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Wheat price volatility largely due to supply and demand shocks

Thursday, September 1, 2016

Over the last 5 years, wheat futures prices spiked and then crashed, with increased price volatility drawing the public?s attention. Recent ERS research indicates that the volatility has been primarily due to supply conditions specific to the wheat sector. Wheat supply shocks, such as weather events that lowered yields, were the dominant cause of price spikes between 1991 and 2011. Focusing specifically on the February 2008 price spike, the results showed that, depending on the class of wheat, wheat prices in that month would have been 40-62 percent lower in the absence of supply shocks affecting that year?s wheat crop. The second most important factor in the 2008 spike was shocks to precautionary demand ?or incentives to hold commodity inventories associated with expectations about future prices. Wheat prices would have been 11-36 percent lower in the absence of these shocks. Demand shocks associated with fluctuations in global economic activity had a 9- to 12-percent price impact. The shocks attributable to financial speculators like commodity index traders had only a 1-percent impact on the peak wheat price in February 2008. Find this chart in ?Wheat Prices Driven by Supply and Demand? in the June Amber Waves, with additional analysis in Deconstructing Wheat Price Spikes: A Model of Supply and Demand, Financial Speculation, and Commodity Price Comovement (ERR- 165).

U.S. wheat supplies to tighten in 2014/15

Thursday, September 1, 2016

U.S. wheat supplies are projected down 11 percent for 2014/15 (June/May marketing year), with beginning stocks, production, and imports all forecast lower than in 2013/14. Supplies for the new marketing year are expected to be the lowest since 2007/08. Production is forecast at 1,942 million bushels, down 9 percent from 2013/14, with lower area and yield for soft red winter wheat and drought-reduced yields in the Central and Southern Plains contributing to lower 2014/14 production. Total U.S. wheat use is forecast to fall 13 percent in 2014/15, as domestic use and exports fall due to tighter supplies and stronger export competition. Exports for 2014/15 are projected at 925 million bushels, down 255 million from estimated 2013/14 exports because of relatively large supplies with other major exporting countries. U.S. ending stocks are projected to decline for a fifth consecutive year. The forecast season-average farm price range for wheat in 2014/15 is $6.35 to $7.65 per bushel, with a midpoint 1.9 percent above the 2013/14 price of $6.87 per bushel. Find additional analysis in Wheat Outlook: June 2014.

Farm share of retail price down for all-purpose white flour

Thursday, February 18, 2016

In 2015, the farm share of the retail price of all-purpose white flour—the ratio of the retail price of flour to prices received by farmers for their wheat—was 18 percent, the lowest farm share for flour in the last decade. While the retail price for all-purpose white flour has been relatively steady since 2011 at 52 to 53 cents per pound, the farm value of flour—the cost of the wheat in a pound of flour—has fallen from 14 cents in 2012 and 2013, to 12 cents in 2014, and to 10 cents in 2015. Abundant world wheat supplies have pushed down prices received by farmers for wheat in 2014 and 2015. With retail prices holding steady, the farm share of flour’s retail price fell from 26 percent in 2013 to 23 percent in 2014, and dropped again in 2015. More information on ERS’s farm share data can be found in the Price Spreads from Farm to Consumer data product, updated February 9, 2016.

Wheat consumption stable among U.S. consumers in recent years

Friday, July 17, 2015

Per capita wheat flour consumption has been relatively stable in recent years, and is estimated in 2014 at 135 pounds per person, unchanged from 2013 but down 3 pounds from the recent peak in 2007. The 2014 estimate is down 11 pounds from the 2000 level when flour use started dropping sharply, partially due to increased consumer interest in low-carbohydrate diets. From the turn of the 20th century until about 1970, U.S. per capita wheat use generally declined, as strenuous physical labor became less common and diets became more diversified. However, from the early 1970s until the late 1990s, wheat consumption trended upward, reflecting growth in the foodservice industry and away-from-home eating, greater use and availability of prepared foods for home consumption, and promotion by industry organizations of the benefits of wheat flour and pasta product consumption. During this time, the domestic wheat market expanded on both rising per capita food use and a growing U.S. population. Relatively stable per capita flour use in more recent years means that expansion of the domestic market for U.S. wheat is largely limited to the growth of the U.S. population. This chart is based on the April 2015 Wheat Outlook report.

U.S. share of world wheat exports continues to decline

Thursday, March 5, 2015

The United States is one of the world’s largest exporters of wheat—second only to the European Union and ahead of the world’s other major exporters including Canada, Australia and Russia—but its share of global wheat exports has trended lower over several decades and is expected to continue to decline over the next 10 years. While US wheat exports are expected to trend modestly higher from 2015 through 2024, exports from Russia, Ukraine and Kazakhstan could account for nearly half of the projected increase in world wheat trade, notwithstanding the weather-related production fluctuations that are common in this region. Growth in wheat imports is concentrated in developing countries where income and population gains drive increases in demand, including regions of West Africa, sub-Saharan Africa, Egypt and other parts of North Africa and the Middle East, Indonesia and Pakistan. In many of these markets, Black Sea and EU exporters maintain a cost advantage over the United States reflecting transportation distance, as well as the fact that U.S. wheat exports are almost exclusively for high-value food markets while much of the wheat imported by developing countries is for lower value uses including livestock feed. Nevertheless, the United States will remain one of the world’s leading suppliers of high-quality wheat, with exports projected to rise slowly during the coming decade, even as its share of global exports falls from 17.8 percent in 2015/16 to 16.1 percent in 2024/25. This chart is based on the report, USDA Agricultural Projections to 2024.

Recent evidence suggests that farmers continue to adopt no-till on more cropland

Tuesday, June 11, 2013

Farmers have choices for how they prepare the soil; reduce weed growth; incorporate fertilizer, manure and organic matter into the soil; and seed their crops, including the number of tillage operations and tillage depth. Tillage practices affect soil carbon, water pollution, and farmers’ energy and pesticide use. No-till is generally the least intensive form of tillage. Approximately 35 percent of U.S. cropland (88 million acres) planted to eight major crops had no-till operations in 2009, according to ERS researchers who estimated tillage trends based on 2000-07 data from USDA’s Agricultural Resource Management Survey (ARMS). Furthermore, the use of no-till increased over time for corn, cotton, soybeans, rice and wheat, the crops for which the ARMS data were sufficient to calculate a trend. While a more recent estimate of nationwide use of no-till by all major crop producers is not available, based on the results of recent surveys of wheat producers in 2009 and corn producers in 2010, it seems likely that no-till’s use continues to spread, albeit at a much reduced pace among corn producers. This chart is found on the ERS topic page, Soil Tillage and Crop Rotation, and in the ERS report, Agriculture’s Supply and Demand for Energy and Energy Products, EIB-112, May 2013.

Even large commodity price increases result in modest food price inflation

Tuesday, April 23, 2013

Farm-level commodity prices are far more volatile than food prices, as costs for marketing inputs such as packaging, processing, and transportation mitigate commodity price volatility on supermarket shelves and restaurant menus. Corn, wheat, and soybeans are the three most important field crops to the U.S. food supply. The average farm price of these crops, weighted by total production, regularly rises or falls by over 10 percent from year to year. On average, food prices have become less volatile in recent decades, as food price inflation averaged 8 percent per year in the 1970s, but only 2.8 percent per year since 1990. Commodity prices, alternatively, have grown somewhat more volatile over time. However, large changes in major commodity prices have relatively small impacts on food prices. In 2007-08, the average production-weighted price of these crops increased by 50 percent, while food prices rose 5.5 percent. Similarly, in 2010-11, the crop prices rose 31 percent and food prices increased 3.7 percent. This chart appears in the Food Price Outlook topic page on the ERS website, updated April 17, 2013.

Retail price of flour fluctuates with farm price of wheat

Friday, April 5, 2013

Retail prices for minimally processed foods tend to fluctuate with farm prices for the agricultural commodities used in their manufacture. Prices for wheat and other grains and oilseeds have risen due to a variety of factors including, most recently, the 2012 drought. Prices for flour in retail stores are up as well. Grinding 1.37 pounds of hard red winter wheat produces 1 pound of all-purpose white flour and wheat middlings that may be used in other food products or animal feed. Over 2011 and 2012, as the farm value—the cost of the wheat in a pound of flour—rose from 10 to 14 cents (a 40-percent increase), the average retail price for all-purpose white flour rose from 48 to 52 cents per pound (an 8.3-percent increase). The farm share of the retail price of flour simultaneously increased from 20 to 26 percent. More information on ERS’s farm share data can be found in the Price Spreads from Farm to Consumer data product, updated March 20, 2013.

U.S. wheat flour consumption shows signs of leveling off

Monday, March 25, 2013

U.S. per capita all-wheat flour use has fluctuated significantly since the 1930s, but is now showing signs of leveling off. Per capita use for 2012 is estimated at 134.4 pounds, up 1.9 pounds from the 2011 estimate, but well below the most recent peak of 147 pounds in 1997 and an earlier peak of 163 pounds during World War II. From the late 1880s until about 1970, U.S. per capita wheat use generally declined, as strenuous physical labor became less common and diets became more diversified. The rebound during 1970-97 reflected such factors as growth in away-from-home eating and an increased understanding of the health benefits from eating high-fiber, grain-based foods. Since 1997, lower wheat use appears to be influenced by consumer interest in low-carbohydrate diets. While U.S. wheat producers benefited from rising U.S. demand between 1970 and the late 1990s, they now face less robust growth in the domestic market. This chart is adapted from a chart in Wheat Outlook: March 2013.

Staple foods make up a large share of calories and food expenditures for Afghan households

Thursday, August 23, 2012

Increases in the prices of staple foods can have serious effects for households living at or near subsistence levels. Over the past few years, increases in global food prices have led to an erosion of purchasing power in many devel­oping countries, where the poor often spend the majority of their budgets on food. Staple foods make up 50 percent of household food expenditures and 71 percent of daily calorie intake in Afghanistan. Wheat flour, which doubled in price between December 2007 and July 2008, is the primary staple food in Afghanistan; it alone accounts for 54 percent of daily calories per capita and 35 percent of household food expenditures. The differences in the calorie and expenditure shares reflect price differences between food groups. The cheapest foods--in terms of calories per Afghani (the local currency)--are grains and pulses. For 1 Afghani (approximately 2 cents), a household can purchase approximately 184 calories of wheat flour, 106 calories of lentils, or 78 calories of rice. In contrast, meat and vegetables are the most expensive; one Afghani purchases only 9 calories of beef or 10 calories of cucumber. These charts are found in the ERS report, International Food Security Assessment, 2012-22, GFA-23, July 2012. Additional information can also be found in "Rising Food Prices and Declining Food Security: Evidence From Afghanistan" in Amber Waves, September 2011.

A majority of cash grain, cotton, and peanut farms are covered by crop insurance

Wednesday, June 20, 2012

Most farms specializing in cash grains, cotton, and peanuts reported farmland covered under a Federal crop insurance policy in the 2009 Agricultural Resource Management Survey. Farms with other specializations participated in Federal crop insurance, but to a lesser degree. About a third of tobacco farms had insured land, as well as 20 to 30 percent of farms specializing in hogs, dairy, or fruits, vegetables, and tree nuts. Hog and dairy farms often grow crops to feed their livestock, and these crops are eligible for Federal crop insurance. This chart is found in Changing Farm Structure and the Distribution of Farm Payments and Federal Crop Insurance, EIB-91, February 2012.

Commodity prices vary more than U.S. cropland acreage

Monday, March 12, 2012

Since 1980, the variation in cropland used for crops has been relatively small, despite significant variation in real (adjusted for inflation) commodity prices. Between 1980 and 2002, the real prices of major commodities (e.g., corn, soybeans, wheat) declined by over 60 percent, while total cropland used for crops dropped by about 6 percent. This relatively small reduction in cropland use may reflect changes in farm legislation in the 1980s and 1990s, which marked a shift toward greater market orientation with the addition of income-supporting (rather than price-supporting) commodity loan programs in 1985 that help protect against revenue losses and the introduction of planting flexibility on acres qualifying for commodity program payments in 1990. Productivity increases also mitigated some of the effect of real price declines on the real returns to crop production. Since 2002, prices of major commodities dropped and then spiked during 2006-08. While cropland used for crops changed little in total during this period, farmers changed the mix of crops by increasing land in corn and wheat and reducing the amount of land planted to hay and other crops. This chart is found in the March 2012 issue of Amber Waves magazine.

Wheat and flour supply in Afghanistan

Monday, January 23, 2012

Wheat is Afghanistan's key staple food and its major crop. Given expected increases in demand, imports are likely to grow in coming years even if Afghanistan's rapid post-1990 production growth is sustained, suggesting growing dependence on supplies from Pakistan and other countries. This chart may be found in the ERS report, Long-Term Growth Prospects for Wheat Production in Afghanistan, WHS-11L-01, published January 2012.

All-time high prices mean some farmers can expect large gains for receipts in 2011

Thursday, December 22, 2011

Very large gains in annual receipts are expected for wheat, corn, hay, and cotton in 2011, often reflecting prices that are forecast to exceed their previous records. The U.S. annual wheat price is expected to increase to $7.43 per bushel, a 44 percent increase from 2010 and 8 cents-per-bushel below its 2008 average, reflecting a large increase in wheat exports. The U.S. annual corn price is expected to increase from $3.89 per bushel to $6.04, a large increase over its earlier high of $4.66 in 2008, as corn continues to respond to the increased demand for ethanol. The U.S. annual soybean price is expected to increase from $10.24 per bushel to $12.89 ($10.65 per bushel in 2008) and soybean meal to $339.60 per ton. This chart may be found in Agricultural Income and Finance Outlook, AIS-91, December 2011.

2011 ratio of stocks-to-use for total world grains and oilseeds near record low

Friday, September 16, 2011

The ratio of global ending stocks to total use can be a reliable indicator of market prices (the lower the ratio, the tighter the market and the higher the price.) Currently, the stocks-to-use ratios for corn and soybeans are near record lows. The stocks-to-use ratios for wheat and rice suggest reasonably comfortable stock levels, but the shortage of milling-quality wheat has put strong upward pressure on wheat prices. Stock-to-use ratios for cotton, total oilseeds, total coarse grains, and sugar are also low. These low ratios suggest strong worldwide competition among crops for acreage in the 2011 planting season. This chart is found in the September 2011 Amber Waves feature, Why Another Food Commodity Price Spike?

U.S. wheat planted area has trended down for many years

Friday, June 17, 2011

The United States is a major wheat-producing country, with output exceeded only by China, the European Union (EU-27), and India. Nationally, wheat ranks third among field crops in both planted acreage and value of production, behind corn and soybeans. Nonetheless, while varying widely during the past half-century, U.S. wheat area has been trending downward after peaking in the early 1980s, and is expected to do so for the foreseeable future. Past annual fluctuations in wheat area can be explained by changes in the Government's farm program, declining consumer demand for wheat products, and more recently, the relative profitability of growing competing crops. Several long-term factors play important roles in the projected downward trend of the U.S. wheat crop area for the remainder of this decade. The profitability of growing wheat relative to other crops, particularly corn and soybeans, is expected to continue declining. Two factors facilitating the planting of alternative crops, such as corn and sorghum, are the increased use of reduced-tillage and continuing genetic improvements, both of which improve yields of these alternative crops. Furthermore, wheat production in the Ukraine, Russia, and Kazakhstan is expected to continue increasing, competing with the U.S. in global markets. This graphic is from the Wheat briefing room, April 2011.

Contracting expands for field crops

Monday, March 7, 2011

Most U.S. corn, soybean, and wheat production is sold through cash markets, where the producer receives the market price prevailing at the time of sale. However, marketing contracts, which set a market outlet and a pricing arrangement for crops before they are harvested, are becoming increasingly important as risk management tools. Marketing contracts covered 15 percent of corn production in 2001, along with 9 percent of soybean and 6 percent of wheat production. By 2008, contracts covered 26 percent of corn, 25 percent of soybean, and 23 percent of wheat production. This chart originally appeared in the March 2011 issue of Amber Waves. It is based on the ERS publication, Agricultural Contracting Update: Contracts in 2008, EIB-72, February 2011.

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