn prices will likely emerge as
the market generally believes that higher prices are needed
to ensure adequate acreage in 2001. The $3.15 area for July
wheat futures at Chicago has proven to be a resistance area
for the past two rallies. That will be an important price target