At the February USDA Outlook Forum, the USDA released the first 2014/15 marketing-year supply and demand projections for wheat, corn, and soybeans. These projections are not “official” in that they were generated by a computer model rather than with survey data. Official estimates will be released in the May 9, 2014 WASDE report.
These projections should be taken with a “grain of salt.” However, these projections will set the benchmarks for market analysts to project 2014/15 marketing year prices.
The 2014/15 U.S. wheat ending stocks (stocks on January 31, 2015) were estimated to be 587 million bushels compared to the current estimated 2013/14 wheat ending stocks of 558 million bushels. The five-year average ending stocks (2009/10 – 2013/14) is 771 million bushels.
USDA’s projected 2014/15 marketing-year average wheat price is $5.30, compared to an estimated 2013/14 marketing-year average price of $6.80. The five-year average price of U.S. wheat is $6.48. With below-average stocks, it is hard to understand USDA’s $5.30 marketing-year average price. The $5.30 price is $1.18 below the five-year average with projected below average stocks.
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Also note that $5.30 is the average annual 2014/15 price. This price implies that during the 2014/15 wheat marketing-year, wheat prices will be above $5.30 and below $5.30. My best guess is for wheat prices to peak in the July/August time period and decline into the fall.
Planted wheat acres were estimated to be 55.5 million acres compared to 56.2 million last year and a five-year average of 55.8 million acres. Harvested acres are projected to be 85 percent of the planted acres (47.2 million) compared to 45.2 million acres harvested last year.
The average wheat yield is projected to be 45.8 bushels per acre compared to 47.2 bushels last year and a five-year average of 46.9 bushels per acre.
USDA’s wheat supply and demand estimates appear reasonable except for the $5.30 marketing-year average price. Given that the five-year average price is $6.48 and ending stocks are projected to be below average, the price projection doesn’t match economic theory. Below- average supply with average demand implies above-average prices.
For the 2013/14 wheat marketing year, wheat ending stocks are projected to be 558 million bushels compared to the five-year average of 771 million bushels. The 2014/15 marketing-year average price is projected to be $6.80 compared to a five-year average of $6.48.
The argument could be made that 2014/15 world wheat production and world wheat stocks will be above average, which will result in below-average world wheat prices. If this situation becomes the case, export demand for U.S. wheat would be less than USDA’s projected 1.05 billion bushels, and U.S. wheat ending stocks would be greater than USDA’s 587 million bushels projections. The result would be lower U.S. wheat prices.
Lower wheat prices may be caused by increased corn stocks and lower corn prices. USDA projects corn’s 2014/15 marketing-year production to be 13.985 billion bushels compared to 13.925 in 2013. The 2014/15 corn ending stocks are projected to be 2.111 billion bushels compared to 1.481 billion bushel in 2013/14.
The 2014/15 marketing-year average corn price is projected to be $3.90 compared to $4.50 in 2013/14 and $6.89 in 2012/13. Corn prices do match ending stocks: 2012/13 – 821 million bushels and $6.89; 2013/14 – 1.481 billion bushels and $4.50; 2014/15 – 2.111 billion bushels and $3.90.
The hypothesis could be that lower corn prices would result in less wheat used for feed. But, the USDA lowered wheat for feed and residual 388 million bushels in 2012/13; 250 million bushels in 2013/14; and 190 million bushels in 2014/15.
From a management planning view, realize that USDA’s price projection could be correct. If this is the case, a prudent marketing plan may be to sell more wheat than normal at harvest.