U.S. 1992/93 wheat supplies hinge on this year’s crop – 1992/93 forecasts for winter wheat prices, production, and consumption – U.S. Dept. of Agriculture, Economic Research Service Report
With U.S. 1992/93 carryin stocks forecast at less than half of year-earlier levels, the 1992 crop will have to rise almost 25 percent for supplies to match 1991/92. Production will likely increase, assuming normal yields, but the reported drop in winter wheat seedings will make a 25-percent increase less likely.
Winter Wheat Seedings Down
Winter wheat seedings for the 1992 crop were reported down 1.6 percent, despite an increase in area permitted to be planted by participants in the 1992 wheat program. The acreage reduction program (ARP) was reduced from 15 percent to 5 percent and, given the high participation rates in the wheat program (85 percent in 1991), this could have been the basis for a significant increase in planted area. Moreover, tight supply and demand balances were forecast for the end of 1991/92, increasing the probability of good returns to growing wheat in 1992. However, several factors combined to offset the forces encouraging farmers to plant more. At seeding time, prices had not increased to reflect USDA’s forecast tight supply and demand. During the summer harvest months, farmer marketings of the 1991 crop were reported as particularly heavy, with the July-average price received by farmers only $2.49 per bushel. By September that price had only rallied to $2.80. While the national-average farm price reached $3.25 by November, most planting decisions had been made by that time and much of the crop was already seeded. Uncertainty over export prospects also tended to hold down wheat prices. The unravelling of the Soviet Union and its financial difficulties cast shadows of doubt over export prospects. Moreover, there was considerable concern about trade relations between China and the United States, especially with regard to the granting of most-favored-nation (MFN) status to China. Numerous press reports questioned whether China would continue to purchase wheat from the United States. More base acres are subject to the non-payment provisions of normal flexibility acres (NFA) in 1992 than in 1991. This may be an important factor limiting winter wheat area in 1992. Because the 1990 farm legislation was not signed before winter wheat planting, a special 1-year winter wheat option was offered to producers for the 1991 crop. Instead of receiving deficiency payments on 15 percent fewer base acres, winter wheat producers could use the option to receive deficiency payments at a slightly lower payment rate. The winter wheat option was not offered for the 1992 wheat crop. Farmers had to make planting decisions for 15 percent of their base acreage solely on the basis of expected costs and market returns, without government payments. Wheat is often grown in dry areas, where the practice of leaving the land fallow to accumulate moisture can enhance future yields. Farmers may have thought that wheat prices did not justify planting their most marginal land, especially without the incentive of a government payment, so there was less reason to take advantage of the reduced ARP. Soft red winter wheat (SRW) yields in 1991 averaged only 34 bushels per acre, down for the third straight year since the 49-bushel-per-acre record in 1988. Yields were hurt by disease problems, and mycotoxin contamination of wheat was reported in several areas. SRW is grown mostly in the States along the Mississippi River and to its east. Many producers there do not depend on wheat for a large portion of their income. Some may have decided not to grow wheat because of the yield and quality problems they have had in recent years. Moreover, participation in the wheat program is lower in this area than in other regions, so the reduced ARP was not as important a factor for SRW as it was for other classes of wheat. Kansas was hit by a prolonged dry spell during the wheat planting and emergence stages, which likely discouraged some producers from increasing plantings. In Texas and Oklahoma, a large portion of planted wheat area is not usually harvested for grain. Instead, producers often use wheat for haying or grazing for livestock. Many farmers plant all, or more, of their wheat base. As a result, the decline in wheat area planted in Texas does not necessarily mean that less area will be harvested, as strong wheat prices will likely cause a sharp increase in the percentage of acreage harvested for grain.
Seedings Boost Price Prospects
Most early forecasts of winter wheat area were 2 to 6 million acres above the USDA’s reported planted area, consequently, most production forecasts for 1992 dropped by 100-200 million bushels. However, several factors are expected to soften the production impact. As wheat prices have increased, the incentives to plant more spring wheat have become very strong. Moreover, in areas where late plantings are possible some increase in plantings is likely. But with late-planted wheat yielding much less than normal, the increased plantings may not be significant. High prices are likely to encourage farmers to harvest a larger-than-normal portion of planted area. Also, the portion of planted area that is harvested for grain is likely to increase because of the lower ARP requirements. However, the extent that the crop is damaged severely by bad weather or disease will also affect how much is harvested.
Supply Prospects Tight
The forecast for June 1, 1992, carry-in stocks is 390 million bushels, the lowest since 1974 (1952 before that), and less than half the 866 million bushels of a year earlier. Moreover, 150 million bushels, a significant portion of the forecast carryover, is to be in the CCC’s food security reserve, further shrinking supplies available to the market. Newcrop supplies do not become available in many areas for several months, so old-crop free stocks will be needed to maintain domestic use and exports, especially during June. Production prospects for 1992 are for a larger crop, despite the smaller winter wheat seedings. Although several areas reported less than ideal conditions in early February, there appears to be no compelling evidence that yield prospects are outside the range of average to trend levels. Total supply in 1992/93 is likely to be less than 3 billion bushels for only the third time since the 1970’s. Even if spring wheat producers increase area sharply, the decline in winter wheat seedings makes the prospects of a crop over 2.5 billion bushels unlikely.
Demand Prospects Down
It is too early to make an assessment of some components of 1992/93 demand, such as export prospects; however, July futures prices of wheat are now much higher than the prices of alternative feed ingredients, indicating that wheat feed use will drop sharply. The level of wheat feeding will also be determined by how much of the crop is of poor quality. Food use is not considered to be very sensitive to changes in wheat prices, and population growth and changes in tastes and preferences are likely more important, so the 1992/93 prospects are for continued slow growth. Seed use is too small to have much effect on the overall supply and demand balance.
Program Provisions for 1992/93
The target price remains at $4.00 per bushel in 1992/93. The announced loan rate is $2.21 per bushel, while the basic loan rate is $2.58. The ARP is 5 percent. The projected deficiency payment rate is $0.65 per bushel, with advanced deficiency payments of $0.26 per bushel. “Flex” acreage provisions apply to all wheat farmers participating in 1992/93. Program payment yields remain unchanged, and 0/92 provisions remain available. [Tabular Data Omitted] [Figure 1 Omitted]
COPYRIGHT 1992 U.S. Department of Agriculture
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