Brookings, S.D. - U.S. wheat stocks measured 2.1 billion bushels for the first quarter of 2012-2013 marketing year, according to the United States Department of Agriculture (USDA) Sept. 1 Grain Stocks report released Sept. 28. This estimate was about 8 percent lower than market expectations due in large part to unprecedented feed usage, says Lisa Elliott, SDSU Extension Commodity Marketing Field Specialist and Assistant Professor of Economics.
"This is equivalent to a total wheat disappearance of about 908 million bushels, which is a 27 percent increase in comparison to the first quarter of 2011," Elliott said.
She adds that since the stocks report calculates disappearance without assuming any imports for the quarter, it could be reasoned that disappearance is underestimated.
Using the September World Agricultural Supply and Demand Estimates (WASDE) report marketing year projections, she says greater insight can be gained from the stocks reports.
By including estimated quarterly imports of 32.5 million bushels, or 25 percent of projected annual imports in the September WASDE report, total disappearance would be closer to 940 million bushels.
USDA allocates disappearance of wheat into four categories in their WASDE reports: food, seed, feed/residual, and exports.
She says a closer examination of the large first quarter disappearance points to.
"The disappearance of 940 million bushels in the first quarter is examined further by subtracting one known component of disappearance, first quarter exports (June through August 30th)," Elliott said.
First quarter exports were 251 million bushels, according to the Foreign Agricultural Service. With the annual projected exports of 1,200 million bushels, each quarter approximately 300 million bushels should be exported to stay on pace to the annual projection. First quarter exports were 49 million bushels below this pace.
"Since first quarter exports are known, this leaves a disappearance of 689 million bushels to be allocated between food, seed, and feed/residual," she said.
Food and seed usage has typically been fairly stable on a quarterly basis, averaging 237 million bushels in the first quarter for the last five years. This figure would be right on track with the September WASDE annual food and seed estimate, being almost a quarter of the estimate.
Using the food and seed usage estimate (237 million bushels) and subtracting that from the disappearance (689 million bushels) leaves 452 million bushels to be allocated to feed and residual. That estimate amounts to over twice the projected annual feed/residual use in the September WASDE report (220 million bushels).
Over the past 10 years, U.S. feed and residual usage has averaged 150 million bushels, and has not been over 300 million bushels since 2000.
"To put the total into perspective, the U.S. wheat feed and residual use in the first quarter was estimated to be roughly equivalent to the Kansas and Colorado 2012 wheat harvest," Elliott said.
Given such a large disappearance of wheat in the first quarter, Elliott says future annual adjustments will likely be required in upcoming WASDE releases.
Over the past 10 years, the ending stocks to use ratio has averaged 28 percent. If food and residual usage were to remain near 452 million bushels for the remainder of the year, ending stocks to use may end near 20 percent. It has not been lower than 20 percent since 2007, when it was at 13 percent. More minor adjustments could be made to food usage, export demand, imports, and feed and residual, thus keeping ending stocks to use at higher rates, however.
"Regardless, the Sept. 1 Grain Stocks report suggests that U.S. wheat supplies likely will be tighter this marketing year than anticipated, due to an unexpected rate of disappearance in the first quarter," Elliott said.
As a result, she says prices may be supported until new crop wheat supplies are realized. The September quarterly grain stocks report helped rally Chicago Dec. wheat futures 47 cents to close at $9.02 on Friday, September 28th.