Wheat

U.S. wheat prices in 2002, basis Chicago nearest futures, finally broke out of a four-year trading range that had pivoted around $2.60/bu., plus or minus 40 cents. Resistance at $3 was briefly tested early in the year, but it was not until mid-year that sufficient bullish momentum took hold that carried prices to a high of $4.34 within three months. An anticipated strong world demand and attending drop in world carryover stocks help propel the market higher. Although the gain was pared towards yearend futures closed 2002 at a five-year high.

World wheat production in 2002/03 of a smaller than expected 569 million metric tons compares with 579 million in 2001/02 and the record high 1997/98 crop of 609 million tons. Production in the late 1990's averaged about 590 million tons. Global usage in 2002/03 also trailed initial forecasts at 595 million tons vs. 585 million in 2001/02, but still a record high. Ending 2002/03 world carryover of 172 million tons compares with nearly 200 million a year earlier; the total was above initial estimates owing largely to greater than expected China stocks. The 2002/03 world stocks-to-usage ratio of about 29% compares with 33% a year earlier.

China is the world's largest wheat producer, notwithstanding a sizable and steady decline drop in output during the past few years. China's 2002/03 crop of 92 million tons compares with nearly 100 million in 2001/02 and as much as 123 million in 1997/98. China has been allocating less acreage to wheat, 24.5 million hectare harvested in 2002/02 vs. 24.7 million in 2001/02 and almost 29 million in 1999/00. Average yield, however, has been erratic: 3.76 tons/hectare in 2002/03 vs. 3.80 in 2001/02 and 3.95 tons in 1999/00. China's domestic wheat use has fluctuated during the past few years: estimated at a smaller than expected 106 million tons in 2002/3 vs. 109 million in 2001/02 vs. initial estimates of almost 113 million tons. Despite the supply/demand imbalance, China's recent annual import needs have been minimal at best, about 1 millions tons vs. as much as 12.5 million in the mid-1990's. China's carryover stocks have trended higher during the past few years although the marketplace still tends to view the government's official totals as suspect: the ending 2002/03 carryover of 62 million tons compares with 77 million a year earlier 103 million at yearend 1999/00.

The protracted decline during the l990's in the former USSR's wheat production has apparently run its course: 2002/03 production estimates in the key republics were: Russia, 49.5 million tons vs. 46.9 million in 2001/02 and as little as 30 million in the mid-1990's; Kazakstan at 13 million tons vs. 12.7 million and the Ukraine at 21 million vs. 21.3 million, respectively. Moreover, throughout the region improvements in average yield are being realized, but not necessarily acreage. Still, In Kazakstan, once a major producing region of the Soviet Union, the two main barriers holding production in check are a lack of investment in new equipment and the inadequate use of fertilizer. The Russian Federation was once the world's largest importer; Russia's 2002/03 imports of 3 million tons compare with as much as 14 million tons a decade ago. The decline in domestic consumption among the Russian republics has slowed with Russia's use estimated at 41.5 million tons in 2002/03 vs. 38 million in 2001/02 and more than 50 million on average early in the l990's. The Ukraine's 2002/03 use of 13.6 million tons compares with 12.6 million in 2001/02 and the early l990's average of more than 20 million. Collectively, the European Union is a major producer of wheat, 103.5 million tons in 2002/03 vs. 92 million in 2001/02, with France generally accounting for about a third of EU production.

The 2002/03 world wheat (including flour and products) trade is forecast at 102.6 million tons vs. 109.8 million in 2001/02. Four countries generally account for about two-thirds of total exports: Argentina, Australia, Canada and the U.S. with the EU supplying much of the balance. The U.S., the largest exporter, is forecast to ship 26 million tons in 2002/03 vs. 26.1 million in 2001/02 and almost 30 million tons in 1999/00. Canadian 2002/03 exports were forecast at only 9 million tons vs. 16.5 million in 2001/02; EU exports of 15.5 million compare with 11.5 million in 2001/02. Australian exports of a sharply lower than 7 million tons in 2002/03 compares with 16.5 million in 2001/02. Importing nations are scattered, among those taking about 6 million tons in 2002/03 are Brazil and Egypt.

The U.S. 2002/03 wheat crop (June/May) of 1.61 billion bushels compares with 2 billion in 2001/02; the decline reflecting an average yield of only 35.3 bushels per acre vs. 40.2 bushels and a drop in harvested acreage to 45.8 million acres from 48.6 million, respectively. Winter wheat accounts for more than half of U.S. production with Kansas the largest producing state. North Dakota is the largest spring wheat and durum producing state. The 2002/03 durum wheat crop of 79.4 million bushels compares with 83.6 million in 2001/02; spring wheat production was put at 332 million bushels vs. 400 million, respectively."

The U.S. imports some wheat, mostly from Canada. Carryin stocks as of June 1, 2002 of 777 million bushels compare with 876 million a year earlier. The U.S. wheat supply for 2002/03 of 2.47 billion bushels compares with 2.94 billion in 2001/02. Total usage in 2002/03 of 2.13 billion bushels compares with 2.16 billion in 2001/02. Exports generally account for almost half the total disappearance. Food use takes at least three-quarters of domestic usage; feed about 20% and seed the balance. If the 2002/03 supply/demand estimates are realized, ending stocks on May 31, 2003 would fall to 348 million bushels, lowering the stock to use ratio to 16.3 vs. 35.9% a year earlier. This ratio is often used to forecast prices; the smaller it is the greater the likelihood for higher prices as the crop year progresses.

The 2002/03 average price received by farmers was forecast to range from $3.65-$3.95 a bushel vs. $2.78 in 2001/02.

Futures Markets

Wheat futures and options are traded on the Mercado a Termino de Buenos Aires (MAT), Sydney Futures Exchange (SFE), London International Financial Futures and Options Exchange (LIFFE), Marche a Terme International de France (MATIF), Budapest Commodity Exchange (BCE), the Chicago Board of Trade (CBOT), the Kansas City Board of Trade(KCBT), the Minneapolis Grain Exchange (MGE), the Mid America Commodity Exchange (MidAm)and the Winnipeg Commodity Exchange (WCE).

Excerpted from the CRB Commodity Yearbook. For more information on CRB products click here

Wheat

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