Australia’s record 1.04-billion bushel wheat crop and above average beginning stocks is an albatross hanging over the U.S. wheat and corn markets. Australia’s total wheat supply for the current wheat marketing year is a record 1.37 billion bushels.

Australia is projected to use 119 million bushels for food and 147 million bushels for feed. Total domestic wheat use is projected to be 266 million bushels. The remaining 1.1 billion bushels are available for export.

On January 31, Australian wheat stocks were estimated to be a record 941 million bushels. Milling quality wheat was estimated at 647 million bushels and feed quality wheat at 294 million bushels, which is a record high percentage of feed wheat.

As benchmarks, the five-year averages for Australian wheat are: production - 830 million bushels; total domestic use - 233 million bushels; and exports 560 - million bushels.

Record high stocks are expected to keep Australian wheat prices under pressure. Australian wheat competes with U.S. wheat in the flour and feed grain Asian markets. Australian 2011/12 wheat ending stocks are projected to be a record 331 million bushels.

Since early October, the Australian dollar has increased about 15 percent in value against other major world currencies. The U.S. dollar has about the same value against other currencies as in early October. These results are equivalent to a 15 percent increase in Australia’s wheat price compared to the U.S. wheat price. Australia will compete in the world market by lowering the Australian farm level price.

Argentina is also a major exporter of wheat and, like Australia, Argentina’s wheat competes with hard red winter wheat in the world market. Argentina’s wheat supply is projected to be almost equal to the five-year average.

Argentina is projected to produce 533 million bushels of wheat compared to a five-year average of 531 million. Wheat beginning stocks are estimated to be 216 million bushels, and total 2011/12 marketing year wheat supply is projected to be 749 million bushels compared to the five-year average of 741 million bushels.

Argentina is projected to use 217 million bushels domestically for food. Exports are projected to be 331 million bushels. Both estimates are about equal to the five-year average.

Argentina, like Australia, has plenty of wheat available for export. The world has an above average amount of wheat. Milling quality wheat should not be in short supply.

With U.S. and world wheat stocks above the five-year average, the price of wheat is still expected to be above the five-year average price. Relatively high wheat prices may occur because of concerns that wheat/grain use may become greater than the demand. A fear is also present of a shortage of wheat in the future.

Wheat has a surplus, but grain may not have a surplus. World coarse grain supply has declined from 195 million metric tons in the 2009/10 marketing year to 158 million metric tons projected for the 2011/12 marketing year.

Another reason for the relatively high wheat prices may be political unrest in the Middle Eastern countries. A major war in the Middle East would disrupt petroleum supplies, which would disrupt production of fuel and fertilizers, which would disrupt wheat production, which would result in a shortage of flour and bread.

The current relationship of wheat supply to price level is difficult to explain. Above average stocks should mean below average prices. With export competition from Australia and Argentina, wheat prices are expected to be relatively weak.

Producers need to recognize the potential price volatility in the market. How wheat is sold is extremely important. A strategy and marketing plan is essential.

What may be more important is to manage profits to prepare for the time when wheat prices are below average.Relatively good prices do not last forever.