2004 appears to be shaping up as another year of good profit potential for Illinois wheat producers as well as for producers of soft red winter wheat.
"Current cash bids in southern Illinois are in the $3.60 to $3.70 range, significantly higher than the cash prices in June and July of 2003. In addition, current prospects point to good yield potential for the 2004 crop. As of early May, 88% of the Illinois wheat crop was rated in good or excellent condition," says Darrel Good, U of I Extension Economist.
Crop ratings in Indiana, Ohio, and other soft red winter wheat producing states are also very good. But the numbers are different for world production.
"The 2003-04 world wheat crop is estimated at only 549 million tons, nearly 10% smaller than the record crop of 6 years earlier. Most of the decline in world wheat production from 1997-98 through 2003-04 was the result of a decline in harvested area. Average world wheat yields have been fairly constant for the past seven years," says Good.
In the United States, harvested acreage of wheat, average yields, and total production declined dramatically in 2002, when production was at a 31-year low. As a result, U.S. stocks were reduced to a low level even though exports of U.S. wheat were the smallest in 32 years.
Then, U.S. wheat acreage increased sharply in 2003. At the same time, there was a record large average yield, resulting in the largest crop in five years.
"However, smaller crops outside of the U.S. caused a dramatic increase in U.S. exports of wheat. For the marketing year ending on May 31, 2004, the USDA projects U.S. wheat exports at an 8-year high of 1.165 billion bushels, 36% above exports of a year ago," says Good.
High yields, strong demand and relatively high prices were expected to encourage U.S. wheat producers to expand planted acreage in 2003-04. However, the USDA reported that winter wheat producers reduced planted area by 1.57 million acres or 3.5% and that spring wheat producers intend to reduce planted area by 665,000 acres or 4%.
"It is difficult to anticipate harvested acreage of wheat due to the large annual variation in the ratio of harvested to planted acreage," Good says. "For example, harvested acreage in the U.S. represented only about 76% of planted acreage in 2002, but that ratio was near 86% in 2003."
The USDA will release the first objective yield and production forecasts for the U.S. winter wheat crop this week. The forecast of spring wheat production will be based on planting intentions and trend yield analysis.
"In addition to U.S. crop size, the wheat market will be influenced by prospects for production in other major producing regions. In particular, forecasts for those areas that had small crops last year will be very important," says Good.
In general, there is anticipation of a significant rebound in world wheat production in 2004-05.
As far as price potential goes, Good says wheat prices have traded in a wide range since the fall of 2003. July 2004 futures at Chicago traded near $3.20 in October, rallied to $4.00 in January and February, declined to about $3.65 in March, moved to $4.30 in early April, and are currently near $3.85.
Prices are expected to continue to be quite volatile, influenced not only by wheat market fundamentals, but also by movements in corn and soybean prices.