Global Production Shortfalls Bring Record Wheat
Prices
Gary
Vocke
Weather events, low inventories,
and subsequent increased export demand have combined
to drive U.S. and world wheat prices to record levels.
The projected 2007/08 season-average wheat farm
price of $5.50-6.10 (as of September 2007) exceeds
the previous U.S. record of $4.55 per bushel, even
though domestic production of 2.1 billion bushels
is only slightly above the average for the previous
5 years. In response, domestic and foreign food
processors are announcing price increases for bakery
and pasta items, and wheat futures prices on all
three U.S. wheat exchanges have hit record highs.
The underlying market pressures
leading to these price levels have been developing
gradually, with global consumption exceeding production
in 7 of the last 8 years. However, markets reacted
sharply this year as adverse weather in the Northern
and Southern Hemispheres reduced global production,
and this year’s global carryover stocks are
projected to sink to 30-year lows.
Adverse weather events have brought
smaller than expected crops in wheat-producing and
-exporting countries in North America and elsewhere.
Freeze damage in the U.S. and heavy rains at harvest
in the U.S. and Western Europe reduced the output
and quality of wheat. Dry weather hurt crops in
Canada, Eastern Europe, and some countries of the
former Soviet Union. Drought in Southeastern Europe
reduced that area’s wheat and corn crops,
forcing livestock producers in the European Union
(EU) to import wheat and feed grains for feed rations.
The production shortfalls have curtailed EU wheat
exports.
Tight U.S. supplies combined with
reduced export competition have driven importers
to buy U.S. wheat at a pace not seen since the 1970s.
U.S. wheat export sales continue to grow despite
higher prices and record-high ocean freight rates,
as unfavorable growing conditions in Australia raise
concerns about the size of the forthcoming harvests.
While U.S. farmers benefit from
higher wheat prices, the extent of those benefits
depends on when the crops were marketed and whether
output was reduced by local weather conditions.
Even as the 2007 wheat crop works its way around
the world, current high prices are influencing market
expectations about next year’s crop. Futures
market prices for 2008 crop contracts, though high
by historical standards, reflect the expectation
that farmers around the world will be planting more
wheat in response to high prices, and the additional
supplies will result in lower prices.
This
finding is drawn from . . . |
| Wheat
Outlook, by Gary Vocke and Edward
Allen, WHS-07h, USDA, Economic Research Service,
September 14, 2007. |
|
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