US and Canadian Wheat Prospects

- Monday September 29, 2008

US export prospects for wheat are less favourable than last year. The outlook for Hard Red Winter and Hard Red Spring wheats have held up better than that for Soft Red Winter wheats which compete more directly with increased supplies from across Europe.

Total US wheat supplies for 2008/09 are estimated at 78.1Mt, up 9% from last year. Production is seen 19% higher, easily offsetting a 33% decline in opening stocks (Table 1). The USDA is currently projecting a 21% rise in domestic consumption to 35.2Mt, a 21% cut in exports to 27.2Mt and an 88% re-build in ending stocks to 15.6Mt. This would result in a stocks-to-use ratio of about 25% compared to a 5-year average of 22%.

Prospects, however, vary by class of wheat (Graph 1). For Hard Red Winter (HRW) wheat, the largest class of US wheat, production and supply were up modestly, by 10 and 6%, respectively. Exports of HRWs are projected 17% lower, as the recovery of Australian and Canadian output will probably limit US exports prospects in this sector. Projected ending stocks of 6.6Mt would result in a stocks-to-use ratio of 25%, above the 5-year average of 21%. The US Wheat Associates reports that the quality of the HRW crop is above average and better last year.

Hard Red Spring (HRS) wheat output is seen 4% higher, which is not enough to offset reduced opening stocks. Demand prospects for higher quality HRS are expected to remain favourable, given concerns about quality as opposed to quantity of global production. However, the USDA is projecting a 20% drop in exports to 6.7Mt due to limited supply, leaving a stocks-to-use ratio of 19%, well below the 5-year average of 35% and indicating a continued tight supply situation for this wheat. Harvest has been slow due to wet and cool weather and quality. The US Wheat Associates reported that just 66% of the HRSs have a protein content of more than 14% protein compared to 72% last year.

Soft Red Winter (SRW) wheat production is estimated to recover by 70%, with supplies rising by 39% on 2007/08 to 18.3Mt. SRW competes most directly with European wheat. As a result, US SRW export prospects are most adversely affected by the recovery in European production this year. The USDA is projecting exports at 3.9Mt, down 31% on 2007/08. A significant recovery in domestic use of SRW is anticipated. SRW is mainly produced in the corn belt and high maize prices are likely to encourage its use as a feed. However, the quantity of grain involved is not large and ending stocks are expected to triple to 4.7Mt, raising the stocks-to-use ratio from a 5-year average of 19% to 35%. The US Wheat Associates suggest that SRW quality may be lower than last year.

Export and export sales after 15 weeks of the crop year are beginning to reflect the USDA’s full crop year projections. Up to 11 September physical exports at 9.7Mt were close to those last year, but outstanding sales, those made but not shipped have been declining in recent weeks (Table 2). These, at 6.4Mt, are 42% of last year’s outstanding sales at this time. HRW wheat is lagging year ago exports by 9%, those for SRW wheat are 17% behind.

Canadian durum production is estimated at 4.9Mt up 33% on last year (Statistics Canada). Total supplies are estimated at 5.8Mt, up 29%. Exports are expected to increase by 23% with demographics resulting in continuing growth in the main North African market. Canadian ending stocks of durum are projected to increase by 7% to 0.9Mt with a stocks-to-use ratio of 19%, well below a 5-year average of 42%.

Production of other Canadian wheat is estimated at 20.5Mt, 23% above last year, raising total supplies by 12% to 24.5Mt (Table 3). About 75% of this wheat is HRS wheat for which prospects are relatively favourable. Exports are projected to increase by 3% with domestic consumption expected to increase by 40%. The latter increase is anticipated on the basis of more wheat being downrated to feed grades than last year which was exceptional in terms of quality. Ethanol producers in Western Canada are also expected to switch back to wheat from imported US maize on cost considerations. With the 2008 harvest only now being gathered, it is too early to expect current year export forecasts to be reflected in export movements.

The Canadian Wheat Board pool return outlooks (PRO) also suggest that better quality wheat is expected to hold its value. The August PRO for 1 CWRS 13.5% protein, basis in store at tide water was C$358.00/t, only 3% below last year's values; CW Feed wheat at C$236.00/t is 22% lower.

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