The emergence of the “non-traditional” exporting countries and China's decline in wheat production and stocks are major factors in a changing wheat market. These and other wheat market structural changes have resulted in prices being more sensitive to changes in the supply of wheat.

A 200 million bushel swing in U.S. 2004/05 marketing year wheat ending stocks may be the difference in $2.50 wheat and $5 wheat. Chinese wheat imports may be the major event that keeps U.S. wheat prices from reaching $2.50 in 2004/05.

The U.S. average annual wheat price during the 1995/96 wheat marketing year was $4.56 per bushel and wheat prices reached $7 per bushel in April 1996. During the 1995/96 marketing year, U.S. wheat production was 2.2 billion bushels and ending stocks were 376 million bushels. World wheat production was 19.8 billion bushels and ending stocks were 5.6 billion bushels. China's wheat production was 3.8 billion bushels and China's ending stocks were 2.8 billion bushels.

During the 1999/00 wheat marketing year, the average U.S. wheat price was $2.48 and cash prices reached $2 twice during the marketing year. United States wheat production was 2.3 billion bushels and ending stocks were 950 million bushels.

For the 1999/00 wheat marketing year, world wheat production was 21.5 billion bushels and ending stocks were 7.6 billion bushels. China's wheat production was 4.2 billion bushels and China's ending stocks were 3.8 billion bushels.

For the 2003/04 wheat marketing year, U.S. wheat production was 2.3 billion bushels, ending stocks are projected to be 583 million bushels and the average annual price is projected to be $3.30. World wheat production was 20.2 billion bushels and ending stocks are projected to be 4.7 billion bushels.

China's wheat production in 2003 was 3.2 billion bushels, down from 4.2 in 1999. China's ending stocks are projected to be 1.6 billion bushels, down from 3.8 in 1999/00.

United States wheat exports are projected to be 1.1 billion bushels compared to 854 million bushels last year. Without this 246 million bushel increase, projected U.S. wheat ending stocks would be 829 million bushels rather than the projected 584 million bushels. And, the projected average annual U.S. wheat price would probably be below $3.

What happens to U.S. wheat prices during the 2004/05 wheat-marketing year will depend on U.S. wheat production, world wheat production and China. The odds are that U.S. wheat production will be close to 2.2 billion bushels, U.S. imports about 75 million bushels and that domestic use will be near 920 million bushels. For ending stocks to remain near 600 million bushels, exports would need to be about 1.35 million bushels.

For exports to reach 1.35 million bushels world wheat production would need to be less than 21 billion bushels and China would need to import wheat.

An alternative would be for U.S. wheat production to be less than 2.0 billion bushels. At 2 billion bushels U.S. production, exports would only have to be 1.15 billion bushels. With China's declining wheat production and stocks, China may import wheat during the 2004/05 marketing year.

World wheat stocks are tight and have declined five years in a row. The U.S. winter wheat crop is the next wheat crop to be harvested. If the U.S. winter wheat crop is less than 1.5 billion bushels, wheat prices will remain relatively high, at least until the foreign wheat harvest starts in late August.

There is a potential $3.50 to $4 price swing in the 2004/05 wheat marketing year prices. If I had to bet on a marketing year average price it would be $3.30. The best guess for late June 2004 is $3. Given a changing market structure and the uncertainty of production, predicting next year's wheat price is probably not possible.