US Winter Wheat

The USDA’s July 1 forecast placed this year’s US winter wheat harvest at 41.5M tonnes, up two percent from last year. This forecast was made when about half the crop was harvested and a further 40 percent was within a month of maturity and provides a fairly accurate indication of final outcomes.

The condition of the US winter wheat crop has generally declined from the very favourable condition early in the spring but is still rated as relatively good(Graph 1). A yield of 3.0 tonnes per hectare is forecast, up one and two percent, respectively, from the month earlier forecast and last year’s level. An increase in hard red and soft white wheat offset a decline in soft red.

In a longer term perspective, the crop is three percent below the ten-year average with higher yields more than offset by a lower harvest area, which, the drought years of 2001 and 2002 excepted, the smallest in more than 30 years. In a market context this year’s output forecast of 41.5M tonnes compares with last season’s domestic use and exports of 43.4M tonnes. The USDA is forecasting a 10 percent decline in exports and a 2.7M tonne increase in 2006 carryover stocks of winter wheats.

New crop wheat prices, as reflected in Chicago Board of Trade September futures, have generally traded in US$3.20 to US$3.50 per bushel range with any strengthening of prices probably the result of the weakness of the US dollar rather than any improvement in wheat market fundamentals.

US Spring Wheat

The USDA’s first durum production forecast is for a 2.6M tonne harvest, five percent above last year’s year crop with higher yields on a larger area. A 3.5 percent increase in output of other spring wheats, predominantly hard reds, is forecast as a result of a similar increase in harvested area. Spring wheat crop conditions are again very favourable this year (Graph 2) and last year’s heavy yields are forecast to be repeated.

Production of all spring wheat is forecast to exceed slightly last year’s domestic use and exports. The USDA is, however, currently projecting decline in US exports and an increase in 2006 carryover, possibly with the expectation of improved supplies of competing Canadian hard red spring wheats.

US Maize and Soybeans

The USDA estimates 81.592M acres were seeded to maize this spring, slightly more than anticipated by the Prospective Planting survey in March and 0.8 percent more than planted in 2004. Soybean plantings were 73.303M acres, almost one precent less than the Prospective Plantings and 3.5 percent less than in 2004. Generally price prospects were less favourable this spring than last, and a relatively early planting season favoured the planting of maize at the expense of soybeans.

While the USDA does not forecast maize and soybean yields until August it is already evident that the 2005 crops will be smaller than the record harvests of last year. Crop ratings for both crops have generally declined as the season has progressed and are well below those of last year(Graphs 3 and 4). Dry conditions have developed in and around the state of Illinois and have resulted in a rapid decline in crop ratings in this area in recent weeks. This is almost certainly more critical for maize which is in the critical silking stage than for soybeans which are more sensitive to moisture stress during pod filing in August.

The full implications of this development are unclear and certainly dependent on weather conditions over the coming weeks. As a result traditional weather market conditions prevail in the US at this time. Over the last three weeks new crop maize has traded between $2.30 and $2.75 per bushel and generally erratically higher. This has probably been driven as much by perceptions as what damage could be sustained in the next few weeks and influence the supply and demand balance, rather than what has already sustained. The impact on soybean markets has so far been less dramatic.

Canadian Crops

Crop development in western Canada has, in aggregate, been favourable. But as much as 400,000 hectares may have been lost to prolonged ware logging in eastern Manitoba where record rainfall has been recorded over a wide area. Elsewhere on the Prairies crops have generally developed without being subject to moisture stress the more usual crop yield limiter.

Maize crops in Ontario could be threatened if the drought area centred on Illinois widens.

Statistics Canada June area survey indicated Canadian farmers seeded 36.7M hectares to major crops, one percent less than last year but one percent more then the April Seeding Intentions survey indicated(Table 1). Total wheat area was estimated at 10.7M hectares, one percent lower then in 2004 with a two percent increase in durum more than offset by a decline in other wheats.

The area seeded to oilseeds generally increased with canola area up five percent and flaxseed up almost 20 percent, but the soybean area in eastern Canada declined two percent. Feed grain acreages were generally lower with the area sown to barley two percent lower and maize five percent lower. The oats area, however, was up one percent. The area sown to dry peas continues to increase with a record 1.4M hectares.

Agriculture Canada anticipates a 10 percent increase in Canadian exports of grains and oilseeds due to higher supply and better quality, particularly for wheat and canola. But Canadian prices are expected to continue to be pressured by lower world prices and the relative strength of the Canadian dollar

David Walker 01603 705 153