CRB FUTURES OUTLOOK

CRB FUTURES OUTLOOK

WHEAT FUTURES HAVE SHOWN some strength in April after having deteriorated from late last year through March.

The quarterly stocks and plantings intentions reports, released March 30, were below expectations and favorable to the market. Moreover, the Soviet Union was back in the market for Export Enhancement Program wheat, buying 300,000 metric tons last week, after an absence. Yet, upward price moves have been blunted by technical selling.As has been widely discussed, U.S. wheat stocks are at meager levels. The U.S. Department of Agriculture's quarterly stocks report showed inventories, as of March 1, at 944 million bushels, below trade expectations and the previous year's 1.23 billion. When the season ends on May 31, U.S. stocks are projected at 442 million bushels, the lowest since 1974-75.

Prospective plantings for winter wheat were above last season's and the highest since 1985, while other spring and durum wheat intentions were below 1989 levels. Spring wheat plantings in North Dakota, which accounts for over 40 percent of the other spring crop, should be up this year. In Minnesota, spring wheat seedings are expected to be higher, while they should be down in Montana. For durum wheat, growers in North Dakota, which provides about 80 percent of the durum crop, intend to plant 8 percent less area than last season.

The winter wheat crop is rated as good to fair, overall. Planting has begun in the spring wheat belt and was 5 percent complete on April 1. Soil in parts of the spring wheat region, particularly along the Canadian border, are showing moisture deficits.

The sluggish U.S. export pace and record foreign production are the main factors behind the fall in wheat prices so far this year. In its April 10 supply-demand report, USDA lowered 1989-90 U.S. wheat exports by 25 million bushels to 1.275 billion bushels. This is well below strong levels in the past two seasons. U.S. wheat sales to China and the Soviet Union are down, more than offsetting higher sales to Japan and Egypt.

China's 1989-90 wheat crop was a record 91 million tons. Higher domestic production, combined with foreign exchange constraints and economic austerity measure, has reduced China's imports this season. The Soviet crop of 90.5 million tons was above the previous season's and the third largest of the decade. However, the new Soviet program to attract additional wheat from growers by paying convertible rubles has been somewhat disappointing. The Soviet Union is forecast to import 14 million metric tons of wheat this season, down 10 percent from 1988-89.

Decentralization of its foreign trade activities has hampered the Soviet Union's ability to pay for its grain imports. Earlier, European grain dealers reported that the Soviets were in arrears in paying for some wheat. In discussions with U.S. exporters, Soviet buyers have sought credit terms of 180 to 360 days. Once the Soviet Union is granted most-favored nation status, which is likely to occur this summer, the country will be eligible for U.S. government credit financing. At present, the Soviets receive U.S. government subsidies on wheat under EEP.

Total foreign production of wheat in 1989 was 480 million tons, up 6 percent from the previous year and the highest on record. Production of nearly 79 million tons in the European Community was the second largest ever. Crops in Canada and Argentina were up substantially from 1988's drought-reduced levels.

Low U.S. inventories and prospects of additional business with the Soviets will support May futures prices, while the back months will be pressured by improving crop conditions.