USDA Releases October WASDE and Crop Production Report

U.S. wheat production was revised down from the September estimate by nearly 50 million bushels, mostly due to lower harvested area. Corn production remained nearly constant from the September report, as yields were reduced by 1.1 bushels to 154.7 bushels per acre and harvested area was increased by 700,000 acres. Corn production for 2007 is estimated at 13.3 billion bushels, up nearly 3.0 billion bushels from 2006. Rice production saw a sizable increase in the October estimate, as record yields of 7,215 pounds per acre resulted in production of 197.1 million hundred weights (cwt.), up 5.3 million from September. Lower soybean area resulted in a 21-million-bushel cut in the 2007 production estimate, now 2,598 million bushels. Cotton yields continue to move higher, now projected to be 826 pounds per acre, up 15 pounds from last month. Cotton harvested area did not change and production increased about 340,000 bales to 18.15 million.

The October production report included orange production, which is expected to be up 29% overall, with Florida up 30%, California up 29%, and Texas down 9% from year-earlier levels. Florida frozen concentrated orange juice yield is expected to be down 3% from last year's final tally of 1.65 gallons per box.

Harvest progress for the major U.S. produced crops and planting progress for winter wheat are all moving along well. During the past week, winter wheat plantings caught up to their normal pace; earlier, some of the hard red winter states were lagging behind, while the soft red winter states are still ahead of average. Ahead-of-average planting progress in the soft red states is consistent with harvest progress for corn and soybeans moving along well. Given the extremely high wheat price situation, we expect considerable expansion in all winter wheat states, with total wheat area up 2.6 million acres for 2008, and winter wheat area making up 1.6 million acres of the total increase. Global Insight expects U.S. wheat planted area to increase to 63.1 million acres in 2008.

The October releases of World Agricultural Supply and Demand Estimates (WASDE) and Crop Production can be benign, but not this year. Lower U.S., Australian, and EU-27 wheat production resulted in the expectation of higher average prices for the year and increased export demand from the United States. Expected farm level wheat prices for the 2007 crop year increased by $0.30 per bushel on both the high and low end of USDA's forecast range, which now stands at $5.80 to $6.40 per bushel.

Wheat prices are at record levels due to tight supplies around the world. In the October WASDE report, U.S. exports are projected to increase by nearly 250 million bushels, or nearly 27%, despite high prices and projected record-low inventories. High prices are reducing the use of wheat as a livestock feed to only wheat that is unacceptable for making flour. U.S. inventories of wheat are expected to drop to near 300 million bushels, the lowest level in nearly 60 years.

Around the world, foreign wheat stocks are expected to drop to 98.6 million metric tons (mmt), compared with beginning stocks of 110 mmt and stock levels three years ago of 135 mmt. The EU-27 has experience a dramatic decline in stocks over the past few years. Production problems and, to a lesser extent, competition for wheat land from rapeseed have led to the tight supplies in the EU. The strength in rapeseed area has occurred due to aggressive biodiesel production levels and country-level targets for continued growth in biofuels. Australian wheat production appears to be headed into another poor season as needed rains have failed to materialize during some of the most critical phases of crop development. USDA lowered its wheat production estimate for Australia from 21.0 mmt to 13.5 mmt from September to October. These events will no doubt keep heat on wheat prices.

The situation for U.S. corn is much different than that for wheat, as in the last month the supply and demand balance has added over 300 million bushels to ending stocks for the conclusion of the 2007/08 market year. The change in the balance happened on the demand side of the equation, with both domestic livestock feed and industrial demand categories being peeled back from estimates in September. Feed use was cut 150 million bushels while ethanol demand was cut by 100 million bushels compared with a month ago. High corn prices and dramatic declines in ethanol prices have led to less robust expansion projections for the U.S. ethanol industry. U.S. corn supplies were also made larger by bigger-than-expected corn stock levels at the conclusion of the 2006 market year. U.S. corn use for livestock feeding decreased by 555 million bushels in 2006 due at least in part to increased feeding of distillers grains (both wet and dry). Global Insight expects that the expanded use of distiller grains, a byproduct of ethanol production, will lead to further weakening of feed use. Significant production shortfalls in EU and Australian coarse grain are expected to provide increased opportunities for U.S. corn and sorghum exports.

The U.S. supply and demand situation for soybeans in 2007 saw a 21-million-bushel reduction in expected production and an 18 million bushel increase in beginning stocks. The two changes basically offset one another, and projected ending stocks for 2007/08 are unchanged at a relatively low 215 million bushels. U.S. exports are projected to drop from 1,118 million bushels to about 975 million bushels due to tight supplies and strong competition from South American supplies in the second half of the 2007/08 market year. Domestic crush is projected to increase by 19 million bushels to 1,825 million. The increase in domestic crush is being supported by biodiesel production using soybean oil as a feedstock. It is expected that soybean oil used in biodiesel production nearly doubled in 2006/07 and that it will increase 40–50% in the 2007/08 market year. If this growth is realized, biodiesel demand will consume more than 20% of production. Farm level price projections were increased by USDA by $0.50 on both the low and high ends of their range. USDA now projects prices will average $7.85–8.85 per bushel during 2007/08.

The domestic cotton situation did not change dramatically over the past month as a decrease in 2006/07 ending stocks was more than offset by an increase in 2007/08 production. The bigger increase occurred in China, as its 2006 production estimate was increased by 9% from the previous season and, correspondingly, future estimates for production and consumption were increased. U.S. cotton demand is expected to increase significantly in 2007 based on strength in foreign mill demand and U.S. exports. China and India continue to add cotton mill capacity at a robust growth rate and account for about 60% of world cotton milling. U.S. farm level cotton prices have averaged 44.9 cents per pound to date in the 2007 market year, and averaged about 47 cents during the 2005 and 2006 seasons. Global Insight expects some strengthening in the cotton price later in the season but this strength will be too little, too late to entice more cotton area for 2008.

Rice yields are expected to be record high in 2007/08, according to the October report. With yields projected at 7,215 pounds per acre and harvested area at 2.73 million acres, the 2007 rice crop is projected to be 197.1 million hundred weights in size. The 5.3-million-cwt. increase in production is expected to be exported as world rice supplies remain tight. USDA increased its projection for rice prices by 0.45 cents per cwt. and now stand at $10.30 to $10.70, compared with $9.74 per cwt. in 2006/07. Global Insight expects high rice prices and more available seed supplies to push 2008 planted area to 2.98 million acres, up from 2.75 million in 2007.

Global Insight's latest forecasts for 2008 acreage as well as the updated estimates for 2007 area planted are included in the tables below.