The USDA wheat loan rate for the 2005 crop is $2.75 per bushel. Given 2004/05 wheat production, use and winter wheat planting intentions for the 2005 wheat crop, June 2005 prices may be below the loan rate and there may be deficiency payments.
World wheat production, for the 2004/05 wheat marketing-year is projected to be a record 22.5 billion bushels. World wheat ending stocks are projected to be 5.2 billion bushels compared to 4.9 billion bushels last year. This is essentially the first increase in world wheat ending stocks in six years.
Even through world wheat consumption is projected to increase to 22.1 billion bushels compared to 21.5 billion bushels last year, U.S. wheat exports are expected to decline to 950 million bushels. United States' wheat exports were 1.16 billion bushels last year and the five-year average is one billion bushels. At this writing, 2004/05 marketing-year total U.S. wheat export sales are 2 percent less than this same time last year.
China's wheat production peaked at 4.53 billion bushels in 1997. The USDA projects 2004 Chinese wheat production to be 3.31 billion bushels compared to 3.18 billion bushels last year. Chinese wheat consumption is projected to be 3.7 billion bushels.
To meet consumption needs, China is expected to reduce ending stocks by 184 million bushels and import 294 million bushels of wheat. Reports also indicate that Chinese producers may increase 2005 wheat planted acres by 4 percent.
In the “Small Grains 2004 Summary,” the USDA increased the 2004/05 U.S. wheat production estimate to 2.164 billion bushels. This estimate was 2 percent higher than the Sept. 1 estimate and was above trade expectations of 2.123 million bushels.
In the September Situation and Outlook report the USDA estimated U.S. wheat ending stocks to be 578 million bushels. This estimate will probably be increased about 40 million bushels in the October USDA report.
Higher winter wheat planted acres, for the 2005 crop, are expected in China, Former Soviet Union countries and the U.S. The Ukraine government projected that winter wheat planted acres will increase 23 percent to 17.3 million acres. In 2004, the average yield was 43 bushels per acre.
Reports of fertilizer applications in the Oklahoma/Texas region indicate that producers are planning to plant wheat “fence row to fence row.” Fertilizer applications indicate that planted acres may be higher than last year.
Another reason that U.S. wheat prices may be below the loan rate next June is the 11-billion-bushel corn crop. The September USDA corn production estimate was 10.96 billion bushels. The October report is expected to increase projections to over 11 billion bushels. Low corn prices have a negative impact on wheat prices.
It appears that enough wheat will be planted to produce another 22-billion-bushel world crop and a 2.2- to 2.3-billion-bushel U.S. crop in 2005. This could result in an increase in wheat stocks and U.S. prices going below the loan rate.
The Kansas City Board of Trade July '05 wheat contract price is $3.47. The five-year average basis for central Oklahoma and the Texas panhandle (-45 cents) implies a June 2005 price of $3.02.
The weather will be the determining factor for June 2005 wheat prices. Both U.S. and world wheat stocks will need to be below average and production below expectations to have higher prices than currently expected.