Released: June 15, 2001

World Wheat Stocks Could Dip to Lowest Level in 19 Years

MANHATTAN, Kan. - Recent news from the U.S. Department of Agriculture that the 2001/02 world wheat crop would be 569 million metric tons (MMT), down 1.4 percent from last year, could mean the smallest world wheat stocks in 19 years, a Kansas State University agricultural economist said.

"Even assuming only a small increase in world wheat consumption, the world’s ending stocks of wheat will drop nearly 24 million metric tons to just 132 million. That would be the lowest since 1982-83," said Bill Tierney, crops marketing specialist with K-State Research and Extension. "Also, when stocks are measured as a percentage of usage, ending stocks will account for just 22.3 percent of consumption. That’s the lowest in over 25 years and is lower than the stocks in 1995-96 when wheat prices reached record levels."

Despite the low stocks, the "ownership" of those stocks suggests there’s still likely to be a sufficient supply of wheat available to the world market.

"What’s more important than the aggregate level of world wheat stocks is the quantity of wheat held by the world’s principal wheat exporters," Tierney said. They include the United States, the European Union, Canada, Australia and Argentina.

Despite this year’s poor U.S. winter wheat crop, a smaller EU crop and drought in Australia and Canada, the USDA is projecting that total wheat supplies in the five principal exporting countries will dip only 4.4 percent from last year.

"Exporters’ stocks are projected to drop 8.3 million metric tons this year, [but] the size of exporters’ stocks will still be large relative to world wheat trade," the economist said.

U.S. wheat prices tend to be strongly influenced by exporters’ ending stocks in relation to world trade, he said. Based on current USDA supply and demand projections, a model Tierney uses projects that in 2001-02, U.S. prices should average $3.27 a bushel, or 22 cents higher than the midpoint [$3.05] of the USDA’s most recent [May] price forecast, which ranged from $2.75 to $3.35 a bushel.

That discrepancy suggests that the world’s wheat supply-and-demand situation is "a little conservative," Tierney said. "Given the projected ratio of exporters’ stocks to world trade, there is a strong fundamental argument that can be made for higher U.S. wheat prices in 2001-02. All it takes is any one of a number of developments to trigger a round of panic buying."

Those developments could include larger-than-expected imports by China; further declines in the size or quality of the EU crop, which would reduce their exports of bread-quality wheat; or serious crop problems in North American spring wheat or Australian wheat.

If no such developments occur, Tierney said, harvest pressure will likely push Kansas City Board of Trade futures down to or below $3 per bushel, he predicted.

On June 15, with the key Kansas wheat harvest just getting underway, KCBT July wheat futures traded at $3.08 a bushel, with September at $3.18.

For further information, interested persons can visit http://www.agecon.ksu.edu/risk.

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K-State Research and Extension is a short name for the Kansas State University Agricultural Experiment Station and Cooperative Extension Service, a program designed to generate and distribute useful knowledge for the well-being of Kansans. Supported by county, state, federal and private funds, the program has county Extension offices, experiment fields, area Extension offices and regional research centers statewide. Its headquarters is on the K-State campus, Manhattan.

Story by:
Mary Lou Peter, Communications Specialist
mlpeter@oznet.ksu.edu
K-State Research& Extension News