Source: Stu Ellis, University of Illinois

Wheat harvest has already begun in some southern states, and wheat is just emerging in the Dakotas, so the long season puts all farmers somewhere on the economic continuum for wheat. At the same time, USDA's latest report on wheat indicates recent declines in futures prices and lower than expected protein levels in hard red winter wheat have "sharply reduced" price prospects for many producers.

USDA's wheat outlook uses many of the data from last week's supply and demand report for this month's analysis on wheat. That report pushed upward the new crop supplies because of better yields for HRW, at the same time beginning stocks were cut by 20 million bushels due to higher exports of the old crop. As the old crop marketing year nears an end, the average seasonal price is nudged downward to $4.00 to $4.80.

USDA's winter wheat projection of 1.482 bil. bu. is up 24 million because of a 2.4 bu. per acre increase in the projected yield. Total acreage is 31.8 mil., down 2.7 mil. acres from last year. Within the classes of wheat, HRW production is up 60 mil. bu. from last year because of a better yield and lower acreage abandonment rate. SRW production is estimated at 284 mil. bu., down 120 mil. from last year because the late fall prevented it from being planted.

New crop utilization is forecast to be 20 mil. bu. higher than last year, but that is because the flour extraction rate is less than last year. Last year was extraordinarily high, and now we return to normalcy. Feed use is projected a bit higher to 200 mil. bu. and exports are projected 15 mil. bu. higher to 900 mil. bu. Ending stocks for the new crop are projected at 991 mil. bu., up 61 mil. bu. from last year and the most since the 1987-1988 crop year.

USDA crop watchers say the new wheat crop is 66 percent in good to excellent condition and less than 10 percent was rated poor, a substantial improvement from the old crop. "Three states have a 2010 wheat crop with much poorer conditions. The percent of the wheat crop in Missouri, North Carolina and Illinois rated poor to very poor was 34 percent, 27 percent and 18 percent, respectively."

For the old crop, total supplies remain at just under 3 bil. bu., and supplies are building because of lower than expected exports and domestic use. Total consumption dropped 217 mil. bu. compared to the prior year. Food use for the old crop was down because of the higher flour extraction rate. While the U.S. population grew, it offset the lower per capita use. Seed use was low because of the lower planted acres for the new crop.

For all wheat, the accumulated exports are sharply less than last year and the five year average. The export numbers are down 130 mil. bu. because of relatively high U.S. prices and strong competition from Russia, Ukraine, and Kazakhstan. Compared to the recent high export year of 2007-2008, wheat exports have fallen 378 mil. bu. Global wheat production has increased due to that tight stocks year.

For the old crop, ending stocks are at 930 mil. bu., some 273 mil. bu. above the prior year and 624 mil. bu. above the 2007-2008 marketing year. Currently, ending stocks are 42 percent of use.

Global wheat production for the new year is down 3.7 mil. tons to 668.5 mil. tons, reflecting lower production in Europe, but still the third highest yield on record. Global consumption is steady from the prior year, resulting in global ending stocks dropping 4.2 mil. tons to nearly 194 mil. tons. The decline is the first since 2007-2008.

The global wheat storehouse is full, and while both production and consumption are down slightly, there will be plenty of supplies should the new crop falter somewhere in the world. In the U.S., the new crop is in excellent condition, and that will help supplies grow, since both domestic use and exports are forecast to be down. US stocks to use will be 42 percent which is substantially high, and one reason for the seasonal price range to drop slightly.