USDA Wheat Baseline, 2009-18
Each year, USDA updates its 10-year projections of supply and utilization
for major field crops grown in the United States, including wheat (see Overview
of the USDA Baseline Process for more information). One key use of the
projections is as a "baseline" from which to analyze the impacts of potential
policy changes affecting U.S. agriculture. This discussion summarizes analysis
underlying the wheat projections for 2009-18. Details about projections for
the U.S. macroeconomy, other U.S. crops, U.S. livestock, farm income and food
prices, and U.S. and global agricultural trade, which are critical components
of this analysis, can be found in the Agricultural
Baseline Projections briefing room.
The discussion is divided into five sections:
The U.S. wheat sector faces challenges to its long-term competitiveness. Planted
area in the United States has declined since the 1980s as the competitiveness
of wheat has declined relative to other U.S. crops, particularly soybeans and
corn. The long-term outlook for U.S. wheat points to a relatively stable planted
area compared with the past 5 years. The sharp decline in domestic food
use of wheat since 2000—due to changing consumer
preferences—appears
to have ended. Internationally, in addition to traditional global competitors
(Canada, Argentina, Australia, and the European Union), Ukraine and Russia
have emerged as new competitors with the United States in foreign markets in
years when Ukrainian and Russian wheat production is high. The overall
result in the projections is a slightly smaller U.S. share of an expanding
world wheat trade.
Supply Considerations
Several long-term factors, including domestic competition among crops for
planted area and global competition in export markets, play important roles
in determining the size of the U.S. wheat crop during 2009-18. Despite these
influences, the United States remains a major wheat-producing country, with
output exceeded only by China, the European Union (EU-27), and India. In the
United States, wheat ranks third among field crops in both planted acreage
and value of production, behind corn and soybeans.
U.S. wheat planted area has trended down for many years. U.S. wheat
area has varied widely during the past half-century, peaking in the early 1980s.
Wheat area dropped off sharply in the late 1980s, primarily due to relatively
large
Acreage Reduction Program (ARP)
levels when Government-owned stocks were very large. By 1987-88, nearly 30 percent
of the national wheat base acreage had been idled by farmers participating in
this voluntary program in order to be eligible for commodity
nonrecourse loans and
deficiency payments.
Wheat area recovered in the mid-1990s as stocks declined and prices rose, thus
lessening the need for ARPs. ARPs were eliminated under 1996 Farm Act starting
with the 1996 crop.
The introduction of full planting flexibility in the 1996
Farm Act enabled
farmers to switch to alternative crops or to idle their land. Planting flexibility
increased competition for area among corn, oilseeds, and wheat, which put
downward pressure on U.S. wheat acreage. Planted wheat area in the United
States is down by about 30 percent from an average of 85 million acres in
the early 1980s to an average of 59.6 million acres over the past 5 years.
Wheat land switched to other uses. Wheat area has dropped off in the
United States as farmers have taken their land out of production or switched
to alternative crops offering higher returns. Enrollment in the
Conservation Reserve
Program (CRP) is concentrated in those regions where wheat production predominates.
About 60 percent of the land enrolled in the CRP is located in the Plains States,
stretching from Texas to North Dakota and Montana. USDA estimates that about
8 million acres of CRP land had been planted to wheat or in a wheat-fallow rotation
prior to enrollment.
In the traditional wheat growing areas of the Plains there is
a more-than-20-year trend to reduce area fallowed by planting alternative crops
and lengthening crop rotations. For example, in western Kansas, the historical
wheat/fallow rotation has been most commonly replaced by a rotation of wheat/grain
sorghum/fallow in which wheat is planted 1 year out of 3 instead of 1 year
out of 2. Though cropping intensity increases, wheat is not favored.
The trend of planting more corn and soybeans on acreage traditionally planted
to wheat can be illustrated by examining data for Kansas and North Dakota,
two of the country's largest wheat-producing States. In the early 1980s, wheat
accounted for 80-90 percent of the total wheat, corn, and soybeans planted
in Kansas and North Dakota. In recent years, wheat's share has dropped to 57-62
percent of the total.
Genetic gains for competing crops on the Plains. Loss of wheat acreage to row crops, such as corn and soybeans, on the Plains reflects strong genetic improvements in those crops. New varieties of corn and soybeans can be planted farther west and north in areas with drier conditions or shorter growing seasons. Plus, weed control is far easier with the development of herbicide-resistant varieties (see the Agricultural Biotechnology briefing room for more information).
The pace of genetic improvement has been slower for wheat than for some other
field crops, resulting in little growth in wheat yields, which makes wheat
a less attractive option for farmers. Genetic improvement for wheat has been
slower because of genetic complexity and because of lower potential returns
to commercial seed companies, factors that discourage investment in research.
For instance, farmers are accustomed to buying seed corn each year because
seed saved from a hybrid cannot be used for a subsequent crop. This creates
a large annual market for seed companies. In contrast, many wheat farmers,
particularly in the Plains States, use saved seed from the previous year's
crop instead of buying from dealers every year. This practice sharply reduces
the potential market for branded commercial seed wheat and, thus, seed development
research.
Wheat disease also a factor. Concerns about wheat disease problems
in the Northern Plains, particularly scab (head blight) in North Dakota and
Minnesota, influenced planting decisions starting in the 1990s and will do
so in the future. The increased incidence of this disease may stem in part
from larger corn plantings and reduced tillage practices in traditional wheat
areas in the Northern Plains. Both activities provide hosts for disease organisms.
Ethanol
expansion in the United States. A
large expansion in ethanol production has taken place in the United States,
which has affected virtually every aspect of the field crops sector, ranging
from domestic crop utilization and exports to prices and the allocation of
acreage among crops. Many aspects of the livestock sector are affected too,
including the substitution of ethanol byproduct feedstuffs for corn and other
feeds in rations. Cellulosic sources of feedstocks for ethanol production
hold some promise for the future, but the primary feedstock in the United
States is currently corn. Market adjustments to this increased demand extend
well beyond the corn industry.
Demand Considerations
Just as U.S. wheat production faces pressures from multiple factors, changing
domestic and international markets will alter demand for U.S. wheat. Several
factors underlie the long-term developments that will determine the domestic
and foreign demand for U.S. wheat during 2009-18.
Decline in per capita flour use slows. Domestic per capita wheat flour
use for calendar year 2007 is estimated at 137.9 pounds, up 2.3 pounds from
a year earlier, but down 8.4 pounds from the recent high in 2000. Until the
late 1990s, U.S. wheat producers could count on rising per capita food use
of wheat to expand the domestic market for their crop. The strength of this
domestic market developed out of the historic turnaround in U.S. per capita
wheat use that occurred in the early 1970s.
For nearly 100 years, per capita wheat use had declined in the United States,
as strenuous physical labor became less common and diets more diversified.
Wheat use dropped from over 225 pounds per person in 1879 to a low of 110 pounds
in 1972. By 1996, use had rebounded to 146.8 pounds per capita. The overall
growth in per capita use that occurred between 1973 and 1997 reflected changes
that included the boom in away-from-home eating, the desire of consumers for
greater variety and more convenience in food products, promotion of wheat flour
and pasta products by industry organizations, and wider recognition of health
benefits stemming from eating high-fiber grain-based foods.
This growth appears to have ended in 1997 due to changing consumer preferences,
including more weight-conscious people following diets that include fewer carbohydrates.
Consumer interest in these diets apparently spiked in 2000 and has since declined.
The sharp drop in per capita flour use that began in 2000 and has since declined.
The sharp drop in per capita flour use that began in 2000 seems to have ended.
Feed use varies. Feed use of wheat varies with price and crop quality. Feeding wheat to livestock increases when the price premium between wheat and corn is narrow, which typically occurs in the summer after winter wheat is harvested but before corn is harvested. Wheat feeding also increases when wheat quality is impaired in some way, reducing its price relative to corn. For example, when there is excessive rainfall at harvest time, some wheat varieties are susceptible to preharvest sprouting. When sprouting occurs, biochemical changes in the wheat kernel diminish baking qualities for making food products.
World market evolves. Growing global demand for wheat imports is concentrated
in those developing countries where robust income and population growth underpin
increases in demand. Such markets include Sub-Saharan Africa, Egypt, Pakistan,
Algeria, Indonesia, the Philippines, and Brazil.
Ukraine, Russia, and Kazakhstan have become significant wheat exporters in
recent years. Low costs of production and new investment in their agricultural
sectors have enabled their world market share to climb. However,
because of the region's highly variable weather and yields, production and
trade are volatile from year to year. Their share of world exports over the
past 4 years has ranged from 10 to 20 percent.
Projections for U.S. Wheat Supply and Use
The long-term projections for U.S.
wheat for
2009-18 were heavily influenced by wheat's slow yield gains, declining competitiveness
relative to the production of other domestic crops, and increased global
competition.
Wheat yields continue slowly rising. Wheat yield is projected at 43.0
bushels per acre for 2009, based on national-level trend analyses
since 1985. This is below the record-high 2008 yield of 44.9 bushels
per acre.
Yield growth projected for 2009-18 for wheat, corn, and soybeans reflects
differing genetic gains as mentioned earlier. Wheat yields are projected to
rise by 0.3 bushels per year over the 10-year period. In contrast, corn and
soybean yields are projected to rise 2.0 bushels and 0.45 bushels per year,
respectively.
Wheat plantings to be relatively stable over the next decade. Wheat
plantings are projected to rise to 61.0 million acres in 2011 because of 1)
additional land becoming available from expiring CRP contracts and 2) incentives
provided by high expected net returns (expected farm price times projected
yield minus variable costs). The projected farm price is above the loan rate
for the entire projection period, so loan benefits do not enter into net returns
or influence plantings. Plantings are expected to fall off slightly toward
the end of the decade as land is switched away from wheat to more profitable
crops.
Wheat production is expected to expand slightly with rising yields, raising
projected supplies. Projected production rises during the early
years of the 2009-18 period with more planted acres and rising yields.
Production falls slightly as planted area drops, then resumes growth as
yields are projected to continue to improve. Imports of wheat are expected
to remain relatively small, but increase slowly, adding to U.S. supplies.
The result is that U.S. wheat supplies are projected to increase at an
uneven pace over the 10-year projections period.
Total use of wheat is projected to rise slowly. Total use of U.S. wheat
rises slowly over the next decade, with export gains larger than domestic use
increases. At the beginning of the period, relatively high wheat-to-corn price
ratio limits wheat feeding while the falling wheat price shifts wheat supplies
into export channels. Midway through the 10-year period, the expansion of exports
and the decline in feed and residual use level off and only domestic food use
increases.
Wheat food use increases slowly. Per capita food use of wheat in the
United States has fallen sharply in recent years, but this decline is projected
to end in the longer term. Total projected food use is 965 million bushels
in 2009/10, which then rises 9 million bushels annually over the projection
period. This growth in total food use reflects assumptions of 1) slowing annual
population growth from 0.93 percent to 0.84 percent, 2) constant per capita
use, and 3) a long-term average flour extraction rate.
Projections for World Wheat Trade
The USDA baseline also provides projections for global trends in wheat
trade. See below for the discussion on wheat from the Global Agricultural Trade chapter of the Agricultural Baseline Projections briefing room.
World wheat imports. Growth in wheat imports is concentrated in
those developing countries where income and population gains underpin
increases in demand. Important growth markets include Sub-Saharan
Africa, Egypt, Pakistan, Algeria, Indonesia, the Philippines, and
Brazil. World
wheat trade (including
flour) expands by more than 22 million metric tons (18 percent)
between 2009 and 2018 to 141.6 million metric tons.
- Egypt maintains its position as the world's largest importing
country, as imports climb slowly to nearly 9 million tons. Imports
by Brazil, Algeria, and Indonesia are each projected to exceed
7 million tons. Brazil's climate generally does not favor wheat,
and in some key wheat-producing states, winter corn
is expected to have better producer returns than wheat.
- Imports by developing countries in Sub-Saharan Africa, North Africa,
and the Middle East rise 11.6 million tons and account for 53 percent
of the total increase in world wheat trade. Saudi Arabia has adopted
a policy to phase out wheat production subsidies by 2016 because
of water scarcity concerns, and imports are projected to jump by
3 million tons by the end of the projections.
- In most developing countries, little change in per capita wheat consumption is expected but imports expand modestly because of population growth and limited potential to expand production.
- Changing consumption patterns will boost wheat imports by some
major importing countries. In Indonesia, Vietnam, and some other
Asian countries, strong economic growth and diversification of
diets are projected to increase per capita wheat consumption.
- Lower wheat-to-corn price ratios during most of the projection
period enable wheat to compete effectively with corn for feed use
in a number of countries. Europe is expected to continue to account
for about half of global wheat feeding.
World wheat exports. The traditional five largest
wheat-exporting nations (the United States, Australia, the EU,
Argentina, and Canada) account for 70 percent of world trade in
2009-18. This is down from 89 percent in 1997/98, mostly due to
increased exports from the Black Sea area. U.S. wheat exports
are projected to account for less than 21 percent of global wheat
trade, at the end of the projection period, down from 26 percent
in the past 5 years.
By the end of 2007, the global stocks-to-use
ratio had declined to the lowest level on record. A significant
2008/09 rebound in global production enabled stocks to jump and
precipitated a decline in prices. However, after working
down these larger stocks, much of it lower quality feed wheat,
stocks are projected to continue to be lower than during the 1990s. Prices
are projected to remain above pre-2007 average levels.
- Shares of the world wheat market held by Canada and the
United States decline slightly, while shares increases
by the EU, Ukraine, Russia, Australia, and Argentina.
- In Canada, increased demand for vegetable oils, especially
rapeseed oil for human consumption and biodiesel production,
and increasing demand for barley are expected to reduce
wheat area and limit any growth in wheat exports.
- Ukraine, Russia, and Kazakhstan have become significant wheat exporters
in recent years.Low costs of production, new investment in their
agricultural sectors, and generally favorable weather since 2001 have
enabled their combined world market share to climb to about 20 percent
in the last 3 years. Russia is expected to increase wheat production
for domestic feed use. Exports from Ukraine and Russia are projected
to continue gaining market share, more than offsetting a slight decline
in the share held by Kazakhstan. However, because of the region's
highly variable weather and yields, year-to-year volatility in production
and trade can be expected.
- Wheat exports by Turkey and other smaller exporters change little or
trend slowly downward during the projection period. Although India has exported
some wheat in recent years, exports are expected to be minimal as
domestic demand expands as fast as production.
Market Forces
Constrain Growth in U.S. Wheat Sector
The U.S. wheat sector is facing long-term challenges as productivity
gains and returns for competing field crops outpace those for wheat.
During the next decade, wheat-yield improvements are expected to
continue lagging behind those for competing row crops, primarily
corn and soybeans. Low relative wheat prices are due, in large
part, to continued foreign competition, from both traditional wheat-exporting
countries and some newcomers. Furthermore, domestic food use, while
growing, no longer provides the dynamic market growth experienced
in the 1970s through the mid-1990s. Consequently, farmers will
focus on other crops, such as corn and soybeans, because of low
returns to wheat. Over the next 10 years, U.S. wheat planted
area is projected to fall from the recent high in 2008/09.
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