 "Depending on the size of the 2007 U.S. corn crop and soybean
planting decisions in South America, there may be a need for
U.S. producers to plant more acres to those two crops in 2008,"
said Darrel Good. "If winter wheat seedings increase
significantly, generating an increase in corn or soybean acreage
will be a challenge."Good noted that September 2007 wheat
futures settled at $8.40 on Sept. 7, nearly $1 above the
previous record established in 1996. High prices are being
generated by a second consecutive small world wheat crop,
extremely strong export demand for U.S. wheat and declining
world wheat inventories.
The USDA will release a new world wheat production estimate
on Wednesday. The August forecast of 610.4 million tons for the
2007-08 crop was 7.4 million tons larger than the small crop of
2006-07 but 18.2 million tons smaller than the record crop of
2004-05. The production estimate was 10.1 million tons less than
the projected level of world consumption and pointed to a
decline in world stocks for the sixth time in seven years.
"Export demand for U.S. wheat has been extremely strong with
concerns that production in Europe and Australia may be smaller
than previously forecast," said Good. "The USDA has forecast
2007-08 marketing year U.S. wheat exports at 1.075 billion
bushels, the largest in four years and 165 million bushels -- 18
percent -- larger than exports during the 2006-07 marketing
year."
Through the first 14 weeks of the 2007-08 marketing year, the
USDA reports that 338.4 million bushels of U.S. wheat have been
inspected for export, nearly 52 percent more than during the
first quarter of the 2006-07 marketing year. As of Aug. 30, the
USDA reported that nearly 332 million bushels of U.S. wheat had
been sold for export but not yet shipped.
"That is 2.8 times larger than unshipped sales of a year
ago," he noted. "The largest year-over-year increase in export
commitments is for hard red winter wheat -- 2.9 times -- and
soft red winter wheat -- 2.6 times. Purchases from Italy, Iraq,
the Philippines and Egypt account for much of the year-over-year
increase."
High wheat prices reflect the need to slow the rate of
consumption and to increase the area planted to wheat in
2007-08, he added.
"There is widespread anticipation that U.S. winter wheat
producers will increase seedings in this fall," Good said. "That
decision, however, will be influenced by the large inversion in
wheat futures prices and the generally weak basis in most
areas."
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 The July 2008 futures price at Chicago on Sept. 7 was $2.465
below the September 2007 price, and the discount at Kansas City was
$2.1475 per bushel. Those bids were 57.75 cents to 93.5 cents under
July 2008 futures, representing a continuation of a weak basis.
While $5 is a historically high price for wheat, the harvest bids
are about $2.30 below the current spot price of wheat.
"The decision relative to winter wheat seedings will also be
influenced by prices of competing crops, particularly corn and
soybeans," said Good. "If the 2007 U.S. corn crop is close to 13.3
billion bushels -- well above the USDA's August forecast -- stocks
of U.S. corn at the end of the 2007-08 marketing year may be near
1.7 billion bushels.
"If consumption increases another 1 billion bushels in 2008-09, a
13 billion crop will be required again in 2008. The corn market may
have to encourage corn producers to hold acreage at the extremely
high level of 2007."
U.S. soybean stocks will decline sharply during the current
marketing year, even if exports decline by 80 million bushels as
forecast by the USDA, Good added. Consumption of U.S. soybeans
during the current year is expected to exceed the size of the 2007
crop by 360 million bushels, accommodated by large stocks of 2006
soybeans.
"Stocks at the end of the current year will not allow consumption
to exceed production in 2008-09, implying that consumption of U.S.
soybeans will have to decline or production will have to increase,
or a combination of the two.
"Export prospects will be strongly influenced by the size of the
2008 South American crop. The USDA currently projects an increase in
South American acreage for harvest in 2008 of only about 3.3
percent. If the increase is not larger, soybean prices may have to
be high enough to slow consumption and/or increase acreage in the
United States."
If U.S. winter wheat seedings are increased significantly, if
more U.S. soybean acreage is needed in 2008 and if U.S. corn acreage
needs to remain at the 2007 level, corn and soybean prices will
continue to be well-supported.
"Prices of those two crops will have to be in the right
relationship at the right time to direct plantings and perhaps be
high enough to divert acreage from other crops," said Good. "In
2007, acreage of cotton and spring wheat -- excluding durum --
declined by nearly 6 million acres. In addition, acreage of all
crops, including harvested acreage of hay, increased by 3.7 million
acres.
"Can those types of adjustments continue in 2008?"
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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