 "Prices may remain generally high but very volatile as 2008-09
production prospects, both acreage and yield, unfold," said
Darrel Good. "The USDA's Winter Wheat Seedings report, to be
released the second week in January, will provide the first
indication of how U.S. producers responded to the high prices."
Good's comments came as he reviewed the recent history of wheat
prices, which moved to all-time highs this fall, with December
futures at Chicago reaching $9.60. New crop July 2008 futures
traded to a high near $6.95.
"Prices have softened over the past week as the market begins
to anticipate some slowdown in consumption and that the small
2007 crop has been fully reflected in current price levels,"
said Good. "Decisions in the European Union to allow import
licenses for 20 million bushels of corn and 8 million bushels of
sorghum could help ease the tightness in the supplies of feed
wheat there.
"In addition, the recent Canadian estimate of the current
crop there was a bit larger than expected. Improved weather in
Argentina and ideas that the drought damage to the Australian
crop has been fully anticipated by the market also contributed
to recent price weaknesses."
Prices for the 2008 crop remain well below prices for the
2007 crop as the market anticipates an increase in world wheat
acreage in 2008, motivated by the historically high prices, Good
noted. In addition, an increase in acreage in the European Union
will be accommodated by the lifting of the 10 percent acreage
set-aside requirement.
"The acreage response to high wheat prices will unfold over a
fairly long period of time," said Good. "Winter wheat producers
in the Northern Hemisphere have the first opportunity to respond
to the higher prices as seeding is under way.
"For example, the USDA reported that 42 percent of the U.S.
winter wheat crop had been seeded as of Sept. 30. Seeding now
likely exceeds 60 percent. Private sources forecast that soft
red winter wheat producers are likely to make the largest
percentage increase in acreage, due to the combination of high
wheat prices and the potential opportunity to double-crop some
of those acres to high-priced soybeans."
Good added that this is consistent with the experience of
1996, when wheat prices reached the previous high. Seedings of
soft red winter wheat increased by nearly 10.5 percent, and area
seeded to hard red winter wheat increased by about 5 percent.
Decisions by Southern Hemisphere producers and Northern
Hemisphere spring wheat producers will presumably be influenced
by the acreage increase reported for Northern Hemisphere winter
wheat producers. The net result may be a more measured response
to current high prices.
[to top of second column] |
"That is, if all wheat producers were making the seeding decision
simultaneously, a very large increase in the face of record-high
prices might be expected," said Good. "However, the progressive
nature of the response means that some producers will respond to the
decision of those planting first and to the prices of other crops."
The USDA estimates that world harvested acreage of wheat totaled
nearly 571 million acres in 1996-97, 5.2 percent more than harvested
in 1995-96. A similar increase this year would put 2008-09 harvested
acreage at 566 million acres, the most since 1996-97. Some current
private forecasts are for a 3 percent increase in world wheat
acreage.
"Such an increase would put harvested acreage at 554 million,"
said Good. "Forecasts have to be viewed as extremely tentative
because of the progressive nature of the planting decisions."
Almost as important as the magnitude of planted acreage will be
the level of yields in 2008-09. Over the past five years, world
average yields have ranged from 39.3 bushels (2003) to 42.8 bushels
(2004). The USDA's September forecast for the 2007-08 year was 41.4
bushels.
A 5 percent increase in area harvested and an average yield of
42.5 bushels, for example, would result in a 2008-09 crop of 24
billion bushels, he noted. A 3 percent increase in area harvested
and a yield of 39.5 bushels would produce a crop of only about 21.9
billion bushels.
"The USDA estimates that world wheat consumption is currently
near 22.8 billion bushels," Good said. "A modest increase in world
wheat acreage and yields near the low end of recent experience would
point to the need to ration wheat consumption in 2008-09, while a
larger acreage increase and yields near the upper end of recent
experience would allow some rebuilding of world inventories.
"With a 3 percent increase in area harvested, an average yield
near 41.5 bushels would be needed to allow world wheat production to
increase modestly in 2008-09."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
 |
