Wheat Prices Expected to Improve

May 11, 2001

USDA released the 2001-02 outlook for major crops and livestock Thursday and concluded that a smaller wheat crop, reduced use and declining stocks will lead to higher prices. Total production is expected to decline 12% to 1.96 million bushels. Winter wheat production is 14% less than last year because of lower area and yields.

Domestic use should decline as feed and residual use drop in response to smaller supplies and more attractive corn prices. Exports, too, should decline from strong competition from foreign exporters. With lower ending stocks, farm prices for 2001-02 should average $2.75-$3.35 per bushel compared with an estimated $2.63 for 2000-01.

The corn crop is expected to total 9.6 billion bushels, a 4% decline from last year. However, the smaller crop is offset by higher expected carry-in stocks so total supplies decline only 1%. Total use should be changed little from a year ago. Domestic use should decline slightly as expanding industrial use largely offsets reduced feed and residual use because of declining numbers of cattle on feed. Corn exports should increase slightly from less competition in the international marketplace. The projected price range for corn is $1.65-$2.05 for 2001-02, compared to $1.80-$1.90 for 2000-01.

U.S. oilseed production for 2001-02 is projected to increase by 6.9 million tons, or about 8% to a record 92.2 million tons. Soybean production will account for most of the gain, rising 7.8% to a record 2,985 million bushels or 81.2 million tons. Other U.S. oilseed production is expected to increase by about 1 million tons, led by gains in cottonseed and canola production. Soybean production is based on intended record soybean planting of 76.7 million acres and a trend yield of 39.5 bushels per acre.

Soybean supplies are projected to increase by more than 7% to a record 3,283 million bushels. A modest increase in domestic soybean crush is partially offset by reduced export prospects, resulting in a carryover of 500 million bushels, almost double the forecast 2000-01 level. U.S. soybean and soybean meal export prospects are reduced because of record competitor supplies, particularly in the first half of the marketing year. In contrast, soybean oil exports are forecast to grow strongly as global vegetable oil stocks tighten in response to reduced supplies of high-oil-content oilseeds and a prospective slowdown in palm oil growth.

U.S. season-average soybean prices for 2001-02 should decline to $3.90-$4.50 per bushel, compared with an estimated $4.40 per bushel in 2000-01. This would be the fifth consecutive annual price decline, to the lowest average price in 30 years.

Total U.S. meat production in 2002 is projected higher because of increased pork and poultry production. Beef production will continue to fall as cattle inventories decrease and producers hold back heifers and cows for breeding. Although slaughter is forecast to decline in 2002, weights will rise as relatively low grain prices and demand for Choice beef encourage feeding to heavier weights.

Pork producers are gradually expanding production in 2001 and the slow rate of expansion is forecast to continue through 2002. Growth in broiler production will resume in 2002 after holding steady in 2001.

Production estimates for 2001 are lowered from last month as first-quarter broiler and beef production were weaker than expected. First-quarter broiler production was below a year ago due to poor returns, and production forecasts are reduced for the second half. Pork production is forecast slightly higher than last month.

In 2002, U.S. meat exports are projected to increase, mainly due to continued growth in broiler meat exports. Beef and turkey exports are also expected to rise, and pork shipments will remain steady. U.S. meat imports in 2002 are forecast to rise as both beef and pork imports increase.

Forecast broiler meat exports in 2001 are raised sharply this month due to increased shipments to Russia and Hong Kong. Pork exports also are boosted due to strong shipments in the first quarter. Meat imports in 2001 are revised downward because of lower expected pork imports during the first half.

Cattle prices in 2001 are forecast higher than last month as demand remains strong and supplies are expected to tighten later this year. As supplies tighten further in 2002 and demand for Choice grade beef remains firm, prices are expected to climb. Hog prices in 2001 are raised this month, supported by strong demand through most of the year. However, increased production is expected to begin weighing on the market in the last quarter and into 2002, pushing prices below a year earlier. Poultry prices in 2001 have begun to increase in response to moderate production growth and are expected to continue above a year earlier through 2002.

Milk production in 2001-02 is forecast to expand as higher milk prices slow the rate of decline in cow numbers and milk output per cow increases. For 2000-01, milk production is forecast to decline about 1%. Milk per cow fell below year-earlier levels during December through March, but is forecast to begin recovering by summer. Cow numbers are expected to remain below a year earlier. Commercial use is firm, helping to support product prices. Due to stronger cheese prices, the forecast for the 2000-01 Class III price is increased this month to $11.75 to $11.95 per cwt. The Class IV price is raised to $13.50 to $13.80 per cwt due to strong butter prices. The all milk price is forecast at $14.10 to $14.30 per cwt.

Although larger milk production is expected in 2001-02, prices are likely to remain high. The Class III price is projected at $11.90 to $12.90 per cwt, the Class IV price declines to $12.10 to $13.30, per cwt, and the all milk price is projected at $13.65 to $14.65 per cwt.

The entire report is on the Internet at http://www.ers.usda.gov/publications/waobr/view.asp?f=wasde-bb.