M.S. Wheat Industry

Home , Wheat (color)

ft kUI // FI i ^-7 M.S. U.S. Department of Agriculture Economics, Statistics, and WHEAT Cooperatives Service Agricultural Economic Report INDUSTRY No. 4 32 r^:'

Population World population World 2 5 bil. in 1950 population surpasses ^ 4 bil.

Marketing Short white World wheat wheat (Gaines) consumption distributed reaches in Pacific Northwest 400 mil. tons

Yield First national average yield over 20 bushels

Farmers' share Farmers' share Farmers' share of of consumer's dollar consumer's dollar for white pan bread = 16% for white I pan bread = 8% I t Continuous mix Near- Technology infrared machine introduced in baking industry reflectance rapid protein testing a reality Carryover Record wheat 247 mil. I and exports carryover 1.4 bushels carryover bil. bushels 7-1-61 lowest since 1948)

Labor 4.3 hrs. of labor required 2.8 hrs. of labor to produce 1 acre required to produce of wheat in 1950 1 acre of wheat

Conferences American and movements Aghcultural Movement protests low wheat prices

Production Wheat production First time = 1.1 bil. bushels production exceeded 2 bil. bushels

1950 1954 Agr, 1960 Agr. Acts 1965 1970 1980 Act ■»—CM ^ Agricultural Act 1971 1956 Soil Bank Act ^ ^ r^ - Agr. and Agr. Act Consumer Legislation 1948 Agricultural Protection Adjustment Act Period of Acreage and Conservation Reserve Legislation Act of 1973 U.S. WHEAT INDUSTRY, by Walter G. Heid, Jr.; Economics, Statistics, and Cooperatives Service; U.S. Department of Agriculture. Agricultural Economic Report No. 432.

ABSTRACT

U.S. wheat production doubled between 1950 and 1975. Improved yields per acre accounted for most of the increase. Since 1974, however, the growth in U.S. wheat yields per acre has leveled off. About half of the U.S. wheat crop is exported, but the somewhat erratic nature of foreign demand has caused considerable instability in the U.S. wheat industry. Large carryovers have been a problem in most years since 1950, despite Government programs to regulate wheat acreage, subsidize producers, store wheat, and facilitate wheat exports.

Keywords: Wheat, grain, agricultural policy, international wheat trade, wheat industry, government programs.

ACKNOWLEDGMENTS

The author wishes to express appreciation to the many individuals in the wheat industry who supplied information and advice. Special acknowledgment is extended to the two major reviewers and critics. Warren R. Grant and William F. Lagrone, both with the Economics, Statistics, and Cooperatives Service (ESCS), U.S. Department of Agricul- ture. The author also wishes to acknowledge other reviewers, including: Preston E. LaFerney, Stanley K. Thurston, and Bruce H. Wright, ESCS; Leonard W. Schruben, Dept. of Agr. Economics, Kansas State University; Merle Hedlund, Great Plains Wheat, Inc.; and Michael S. Macnab, National Association of Wheat Growers.

Washington, D.C. 20250 August 1979 CONTENTS

Page

Highlights iii

Introduction 1

History 2

Industry Organization and Practices 3 Market ing Flows 3 Processing 6 Storage 8 Quality Determination 12

Supply 14 Production 14 Stocks 25 Imports 26 Future Production Potential 28

Demand 30 Food 30 Seed 34 Feed 35 Industrial Use 36 Exports 36 Disappearance by Class 38 Trends in Disappearance 40

Prices 43 Factors Influencing Wheat Prices 43 Elasticity of Demand 43 Price-Quality Relationships 45 Seasonal Farm Prices 47 Farm vs. Terminal Market Prices 47 Price Relationships Among Classes of Wheat 52 Relationship Between Cash and Futures Prices 53 Farm-Retail Price Spreads 54

Costs 54 Production 54 Market ing 54 Handling and Storing 55 Transportation 55 Milling 58

Policy 62 Government Programs Before 1950 62 Government Programs Since 1950 64 Export Programs 75 Import Restrictions 79 Future Policy 79

World Production, Consumption, and Trade 81 Production 81 Consumption 86

11 Page

World Trade 3g Pricing in International Trade 89 Future Trade 92

Bibliography 92

Appendix Tables 98

Glossary 110

HIGHLIGHTS

The prognosis for the U.S. wheat industry in the last two decades of the 20th century is a relatively stable domestic demand but a growing and highly unstable export market.

Production has grown rapidly since 1950 when it totaled 1 billion bushels (27.2 million metric tons). Average yields per acre passed the 20-bushel (1.3 metric tons per hectare) mark for the first time in 1956 and reached the 30-bushel (2 metric tons per hectare) mark just 13 years later. Total production topped 2 billion bushels (54.4 million metric tons) in 1975. U.S. wheat yields have leveled off at about 30 bushels per acre since 1973.

The United States produces five major classes of wheat—hard red winter, hard red spring, soft red winter, white, and durum. Each class has unique end-use qualities. Each class is marketed and priced separately.

Total supply in excess of demand has resulted in large carryovers (surpluses from the previous year) in most years since 1950. Hard red winter wheat has accounted for the largest percentage of production and carryover. Wheat used for food totaled about 586 million bushels (16 million metric tons) in 1977, and usually accounts for about two-thirds of total domestic use.

Since 1972, exports have averaged over 1 billion bushels annually and have accounted for a larger percentage of the total U.S. market than domestic uses. U.S. wheat exports are largely whole grain. Over 90 percent of the U.S. wheat exports are marketed in 41 countries; the remainder is marketed in 80 countries.

Farm wheat prices since 1974 have been more closely related to year-end stocks than in previous years when prices were more highly influenced by Government support payments and loan rates. The farmer's share of the consumer's dollar for a 1-pound loaf of white pan bread decreased from 17 percent in 1950 to 8 percent in 1977.

World wheat production more than doubled from 1950 to 1977, increasing from 172 million to 382 million tons. Nevertheless, world consumption exceeded production in 10 of the last 18 years, resulting in a reduction of stocks from the previous year. About 20 percent of total world production enters the international trade market. The United States accounts for about 41 percent of total world wheat trade.

Projected increases in world population and wheat demand suggest that world consumption could double in 20 to 25 years. Although some new technological breakthrough could result in higher yields, much of the increase in U.S. wheat production necessary to meet world demand will depend on added acres.

ill U.S. Wheat Industry

Walter G. Heid, Jr.'^

Back of the loaf is the snowy flour and back of the flour the mill; and back of the mill the wheats the shower^ the sun^ and the Father^s will—Anonymous

INTRODUCTION

Wheat, genus Triticum, is the chief food grain in the temperate climates. Its flour is used to make bread products and alimentary pastes. Its byproducts, bran, shorts, and middlings, are used in animal feeds as is some whole wheat. Wheat is grown commercially in 42 States. In 1978, the value of U.S. farm production was $7.6 billion.

The wheat industry faces a relatively stable domestic demand and a growing, but highly unstable export market. It also faces a growing worldwide population with unprecedented demands. This report examines major events and trends occurring since 1950 in the wheat industry that form the backdrop for future wheat production, processing, and marketing.

If world population doubles between 1975 and 2000 as predicted, the demand for wheat as a food crop will greatly increase. The world's farmers will need to produce as much additional food.in this 25-year period as they were able to produce in 1975 with all the techniques learned from the beginning of time. Unless some new technological change results in higher yields, much of the increased production necessary to meet the growth in world demand must come from increased wheat acreage.

World wheat production in 1977 was 14 billion bushels (381.6 million metric tons). About 2.7 billion bushels (73.5 million metric tons) or 19 percent of total world production was traded in world markets. The United States has been a growing participant in world wheat trade with the U.S. volume increasing from less than 400 million bushels (10.9 million metric tons) in 1950 to over 1 billion bushels (27.2 million metric tons) in recent years. The United States accounted for 41 percent of the total world trade in the 1977/78 marketing year.

*The author is an agricultural economist with the Economics, Statistics, and Coopera- tives Service, U.S. Department of Agriculture, stationed at the U.S. Grain Marketing Research Center, Manhattan, Kansas. The United States had large wheat surpluses between 1950 and 1975. These surpluses were called carryovers because they were carried over in the inventory from one year to the next. Farm programs were designed to limit production in most of these years. Yields per acre were also increasing. The first U.S. average wheat yield of over 20 bushels occurred in 1956, and the first average of over 30 bushels occurred in 1969. The structure of the wheat industry changed in that period, with the trend toward fewer but larger farms, elevators, processors, and exporters. Exports became by far the largest volume market for U.S. wheat. The industry found itself in an increasingly unstable situation as foreign demand for U.S. wheat became more important to the industry, primarily because of world weather conditions. Oscillations between surpluses and shortages created uncertainties and inefficiencies in the marketing system. Nevertheless, the U.S. wheat industry proved its ability to handle record volumes of wheat.

HISTORY

The earliest known bread was made by Stone Age people who lived more than 8,000 years ago. Those early people mixed an unleavened bread consisting of only flour and water, a type of bread still eaten in parts of the world today. Leavened bread was first used 5,000 years ago in Egypt.

Wheat bread achieved very high status in some civilizations. The Greeks, for example, had a goddess named Demeter and offered bread to her with prayers for good harvests. The Romans' equivalent of Demeter was Ceres, who gave her name to all cereal grains (100). ll

Nearly 400 years were required to establish wheat as an important grain in the United States after Columbus first introduced it to the New World in 1494. A large colony of Russian Mennonites settled in Kansas in 1873 and 1874, bringing seed wheat with them. This seed was a hard winter wheat called Turkey Red that proved to be superior to previous varieties grown in the United States. By 1890, Turkey Red had spread outside the Mennonite communities and was eventually to become the ancestor of practically all the hard red winter wheat now grown in the United States.

The U.S. wheat industry grew rapidly in economic importance after the introduction of Turkey Red. Wheat exports financed much of the industrial development of the then Great American Desert (the Great Plains) and the Far West. Wheat, more than any other crop, was suited for this role because of its adaptability to these low-rainfall regions.

U.S. wheat production has tripled since 1900, and has been over 1 billion bushels in all but 3 years since 1944. U.S. farmers harvested their first billion-bushel wheat crop in 1944. In 1975, the wheat crop reached 2 billion bushels. Such large increases were made possible by improved varieties, good farming practices, and favorable weather.

Production practices changed from the horse-drawn binder and horse- or steam- powered thresher to the large modern farm with self-propelled combines. About half the wheat was harvested and threshed by pull-type combines by 1938. Marketing and milling practices changed from horse and wagon deliveries of sacked wheat to the local grist mill to rail and truck deliveries to large volume mills in major marketing centers^.^ Likewise, retail practices have changed, elevating bread from "a pile of cord wood to a wrapped and branded product. Bread was first wrapped for marketing about 1909, and first presliced in the late twenties (65).

1/ Underscored numbers in parentheses refer to the sources listed in the bibliography at the end of this report. The role of wheat in the U.S. economy changed dramatically as consumer purchases shifted from flour to baker's bread. It was not until World War II that the percentage of flour sold to bakeries exceeded that sold directly to consumers. By the seventies, approximately 95 percent of all flour produced was sold to consumers as a bakery product. The value added to baker's bread and other manufactured products is considerably greater than that added to flour or prepared flour mixes. This change has expanded the role of wheat in the U.S. economy through the emplo5rment of resources in the output of bakery products. For each dollar the farmer received in 1977 for wheat and other ingredients used in the production of white pan bread, another $7.89 was added for such items as labor, processing, and transportation.

Over 1 billion bushels of wheat were exported in each marketing year except one since 1972/73. U.S. wheat accounted for 41 percent of the world wheat trade during this period. As our exports have increased, wheat has contributed as much as $4 billion a year to the U.S. balance of payments. More than 100 countries import U.S. wheat. Besides cash sales, wheat is the most important commodity in U.S. food aid programs.

INDUSTRY ORGANIZATION AND PRACTICES

Many intermediate marketing firms help transform wheat into products demanded by users and consumers. These firms perform the following functions: assembly, handling and storage, merchandising, transportation, grading and inspecting, cleaning, and processing. The organization of these firms, including vertical and horizontal relationships, affects the efficiency of the wheat production-marketing process.

The flow of wheat and other grain is usually recorded in U.S. statistical reports on a crop-year basis. Until 1976, the crop year for wheat began on July 1 and ended June 30. However, beginning in 1976, the crop year was changed to June 1 to May 30. The purpose of the change was to achieve greater accuracy in reporting the disposition of each year's production. Crop-year statistical accounting periods vary from country to country, complicating aggregation of world production and marketing data.

Marketing Flows

U.S. marketing channels for wheat and wheat products were previously described by Meinken for 1939 (38), and Held for 1959 (20) and 1963/64 (21). U.S. channels of trade have changed little since 1950 in terms of the types of institutions involved. Except for the involvement of the Commodity Credit Corporation (CCC) in grain storage and Government export programs, the private sector of the grain trade directs the wheat flow through the marketing channels.

Country elevators continue to serve as the major outlet for off-farm wheat sales (fig. 1). An estimated 82 percent of sales are marketed through country elevators, their volume varying according to their location with respect to production and other grain handlers or processors (2, 15). The highest percentages marketed through country elevators are in inland areas of Montana and the Dakotas where there are no nearby terminals. 11 In States with the lowest percentages marketed through country elevators, most wheat is shipped directly to terminals and processors. There is a trend for wheat to be marketed cooperatively by farmers, often through direct marketing methods.

Approximately 8,000 country elevators serve as grain assembly points. There has been little change in the number of country elevators since 1950; however, their size

11 In these inland areas, an increasing number of high-speed, large-volume loading facilities are being constructed. Such facilities generally have little or no storage capacity, their primary purpose being to make unit-strain or multiple-car rail shipments. Figure 1 Wheat Marketing Flow, 1977/78 Marketing Year -►Exports • Whole grain 29.3 million tons • Flour and other wheat products Farm inventory Imports 1.3 million tons change 6/1/76-6/1/77 0.1 million tons 1.8 millón tons Food i Flour mills • Flour Off farm sales Country Terminal and other 10.8 million tons 50.4 million tons ^elevators , elevators ^ wheat food ^ • Cereal and other 41.3 million 16.5 million processors wheat products Annual production 1977 tons tons 17 million 0.3 million tons 55.4 million tons tons J: -►Feed Used on farms • Mill byproducts 3.2 million tons -►Seed 4.4 million tons 1.4 million tons • Whole grain 2.8 million tons

-► Industrial use • 0.2 million tons

One metric ton equals 36.743 bushels. Use on Farms: seed 0.9 million tons and feed 2.3 million tons. Country and Terminal Elevators: off-farm inventory change 6/1/76-6/1/77, equals -.05 million tons. Terminal Elevators includes 15 prominent grain marketing centers, see Figure 2.

has increased and their type of business organization has changed. Most independent elevators have gone out of business. Most country elevators are now either cooperatives or owned by one of the large grain firms. As a result, large grain companies or cooperatives often assume ownership and direct the flow of wheat from the time it leaves the farm until it is either sold to a domestic processor or loaded onto a ship,

A minimum amount of wheat is blended at country elevators to establish lots of uniform quality or segregated to establish lots of uniform protein. Except for those few occasions where a specific farmer's wheat is processed separately at the elevator and sold under contract to a miller, the elevator's supply of wheat usually consists of a mix of many varieties. 3^/ However, when located in areas where two or more classes of wheat are produced, country elevators do attempt to segregate the classes.

A major development in the assembly of grain involves the growth of subterminal elevators. New subterminals are being constructed, replacing the old and, in most cases, obsolete country elevators. Some of these subterminals offer high-speed loading only. Others offer ancillary services like origin weights, origin samples, and cleaning facilities to meet grain grade specifications. Subterminals are usually constructed along rail lines to take advantage of multiple- or unit-car rates. With storage capacity ranging from 400,000 to 2 million bushels (10,900 and 54,400 metric tons), subterminals can load 50- to 100-car unit-trains at the rate of 20,000-30,000 bushels

y There are many varieties of wheat in each class. Since 1950, wheat varieties have proliferated. It is hard for the average person in the grain trade to distin- guish between varieties, although some have distinct and unique milling and baking qualities. (544-816 metric tons) per hour (61). The number of high-speed subterminals has increased as the percentage of exports has increased. These elevators are largely owned and operated by multinational U.S. grain companies, U.S. cooperatives, and foreign investors. A partial listing of the foreign investors in 1975 was developed by Krause (29).

About 33 percent of off-farm sales were channeled through 15 prominent grain centers in 1977/78. This compares to over half the annual supply in 1950 (fig. 2). In- land terminals did not gain the advantages of the increasing market volume. Much of the wheat designated for the export market moved directly from either country or subterminal elevators to port elevators.

The impact of this flow change is no- Figure 2 ticed by the "thin" price market—a price based on a very small volume traded—which Percentage of Off-Farm Sales Received it creates in some markets. If certain ter- at 15 Prominent Grain Centers minal market prices no longer reflect the Percent real market price, future farm-terminal price 100 relationships may be less meaningful than past relationships.

80 Six large firms handle most of the U.S. wheat exports, kj Their combined share of total exports was 77 percent in 1974, 69 60 percent in 1975, and 64 percent in 1976. The organization of these large grain firms 40 is complex, nearly all being multinational. Most are also highly integrated backward, having inland terminals, subterminals, and 20 country elevators; thus, their control of wheat exports extends from production to final use. Special transportation rates from _L J inland points to port locations have com- 1950 60 70 80 plemented this integrated structure. The 15 prominent grain centers are St. Louis, St. Joseph, Kansas City, Mo.; Wichita, Hutchinson, Kans.; Duluth, Minneapolis, Minn.; The general growth in exports of wheat Chicago, Peoria, III.; Enid, Okla.; Milwaukee, and other grain has brought about a rapid Wis.; Omaha, Nebr.; Indianapolis, Ind.; Toledo, expansion of U.S. export facilities since Ohio; Sioux City, Iowa. Source: (9). 1950. This assembly and distribution system, primarily built by the large multinational firms, provided enormous capacity and flexibility in 1972 and subsequent years Two recent major explosions and the sale of one port facility to a foreign trader have altered the flow pattern and market shares of wheat exports. The industry nevertheless appears to be keeping abreast of the country's need for exporting capacity.

Grain merchandisers and brokers headquartered in terminal markets also facilitate the assembly and flow of wheat. Grain merchandisers take title to grain; brokers do not. These market agencies, like major grain firms, have offices located throughout the wheat-producing areas. They make their purchasing decisions on the difference between cash and the futures market, as do major grain companies which own elevator facilities. If they take title to wheat, they also hedge on the futures market. If they do not take title to wheat, they simply charge a commission for bringing buyer and seller together.

4^/ Market shares of direct sales to foreign buyers as reported by the Office of the General Sales Manager, U.S. Department of Agriculture. The role of grain merchandisers and brokers has declined in recent years as grain cooperatives have expanded their regional marketing activities. Their role also lessened as large grain companies integrated backward into the country wheat assembly points, some establishing subterminal elevators to take advantage of multiple-car rail rates.

Processing

Flour millers are the major processors; other processors include breakfast food manufacturers, bulgur producers, feed manufacturers, and industrial users. Flours from three classes of wheat—hard red winter, soft red winter, and hard red spring—are used for breads, bread-type rolls, sweet yeast goods, cakes, pie shells, various types of pastry products, blended mixes, cookies, crackers, and pretzels.

Milling is the process of turning wheat into flour and other byproducts. When milled, a standard hard wheat yields farina, patent flour, first clear flour, second clear flour, wheat germ, shorts, and bran. The amount of each depends upon the raw material, cleaning, conditioning, and the method of milling. From the many grinding and sifting operations that take place during flour milling, about 125 to 150 different product streams are combined to yield the primary products of milling—flour and millfeed {21).

In flour milling, the wheat is cleaned and the outer portion of the kernel (bran) and germ is gradually separated from the starchy interior (endosperm). Depending on the fineness of grind, the type of wheat, and chemical treatments, various grades of flour are milled. The milling process generally yields about 72-74 percent flour, and about 26-28 percent millfeeds (bran and shorts).

In most hard'wheat mills, 75 to 80 percent of the flour produced is patent flour. 5^/ However, in the Southwest where wheats are different, mills may produce as much as 95 percent patent flour (100). The remaining flour in both cases is run together as first clears or divided into second and fancy clears. Extra short, as fancy patent flour, is the finest ground, with grades dropping down the scale to clears. Longer patent flours generally go into bread baking, while shorter patents are cake and cookie flours (27). The protein content of hard wheat flours ranges from 11 percent for the "straight" flour to as high as 25 percent or more for fancy, extra-short patent flour.

A soft wheat mill may process 50 percent of its flour as fancy patent cake flour and 50 percent as fancy clears. The protein content of soft wheat flour ranges from 7 to 7.5 percent for cookie flour to 10 i)ercent or more for flours used for crackers and doughnuts.

The milling of durum wheat is carried out much like that of hard and soft wheats, but instead of a fine flour, the desired product is a coarser endosperm fraction (mid- lings). The middlings from durum are called semolina by the trade and are used in pasta products, i.e., macaroni, spaghetti, and noodles.

Most white wheats are milled for flour; some are processed by the breakfast foods, cracker, and bulgur manufacturers. Exports, however, account for about 75 percent of total white wheat disappearance.

About 617 million bushels (16.8 million metric tons), or 33 percent of all wheat sold off farms in the 1977/78 marketing year was channeled to U.S. flour mills. The flow of wheat through flour mills averaged 51.4 million bushels (1.4 million metric tons) monthly in 1977/78 (table 1). Regional flour production by month (1977) is

5^/ See glossary for the definition of patent flour and other technical terms used in this report. Table 1—Commercial wheat mill grindings ll

Month : 1971/72 : 1972/73 : 1973/74 : 1974/75 : 1975/76 : 1976/77 : 1977/78

Mil] .ion bushels

June : 48 49 47 45 49 52 50 July : 47 47 48 45 50 53 48 August : 48 44 47 45 49 55 51 September : 47 46 47 47 50 52 50

October : 45 47 46 49 53 52 50 November ; 44 47 48 50 48 50 53 December : 45 47 49 47 49 51 53 January : 46 48 49 46 50 52 50

February ! 44 48 49 44 49 54 52 March 47 47 48 45 50 55 53 April 47 48 45 51 52 51 53 May 48 47 45 49 51 51 54

Total 556 565 568 563 600 628 617

Percent 2/

June : 8.6 8.7 8. 3 8.0 8.2 8.3 8.1 July : 8.5 8.3 8. 5 8.0 8.3 8.4 7.8 August : 8.6 7.8 8. 3 8.0 8.2 8.8 8.3 September : 8.5 8.1 8. 3 8.3 8.3 8.3 8.1

October : 8.1 8.3 8. 1 8.7 8.8 8.3 8.1 November : 7.9 8.3 8. 5 8.9 8.0 8.0 8.6 December : 8.1 8.3 8. 6 8.3 8.2 8.1 8.6 January : 8.3 8.5 8. 6 8.2 8.3 8.3 8.1

February : 7.9 8.5 8 6 7.8 8.2 8.6 8.4 March : 8.5 8.3 8. 5 8.0 8.3 8.8 8.6 April : 8.5 8.5 7. 9 9.0 8.7 8.1 8.6 May : 8.6 8.3 7 9 8.7 8.5 8.1 8.8

Total 100.1 99.9 100 1 99.9 100.0 100.1 100.1

1/ Adjusted to eliminate the effect of normal seasonal variations (including variations due to vacations, weather, etc.). 2^1 All totals do not add to 100 percent because of rounding.

Source: (92). shown in table 2. U.S. milling efficiency has been steadily improving as measured by the percentage of capacity that is used: 1954, 81.7 percent; 1964, 93.7 percent; 1974, 97.1 percent; and 1977 (est.), 100.3 percent. 6»/

There were 273 U.S. flour mills in 1977 according to Milling and Baking News' bi- ennial directory (table 3). These mills reported a total active daily capacity of 988,064 hundredweight, with an additional capacity of 17,500 hundredweight under construction. There were 329 mills in 1950 with a total daily capacity of 1,013,105 hundredweight. In the intervening years, total active daily capacity reached a low of 958,000 hundredweight in 1975.

Active milling capacity in 1977, by size of mill, was as follows (61);

Hundredweight per day Number of mills Total capacity (cwt)

Under 200 54 5,494 200-399 35 9,015 400-999 31 18,165 1,000-4,999 71 183,050 5,000-9,999 52 352,100 10,000 and over 30 420,240

Total 273 988,064

Two noticeable industry trends are occurring: an increase in capacity and fewer mills. The average capacity of the 99 largest U.S. flour mills was 8,280 hundredweight daily in 1977. These mills were owned by 18 firms. Average per day hundredweight capacity of large mills (excluding durum mills) has grown: 1965, 6,765; 1973, 7,612; 1975, 7,922; and 1977, 8,280. The average daily capacity for all mills increased from 2,202 hundredweight in 1965 to 3,619 hundredweight in 1977.

The bulk of the U.S. flour milling capacity has been located in Buffalo, N.Y., Minneapolis, Minn., and Kansas City, Mo. Until the sixties, however, many mills were still located in wheat production areas. As advances in technology altered the cost structure of transportation, new mills gravitated toward consumption centers. For additional information on the structure of the U.S. milling industry, see the 1977 Mil- ling and Grain Directory (61), Wright (102), and Lukermann (33).

Flour mills used 16.8 million metric tons of wheat in 1977/78 and other wheat processors used about 200,000 tons (fig. 1). Final uses of flour, millfeeds, and other wheat products as shown in figure 1 were: (1) flour for domestic use, 10.8 million tons; (2) mill byproducts for feed, 4.4 million tons; (3) flour and other products for export, 1.3 million tons; (4) cereal and other products for domestic use, 300,000 tons; and (5) industrial products, 200,000 tons.

Storage

Storage aids the orderly flow of wheat into domestic and export channels, and usually maintains grain quality from harvest to use. Wheat is stored by farmers and elevators—country, inland terminal, and port terminal.

A large and increasing percentage of wheat is stored on farms at harvest. On- 6^/ The number of working days per month is computed on the basis of a 5-day week with allowances for the following holidays: New Year's Day, Memorial Day, Independence Day, Thanksgiving Day, and Christmas Day. When mills are operated more than 5 days a week or on holidays, they are considered to be working at over 100-percent capacity. For a brief period during World War II, the milling industry operated at over 100-percent capacity. That use of capacity, however, was exceptionally high for the industry. Table 2—U.S. wheat flour grindings, 1977

Region : Jan. : Feb. : March : April : May : June : July : Aug. : Sept. : Oct. : Nov. : Dec. : Total

Million bushels

Middle Atlantic : 5.2 5.5 6.9 5.5 6.0 6.2 5.6 6.9 6.9 6.6 6.8 6.3 74.4

East North Central : 7.5 7.5 9.0 7.5 7.6 7.5 7.1 8.5 8.2 8.7 8.0 7.9 95.0

West North Central : 18.1 17.9 19.4 17.2 16.5 16.2 15.5 17.9 15.7 16.2 16.5 16.5 203.6

South Atlantic ! 2.4 2.6 3.0 2.4 2.8 2.7 2.4 3.0 2.7 2.5 2.8 4.2 33.5

East South Central : 2.5 2.5 2.9 2.4 2.6 2.6 2.4 2.8 2.7 2.6 2.7 2.7 31.4

West South Central : 3.2 3.2 3.4 3.0 2.9 2.0 2.7 3.2 2.9 2.9 3.1 3.4 35.9

West ! 7.3 6.9 8.0 6.9 6.8 6.4 6.4 7.6 7.2 6.9 7.4 7.3 85.1

United States \) , A8.0 48.0 54.4 46.4 46.9 46.3 43.5 51.5 49.3 49.4 50.2 52.1 586.0

Percent 8.19 8.19 9.29 7.92 8.0 7.89 7.42 8.82 8.40 8.42 8.56 8.89 99.99

_!/ U.S. totals do not add because figures for Iowa, Utah, and sometimes Nebraska, have been withheld to avoid dis- closure of individual companies.

Source: (92). Table 3—Number of U.S. wheat mills and active capacity, 1977

State Mills Active capacity

Number Hundredweight/day

Alabama 1 8,800 Arizona 1 1,000 California 10 46,675 Colorado 3 17,000

Delaware 2 472 Florida 2 12,850 Georgia 6 6,650 Hawaii 1 2,200

Illinois 8 56,860 Indiana 8 27,440 Iowa 2 11,100 Kansas 19 116,910

Kentucky 9 4,015 Louisiana 2 10,000 Maryland 1 2,400 Michigan 9 22,250

Minnesota 12 79,100 Missouri 9 82,298 Montana 3 13,500 Nebraska 6 28,970

New Jersey 1 6,200 New Mexico 2 650 New York 13 97,440 North Carolina 16 23,700

North Dakota 1 5,000 Ohio 14 69,425 Oklahoma 4 27,500 Oregon 3 18,700

Pennsylvania 37 33,619 Puerto Rico 2 8,500 South Carolina 6 3,020 South Dakota 1 3,000

Tennessee 19 35,730 Texas 6 26,640 Utah 11 30,370 Virginia 19 20,530

Washington 27,550

Total 273 988,064

Source: (61).

10 farm capacity in the eight most important States increased by 803 million bushels (21.9 million metric tons) from 1975 to 1978. On-farm 1978 storage capacity in these eight States was (68):

State Capacity

Million bushels Million metric tons

Minnesota 1,191.8 32.4 Nebraska 832.8 22.7 North Dakota 691.3 18.8 Kansas 370.0 10.1

Montana 280.8 7.6 Texas 263.9 7.2 Oklahoma 80.8 2.2 Washington 62.0 1.7

Total 3,773.4 102.7

Total storage capacity of 6,297 CCC-approved country elevators was estimated at 3,594.5 million bushels (97.8 million metric tons) as of January 1, 1978. A capacity of 1,714.9 million bushels (46.7 million metric tons) was reported in the eight major wheat-producing States (table 4). The CCC also estimated a capacity of 991 million bushels (27.0 million metric tons) in 395 terminal elevators in these States.

Flour millers have a storage capacity of about 45- to 60-day supply. Storage capacity of flour millers and other wheat processors is estimated at nearly 100 million bushels.

Table 4—Grain storage capacity of country, terminal, and private storage facilities in eight major wheat production-marketing States, January 1978

Country \ Terminal Private \ Total State elevators ll \ elevators 1/ ] storage 2.1 \ capacity _3/

1,000 1 Dushels

Kansas 445,352 291,337 93,311 830,000 North Dakota 122,254 16,226 1,590 104,070 Oklahoma 107,286 79,133 17,101 203,520 Minnesota 173,634 152,555 40,251 366,440

Montana 41,000 4,384 8,616 54,000 Texas 375,523 287,073 57^754 720,350 Nebraska 321,787 120,949 41,864 484,600 Washington 128,031 39,239 19,100 186,370

Total 1,714,867 990,896 279,587 2,985,350

jL/ Capacity of warehouses operating under a Uniform Grain Storage Agreement with the CCC. 2l Off-farm storage capacity not covered by a grain storage agreement with CCC. _3/ Rated off-farm storage capacity as reported by the Crop Reporting Board, Econ., Stat., and Coop. Serv., U.S. Dept. Agr.

11 Port terminals also store large volumes of wheat and other grain. Estimated 1978 capacity of the four main U.S. port areas was:

Port,area Capacity

Million bushels Million metric tons

Gulf 152 4.2 Great Lakes 148 4.1 Pacific 55 1.'5 Atlantic 45 1.3

Total 400 11.1

Since nearly 4 billion bushels (108.9 million metric tons) of wheat and feed grains are exported, U.S. port terminals turn over their grain inventories about 10 times a year.

Total off-farm commercial grain storage was estimated at 6,600 million bushels (179.6 million metric tons) as of January 1, 1978, 5 percent greater than that of a year earlier (41). This capacity includes 15,065 facilities that store grain and oilseeds. Storage capacity of 34 States expanded, while that of 6 States declined. Kansas, the major wheat State, continued to rank first in storage space and also reported the largest increase in capacity during 1977, 50 million bushels (1.4 million metric tons). The largest decline in storage capacity, 2.8 million bushels, occurred in Texas due to dust explosions.

Quality Determination

Trading wheat in the United States is facilitated by inspection and grading services performed either by Federal or State grain inspection agencies. The grade of wheat helps to determine marketing channels, as products derived from each grade of wheat have different values and are marketed for different uses. The official U.S. grain standards are administered by the U.S. Department of Agriculture. There are standards for 7 classes of wheat and 13 subclasses (84). Ij Within each class and subclass are six grades, based on recognized quality factors, and seven special grades of wheat (fig. 3).

Inspection

Most intrastate, as well as interstate, wheat shipments are officially inspected to establish or verify grade designations. Inspections are normally made by State or private inspectors designated by the Federal Grain Inspection Service (FGIS). These inspectors are trained and their inspections are monitored by FGIS personnel. Appeals are submitted to the FGIS Board of Appeals and Review.

The country elevator settles with the farmer on the basis of Federal standards, although official inspections are usually not available. 8^/ As wheat passes through the marketing system, beyond the country elevator, it may be inspected at the request

IJ Although there are seven official classes, unclassed and mixed wheat are not normally shown separately in marketing statistics because of their minor importance. ^/ Use of near infrared (NIR) protein analysis at country elevators is increasing. This method replaces the more expensive and time consuming Kjeldahl system. NIR protein testers are more reliable and will make it possible for country elevators to reward farmers for protein. Protein information will appear on the grade certificate as information only—not as part of the grade standard. The NIR system measures protein in tenths of a percent (46).

12 Figure 3 Wheat Classes, Subclasses, and Grades

Classes Hard Red Durum Hard Red Soft Red White Unclassed Mixed Spring Winter Winter

Subclasses • Dark • Hard • Hard Northern Amber White Spring Durum • Soft • Northern • Amber White Spring Durum • White • Red • Durum Club Spring • Western White

Grades, Grades Grade factors Special grades Grade (apply to all classes, (apply to all classes) (apply to all classes) factors, except mixed wheat) Special • Test weight per bushel • Tough • Ergoty grades • U.S. #1 • U.S. #5 • Heat damaged kernels • Smutty • Treated • U.S. #2 • U.S. • Foreign material • Garlicky • Heavy • U.S. #3 Sample • Shrunken and broken kernels • Weevily • U.S. #4 Grade • Wheat of other classes

Mixed wheat shall be graded according to the U.S. numerical and U.S . sample grade requirements of the class of wheat which predominates the mixture. Source: (84). of either the buyer or the seller. Also, all wheat placed under Government loan must be inspected at time of storage and the grade designation is included as part of the official warehouse receipt. Licensed inspections are available in over 100 inspection locations in the major grain-producing areas and at all primary markets.

In most years, about 60 percent of the wheat inspected at inland points is graded No. 1, much of which is used by U.S. flour mills. By contrast, wheat inspected at port terminals for export is usually graded No. 2. No. 2 wheat is of good quality and adequate for the needs of most importing countries.

Protein Premiums

Millers, bakers, and foreign buyers usually demand wheat of a specific protein content. While the protein level demanded remains fairly constant, the protein level of wheat production may vary greatly from year to year. Ideal growing conditions, which produce high yields, usually result in lower protein content and vice versa.

In years when the hard red winter (HRW) wheat crop is low in protein, domestic flour millers generally purchase larger amounts of hard red spring (HRS) wheat for blending purposes. Protein premiums for HRS wheat can then be quite high, particularly if supplies are not large. By contrast, if protein of HRW wheat is high, less HRS wheat is demanded for blending, and protein premiums are lower. Even in normal years, protein premiums are generally sufficient to warrant their consideration when marketing. Farmers who can store wheat on their farms may derive some competitive advantage as country elevators begin using NIR protein testing more frequently. Good farm managers with on-farm storage could take advantage of existing protein premiums by selling low-protein wheat in years of high-protein production and high-protein wheat in years of low-protein production.

13 Millers purchase wheat on protein specifications. After receipt of the wheat, they perform their own quality tests and blend the wheats to meet customer specifications. The flour mill best able to screen potential sources of wheat to obtain least- cost blending of wheats often has a competitive advantage in products offered for sale. Millers may send representatives to production areas at harvesttime to obtain samples from the fields and country elevators. This gives them crop quality information before general knowledge is available. Mills either analyze samples themselves or hire a private laboratory to analyze the sample's quality. Quality measures permit analysts to evaluate important characteristics of final consumer products. For example, flour used for bread-type products is analyzed for loaf volume potential, mixing time, grinding ease, yield, protein recovery, color, and other physical and chemical properties. Flour used for pasta products is analyzed for firmness, color, cooked weight of product, and other criteria.

SUPPLY

The annual U.S. wheat supply originates from three sources: production, carryover, and imports. Production accounts for the largest percentage of total supply in a properly functioning market system. From 1950 to 1977, however, U.S. wheat carryover glutted the market to the extent that in 9 of the 28 years—from the midfifties to the early sixties—carryover exceeded production (table 5). Imports have been relatively small, accounting for 1 percent or less of the total supply in recent years.

Production

The United States accounts for about 13 percent of world wheat production. How- ever, because it exports a large percentage of its production and maintains a large carryover, the United States plays a leading role in the world wheat market. Its consistent role in this market has led to its being referred to as an open supermarket—a residual market for the rest of the world (43).

Excessive wheat production received much public attention after 1950. Taxpayers complained about the economic burden of storage costs. Farmers became concerned with low prices. With few exceptions, their concerns have existed for nearly 30 years. The most vocal recent expression of the farmers' concern about low wheat prices has been by the American Agricultural Movement. Underproduction has been opposed by consumers concerned with a moral obligation to feed a hungry world. Overproduction, characterizing the wheat industry in the fifties, was an after-effect of World War II. Wartime demand exceeded production by 30 percent. Wheat acreages were increased and commercial fertilizer was used. Steadily increasing yields, along with high support prices, made wheat the most profitable crop for many farmers. U.S. farmers established an enormous production capacity and a strong desire to produce more. 9^/ They continued to produce near their wartime rate even though domestic demand declined after the war. Domestic needs became a progressively smaller percentage of production. Surpluses grew. Ex- cluding 1958, U.S. carryover exceeded production throughout the period 1954-63 (fig. 4).

The U.S. productive capacity was once again exploited in response to a heavy 1965 export demand. Seeded acreage in 1967 was 67.2 million acres (27.2 million hectares), the highest since 1953. Production (1.5 million bushels, or 40.8 million metric tons) was nearly 2.5 times the domestic demand, and the economic well-being of U.S. producers once again depended on either large export demand or Government support payments.

Harvested acreage was cut back to about 47 million acres (19.1 million hectares) in 1969, only the fourth time since 1950 that harvested acreage had been so low. In- creasing yields partly offset the acreage reduction (table 6).

9^/ Farmers tend to increase their production thinking that their income will also increase. However, sometimes declining prices more than offset increased income.

14 Table 5—U.S. wheat supplies

Year [ beginning \ Production Carryover Imports Total June [

Million bushels

1950 : 1,019 496 11 1,526 1951 : 988 492 30 1,510 1952 : 1,306 330 24 1,660 1953 1,173 672 6 1,851

1954 984 994 4 1,982 1955 937 1,109 10 2,056 1956 1,005 1,130 8 2,143 1957 956 1,004 11 1,971

1958 1,457 962 8 2,427 1959 1,118 1,368 7 2,493 1960 1,355 1,384 8 2,747 1961 1,232 1,502 6 2,740

1962 1,092 1,421 5 2,518 1963 1,147 1,270 4 2,421 1964 : 1,283 993 2 2,278 1965 : 1,316 921 1 2,238

1966 : 1,305 660 2 1,967 1967 : 1,508 513 1 2,022 1968 : 1,557 630 1 2,188 1969 : 1,443 904 3 2,350

1970 : 1,352 983 1 2,336 1971 : 1,618 823 1 2,442 1972 : 1,545 983 1 2,529 1973 : 1,705 597 3 2,305

1974 : 1,796 340 3 2,139 1975 : 2,135 435 2 2,572 1976 : 2,142 665 3 2,810 1977 : 2,036 1,112 2 3,150

1978 1/ : 1,799 1,177 2 2,978

1/ Preliminary.

Source: (71) and (90).

15 Table 6—U.S. wheat acreage, yield, and production

Year : Acreage seeded : Acreage harvested : Yield per * harvested acre Production

1,(300 acres Bushels 1,000 bushels

1950 : 71,287 61,610 16,5 1,016,565 1951 : 78,524 61,873 16,0 989,968 1952 : 78,645 71,130 18.4 1,308,792 1953 : 78,931 67,840 17.3 1,173,632

1954 : 62,539 54,356 18.1 983,844 1955 : 58,246 47,290 19.8 936,342 1956 : 60,655 49,768 20.2 1,005,314 1957 : 49,843 43,754 21.8 953,837

1958 56,017 53,047 27.5 1,458,792 1959 56,706 51,716 21.6 1,117,066 1960 ; 54,906 51,879 26.1 1,354,042 1961 : 55,707 51,571 23.9 1,232,547

1962 : 49,274 43,688 25.0 1,092,200 1963 : 53,364 45,506 25.2 1,146,751 1964 : 44,672 49,762 25.8 1,283,860 1965 : 57,361 49,560 26.5 1,313,340

1966 : 54,105 . 49,613 26.3 1,304,821 1967 : 67,264 58,353 25.8 1,505,507 1968 : 61,680 54,765 28.4 1,555,326 1969 : 53,450 47,146 30.6 1,442,668

1970 : 48,739 43,564 31.0 1,350,484 1971 : 53,810 47,674 33.9 A,616,149 1972 : 54,896 47,284 32.7 1,546,187 1973 : 58,978 53,869 31.7 1,707,647

1974 : 71,169 65,613 27.4 1,797,796 1975 : 75,078 69,646 30.7 2,138,132 1976 : 80,215 70,771 30.3 2,144,361 1977 : 74,800 66,216 30.6 2,026,210

Source: (71) and (76),

16 The U.S. overproduction problem was Figure 4 quickly, but temporarily, solved when weather conditions reduced wheat crops in many coun- Domestic Consumption as a Percentage of Totai U.S. Wheat Production tries in 1972. U.S. wheat acreage was sharply increased beginning in 1973. Production Percent topped 2 billion bushels (54.4 million metric 100 r tons) in 1975 for the first time, and again in 1976 and 1977. When world weather conditions improved, the United States found 80 - itself once again with large carryovers and low prices—repeating a pattern common since 1950 of low supplies followed by large surplus. 60 -

Regional Production 40 - Wheat is grown under three land-use sit- uations—60 percent is grown on continuous cropped dryland in the central and eastern Great Plains; 33 percent is grown on summer 20 - fallowed land in the western Great Plains and Pacific Northwest; and the remaining 7 percent is grown in irrigated fields mostly _L J in Kansas, Oklahoma, and Texas. 1950 60 70 80 From the 1950-54 average to the 1970-74 Year beginning June 1. Source: (90). average, U.S. harvested wheat acreage declined 19.1 percent: 21.2 percent in the North Central States; 64 percent in the Middle Atlantic States; and 35 percent in the South Atlantic States (table 7). However, the last two regions combined accounted for less than 3 percent of total U.S. acreage in the 1970-74 period. The harvested acreage held about constant in the Pacific Northwest in the same period, due largely to changes in Washington State which began producing high yielding soft white wheat. Some States increased their harvested acreage, taking advantage of high yielding varieties developed for their region or planting high priced durum and other spring wheats. Minnesota, for example, nearly doubled its wheat acreage from the 1950-54 average to the 1970-74 average. Arizona, New Mexico, and California greatly expanded durum wheat production on irrigated acreages during the same period. Soft red wheats rapidly assumed a major role in Missouri, Illinois, Indiana, and Ohio, replacing hard red winter varieties. Kansas was the leading wheat-producing State in 1977, accounting for 17 percent of total U.S. production and 18 percent of total acreage harvested. Kansas, North Dakota, Oklahoma, Minnesota, and Montana accounted for 50 percent of the Nation's production and 55 percent of its wheat acreage. States producing over 100 million bushels (2.7 million metric tons) in 1977 were as follows: State Produ< :tion Acreage harvested Percent Rank Percent Rank

Kansas 17.0 1 18.3 1 North Dakota 11.3 2 14.0 2 Oklahoma 8.7 3 9.8 3 Minnesota 6.5 4 5.0 6 Montana 6.5 5 7.6 4 Texas 5.8 6 7.1 5 Nebraska 5.1 7 4,5 8 Washington 5.0 8 4.5 9

17 Table 7—Harvested U.S. wheat area

Region ll : 1950 -54 1970-74 : 1975 : 1976 : 1977

1,000 1,000 1,000 1,000 1,000 acres Percent acres Percent acres Percent acres Percent acres Percent

New England 2/ 2/ 2/ 2/ 2/

Middle Atlantic 1,311 2.1 468 0.9 589 0.8 535 0.8 530 0.8

South Atlantic 1,374 2.2 891 1.7 1,084 1.6 945 1.3 923 1.4

North Central : 37,710 59.6 29,721 57.4 38,898 55.8 40,869 57.7 36,866 54.8

South Central : 8,263 13.1 8,106 15.7 13,927 20.0 12,715 18.0 13,534 20.1

Mountain : 10,273 16.2 8,294 16.0 9,867 14.2 10,287 14.5 9,903 14.7

Pacific : 4,307 6.8 4,292 8.3 5,276 7.6 5,473 7.7 5,473 8.1

United States total : 63,i!38 100.0 51,772 100.0 69,641 100.0 70,824 100.0 67,229 100.0

ll New England: Maine, Vermont, New Hampshire, Massachusetts, Connecticut, and Rhode Island; Middle Atlantic- New York, Pennsylvania, and New Jersey; South Atlantic: Maryland, Delaware, Virginia, North Carolina, South Caro- lina, Georgia, and West Virginia (Florida excluded in 1950-54); North Central: North Dakota, South Dakota, Nebras- ka, Kansas, Minnesota, Iowa, Wisconsin, Michigan, Illinois, Indiana, Ohio, and Missouri; South Central: Oklahoma, Texas, Arkansas, Kentucky, Tennessee, Alabama, and Mississippi (Louisiana excluded in 1950-54); Mountain: Idaho, Montana, Nevada, Utah, Colorado, Wyoming, Arizona, and New Mexico; Pacific: Washington, Oregon, and California. 2J Minimal acreage and not reported.

Source: (76) and (77), South Dakota ranked 7th in harvested acres in 1977 with 4.6 percent, but its production was less than 100 million bushels. Production, yields, and acreage harvested by State since 1974 are shown in appendix table 1. Figure 5 illustrates the regions in which U.S. wheat is grown.

Production by Class

There are five major classes of wheat grown in the United States: hard red winter, hard red spring, soft red winter, durum, and white. Hard wheats are generally more vitreous and have more protein than soft wheats, although there is some overlap- ping in the protein ranges.

The different classes are grown in four distinct regions in the United States because of the different adaptability of each class to factors such as rainfall and winter hardiness. The most important of these is the hard red winter wheat region which accounts for 50 percent of the total U.S. production. The main wheat-producing States in this region are Kansas, Nebraska, Oklahoma, and Texas. The next region of importance is the hard spring wheat region, including Minnesota, Montana, North Dakota, and South Dakota where two classes of spring wheat—hard red spring and durum—are produced. The Pacific Northwest—primarily Idaho, Oregon, and Washington—produces most of the U.S. supply of soft white wheat. The fourth region—Illinois, Indiana, Ohio, and Missouri—produces soft red winter wheat.

Major shifts in production by class have been restricted by farm programs since the midfifties. Across-the-board acreage controls, which were enforced primarily to control the acreage of hard red winter wheats, also reduced the supplies of durum and soft red winter wheats. For example, in some years, stocks of durum and soft red winter wheats were below 10 million bushels—an amount critically low should the following

Figure 5 Distribution of U.S. Wheat Acreage

One dot equals 10,000 harvested acres Source: (93).

19 crop be less than normal. Changes in the distribution of wheat production by class were largely due to price- or weather-related factors. Since acreage controls were lifted in 1974, production has returned to about the same proportion by class as in the 1950-54 period. Nevertheless, the following tabulation shows three trends: the percentage of durum wheat is increasing relative to the other classes while the pro- portions of white wheat and hard red winter wheat have declined.

Class 1950-54 1960-64 1970-74 1975-77.

Percentage of all wheat harvested

Hard red winter 46.8 53.3 51.0 47.9 Hard red spring 18.4 13.4 18.2 18.0 Soft red winter 16.8 16.3 13.3 16.2 Durum 2.1 4.0 4.7 5.4 White 15.9 13.0 12.8 12.5

Total production and percentage by class from 1950 to 1977 are shown in figure 6 and appendix table 2. U.S. wheat supply and disappearance by class, 1950-77 are shown in appendix table 3.

Production Practices

Rapid advancements in machine technology—additional power and larger sized implements—have been major factors in the change in the average farm size. About 15 man- hours per acre were required to produce and harvest wheat—about 1 bushel per man-hour of labor in 1950.

Most power requirements for producing wheat came from horses and humans before World War I. Tractors, trucks, and combines had been introduced by the end of World War I and rapidly grew in number, size, and importance (32). Self-propelled combines have replaced the pull-type since 1950, thus freeing tractors for tillage and seeding operations. Retail sales of tractors with over 100 horsepower increased from 3 percent of total sales to 44 percent between 1965 and 1974 (28). Four-wheel-drive tractors pulling 96 feet of tillage implements were common in the early seventies on dryland wheat farms in the northern Great Plains (30). Combines able to cover 24-foot swaths were the predominant size purchased for large wheat farms. This large machinery was used on fields running 5 to 6 miles long. Increased speed as well as width has been a major technical change in machinery used in wheat production. Changes in machinery size have generally resulted in one large tractor replacing two small ones, and two large combines replacing about three smaller ones. The adoption of larger and wider machines reduced labor requirements to less than 2 hours per acre, while yields increased to 30 bushels per acre. The production rate increased from 1 bushel to 15 bushels per man-hour of labor in 25 years.

Wheat grows well on dryland and in short growing seasons. Winter wheats are grown in the southern latitudes and spring wheat is produced in the Northern States. Wheat is part of a double cropping system in parts of the southern Great Plains, where there is adequate moisture and a long growing season. Wheat is often part of a 2-year wheat-fallow rotation in areas of the Plains with less than 20 inches (50.8 centime- ters) of rainfall. The usual planting and harvest dates for wheat are shown in table 8.

Great Plains wheat producers must contend with the risk of hail as well as low rainfall. Hailstorms frequently occur, destroying the wheat crop before harvest. Ap- proximately one-fourth of the wheat acreage is insured by farmers with Federal crop insurance or commercial crop-hail insurance to assure some profit (3^) . Farmers also insure themselves against risk of crop failure by using large combines for fast harvest, and through storage of wheat produced in previous years.

20 Figure 6

U.S. Wheat Production, by Class

Billion bushels Hard Red Winter 1.2 r Hard Red Spring Soft Red Winter White Durum

•1.0 tvV

/ >^^ \ k y i / \ ! \ / \ / w \ I / I \ /

Í I 1/ I I \/"NI H /-v.

1950 60 70 80 Source: (90).

21 Table 8—Usual wheat planting and harvesting dates \J

1977 Usual Usual harvesting dates Wheat type : harvested planting and State : , area dates Begin Most active ; End 1,000 Acres — T\«LfCiUCÖ 4- , —

Winter: : Pennsylvania : 270 Sept. 1-Oct. 15 July 1 July 15-July 25 Aug. 10 Ohio 1,540 Sept. 15-Nov. 5 July 1 July 10-July 25 Aug. 5 Indiana : 1,240 Sept. 10-Oct. 30 June 25 June 30-July 20 July 25 Illinois 1,590 Sept. 15-Nov. 5 June 25 July 1-July 15 July 20 Michigan : 825 Sept. 15-Oct. 15 July 10 July 20-Aug. 1 Aug. 10

Missouri 1,550 Sept. 20-Nov. 1 June 10 June 15-July 1 July 15 South Dakota 680 Sept. 1-Oct. 1 July 10 July 15-Aug. 1 Aug. 10 Nebraska 2,950 Aug. 25-Oct. 5 July 1 July 5-July 15 July 30 Kansas : 12,100 Sept. 10-Oct. 25 June 15 June 20-July 5 July 15

Virginia : 205 Sept. 20-Dec. 1 June 10 June 20-July 10 July 15 N. Carolina ■ 200 Sept. 15-Nov. 5 June 5 June 15-July 1 July 15

Kentucky 274 Sept. 25-Nov. 15 June 15 June 20-July 5 July 15 Tennessee 280 Sept. 10-Nov. 30 June 10 June 15-July 5 July 15 Arkansas 660 Sept. 10-Nov. 25 June 1 June 10-June 25 July 5 Oklahoma 6,500 Sept. 5-Oct. 25 June 5 June 10-June 25 June 30 Texas 4,700 Sept. 1-Oct. 30 May 20 June 5-June 20 July 5

Montana 2,800 Aug. 25-Oct. 15 July 25 Aug. 1-Aug. 15 Sept. 5 Idaho 830 Sept. 1-Oct. 15 July 15 July 25-Aug. 30 Sept. 15 Wyoming 260 Aug. 20-Sept. 25 July 20 Aug. 5-Aug. 20 Aug. 25 Colorado 2,550 Aug. 20-Oct. 10 June 25 July 10-July 20 Sept. 5 New Mexico 421 Sept. 1-Oct. 20 June 5 June 15-July 15 July 20

Washington 2,800 Aug. 15-Nov. 20 July 5 July 20-Aug. 15 Sept. 20 Oregon 1,130 Aug. 15-Feb. 1 July 1 July 10-Aug. 15 Sept. 15 California : 650 Oct. 15-Feb. 15 June 15 July 15-Aug. 15 Aug. 30 Nov. 1-Feb. 15 May 15 June 15-July 15 Aug. 8

Durum: North Dakota : 2,470 Apr. 15-June 1 Aug. 10 Aug. 15-Sept. 5 Sept. 15 Montana : 220 Apr. 10-May 25 Aug. 5 Aug. 10-Aug. 25 Sept. 20

Other spring: Minnesota : 3,140 Apr. 15-May 30 July 25 Aug. 1-Aug. 20 Sept. 10 North Dakota : 6,680 Apr. 15-May 25 Aug. 5 Aug. 15-Sept. 5 Sept. 10 South Dakota : 2,200 Apr. 1-May 5 July 20 July 25-Aug. 15 Aug. 20 Montana : 2,040 Apr. 10-May 25 Aug. 5 Aug. 10-Aug. 25 Sept. 15 Idaho : 360 Mar. 20-May 25 July 15 Aug. 10-Sept. 5 Sept. 30

y States in which harvested acreage was 200,000 acres or more in 1977.

Source: (88).

22 A unique new wheat has been the short stemmed, stiff-strawed, soft white wheat varieties introducted in the Pacific Northwest in the sixties. These varieties, ca- pable of utilizing up to 120 pounds of nitrogen per acre, mature earlier and give higher yields than other wheats. The same wheats have been successfully used in Mexi- co, India, Pakistan, and other countries. (This successful venture has been termed the Green Revolution.) Short-stemmed, high yielding varieties were beginning to make some inroads into the U.S. soft red winter wheat region by the seventies, and may eventually be developed for other classes. For a discussion of variety adaptation and other aspects of commercial wheat production, refer to Reitz (50).

Yield Trends

U.S. wheat yields remained nearly constant until the depression years of the thirties (fig. 7). Yields have more than doubled in the 40 years since. U.S. average wheat yield per harvested acre passed the 20-bushel mark (1.3 metric tons per hectare) in 1956, and the 30-bushel mark (2.0 metric tons per hectare) just 13 years later. A combination of good weather, new varieties, and use of commercial fertilizer resulted in a steady increase in yields between the early thirties and 1971.

Trends in yields for 1900-32 and 1933-77 are shown in figure 7. A close relationship between yield and time has existed since 1933. However, observed yields have, in some years, varied from the expected yields more than they did prior to 1933. U.S. wheat yields deviated from the trend line by less than 2 bushels 88 percent of the time from 1900-32 (table 9). But, yields deviated from the trend line by less than 2 bushels only 64 percent of the time in the period 1933-37. 10/ Perhaps even more significant are the extreme deviations. In the earlier period, yields did not vary as much as 3 bushels per acre from the trend line. However, since 1933 yields varied from the expected by 3 bushels or more 18 percent of the time. In other words, in nearly 1 year of 5, U.S. wheat production has varied from trend expectations by ±150 million bushels (±4.1 million metric tons), assuming 50 million harvested acres. The effect of such variations has, of course, hampered the effectiveness of national farm programs in achieving the desired supply-demand balance.

Actual yields have been consistently lower than trend yields since 1974. Some evidence suggests that yield levels have reached a plateau, although it is too soon to speculate that a new trend is emerging. 11/ A new—and lower—trend in U.S. wheat yields is probably overdue for several reasons. First, the technological benefits of commercial fertilizers have nearly reached their limits. Second, the rate of fertilizer application has declined slightly because of high costs for fertilizer and other inputs and low wheat prices. Third, the raw material (natural gas) used to produce nitrogen fertilizer is in increasingly short supply. Fourth, marginal land called in- to production is subject to erosion. There is also evidence of increasing erosion problems caused by the intense single-cropping land use over the past 20 to 40 years (16).

Should a new trend of declining or stabilizing yields develop into a longer term phenomenon, it would impair the ability of producers to respond to an increase in world food needs. Increased production would have to come from increasing wheat acreage rather than increasing yields, unless a new technological breakthrough occurs.

10/ A 2-bushel deviation was equivalent to approximately 105 million bushels in the latter period. 11/ According to James D. McQuigg, meteorologist at the Center for Climatic and En- vironmental Assessment, Columbia, Mo., the probability of getting 15 good crop years as we have experienced in the late sixties and seventies is about 1 in 10,000 (37). Thus, the present yield plateau of approximately 30 bushels per acre may have been visible since 1969, except for the offsetting effects of favorable weather conditions.

23 Figure 7 U.S. Wheat Actual and Trend of Yields per Harvested Acre 40 r

20 nJ^./^\A^ 10

1900 20 40 60 80 A y = 14.2034-.0004(x) y=-4.7168+.4772(x) R^= .000009 1932 p2 90

Table 9—Deviations of actual wheat yields from trend lines 1/

1900-32 1933-77 Deviations from Equivalent deviations Equivalent deviations trend line Frequency : Frequency \ in production 2^/ [ in production V

Bushels/acre Percent Million bushels Percent Million bushels

-4.9 to -4.0 0 2 -271 to -221 -3.9 to -3.0 0 — 7 -216 to -166 -2.9 to -2.0 6 -157 to -108 4 -160 to -111 -1.9 to -1.0 21 -103 to - 54 15 -105 to - 55 -0.9 to 0.0 21 - 49 to 0 20 - 50 to 0 0.0 to 0.9 30 0 to 49 29 0 to 50 1.0 to 1.9 16 54 to 103 9 55 to 105 2.0 to 2.9 : 6 108 to 157 4 111 to 160 3.0 to 3.9 : 0 — 2 166 to 216 4.0 to 4.9 : 0 — 7 221 to 271

— = Not applicable. 1/ Yields on harvested acres. 2^/ Based on average acreage harvested (54.0 million) from 1900-32. V Based on average acreage harvested (55.3 million) from 1933-77.

24 Stocks

The U.S. wheat industry has usually experienced difficulty in maintaining a balance between supply and demand. As a result, the supply and year ending carryover of U.S. wheat have frequently been at the center of the agricultural policy debate. The United States has undergone several long periods of large supplies of wheat carryover and several shorter periods of small supplies (fig. 8). U.S. wheat stocks steadily mounted after the Korean conflict, reaching a record high of 1,411 million bushels (38.4 million metric tons) in 1961, the equivalent of 231 percent of domestic needs. The prevailing policy placed a heavy emphasis on world markets to relieve the glutted domestic market. U.S. carryover stocks exceeded the volume used domestically in 12 consecutive years in the fifties and sixties, reaching more than double our domestic use from 1959 to 1963 (fig. 8).

A volume of carryover equal to approximately 1 year's domestic requirements, about 700-800 million bushels (18-22 million metric tons), seems to be a generally acceptable level to the U.S. public. VHien beginning carryover was reduced to less than 400 million bushels (10.9 million metric tons) in 1973, wheat prices rose to high levels.

The volume of carryover was critically low in 1952 and 1974, less than 50 percent of our domestic needs. Had either of those years been followed by a second or third bad crop, the United States could have become a net importer of wheats. 12/ Produc-

Figure 8

U.S. Wheat Carryover as a Percentage of Domestic Use Percent 250 r

200

150-

100-

Source: (90).

12/ When wheat stocks are extremely low, additional concerns may arise. Wheat stocks of a particular class may be critically low or the quality of the remaining supply in storage may be lower than expected. Also, the forces that move, or attract, the last wheat out of storage may be entirely different from those required to move previous volumes into the market.

25 tion during the Dustbowl was low for 5 successive years, 1932-36; down 30 percent compared to the preceding 5-year period (1927-31). A drought of this magnitude in 1974, for example, would have reduced production by 539 million bushels. Some economists doubt that a drought of this magnitude could occur because of modern farming technology. Others counter that these improvements in farming technique are more than offset by the amount of marginal—and thus more drought susceptible—land that has been brought into wheat production in recent years and by the vulnerability of irrigated land to water shortages.

It is important to analyze carryover by class of wheat because each class has differences in quality characteristics and end uses, and each class of wheat is separately priced and usually separately marketed. Hard red winter and hard red spring classes account for most of the carryover. The beginning carryover of hard red winter wheat exceeded production in all but 1 year from 1954 to 1964 and accounted for 65 to 82 percent of total wheat carryover (table 10). Stocks of hard red spring and durum wheat exceeded production in 10 and 4 years, respectively during 1950-77. How- ever, those years were not successive, and reflected a greater variability in the spring wheat production area. Beginning carryovers of soft red winter and white wheat have not exceeded production since 1950. Carryover of these two classes was less than 25 percent of production in most years (table 10).

Imports

Imports have not exceeded 32 million bushels (0.9 million metric tons) annually since 1950. Imports have been less than 3 million bushels except for 2 years since 1963 (table 5), a quantity equivalent to less than 1 percent of total supply. About two-thirds of the total imports were classified as not fit for human use in recent years (table 11). It is used for seed, animal feeds, or in industry. These imports are exempt from a quota imposed by the U.S. Government on wheat and milled wheat products.

Nearly all the imports of wheat and wheat products come from Canada. Canadian wheat entering North Dakota and Montana is largely seed wheat. That entering at De- troit is milled wheat and is channeled into prepared animal feeds or industrial uses. Some seed wheat has also been imported from Mexico, but this amount has been low since 1969.

Imports of whole wheat fit for human consumption have until recently been limited to an absolute annual quota of 800,000 bushels (21.8 thousand metric tons) (98). 13/ The quota was largely filled in some years and in some years no wheat was imported for human use. Wheat subject to the quota accounted for about 73 percent of total wheat imports, from 1968 through 1972, while the remainder consisted almost entirely of seed wheat. Milled wheat products fit for human consumption are also subject to a quota which, until recently, was limited to 4 million pounds (0.1 million metric tons) annually. The quota for milled wheat products was about 96-percent filled from 1968 to early 1974. Import quotas were suspended in January 1974. Imports then sharply increased in 1974.

Second clear wheat flour has been considered by the U.S. Customs Service to be fit for human consumption since July 14, 1972. Imports of flour not fit for human consumption (previously consisting primarily of second clears) then declined markedly and imported milled wheat products fit for human consumption became relatively more important (98) .

13/ The quota year for wheat and milled wheat products runs from May 29 to May 28.

26 Table 10—Beginning wheat carryover as a percentage of production \j

Crop year Hard red Hard red Soft red beginning ; All wheat Durum White winter spring winter July 1 11

Percent

1950 : 41.7 54.9 41.6 17.9 65.8 21.6 1951 : 40.5 56.1 41.4 17.6 66.7 18.1 1952 : 19.6 13.5 91.4 8.3 65.3 6.0 1953 : 51.7 78.4 59.0 16.5 50.0 18.4

1954 : 95.0 114.6 134.5 37.9 100.0 65.0 1955 : 110.8 162.8 93.5 28.9 10.0 95.1 1956 : 102.9 155.0 104.0 9.1 18.0 86.4 1957 : 95.6 152.5 117.4 6.3 32.5 26.3

1958 : 60.5 73.5 87.2 3.2 104.2 19.6 1959 115.6 151.0 166.3 13.5 110.0 37.4 1960 : 96.9 126.2 116.0 5.3 75.0 43.7 1961 114.3 146.5 204.4 6.0 95.3 26.8

1962 : 120.9 202.1 106.9 15.3 7.2 13.6 1963 104.7 171.8 121.2 2.3 90.2 7.9 1964 69.8 105.4 99.5 1.8 61.2 3.4 1965 62.1 79.1 95.7 3.8 97.2 5.6

1966 40.8 39.4 105.1 3.7 85.8 11.3 1967 28.0 36.4 47.4 6.2 44.0 6.1 1968 34.2 40.5 56.6 13.4 24.0 13.1 1969 56.1 60.4 111.2 17.1 38.7 32.1

1970 64.6 75.6 90.9 12.6 156.0 16.8 1971 45.1 65.9 40.9 7.1 63.1 10.0 1972 : 55.9 61.9 99.7 8.0 94.6 14.4 1973 35.1 30.0 64.6 15.7 57.0 16.5

1974 18.9 19.3 29.7 8.0 40.7 10.6 1975 20.4 21.4 31.9 10.8 21.1 14.8 1976 30.9 38.9 28.8 16.1 39.3 21.0 1977 54.8 60.5 63.6 22.7 104.9 45.0

\J For actual carryover and production data see appendix table 3. Ij Starting in 1973, crop year begins June 1.

Source: (90).

27 Seldom have countries with a quota allotment—other than Canada—exported wheat or wheat products to the United States. The quotas were too low to make commercial shipments economically feasible.

Future Production Potential

A continuation of recent trends suggests that U.S. wheat production may reach 2.2 billion bushels (60 million metric tons) by the early eighties, and about 2.5 billion bushels (68 million metric tons) by 1985 (fig. 9).

Future U.S. wheat production capacity will depend on technological changes and wheat prices as well as weather and competing crops. If wheat prices are favorable relative to competing crops and cost of production, more wheat will be produced. Fu- ture technological changes may include improvements in hybrid seed, short-stemmed varieties, improved combines, narrower rows, higher plant population, transplanting, more double or triple cropping, the use of crop stimulants such as carbon dioxide, improved chemical weed control, and more nutritious varieties of wheat.

Hybridization is one possible technological breakthrough. Private companies producing and selling hybrid seed were, in 1975, estimating 15- to 20-bushel yield advantages for hybrid wheats. However, yield increases have not been experienced by all farmers who have tried hybrid wheats. For a study of the economics of hybrid wheat, refer to Retzlaff (51).

Table 11—U.S. wheat imports

Wheat • Milled wheat products 2/ Crop — Total year ! Fit for human Not fit for hu- Fit for human Not fit for hu- con sumption 1/; man consumpt ion^ consumption man consumpt ion

1,()00 bushels

1966/67 1,414 794 33 523 2,764 1967/68 459 3/ 27 438 924 1968/69 484 3/ 91 472 1,047 1969/70 1,416 794 55 568 2,833 1970/71 264 397 90 722 1,473 1971/72 : 83 101 89 781 1,054 1972/73 : 52 29 90 1,132 1,303 1973/74 : 70 1,263 178 1,112 2,623 1974/75 : 109 1,733 388 1,134 3,364 1975/76 : 343 631 91 1,307 2,372

\l The importation of wheat fit for human consumption in excess of the annual quota of 800,000 bushels is due both to the variance between the quota year (beginning May 29) and the crop year (beginning July 1), and to the exemption from the quota of wheat to be used for experimental or seed purposes. _2/ Milled wheat products converted to grain equivalent. _3/ Less than 500 bushels.

Source: (98), and other official statistics, U.S. Dept. of Commerce.

28 Figure 9

Production of U.S. Wheat 3-Year Moving Average and Trend Billion bushels Million metric tons 2.5 r 60 2.0 -

1.5 - 40

1.0 - 20 y = 1050.74+59.22(x) R2 = .92 _L _L 0 10 20 30 Time 1950 60 70 80 Year

Wheat has been crossed with rye to produce triticale, which could become a poten- tially important cereal grain if yields can be increased. About 8,000 acres were grown in the Texas High Plains and about 2,000 acres were grown in the northern Great Plains in 1973 (31). The market for this product failed to materialize, and triticale production after 1973 was limited to specialty product needs and forages.

Plant breeders are also working, with some success, to develop wheat varieties with improved protein content and quality (62, 70).

Some of the increase in wheat acreage will likely come in the presently fallowed areas in the semiarid West. These areas should be continuously cropped when sufficient moisture is available to help prevent the saline seep problem (see glossary). The most likely way to increase wheat production is to decrease the production of another crop in other areas of the country. 14/

Quality of management is an important production factor. Some producers routine- ly obtain yields well above others. A 1972 study reported that the yields of the top 10 percent of the dryland winter wheat producers averaged 149 percent of the yields of all farmers (72).

Irrigation could spur wheat production, depending on the relative prices and costs of production of other crops competing for irrigated acres. Competing uses of water could limit this practice in semiarid areas.

14/ The worldwide potential for additional crop acres is greater than in the United States (85).

29 DEMAND

The utilization (see glossary) of wheat consists of two major components: domestic and export. Domestic uses of wheat include food, feed, seed, and industrial uses. Exported wheat is largely whole grain, although small amounts of flour and bulgur are also shipped overseas. Total demand for U.S. wheat approximately doubled between 1950 and 1975, increasing from about 1 billion bushels (27.2 million metric tons) to 2 billion bushels (54.4 million metric tons). Recent U.S. wheat exports have been as large as total disappearance was in 1950 (fig. 10).

Food

Over one-half billion bushels (13.7 million metric tons) are used for domestic food annually (table 12). Our food needs account for approximately two-thirds of the annual domestic disappearance. Flour is the major product derived from wheat. The volume of wheat used to manufacture blended and prepared flours, cookies, crackers, macaroni, spaghetti, and canned specialty products has steadily increased since 1950 (app. table 4). The growing importance of these uses reflects the U.S. trend toward prepared products. However, wheat-based breakfast cereals, another prepared product, have declined in importance since 1963 (app. table 4).

Per capita consumption of wheat flour and cereal products has declined slowly but steadily (fig. 11). Only increasing population prevented a drop in the total volume of wheat consumed for food. This downward trend in per capita consumption appeared to reverse itself beginning in 1975 as more consumers switched to all purpose flours and pasta products. 15/ Per capita consumption in 1976, at 118.0 pounds, was higher than it had been since 1961.

Flour and Other Food Uses

Domestic flour consumption increased only about 10 percent between 1950 and 1974 (table 13). It then increased rapidly in 1975 and 1976, rising 15 hundredweight (682 million kilograms) in 1976 alone. 16/ The long-term increase in total flour consumption occurred despite the decline in per capita consumption (fig. 11).

The volume of most flour products has increased since 1954, according to Census of Manufactures reports (app. table 4). Exceptions were bread, cake, and related products and food preparations not elsewhere classified. Estimates of total wheat flour consumption by major uses are shown in table 14.

Regional Differences in Per Capita Consumption

White pan bread flour accounted for about 42 percent of all flour consumed in 1973. White pan bread flour was of greatest importance in the Northeast on a per capita basis. Per capita consumption of white pan bread flour increased nearly 4 pounds in the South during a 9-year period, offsetting decreases in the Northeast and West (table 15). These estimates of per capita consumption of wheat flours were made in a 1975 study by the USDA (57). The flours included in this study were white pan bread, all purpose, soft whole wheat, and semolina. The study anticipated that rising incomes would decrease per capita consumption of white pan bread flour in the Northeast, North Central, and Western regions, but would increase consumption in the South.

15/ The consumption of baked foods and flour has been closely related to the income of families. The amount spent on bread and related products has tended to decrease proportionally with increases in disposable income. In other words, the income elasticity of demand for wheat products has been negative. 16/ Part of this big increase was caused by millers' procurement practices rather than a change in domestic consumption rates.

30 Figure 10 Disappearance and Carryover of Wheat $$$^ Carryover Wm Export Billion bushels ^5^ Domestic use 3.2

1950 60 70 80 Source: (90).

Figure 11

Wheat Used for Domestic Food Uses, per Capita Consumption of Wheat Flour and Cereal Products, and U.S. Population Growth Million people or bushels Pounds 600 r .... n''50 Domestic food uses (mil.bu.)/

V^ .,-- /\ Per capita consumption 400 of wheat flour (lb.) 100

200 50

U.S. population growth

1950 60 70 80 Source: (71).

31 Table 12—Disappearance of wheat

Crop * Feed and \ ; Total Food : Seed Subtotal : Exports year \J \ industrial \ \ disappearance

Million bushels

1950 492.8 87.9 109.1 689.8 365.9 1,055,7 1951 496.8 88.2 103,6 688.6 475.0 1,163.6 1952 488.2 89.1 83.7 661.0 317.5 978.5 1953 487.5 69.5 76.9 633.9 216.7 850.6

1954 486.3 64.8 60.3 611.4 274.0 885.4 1955 481.3 68.1 54.3 603.7 346.0 949,7 1956 481.2 58.0 49.5 588.7 549.1 1,137,8 1957 486.6 63.0 42.0 591.6 402.3 993.9

1958 497.6 64.3 46.7 608.6 442.8 1,051.4 1959 497.3 62.8 36.8 596.9 509.8 1,106.7 1960 497.2 64.2 42.0 603.4 661.5 1,264.9 1961 501.1 56.4 50.5 608.0 719,4 1,327.4

1962 500.4 61.4 18.5 580.3 643.8 1,224.1 1963 503.3 65.0 20.2 588.5 856.1 1,444.6 1964 509.2 65.6 68.8 643.6 725.0 1,368.6 1965 515.4 61.9 153.9 731.2 867.4 1,598.6

1966 501.9 77.0 93.8 672.7 744.3 1,417.0 1967 519.2 71.3 42.8 633.3 761.1 1,394.4 1968 519.7 60.9 154,8 735.4 544.2 1,279.6 1969 : 520.6 55.6 195.4 771.6 606.1 1,377.7

1970 517.2 62.1 192.7 772.0 740.8 1,512.8 1971 523.7 63.2 262.4 849.3 609.7 1,459.0 1972 . 530.3 67.4 201.1 798.8 1.135.0 1,933.8 1973 : 541.9 84.1 127.5 753.5 1,217.0 1,970.5

1974 : 540.8 92.0 39.1 671.9 1,018.5 1,690.4 1975 : 587.5 99.0 35.2 721.7 1,172.9 1,894,6 1976 : 588.0 92.0 68.6 748.6 949.5 1,698.1 1977 2/ : 586.5 80.0 183.4 849.9 1,123.9 1,973.8 1978 11 : 590.0 84.0 150.0 824.0 1,150,0 1,974.0

\J Crop year beginning July 1, 1950-72 and beginning June 1, 1973-78. ll Preliminary. _3/ Projected.

Source: (71) and (90).

32 Table 13—Wheat flour supply and disappearance

Production Imports of Expo rts Flour Wheat Calendar Total Domestic ; (commercial and flour and extraction ground year supply disappearance ] noncommercial) 1/ products 2/ Flour 3/ ; Products 2/ rate _4/ for flour

- — — ±,uuu1 ODC) r>TT*-cwc Pet. Mil. bu.

1950 : 226,131 48 226,179 19,900 146 206.133 71.6 523.4 1951 : 230,468 50 230,518 22,958 90 207,470 71.4 535.2 1952 : 229,267 43 229,310 20,897 128 208,285 71.4 532.4 1953 223,247 88 223,335 17,444 113 205,778 71.8 515.4

1954 222,392 85 222,477 16,888 107 205,482 71.8 514.0 1955 226,500 91 226,591 21,598 304 204,689 71.9 522.9 1956 230,490 98 230,588 31,522 433 198,633 72.6 527.2 1957 239,551 95 239,646 34,234 515 204,897 72.6 548.5

1958 248,580 121 248,701 35,252 518 212,930 72.9 566.7 1959 251,075 145 251,220 39,762 528 210,930 73.2 570.9 1960 255,596 141 255,737 42,368 487 212,882 73.0 582.7 1961 260,709 131 260,840 43,775 502 216,563 73.3 592.0

1962 262,403 132 262,535 48,062 371 214,102 73.4 595.4 1963 260,291 136 260,427 44,797 1 ,085 214,545 73.5 589.2 1964 : 261,905 142 262,047 42,877 541 218,629 73.7 591.7 1965 : 250,591 145 250,736 30,990 624 219,122 73.9 564.7

1966 : 253,176 179 253,355 33,493 1 ,522 218,340 74.1 568.7 1967 : 245,390 222 245,612 21,557 2 ,131 221,924 74.3 549.8 1968 : 254,310 233 254,543 28,620 2 .476 223,477 74.4 569.6 1969 : 254,194 274 254,468 26,706 1 ,673 226,019 74.6 568.0

1970 : 253,094 325 253,419 26,408 1 .661 225,350 74.8 563,7 1971 : 249,810 341 250,151 21,269 2 .076 226,806 75.0 555.1 1972 : 250,441 477 250,918 21,080 2 ,373 227,465 74.8 557.8 1973 : 249,265 550 249,815 16,967 3 ,192 229,656 74.8 555.3

1974 : 242,084 665 242,749 15,059 3 ,890 223,800 74.3 542.9 1975 : 247,080 621 247,701 12,947 6 .235 237,197 74.1 584.1 1976 : 275,784 604 276,388 16,658 4 .521 252,084 74.0 618.3 1977 : 275,077 603 275,680 22,675 6 ,092 245,434 74.3 61»*. 7

_!/ Commercial production of wheat flour, including flour milled-in-bond from foreign wheat plus the estimated flour equivalent of farm ground or exchanged for flour. 2^/ Imports of products are of macaroni products (flour equivalent). Exports are of semolina, durum flour, and macaroni products (flour equivalent). _3/ Includes exports of milled-in-bond flour and exports for relief or charity by individuals and private agencies. 4./ Wheat flour production as a percent of wheat ground.

Source: (90) and (92). Table 14—Wheat flour disappearance, 1976 1/

'' Uses Quantity [ Percentage

1,000 cwt. Percent Domestic food uses: Wholesale, grocery chain, home services, and retail multioutlet bakeries 97,551 38.6 Single shop retail bakeries 26,858 10.6 Family flour 25,707 10.2 Cookies, crackers, etc. 24,375 9.7 Macaroni, spaghetti, etc. 17,049 6.8 Blended and prepared flour mixes 13,961 5.5 Frozen specialties ^ 5,645 2.2 Canned specialties 2,372 0.9 Breakfast foods 1,728 .7 Miscellaneous and food preparations 1,211 .5

Total domestic food uses 216,457 85.7

Other: Pet and other animal feeds 8,979 3.6 Industrial 5,000 2.0

Total other domestic 13,979 5.6

Exports 22,053 8.7

Total flour disappearance 252,489 100.0

1/ These disappearance data are estimates using total flour production as the basis. Specific uses were estimated by extrapolating from 1972 Census of Manufactures shipment and materials consumed data and other available information.

Expenditures for white pan bread flour in the Northeast, North Central, and West regions increased as incomes increased, according to a 1977 Bureau of Labor Statistics (BLS) study (96). 17/ It also found that expenditures for flour and bakery products varied widely by region. Differences in spending patterns by family size, age, and race also helped explain trends in consumption.

Seed

Use of wheat for seed ranged from 95-million bushels (2.6 million metric tons) in 1950 to 56 million bushels (1.5 million metric tons) in 1977 (table 15). The most common seeding rate is 60 pounds, or 1 bushel, per acre. Seeding rates range from 20 pounds in the Pacific Northwest to 120 pounds in the East (50). Wheat seeded at lower rates and fertilized will put down deeper roots and produce more tillers, often yielding as much as wheat seeded at heavier rates.

17/ Differing conclusions from these two studies can be at least partially explained by the approaches used. The USDA study measured volumes consumed, while the BLS study measured expenditures for products. The time periods selected undoubtedly influenced the results.

34 Table 15—Estimated per capita consumption of wheat flours ll

Year and White pan \ All Whole Total : Soft : : Semolina : region bread ] purpose wheat flour

Pounds

1965 Northeast 48.4 17.8 28.1 6.4 8.1 109.7 North Central 45.1 26.3 26.7 5.2 6.1 109.4 South 40,2 46,3 23.2 2.2 4.6 116,6 West 39.1 22,3 24.2 8.8 6.7 98,4

United States 43.5 30,0 25.6 5.1 6.4 110,6

1969 Northeast 48.4 13.6 31.0 7.5 8.8 109,3 North Central 47.9 21,0 28,9 5.7 6.7 110,2 South 42.8 38.6 25,6 2.7 4.6 114,2 West 38,8 19.4 25.0 9.9 6.2 99,4

United States 44.9 24,4 27.7 5.9 6,5 109,4

1973 Northeast 47.6 12,0 32.1 8.0 8,5 108,2 North Central 47.5 17.9 29.9 6.0 6.6 108,0 South 44.1 34.5 26.9 2.9 4.6 113,0 West 38.3 17.3 25.4 10.5 5,9 97,3

United States 44.9 21.5 28.7 6,3 6,3 107.7

_!/ United States data by type of flour may not equal regional totals because of rounding.

Source: (57).

Feed

Demand for feed wheat has varied in recent years, reaching a high of 258 million bushels (7.0 million metric tons) or 16 percent of total production in 1971. The amount used as feed is largely related to the price of competing grains and their relative feeding values (17). Wheat has a higher nutritional value than any of the major feed grains (A4) and, on a per bushel basis, it is heavier than feed grains (app. tables 5 and 6). Hard red winter, soft red winter, and Pacific Coast white wheats rank between No. 2 and No. 3 yellow dent corn in total digestive nutrients, and about equal to sorghum. Large volumes of good quality wheat are sometimes used for feed, primarily at times of low wheat prices.

Wheat feeding will probably not become a major use in the United States, primarily because of the growth in world food needs. However, wheat is gaining greater ac- ceptance and its use as a feed grain should serve as a floor under the total market in years of surplus wheat supplies.

35 Industrial Use

Industrial use of wheat (excluding feed) amounted to an estimated 8 million bushels in 1974, or 0.5 percent of total disappearance. Because wheat prices have been more competitive with other industrial raw materials, the volume of industrial use increased slightly since 1974. 18/

Industrial use of wheat and wheat byproducts was greatest during World War II when 108 million bushels (2.9 million metric tons) were processed, primarily to produce ethyl alcohol, essential for the manufacture of munitions and synthetic rubber. Use of wheat for industrial products decreased with the declining demand for ethyl alcohol after the war. Industrial uses have been primarily for starches and extenders since then. Specific uses include plywood and composition board laminating adhesives, industrial starch (laundries, textiles, billboard and wall board pastes, paper addi- tives), and industrial alcohol (40, 89). Minor uses include whiskey, beer, cosmetics, fertilizer, paving mixes, and polishes. Hard wheats and durum account for approximately 85 percent of the milled wheat products used for industrial purposes.

Major industrial uses of wheat flour are: (1) a urea-formaldehyde adhesive used in the manufacture of hardwood plywood, (2) a phenolic resin used in the manufacture of exterior-grade softwood plywood, and (3) a raw material for production of wheat starch and gluten.

A bushel of wheat yields approximately 2.6 gallons of ethanol which, when mixed with gasoline, can be burned in unmodified internal combusion engines. Gasohol has received considerable attention, especially in the seventies, when energy became a major concern in the United States. Gasohol may increase fuel efficiency under certain conditions (12, 79). Technical and economic problems must be solved before large- scale production of ethanol become feasible.

Exports

U.S. wheat exports have nearly tripled since 1950, reaching 1 billion bushels (27.2 million metric tons) for the first time in 1972/73. Exports have accounted for about 60 percent of our total disappearance since 1972/73. Well over 90 percent of the U.S. wheat exports are moved as whole grain.

Ninety-four percent of U.S. wheat and flour exports were marketed in 41 countries from 1972 to 1976. The United States marketed an annual average of 100,000 metric tons or more to each of these countries (table 16). The United States marketed an annual average of 28 million tons of wheat to these 41 countries; our competitors supplied 29 million tons. The remaining 6 percent of the U.S. exports were sold in smaller quantities to nearly 80 countries. The United States did not ship wheat to two markets which imported at least 100,000 tons during 1972 to 1976—Cuba and Kuwait.

The most consistent and largest U.S. wheat purchasers in the past 25 years have been Japan and India. The USSR was an important customer in 1963/64 and again in 1972/73, when 348 million bushels (9.5 million metric tons) were purchased. The USSR has been a major market for U.S. wheat since 1972/73 but not as consistent a market as Japan. Algeria, Brazil, and the Netherlands have also been major cash markets in recent years, while the Republic of Korea, Pakistan, Bangladesh, and Egypt have been large customers under the CGC credit and Public Law 480 programs.

18/ Industrial use estimates are derived largely from current estimates by the major firms supplying wheat products, major processors of industrial products using wheat byproducts, trade associations, and the Northern Regional Research Laboratory, Science and Education Administration, USDA, Peoria, Illinois.

36 Table 16—Average annual wheat and flour imports and U.S. market share, 1911ll2>—1916111

• Average annual import Í 3 • Importing country ; Rank , , , [From United States,' Total ;u.s. share of market

1,000 metric tons Percent

USSR : 1 : 4,007 7,282 55 Japan 2 : 3,205 5,539 58 India 3 2,525 3,879 65 Korea, Republic of South : 4 : 1,683 1,724 98 Brazil : 5 1,316 2,694 49 China 6 : 1,055 4,392 24 Egypt : 7 : 1,028 3,286 31 Netherlands 8 : 955 2,042 47 Iran 9 831 965 86 Algeria : 10 : 680 1,429 48 Pakistan : 11 : 659 1,112 59 Bangladesh : 12 : 641 1,428 45 Venezuela : 13 : 631 674 94 West Germany : 14 : 565 2,308 24 Taiwan : 15 : 540 668 81 Peru : 16 : 525 791 66 Poland : 17 : 477 1,162 41 Chile : 18 : 455 838 54 Mexico : 19 : 441 449 98 Israel : 20 : 437 456 96 Morocco : 21 433 924 47 Nigeria 22 427 474 90 Philippines : 23 421 601 70 United Kingdom 24 408 3,608 11 Italy 25 403 2,265 18 Indonesia 26 355 793 45 Colombia 27 : 348 368 95 Portugal : 28 : 248 333 74 Saudi Arabia : 29 : 238 455 52 Iraq : 30 : 215 582 37 Turkey : 31 : 207 293 71 Ecuador : 32 : 182 182 100 Sri Lanka (Ceylon) : 33 : 152 640 24 Yugoslavia : 34 : 151 200 76 Belgium-Luxembourg : 35 : 145 973 15 France : 36 : 140 233 60 Sudan : 37 : 140 162 86 Tunisia : 38 : 121 302 40 Dominican Republic 39 : 112 114 98 Romania 40 : 108 341 32 Jordan : 41 : 103 151 68

Total 41 countries 27,713 57,112 49 All exports : 29,633 65,345 45

Source: (81).

37 The 10 largest world wheat markets serviced by all exporters during 1972 to 1976 imported an average of 37 million tons of wheat annually. Volumes imported, by country, and the market share held by the United States were:

Importing country Volume imported from: U.S. share U.S. Other countries of market

1,000 metric tons Percent

China 1,055 3,337 24 USSR 4,007 3,275 55 United Kingdom 408 3,200 11 Japan 3,205 2,334 58 Egypt 1,028 2,258 31 Italy 403 1,862 18 West Germany 565 1,743 24 Brazil 1,316 1,378 49 India 2,525 1,354 65 Netherlands 955 1,087 47

Total 15,467 21,828 Average 41

U.S. flour exports decreased after having reached a high of 48 million hundredweight (2.2 billion kilograms) in 1962. Flour exports have remained at less than 10 percent of total U.S. production since 1971. Saudi Arabia, Egypt, Morocco, and Sri Lanka have been major importers of U.S. flour in recent years. U.S. exports of manufactured wheat products, although small, are growing (table 13). This market is largely for macaroni, spaghetti, and other pasta products.

Disappearance by Class

Total disappearance and carryover by class of wheat are shown for three time periods in figure 12. Each class of wheat has its own distinct characteristics in terms of milling quality and end use value. Flour milled from hard red spring wheat is high in protein and used primarily for baking bread and rolls. This class of wheat is often blended with lower protein hard red winter wheats. Soft red winter and soft white wheats are lower in protein content and used primarily in the manufacture of pastries, crackers, biscuits, and cakes; some of these wheats are used as feed in years of excess supply and low prices. Durum wheat, a high-protein wheat, is generally processed into semolina, which is then used to produce macaroni, spaghetti, and other pasta products (fig. 13).

Although some substitution among classes is possible when supply and price dictate, the amount of substitution is limited because of end-product quality considerations. With only limited experience with short supplies, little is known about the limits of substitution, or if these limits are most affected by price or quality. Such information would be useful when judging the potential needs by class and in shaping USDA's reserve policy.

38 Figure 12 Exports, Domestic Use, and Year-Ending Carryover as a Percentage of Total Wheat Disappearance Percent 100 ■ Exports

Domestic

Carryover

Hard Red Durum Hard Red Soft Red White Total Spring Winter Winter Source: (90).

Figure 13 Protein Range and Flour Uses of Major Wheat Classes

Percent of protein Flour Uses 18 - • Used to blend with weaker wheats for bread flour 16 — • Whole wheat bread, hearth breads 14 — • Egg noodles (U.S.), macaroni, and other alimentary pastes 12 — • White bakers'bread, bakers' rolls • Waffles, muffins, 10 quick yeast breads, all-purpose flour • Noodles (Oriental) kitchen cakes and crackers, pie crust, doughnuts, and cookies, foam cakes, very rich Hard Red Durum Hard Red Soft Red White layer cakes Spring Winter Winter Flour uses are approximate level of protein required for specified wheat products. Durum is not traded on basis of protein content. Source: (39).

39 The pattern of use by class of wheat is more revealing than when observing disappearance of all wheat. Following is a summary of disappearance characteristics by class since 1950.

Hard Red Winter Wheat (fig. 14)

1. Generally increasing domestic demand until 1972. 2. Larger volume of exports than domestic demand in most years. 3. The largest carryover of any class. 4. An unstable export demand.

Hard Red Spring Wheat (fig. 14)

1. Generally decreasing domestic demand until 1971. 2. Smaller volume of exports than domestic demand in most years, but noticeably increasing export demand since 1964. 3. Carryover larger than total disappearance in most years until 1964, 4^ Steadily increasing carryover since 1974.

Soft Red Winter Wheat (fig. 14)

1. Generally increasing domestic demand until 1969. 2. Domestic demand that accounts for about two-thirds of total disappearance. 3. More instability in domestic demand since 1967. 4. Highly fluctuating export market which sharply increased in 1974. 5. Less carryover relative to demand than in the case of other classes until 1975. 6. Small carryover between 1955 and 1974.

Durum Wheat (fig. 14)

1. Greatest annual fluctuation in demand and carryover during the period 1950-77 of any class. 2. Generally increasing domestic demand. 3. Generally increasing export demand. 4. Generally increasing carryover.

White Wheat (fig. 14)

1. Unstable domestic demand, due to the large use as a feed grain in some years. 2. Consistently large export demand. 3. Generally small carryover.

Trends in Disappearance

Exports have grown much faster than domestic markets for all wheat since 1950 (figs. 10 and 14). Wheat exports have tripled since 1950, exceeding total domestic use for the first time in 1960/61. Domestic use was also up, but at a lesser rate of increase. Much of the growth in wheat consumption is due to the increasing population, both domestically and internationally. Much of the growth in wheat consumption in our overseas markets can be attributed to the promotion of wheat by both private and public agencies.

Annual disappearance became less stable than production as exports began to have a major impact on disappearance trends in the midsixties. Supply, including carryover, seemed to have a greater bearing on price than demand, a characteristic of industrial products. This was especially true between 1972 and 1974 when prices increased sharply in response to low inventories. Events during this time served as a reminder to

40 Figure 14 Disappearance and Carryover of Wheat

Billion bushels .8 r 6 r Soft Red Winter

Hard Red Winter

.4 r White

0 1950

^ Carryover iliip Export ^^ Domestic use

1950 60 70 80

Source: (90).

41 Figure 15 the wheat industry, particularly farmers, that price is not solely related to changes Total Disappearance off U.S. Wheat in demand. Supply management can be an ef- 3-Year Moving Average and Trend fective tool also. Billion bushels Million metric tons 2.5 r Total disappearance of U.S. wheat may surpass 2 billion bushels (54.4 million met- - 60 ric tons) by the early eighties (fig. 15). 2.0 - However, recent variability in wheat disappearance makes this projection and others uncertain. The U.S. Bureau of Census (95) 1.5 - 40 projected the value of shipments of wheat- related and other grain products to 1980 using 1974 as a basis (table 17). The bread 1.0 -' and other bakery products industry is expected to grow the least in these projections, - 20 y = 893.6 + 41.9832 (x) only 2.9 percent annually. The macaroni, .5 - spaghetti, and vermicelli industry is pro- R2 = .91 jected to attain the greatest growth among the wheat-related industries, 9.2 percent. 0 10 20 30 In comparison, growth projections for both Time the soybeans processing and malting industries are greater than for wheat-related 1950 60 70 80 Year industries. The rice-milling industry, con- versely, is projected to grow at a much smaller annual rate than most wheat-related industries.

Table 17~Growth projections to 1980 for wheat and other grain products based on value of shipments for 1974

[Compound annual 1974 : 1980 Product * rate of growth

Million dollars Percent

Wheat related: Flour and other grain mill products 2,641 3,888 6.6 Cereal breakfast foods 1,024 1,388 5.2 Blended and prepared flour 876 1,290 6.6 Dog, cat, and other pet food 1,799 2,773 7.4 Prepared feeds and feed ingredients for animals and fowl 5,750 7,386 4.3 Bread and other bakery products, except cookies and crackers 5,292 6,281 2.9 Cookies and crackers 1,894 2,443 4.3 Macaroni, spaghetti, and vermicelli 500 846 9.2

Other: Rice milling : 719 904 3.9 Soybean oil mills 4,460 8,775 11.9 Malt : 408 1,970 30.0

Source: (95).

42 PRICES

Supply and demand establish wheat prices in the market place in conjunction with Government programs and world marketing agreements. Wheat prices also vary with the time of year, the stage of the marketing process, grain quality (protein and grade), and class.

Factors Influencing Wheat Prices

One of the complexities of wheat pricing in the United States arises from the fact that wheat is harvested over a 3- to 4-month period, but used over a 12-month period. Wheat prices are normally lowest at harvest. After-harvest wheat prices can reflect the cost of storage as well as emerging supply-demand relationships. The level of prices in any one year is based on current supplies, expected demand, and anticipated future production, both domestic and foreign. Prices in a given market may differ by class of wheat, its quality, and the terms of delivery. Prices among markets will differ because of transportation costs.

The price may be affected by both short- and long-term influences. Weather is the foremost short-term factor. Factors influencing wheat prices in the long term include changes in production, inventories of wheat in storage, and changes in tastes and preferences for wheat food products. Basic changes in international exchange rates, tariffs and other trade barriers have also influenced wheat prices. For a more detailed discussion of factors affecting wheat prices refer to McDonald and Heid (36) and Menze, et al. (39).

Most of these influences, both short and long term, cannot be foreseen or accurately measured in advance. Accordingly, prices fluctuate considerably from year to year even though attempts at stability are made through public policy. A large U.S. wheat inventory in recent years has helped to prevent prices from rising too high just as price supports have helped to prevent prices from dropping too low. The absence of adequate grain stocks in countries that do not produce all the wheat they use frequently brings them into the world market supplied largely by the United States. Foreign demand has, at times, nearly depleted U.S. stocks, causing major price increases.

Price changes are of constant concern, due to the time lag from commitment of resources through harvest time to the utilization of wheat. Producers can "hedge" their risks by shifting some of the uncertainty of ownership to the purchasers of futures contracts. Although hedging is practiced extensively in the grain trade, little wheat is hedged on the futures markets by farmers. Other methods of shifting risk include contracting cash wheat before harvest, and contracting wheat at harvest for deferred payment. Sogn and Rudel have analyzed marketing alternatives for wheat producers (60).

Prices tend to form a structured pattern because of the distance between production and use areas (fig. 16). With trading often in terms of a fraction of a cent per bushel, even small changes in such price relationships may be crucial input into merchandising decisions. Such changes in price relationships may cause changes in buyer- seller relationships and result in new flow patterns. For example, farmers in eastern Montana may. move their wheat either to Minneapolis or Portland, depending on the price relationship between these two markets.

Elasticity of Demand

Demand studies conducted since 1950 have shown that in general, the elasticity of demand for wheat as food with respect to the price of wheat is quite low or inelastic. For example, a 10-percent decrease in price will result in less than a 10-percent increase in consumption. The elasticity of demand for wheat as feed may be inelastic or elastic, depending on the price of wheat relative to the price of feed grains.

43 Figure 16 Theoretical Price Surface for Wheat

Portland Port Pacific Northwest Northern Plains Minneapolis Terminal Duluth-Superior Port Delivered FAS White Northern Spring Delivered on Track Delivered FAS #2 Soft White $4.80 Farm Price $4.70 Farm Price $4.55 #2 Northern Spring #2 Northern Spring #2 Northern Spring Ordinary Protein $4.70 Ordinary Protein $4.90 Ordinary Protein $4.70

Japan Delivered Imports #2 White $6.20 #2 Northern Spring Ordinary Rotterdam Protein $6.10 Delivered Imports #2 Northern Spring Ordinary Protein $6.45 Farm Level #2 Hard Red Winter Inland Terminals Ordinary Protein U.S. Ports $6.25

O Overseas Destination New Orleans Port 00 Elevation and Freight Charges Delivered FAS #2 Hard Red Winter Ordinary FAS Free Alongside Vessel Protein Export Price $4.85

Elasticity may be defined numerically as the change in quantity associated with a 1-percent change in price. If, for example, a 10-percent change in quantity is associated with a 20-percent change in price, then the coefficient is 0.5 (10/20), and is said to be inelastic. Elastic demands are those in which changes in quantity taken are proportionately greater than changes in price. Inelastic demands are those in which changes in quantity taken are proportionately less than changes in price.

The demand for wheat exports may be highly elastic; a 10-percent decrease in price may result in more than a 10-percent increase in demand. Meinken reported the demand elasticity for wheat in 1953 to be as follows (38): Use of food with respect to Kansas City price -0.11 Use for net export with respect to spread between world and Kansas City spread .39 Use for feed with respect to spread between price of wheat and corn -1.75 Use for storage with respect to deflated Kansas City price of wheat -4.76 Meinken estimated demand and income elasticities for bakery products to .be inelastic -0.6 and 0.4, respectively. Fox in 1953 also estimated per capita flour consumption with respect to the U.S. farm price of wheat to be inelastic, -0.07 (14). Chai computed price and cross elasticities of demand 19_l for each major class of wheat in the period 1946-63 as follows (8^) :

19/ Price and cross elasticities of demand refer to the price-quantity relationship between related coimnodities. Cross elasticities are computed by measuring changes in the quantity of one commodity that will be taken to the price change of a related commodity. Positive vs. negative signs before elasticity coefficients are a mathematical phenomenon and not significant to their meaning.

44 Class of wheat Price elasticity Cross elasticity

Hard red winter (HRW) -0.7 1.5 (HRS) 0.01 (SRW) Hard red spring (HRS) -1.8 1.9 (HRW) 0.03 (W) Durum (D) -1.5 0.4 (HRW) Soft red winter (SRW) -0.2 none White (W) -0.1 1.6 (HRW) 1.8 (HRS)

More recently, Barr studied demand-price relationships for the U.S. wheat economy between 1964 and 1972 (5^) . The nonlinear relationships of carryover stocks to farm price found by Barr were highly influenced by 2 years of abnormally large exports as well as Government supports in years of large ending wheat inventories. 20/ Barrys conclusions, which indicated a large price response to reductions in stock, were ap- parently unduly influenced by price changes in 1 or 2 years. What really occurred was a shift in the price-carryover relationship after 1972. Instead of a nonlinear relationship as suggested by Barr, a new linear relationship was formed. This new linear relationship, R 2 _ .96, indicates that farm prices became more responsive to quantity changes than in the previous periods (fig. 17). While it may appear that two shifts in the price-carryover relationship may have occurred since 1950, the difference between the 1950-63 and 1964-72 periods was largely due to the manner in which market certificate payments were recorded. In the latter period, the price of certificate pa5nnents was not included in the average farm price, causing it to appear to be lower. Therefore, the only real shift in this relationship occurred after 1972.

Bailey, however, viewed results of the extreme 1972/73 marketing year as an extension of the existing demand function and not a change (4_) . By comparing the year- ending carryover/utilization ratios to price, he concluded that when the ratio of carryover to total wheat use is above 40 percent, it has little effect on the market price of wheat, and that a ratio below 20 percent has a noticeable effect on market price. Bailey concluded at the time of the study that carryover can fall to 550 million bushels (15.0 million metric tons) without greatly affecting market prices. But carryovers of less than 450 million bushels (12.2 million metric tons) stimulate price. At the time of the study, a 550-million bushel carryover was just above 1 year's domestic food needs. This ratio started to fall in 1973, reaching 17.2 in 1974. Market prices rose sharply. Subsequently the ratio began to rise, reaching 62.7 in 1978 while prices declined.

Price-Quality Relationships

Price-quality relationships for wheat are established by the needs of the market. Protein content, along with other quality factors, is an important quality measure used by the wheat industry. Protein content is especially important for hard red winter wheat and hard red spring wheat because of their use in baking bread. The prices of other clas'ses of wheat depend more on other quality characteristics.

Price quotations usually include the market price for each grade and protein premiums that are based on the price of ordinary protein wheat (see glossary). 21/ Some quotations report price premiums for each quarter percent over the ordinary level of protein; others show the premiums for each half percent. The protein content in wheat and flours can bè determined by the Kjeldahl method of analysis, also the common basis for determining gluten content of flour and, in turn, its bread-baking quality (35).

20/ Barr concluded that the historical evidence relating stock levels to price levels clearly indicated a nonlinear relationship. 21/ The ordinary protein content varies by market area, class of wheat, and year. However, for the higher protein wheats (hard red winter and hard red spring) ordinary protein content usually ranges from 10.5 to 11 percent.

45 Figure 17

Relationship of Season Average Fami Price to Year-Ending Wheat Stoclcs, 1950-77

Dollars per bushel 5 r A 1973-77-Y=479.4+(-.1951 )x R2 = .96

3 -

1 - 1964-72-Y=197.1 + (-.0733)x R2 = .57

J- 200 400 600 800 1,000 1,200 1,400 1,600 Million bushels

Specific protein premiums are not paid to most farmers because of the lack of fast economical devices for measuring protein content at country assembly points. Un- less some previous arrangement is made, producers are paid for protein according to the average protein level of all wheat received at a particular country elevator. However, some country elevators in the major wheat-producing areas take samples of wheat as it is unloaded, mail them to a laboratory for analysis, and pay the farmer for his wheat on the basis of its protein content. Some large-scale farmers with farm storage have their wheat analyzed for protein content before marketing. The problem of determining protein at the country elevator may be solved if near infrared devices prove satisfactory.

The price paid to farmers is also affected by moisture and test weight, especially in major wheat-producing regions. Country elevators in some minor producing regions do not discount poor quality wheat, nor reward producers of good quality wheat. Such elevators handle wheat strictly as a service to their customers (22).

The amount of protein premium paid in the market beyond the country elevator depends on supply and demand conditions. The price premium is apt to be small in years when average protein levels are high.

Flour millers, who utilize 25 to 30 percent of the U.S. hard red winter wheat, have consistently paid premiums for protein (59). The export market also pays premiums for higher protein wheat, although that has not always been the case. For example, premiums were sometimes not paid following the abnormally large world demand for wheat in 1972. Buyers at that time did not require high protein wheat, so they

46 purchased cheaper, lower protein wheat. The unusually strong demand for low protein wheat raised its price, offsetting all price premiums previously paid for high-protein wheat (53).

Seasonal Farm Prices

Seasonal fluctuations are more or less regular patterns of price changes which occur within a year. Because of climate, there are definite periods of wheat production. Seasonal prices reach their low points during harvest periods.

For example, the U.S. wheat harvest starts in southern Texas in late May and ends in early September near the Canadian border; most of the new crop, therefore, is harvested in June, July, and August. In most years, 40 to 50 percent of production is marketed immediately after harvest. Gluts on the market at harvest are typical and usually lower prices during these months. Wheat prices usually advance after Septem- ber of each year and continue upward for 4 months in a row (58).

Off-farm marketing patterns since 1970 show that 51 percent of off-farm sales have been made between May and September and only 26 percent during the 4 months after September (table 18). The off-farm sales pattern does not appear to be related to the seasonal farm price, as might be expected. Prices have increased during the harvest period and declined after September in recent years, a pattern that reflects less of a glut on the market at harvest. This new pattern reflects the presence of more farm storage. The price decline after September reflects the inability of farmers to store their wheat on the farm for long periods after harvest. Two reasons for this are (1) the need of some farmers to meet financial obligations and (2) the eventual need for storage space for barley, corn, sorghum, or other crops. Recent farm prices have been more closely related to stocks on hand at harvest than to seasonality.

Season average prices received for all wheat by farmers are presented in table 19. Average monthly farm prices for 1950-77 for all wheat are shown in table 20.

Farm vs. Terminal Market Prices

Farm and terminal prices are clearly related for hard red winter wheat (Kansas City terminal and Kansas farm prices), hard spring wheat (Minneapolis terminal and North Dakota farm prices), and soft white wheat (Portland terminal and Washington farm prices) (table 21). The difference between the farm and terminal price is primarily due to the cost of transportation and assembly at country points. 22/

22/ Average prices received by farmers are the prevailing midmonth prices for all classes and all qualities of wheat produced in each State. Average prices at terminal markets reflect daily weighted prices for a specific grade and class of wheat. These differences in reporting can, at times, cause what appear to be negative price spreads.

47 Table 18—U.S. total off-farm wheat sales by month 1/

Year : May : June : July : Aug. : Sept.: Oct. : Nov. : Dec. : Jan. : Feb. : March : April : May June : Total

Million bushels

1970/71 : 7.5 140.7 234.9 144.5 130.6 90.4 67.8 90.4 111.8 62.8 57.8 50.2 36.4 28.9 1,256.3 1971/72 : 4.5 170.6 247.6 149.4 105.7 95.1 75.5 102.6 134.4 92.1 104.2 102.6 68.0 57.4 1,509.6 1972/73 : 16.1 157.8 261.6 248.4 147.6 74.5 68.7 78.9 128.6 54.1 57.0 55.5 64.3 48.2 1,461.2 1973/74 8.2 158.5 330.1 268.0 176.5 99.7 81.7 111.1 143.8 71.9 53.9 55.6 42.5 32.7 1,634.3 1974/75 13.6 155.9 262.7 155.9 211.8 205.0 100.0 101.7 111.8 79.6 89.8 94.9 72.1 40.7 1,694.6 1975/76 24.3 190.6 393.3 320.3 206.8 113.5 93.2 109.5 125.7 135.8 101.4 87.2 71.0 54.7 2,027.2 191(^111 20.4 181.4 377.1 252.8 185.5 124.3 99.9 130.5 148.8 136.6 114.2 106.0 83.6 77.5 2,038.5 191111^ 23.0 199.6 320.5 188.1 159.3 120.9 120.9 105.5 113.2 120.9 140.1 130.5 88.3 88.3 1,919.0

8-year average 14.7 169.4 303.5 215.9 165.5 115.4 88.5 103.8 127.3 94.2 89.8 85.3 65.6 53.6 1,695.0

00 Percent

1970/71 : 0.6 11.2 18.7 11.5 10.4 7.2 5.4 7.2 8.9 5.0 4.6 4.0 2.9 2.3 100.0 1971/72 : .3 11.3 16.4 9.9 7.0 6.3 5.0 6.8 8.9 6.1 6.9 6.8 4.5 3.8 100.0 1972/73 : 1.1 10.8 17.9 17.0 10.1 5.1 4.7 5.4 8.8 3.7 3.9 3.8 4.4 3.3 100.0 1973/74 : .5 9.7 20.2 16.4 10.8 6.1 5.0 6.8 8.8 4.4 3.3 3.4 2.6 2.0 100.0 1974/75 : .8 9.2 15.5 9.2 12.5 12.1 5.9 6.0 6.6 4.7 5.3 5.6 4.2 2.4 100.0 1975/76 : 1.2 9.4 19.4 15.8 10.2 5.6 4.6 5.4 6.2 6.7 5.0 4.3 3.5 2.7 100.0 191(^111 : 1.0 8.9 18.5 12.4 9.1 6.1 4.9 6.4 7.3 6.7 5.6 5.2 4.1 3.8 100.0 191111% : 1.2 10.4 16.7 9.8 8.3 6.3 6.3 5.5 5.9 6.3 7.3 6.8 4.6 4.6 100.0

8-year average : 0.9 10.0 17.9 12.7 9.8 6.8 5.2 6.1 7.5 5.6 5.3 5.0 3.9 3.2 100.0

11 These data are based on "on paper" transactions and may not represent actual volumes of flow.

Source: (90). Table 19—Seasonal average wheat prices received by farmers

Seasonal average prie es received by— Year ^ All farmers . Program participants 1/

Dollars per bushel

1950 ': 11 2.00 NA 1951 '. 11 2.11 NA 1952 : 11 2.09 NA 1953 ■ 2/ 2.04 NA 1954 ': 11 2.12 NA 1955 : 2/ 1.98 NA 1956 : 2/ 1.97 NA 1957 1.93 NA

1958 1.75 NA 1959 1.76 NA 1960 1.74 NA 1961 1.83 NA

1962 2.04 NA 1963 1.85 2.03 1964 1.37 1.80 1965 1.35 1.7_9

1966 1.63 2.22 1967 1.39 1.87 1968 1.24 1.79 1969 1.24 1.89

1970 1.33 2.08 1971 1.34 1.88 1972 1.76 2.23 1973 3.95 A.16

1974 4.09 NA 1975 3.56 NA 1976 2.73 NA 1977 2.33 NA

NA = Not applicable. 1/ Those farmers participating in the farm program at the time. _2/ Includes allowance for quantities of unredeemed loans and purchase agreement deliveries, valued at the average rate.

Source: (69) and (90).

49 Table 20—Monthly average wheat prices received by farmers

Crop year: June : July : August : September : October : November: December: January February: March April : May

Dollars per bushel

1950 : 1.93 1.99 1.97 1.94 1.90 1.94 2.02 2.09 2.21 2.12 2.14 2.11 1951 : 2.08 2.05 2.05 2.07 2.10 2.19 2.22 2.20 2.18 2.20 2.18 2.13 1952 : 2.06 1.98 2.04 2.09 2.07 2.13 2.12 2.10 2.05 2.10 2.08 2.06 1953 : 1.88 1.87 1.86 1.92 1.94 2.00 2.01 2.03 2.06 2.09 2.06 2.00

1954 : 1.91 2.00 2.03 2.07 2.08 2.12 2.12 2.14 2.13 2.12 2.09 2.13 1955 : 2.06 1.97 1.90 1.92 1.94 1.94 1.95 1.95 1.95 1.97 2.03 2.00 1956 1.93 1.90 1.93 1.95 1.98 2.05 2.07 2.09 2.07 2.07 2.05 1.98 1957 1.91 1.91 1.90 1.90 1.92 1.93 1.94 1.90 1.92 1.96 1.95 1.93

1958 1.70 1.64 1.64 1.68 1.73 1.74 1.73 1.71 1.74 1.76 1.77 1.77 1959 1.69 1.70 1.75 1.72 1.76 1.79 1.79 1.78 1.80 1.82 1.82 1.82 1960 1.72 1.67 1.71 1.72 1.74 1.76 1.77 1.79 1.81 1.80 1.74 1.76 1961 1.72 1.73 1.83 1.87 1.88 1.88 1.89 1.88 1.88 1.89 1.92 1.98 o 1962 1.99 1.98 2.00 1.99 1.97 2.00 2.02 2.01 2.04 2.04 2.09 2.04 1963 1.86 1.75 1.77 1.84 1.94 1.95 1.97 2.00 1.99 1.85 1.94 1.88 1964 1.40 1.33 1.33 1.36 1.37 1.39 1.39 1.38 1.37 1.36 1.34 1.33 1965 1.28 1.31 1.34 1.33 1.35 1.38 1.40 1.41 1.43 1.41 1.39 1.44

1966 1.59 1.74 1.70 1.71 1.59 1.60 1.61 1.57 1.49 1.59 1.55 1.58 1967 : 1.49 1.37 1.41 1.39 1.43 1.39 1.39 1.40 1.42 1.42 1.36 1.36 1968 1.24 1.19 1.19 1.22 1.26 1.29 1.26 1.27 1.28 1.28 1.28 1.28 1969 : 1.22 1.15 1.19 1.24 1.28 1.29 1.30 1.29 1.30 1.28 1.32 1.31

1970 : 1.23 1.23 1.31 1.41 1.43 1.45 1.41 1.40 1.41 1.39 1.40 1.43 1971 : 1.46 1.34 1.28 1.26 1.30 1.31 1.34 1.33 1.34 1.34 1.36 1.38 1972 : 1.33 1.32 1.51 1.73 1.89 1.97 2.38 2.38 1.97 2.06 2.15 2.15 1973 : 2.43 2.47 4.45 4.62 4.22 4.20 4.78 5.29 5.52 4.96 3.98 3.52

1974 : 3.57 4.04 4.24 4.32 4.85 4.87 4.65 4.11 3.95 3.65 3.69 3.47 1975 : 2.92 3.33 3.89 4.11 4.02 3.58 3.41 3.43 3.66 3.65 3.50 3.43 1976 : 3.42 3.33 2.97 2.88 2.59 2.46 2.39 2.43 2.47 2.43 2.37 2.19 1977 : 2.03 2.04 2.13 2.16 2.30 2.46 2.47 2.53 2.59 2.65 2.82 2.82

Source: (69) and (78). Table 21—Comparisons of farm and terminal wheat prices

Average Kansas City Average Minnesota Average Portland Differ- : Differ- Differ- Year ' farm price terminal farm price terminal farm price terminal ence ence ence Kansas price 1/ North Dakota price _2/ Washington price V

Dollars

1950 2.07 2.31 0.24 2.07 2.34 0.27 1.97 2.23 0.26 1951 2.18 2.44 .26 2.09 2.41 .32 2.12 2.42 .30 1952 2.08 2.35 .27 2.18 2.40 .22 2.10 2.40 .30 1953 2.01 2.27 .26 2.14 2.34 .20 2.01 2.32 .31

1954 2.13 2.35 .22 2.23 2.48 .25 2.04 2.35 .31 1955 1.99 2.18 .19 2.14 2.36 .22 1.91 2.22 .31 1956 2.00 2.26 .26 2.08 2.30 .22 2.03 2.38 .35 1957 1.92 2.18 .26 2.00 2.31 .31 1.96 2.29 .33

1958 1.70 1.95 .25 1.89 2.12 .23 1.75 2.02 .27 1959 1.77 2.01 .24 1.93 2.16 .23 1.74 2.00 .26 1960 1.72 1.98 .26 1.85 2.11 m> 1.80 2.04 .24 1961 1.80 2.06 .26 2.26 2.30 .04 1.87 2.08 .21

1962 2.00 2.24 .24 2.16 2.33 .17 1.97 2.20 .23 1963 1.88 2.15 .27 1.98 2.27 .29 1.90 2.12 .22 1964 1.37 1.61 .24 1.43 1.77 .34 1.32 1.53 .21 1965 1.38 1.60 .22 1.42 1.74 .32 1.33 1.54 .21

1966 : 1.64 1.84 .20 1.66 1.95 .29 1.55 1.75 .20 1967 : 1.35 1.58 .23 1.56 1.68 .12 1.44 1.64 .20 1968 : 1.22 1.39 .17 1.42 1.54 .12 1.32 1.48 .16 1969 : 1.18 1.41 .23 1.38 1.64 .26 1.31 1.50 .19

1970 : 1.28 1.54 .26 1.48 1.74 .26 1.51 1.69 .18 1971 : 1.31 1.57 .26 1.32 1.54 .22 1.43 1.62 .19 1972 : 1.90 2.23 .33 1.82 2.07 .25 2.17 2.37 .20 1973 : 4.04 4.51 .47 4.58 4.42 -.16 4.57 4.71 .14

1974 : 3.82 4.20 .38 4.93 4.57 -.36 4.21 4.45 .24 1975 : 3.40 3.74 .34 4.16 3.74 -.42 3.67 3.88 .21 1976 : 2.55 2.88 .33 2.61 2.96 .35 2.89 3.10 .21 1977 : 2.17 2.72 .55 2.42 2.66 .24 2.62 3.09 .43

1^/ No. 1 hard winter, ordinary protein. 2^/ No. 1 dark northern spring, ordinary protein. 3/ No. 1 soft white. Source: (69), (71), and (90). The following data show the annual farm-terminal price relationships in three selected markets:

1. Hard red winter wheat—State of Kansas production, all wheat, and Kansas City terminal market quotations for No. 1 hard winter, ordinary protein Tp = .26 + 1.0705 Fp where Fp = farm price and Tp = expected terminal price R^ = .9980

2. Hard red spring wheat—State of North Dakota production, all wheat, and Minneapolis terminal market quotations for No. 1 dark northern spring Tp = .42 + .9123 Fp where Fp = farm price and Tp = expected terminaltermina price R^ = .9711 m

3. White wheat—State of Washington production, all wheat, and Portland terminal market quotations for No. 1 soft wheat Tp = .08 + 1.0518 Fp where Fp = farm price and Tp = expected terminal price R2 = .9103

These farm-terminal price relationships were highly correlated during the period 1950-77 as shown by the statistical R^'s. Unless one market should gain some unusual transportation cost advantage or disadvantage, farm-terminal price relationships should be similar from one market to another. The spread will change over time reflecting new transportation rates and methods and other changes in marketing. Price spreads for the 1977/78 marketing year appeared to be larger than normal.

Price Relationships Among Classes of Wheat

Price levels among classes of wheat were close until mid-1973. Even in the midfifties, when there were larger supplies of hard red winter and negligible supplies of durum, and in 1963, when the first large Russian wheat sale was made, terminal prices were quoted in a narrow range. However, with the announcement of the second big sale of wheat to the USSR in 1972, uncertainty and emotions caused by reports of shortages sent prices skyrocketing. The spread between hard red spring and white wheat prices widened as did the spread between hard red winter and soft red winter wheat prices. However, relative prices did not change. The range in relative wheat price ratios for the earlier period of 33 months prior to November 1972 was from 101 to 125, the average being 113.70. 23/ The range in ratios for the latter period of 31 months was from 104 to 120, with the average being 112.39. Durum was excluded from this analysis because it is not traded on the basis of protein, as are the other four classes. For that reason and, more fundamentally, because of the unique uses of semolina (durum flour), there is no reason to expect a correspondence between the price of semolina and that of

23/ The ratio was computed by dividing the high price by the low price, durum excluded.

52 other wheat flours. IkJ Chai's study showing low cross elasticities supports this ob- servation (8^) , as previously mentioned.

When foreign demand is large, certain price relationships should narrow to nearly zero because the demand for lower protein wheat increases its price until it approaches that of high-protein wheat. Needs are predominantly for carbohydrates, not protein, at such times.

Relationship Between Cash and Futures Prices

The practice of futures trading is common in the wheat industry. The futures market is used to prevent losses due to unexpected price changes from the time a firm buys wheat or wheat products until it sells wheat or wheat products.

The difference between the cash wheat price and the futures price is known in the trade as the "basis" (see glossary). The amount of the basis, stated as x cents over or under y futures, varies. It depends on such factors as transportation and storage costs, quality, and supply-demand differences between the cash market and those prevailing on the futures market. Most grain firms handling wheat use basis trading which allows cash grain merchants to make forward sales—sales in advance of grain possession—and purchases and to establish the flat price at the time the wheat is actually exchanged (j^, _23) .

Farm, terminal, export, and futures prices for wheat marketed through Kansas City were compared over the period of the second big USSR wheat sale. These relationships had been fairly constant for several years for the period leading into 1972. The first sign of change, beginning August 1972, was an increase in all prices and a widening of relationships, reflecting shortrun uncertainty. From August 1972 to July 1973, export prices and, in some months, Kansas City terminal prices, were considerably above the near futures price. Farm price remained below even the distant futures price.

All prices increased sharply beginning in August 1973 due to the supply conse- quences and the emotional effect of the historic U.S. sale of wheat to the Soviet Union. Near and distant futures prices separated much more widely. The Kansas City terminal price was considerably above the near futures price and the farm price was well up in the range of the futures prices in most months. Distant futures prices during this period were far below the near futures, indicating expectations for lower prices in succeeding months. The spread between farm and terminal prices was considerably greater than the first period. However, the spread between terminal and export prices was less, indicating that the degree of information (certainty) or control of product was much greater than between the farm and terminal levels. This would be expected because of a higher degree of vertical integration between inland and port terminals.

Between March and December 1974, the relationships between farm, terminal, export, and futures prices returned to the pattern existing prior to August 1972. Cash prices made a more rapid adjustment than the near futures prices in this readjustment period. In some months of this period, all cash prices were below the near futures price. Fu- tures prices were also in a very narrow range, similar to the period prior to the market price upheaval.

IkJ Until prices become far out of line, there appears to be a reluctance to substi- tute farina for semolina. In 1972, prior to the large increase in durum prices, the macaroni and spaghetti industry used 1,191 million pounds of semolina and durum flour as compared to only 138 million pounds of farina and other wheat flour.

53 Farm-Retail Price Spreads

The relationship between the farm price of wheat and the retail price of wheat products at any given time varies by the amount of processing involved. For example, the price spread for white pan bread is greater than for flour. The relationship between farm and retail prices for white pan bread changed considerably from 1950 to 1977. Costs of marketing increased at each stage. The greatest change occurred at the baker-wholesaler level where there was a 280-percent increase. The farmer's share of the white pan bread retail price was greater in 1950 than in any year since. It reached a record low in 1977 for the 25-year period—8 percent (wheat only). Retail prices, marketing spreads, and farm values for a 1-pound loaf of white pan bread are shown for the period 1950 to 1977 in appendix table 7.

COSTS

Costs discussed in this section are those associated with production, handling and storage, transportation, and milling. Costs at each step of the production and marketing process are affected by such factors as inflation, changes in structure (size of business), and competition. Costs often reflect the efficiency of an industry. Good production cost data are available in the wheat industry but practically no data are available to show the performance of assemblers and processors.

Production

The cost of producing a bushel of wheat depends on the type of crop rotation, yields, size of farm, and land values. High production costs relative to prices have plagued the industry in recent years; however, Vermeer observed that prices received for wheat rose faster than costs per bushel between 1937 and 1949 (99). Higher yields in 1949 were important in slowing increases in per unit costs; but higher yields, along with higher wheat prices following World War II caused farmers and others to bid up the price of land.

Costs of producing wheat rose less than the increase in the support price from 1947-49 to 1953/54. The cost of producing spring wheat on summer fallow, based on a planted acreage yield of 12 bushels, was about $1.72 per bushel in 1950. Comparable 1978 costs were estimated at $4.16 per bushel, assuming a yield of 24 bushels per acre. Thus, in 29 years the per bushel cost of producing wheat on summer fallow increased about 242 percent. This was slightly more than thr increase in costs on continuously cropped wheat and slightly less than the increase in comparable costs on high-priced irrigated land. The farm price of wheat increased only 16 percent during the same period.

A 1978 cost of production study showed average production costs for major producing regions and for the five classes of wheat (app. tables 8, 9, and 10) (92). The cost of producing wheat differed greatly by region. Variable costs varied from $1.15 per bushel for white wheat in the Pacific Northwest to $2.05 per bushel for hard red winter wheat in the Southern Plains.

Marketing

The cost components of marketing whole wheat include transportation, handling, and storage. For wheat products, the costs of processing, packaging, wholesaling, and re- tailing are added. The price relationships described in the preceding section implic- itly show costs that are incurred in the various stages of marketing. For example, transportation costs occur throughout the marketing process (fig. 16). In addition, the discussion of price spreads for white pan bread covers this most important wheat product in detail.

54 Marketing costs associated with bakery products exceed those for most fruits and vegetables, fats and oils, and animal products. Both the amount of processing involved and low farm prices contribute to the wheat farmer's low share of the consumer's dollar. The farmer's share of the consumer's dollar decreased for most food items between 1950 and 1977:

Food item 1950 1977

Percent

Beef, choice (lb.) 72 58 Pork (lb.) 62 59 Chicken, frying (lb.) 64 55 Eggs, large grade A (doz.) 67 65 Lettuce (head) 38 32 Potatoes (10 lb.) 40 28 Oranges (doz.) 34 25 Tomatoes (lb.) 38 42 Vegetable shortening (3 lb.) 42 44 Corn flakes (12 oz.) 16 6 Flour, white (5 lb.) 40 25 Bread, white, all ingredients (lb.) 21 13

The marketing bill for bakery products totaled $4 billion in 1950; in 1976 it was $15.3 billion. Adjusting the 1976 figure to constant 1950 dollars, it was $6.9 billion, or 72.5 percent above the 1950 level. Thus inflation, alone, did not account for the entire increase in retail price.

Handling and Storing

Costs for handling and storing grain in commercial warehouses are shown in table 22. Handling costs—receiving and loadout—at port terminals are comparable to inland terminals. Storage costs, however, are significantly higher at port terminals, reflecting the greater cost in facility construction.

The Commodity Credit Corporation raised the storage rate on wheat placed in the extended grain reserve in 1978 from 20 to 25 cents per bushel. The 20-cent rate did not provide the farmer with sufficient incentive to place wheat under loan, as it ap- parently did not cover stoTiiage costs. Most Midwest terminals charge at least 2 cents per bushel per month, and some charge as much as 3 cents per month.

Transportation

Transportation adds place utility (see glossary) to wheat by moving it from production locations to processing and consumption locations at the desired time. Rail freight revenue was estimated to be 9.4 percent of the cash price of No. 1, ordinary protein, hard red winter wheat shipped from central Kansas to Kansas City in 1975 (23). That percentage had risen to 13.8 percent by May 1977 as the price of wheat declined and rail rates climbed.

Domestic

Transporation accounts for a large percentage of the value of wheat or wheat products when the wheat is grown a long distance from consumption centers. While climate and competing crops dictate where wheat will be grown, wheat processing is not limited to a particular location. Transportation rate structures are an important factor in deciding whether it is more economical to move wheat or to move wheat products. Trans- portation of whole wheat may cost anywhere from a few cents per bushel to one-third or

55 Table 22—Costs of handling and storing grain, fiscal year 1974 _!/

Received by— Loadout by— Area and type Storage of facility Truck Rail Water Truck Rail Water

Cents per bushel

North Plains: Country 2.32 1.84 2.24 18.35 Inland terminal 1.53 2.68 ^^ 5.48 2.50 1.27 9.81 Port terminal

Mid-Plains: Country 2.65 2.33 3.16 2.94 .71 17.14 Inland terminal 3.07 3.42 ^^ 2.49 2.47 .87 18.73 Port terminal

South Plains: Country 3.15 2.62 4.62 18.70 Inland terminal 3.18 3.52 — 3.91 2.90 — 26.60 Port terminal 1.43 1.97 1.68 5.55 1.64 .95 26.08

West: __ Country 2.53 3.28 3.46 20.51 Inland terminal 2.29 1.71 — 2.64 1.52 .97 16,67 Port terminal 3.27 2.42 2.55 4.26 3.53 1.39 30.05

Great Lakes: Country 2.17 2.79 3.16 1.74 18.00 Inland terminal 1.98 2.31 6.05 .79 1.93 .34 13.23 Country terminal 2.71 2.43 3.56 3.78 2.81 1.34 23.19

South and East: Country 1.53 1.82 4.48 3.36 3.53 1.01 21.77 Inland terminal 2.23 1.78 3.85 3.21 3.26 2.00 11.84 Port terminal 4.00 2.00 3.91 10.87 6.70 2.12 23.54

United States: Country 2.39 2.25 4.47 2.76 3.04 1.12 18.18 Inland terminal 2.29 2.97 4.28 2.02 2.49 .90 16.72 Port terminal 2.50 2.19 1.79 6.41 2.84 1.13 25.03

All facilities 2.39 2.50 1.96 2.72 2.88 1.08 18.44

— = Not applicable. \J Depreciation and interest on investment based on replacing building and equipment at VèlMl'b price levels.

Source: (55).

56 more of the value of the wheat. If whole wheat movements have advantages over product movements, primarily flour, then wheat processors will locate nearer consumers of flour than producers of wheat, and vice versa.

The charges for moving wheat by rail are set by the Interstate Commerce Commis- sion. Rail rates since 1950 have often been adjusted because of competition from trucks and barges. Rail rates are published in cents per hundredweight except for multiple cars and unit-train rates, which are shown in cents per ton. Transportation rates for truck and barge movements may be set, but are usually open to negotiation (10). Where competition between modes of transportation exists, the costs of transportation are lower than in areas where one mode has a monoply on wheat transportation.

Wheat is delivered from the combine to storage facilities or assembly points by trucks, pickups, and farm tractors pulling either grain buggies or farm wagons. Wheat is moved from the country elevator by truck, rail, barge, or such combinations as truck-barge or rail-barge. Most wheat still moves through terminal markets by rail, although, in certain cases, truck and barge movements have increased in importance since 1950.

Major changes have occurred in grain transportation since 1950 with the opening of the St. Lawrence Seaway in 1959, the use of larger trucks, the extension of barge facilities inland in the Pacific Northwest, changes in the size and types of railcars, and the development of special rates such as for nontransit point-to-point multiple and unit-train movements (see glossary). Significant changes in rate-making occurred in the late fifties when the parity of wheat and flour transport rates was abandoned. 25/ A major change in rates occurred in 1963 when the Southern Railroad offered the "Big John" rates—special rates for covered hopper cars—and the Soo Line offered a unit-train tariff. In the decade that followed, covered hopper cars became the most common form of rail transportation for wheat as well as flour. These changes in transportation structure led to shifts in industry location.

Wheat for domestic use often moves through terminal markets on a transit rate. 26/ Transit privileges allow terminal operators to draw grain from a wide area and blend to uniformity, if necessary, to meet particular grade requirements or contract specifications. There is some indication that use of this privilege is diminishing as railroads implement point-to-point rates. Only in Kansas, Nebraska, and the Dakotas does the transit privilege remain.

As more rail rates are based on cost of service, the use of transit privileges is likely to decrease even further. Cost-of-service criteria underlie the transportation pricing policy used to support most of the current changes in rates. Transportation rates based on the cost of service mainly reflect the distance the movement must tra- vel. However, the rates also reflect the value of the service and, to some extent, the amount of competition.

Unlike rail rates, truck and barge charges are unregulated. Their charges are linked to supply and demand rather than to the cost of service. Farm operators who have barge, rail, or truck transportation available may vary their shipping pattern to use either the least expensive mode, or the least expensive combination of modes.

25/ Until the late fifties, railroads charged identical rates for wheat and flour for similar movements. This was due in part to the desire of the western railroads to attract industry to the West and in part to protecting the interests of existing flour mills (1). 26/ On a transit privilege, elevators pay the terminal market, and make subsequent rail shipments at a rate equal to the difference between the direct shipment rate from the elevator and that already paid to the terminal. Transit rates apply to the wheat- flour shipments as well.

57 Foreign

Transportation usually accounts for a larger percentage of the wheat price in export markets than in domestic markets. For example, transportation charges in May 1977 equaled 26 percent of the value of No. 1, ordinary protein, hard red winter wheat delivered from a Kansas elevator to Rotterdam. May 1977 transportation charges were $0.57 per bushel on wheat moving from a central Kansas farm to the Gulf where the delivered price was $2.64 per bushel at the port; thus, transportation charges equaled 22 percent of the export wheat price.

Maritime freight rates for wheat, immediately prior to the big increase in world trade in 1972, were lower than they had been a decade earlier. The effects of heavy demand for oceangoing vessels resulted in a sharp increase in rates beginning in 1972 (table 23). These rates peaked in 1973, in some cases as much as five times higher than they had been in 1971. Since 1973, the rates have returned to a level about in line with the general increase occurring since 1962. According to indexes of rate increases, the United States in 1976 was in a slightly better position than its competitors. The costs of ocean freight accounted for about 5 to 20 percent of the export value, delivered at port, in 1977.

Milling

Capital requirements in 1975 for constructing flour mills with capacities of 3,000, 5,000, and 7,000 hundredweights per day of flour were estimated at $4.7 million, $6.3 million, and $8.1 million, respectively (table 24). Equipment, including installation costs, was the major cost item, accounting for more than 50 percent of the investment cost of the largest mill.

The operating costs for the three sizes of mills were estimated at $1.56, $1.23, and $1.09 per hundredweight, respectively, for a 5-day work week (table 25). Variable costs made up a substantially greater portion of total milling costs than did fixed costs; however, variable costs declined relative to fixed costs as mill size increased. Wages and salaries accounted for a large share of the variable cost and for most of the size economies. The number of days per week the mills were operated also had a sub- stantial effect on costs of operation. For example, costs in one study for a 5,000- hundredweight mill operating 24 hours a day, 4 days a week, were $1.41 per hundredweight, while the costs for the same size mill operating 7 days a week, were estimated at $1.10 per hundredweight (47) . 27/

In 1977,.30 percent of the active U.S. flour mills had a daily capacity of 5,000 hundredweight or more and were presumably as cost efficient as tñe medium-sized mill (table 24). These mills, totaling 82, accounted for nearly 80 percent of the total U.S. milling capacity (61).

27/ Earlier studies of the milling and baking industries were made in 1963 by Walsh and Evans (101) and in 1966 by the National Committee on Food Marketing (45).

58 Table 23—Maritime freight rate charges for wheat shipments from major exporting countries to major importing countries

: Port of origin Destination and years : Argentina, Australia, Canada Canada and USA United States : River Plate Eastern States St. Lawrence North Pacific Atlantic Gulf

: Index Rate 2/ 1/ Index 1/ Rate 11 Index. 1/ . Rate 11 Index 1/ Rate 2/ Index 1/ Rate 2/ Index 1/ Rate 11

United Kingdom (Tilbury): 1971/72 : 74 6.88 81 7.85 49 1.11 NA NA 51 3.01 49 3.24 1972/73 : 143 13.38 149 14.38 122 6.90 NA NA 124 7.32 114 7.56 1973/74 . 343 32.06 256 24.63 241 13.61 NA NA 254 14.96 245 16.25 1974/75 . 272 25.42 200 19.25 128 7.21 NA NA 134 7.89 131 8.67 1975/76 204 19.12 143 13.74 103 5.82 NA NA 114 6.72 108 7.18 1976/77 192 17.96 198 19.11 105 5.91 NA NA 126 7.39 106 6.93 Rotterdam: 1971/72 71 6.05 86 7.68 71 2.55 NA NA 72 2.74 70 2.97 1972/73 146 12.46 157 13.94 175 6.26 NA NA 179 6.77 173 7.32 1973/74 337 26.81 271 24.05 362 12.92 NA NA 369 14.00 375 15.82 1974/75 230 19.64 210 18.68 187 6.66 NA NA 197 7.46 236 9.94 1975/76 165 14.08 149 13.21 145 5.18 NA NA 150 5.70 144 6.09 1976/77 195 16.66 204 18.21 146 5.21 NA NA 155 5.89 142 5.98 India (East Coast): . 1971/72 NA NA 155 10.29 NA ■ NA 123 9.65 NA NA 118 10.49 1972/73 : NA NA 246 16.30 NA NA 209 16.38 NA NA 194 17.26 1973/74 : NA NA 464 30.74 NA NA 516 40.48 NA NA 523 46.46 1974/75 : NA NA 454 30.09 NA NA 295 35.92 NA NA 441 39.24 1975/76 : NA NA 306 20.29 NA NA 295 23.10 NA NA 280 24.86 1976/77 : NA NA 316 20.96 NA NA 278 21.82 NA NA 222 19.77 Japan: : 1971/72 : 72 7.91 120 6.92 NA NA 117 6.52 NA NA 88 6.41 1972/73 : 144 15.84 199 11.52 NA NA 211 11.11 NA NA 188 13.68 1973/74 : 321 35.26 ^ 454 26.26 NA NA 463 25.75 NA NA 417 30.30 1974/75 : 266 29.27 384 22.22 NA NA 387 21.52 NA NA 332 24.11 1975/76 : 169 18.62 229 13.24 NA NA 254 14.10 NA NA 212 15.40 1976/77 : 164 18.00 253 14.64 NA NA 264 14.68 NA NA 208 15.10

NA = Not applicable. 1/ 1962/63 = 100. Ij Rate charges are in U.S. dollars per metric ton.

Source: (13). Table 24—Estimated capital requirements for three model wheat flour mills, 1975

Equipment ; Electrical ] Model size and cost center : Buildings Equipment Land : Total [ installation ; installation [

Doll ars

Small: * : Receiving and storing 750,000 330,880 80,135 105,985 1,267,000 Cleaning and conditioning 486,000 182,855 32,040 41,940 — 742,835 Milling 401,000 651,135 114,100 149,325 1,315,560 Product packaging, warehousing, and loadout 550,650 478,545 83,860 109,755 1,222,810 Labojjatory, maintenance, and office 57,350 45,000 6,750 10,335 119,435 Other 40,000 40,000

Total 2,245,000 1,688,415 316,885 417,340 40,000 4,707,640

Cost per hundredweight capacity 748.33 562.81 105.63 139.11 13.33 1,569.21

Medium: Receiving and storing 1,077,350 475,295 115,110 152,245 1,820,000 Cleaning and conditioning 521,000 261,490 38,835 65,025 — 886,350 Milling 496,000 1,010,600 150,105 251,360 1,908,065 Product packaging, warehousing, and loadout 709,250 518,765 77,060 129,035 1,434,110 Laboratory, maintenance, and office 62,750 70,000 10,500 17,400 160,650 Other 50,000 50,000

Total 2,866,350 2,336,150 391,610 615,065 50,000 6,259,175

Cost per hundredweight capacity 573.27 467.23 78.32 123.01 10.00 1,251.83

Large: Receiving and storing : 1,598,265 705,110 170,770 225,855 2,700,000 Cleaning and conditioning : 608,000 316,355 45,355 82,250 ~ 1,051,740 Milling : 555,000 1,348,080 129,390 350.600 2,446,070 Product packaging, warehousing, and loadout : 831,000 570,910 81,475 148,480 1,631,865 Laboratory, maintenance, and office : 70,000 90,000 13,500 23,465 196,965 Other 60,000 60,000

Total : 3,662,265 3,030,455 503,270 830,650 60,000 6,086,640

Cost per hundredweight capacity : 523.18 432.92 71.90 118.66 8.57 1,^55.23

— = No capital requirements. Source: (47). Table 25—Estimated per hundredweight operating costs for various work weeks for three model wheat flour mills, 1975

Model size by work week

Cost items ; 4- -day week Ij 5- -day week 2/ 6- day week 11 1- day week kj f ; Small ; Medium Large Small ; Medium ; Large Small ; Medium \ Large Small \ Medium \ Large

Dollars per cwt

Fixed: Depreciation (building and equipment) 0.363 0.295 0.274 0.291 0.236 0.219 0.242 0.197 0.182 0.212 0.172 0.160 Interest on investment .316 .252 .233 .253 .202 .186 .211 .168 .155 .184 .147 .136 Taxes (land, building, and equipment) .027 .022 .020 .022 .018 .016 .018 .015 .013 .016 .013 .012 Insurance (building and equipment) .019 .016 .014 .016 .012 .012 .013 .010 .010 .011 .009 .008 Other .004 .003 .003 .003 .002 .002 .003 .002 .002 .002 .002 .002

Total fixed _5/ .731 .588 .544 .585 .470 .435 .487 .392 .363 .426 .343 .317

Variable: Wages and salaries .652 .453 .359 .555 .382 .301 .598 .407 .321 .562 .380 .299 Utilities .176 .147 .133 .176 .147 .133 .176 .147 .133 .177 .147 .133 Interest on working capital .127 .126 .125 .126 .125 .125 .127 .126 .125 .129 .128 .127 Maintenance and repairs .063 .050 .046 .063 .050 .046 .063 .050 .046 .063 .050 .046 Other .050 .050 .050 .050 .050 .050 .050 .050 .050 .050 .050 .050

Total variable _5/ 1.068 .825 .713 .971 .754 .655 1.014 .779 .675 .980 .755 .656

Total fixed and variable V 1.799 1.413 1.257 1.555 1,225 1.090 1.501 1.171 1.038 1.406 1.098 .973

1/ Estimated annual capacity: 600,000 cwt for small; 1,000,000 cwt for medium; 1,400,000 cwt for large. 21 Estimated annual capacity: 750,000 cwt for small; 1,250,000 cwt for medium; 1,750,000 cwt for large. V Estimated annual capacity: 900,000 cwt for small; 1,500,000 cwt for medium; 2,100,000 cwt for large. 4^/ Estimated annual capacity: 1,029,000 cwt for small; 1,715,000 cwt for medium; 2,401,000 cwt for large. _5/ Sum may not total because of rounding.

Source: (47). POLICY

Government programs have strongly influenced wheat production and marketing activities for more than 50 years. The programs have supported farm prices and attempted to reverse supply trends. The greatest success of the programs has been in the area of price support. Attempts to regulate supply have tended to overcompensate or overcor- rect, and have resulted in a production pattern ranging from large surpluses to near scarcity.

With almost 60 years of experience in stabilization, solutions are still very elu- sive to agricultural policymakers. Solving one problem often creates another. Solu- tions are difficult, due to conflicts of interest such as social vs. economic issues, free market vs. Government controls, high farm prices vs. low consumer prices, and domestic vs. world needs. No satisfactory method has been found to maintain stability in production (acres harvested), reserve stocks, and price, when export volumes vary as they do from year to year.

Accompanying policymaker's attempts to create stability in wheat production and prices, have been numerous research studies by USDA and land-grant universities. These studies have dealt with farm income and response to program changes (2, 24, and _5i) and short-term and long-term projections (26^, A^, and 52). In addition to policy research conducted by public agencies, a large amount of policy interpretation (education) and promotional work has been contributed by the National Association of Wheat Growers, Great Plains Wheat, Inc., Western Wheat Associates, and other wheat commodity organizations.

Government Programs Before 1950

The first Government wheat program was undertaken in 1917 to stimulate production. Under this program the Food Administration Grain Corporation was set up and the Govern- ment took over the entire 1918 wheat supply and established maximum and minimum prices. Following World War I, wheat production rose substantially, and instead of programs to encourage production, programs designed to dispose of surplus were proposed. The McNary-Haugen bills of the twenties provided for: a segregation of surplus, which was to be sold abroad at world prices; a distribution of operating costs and losses among growers by an equalization fee; a script device to collect equalization fees; and a price-ratio provision to determine fair prices. A board was to be established to determine fair prices and to sell surpluses of wheat and seven other basic commodities abroad (49).

The McNary-Haugen bills passed Congress twice but were vetoed by President Cool- idge. These bills were defeated because at the time international relations were not a major concern, they were considered to be price fixing, and against the economic principles of free enterprise.

The Federal Farm Board was established by the Agricultural Marketing Act of 1929, as an alternative approach for solving the surplus wheat dilemma. The Act was based on the theory that with Federal aid, cooperative marketing organizations could provide a solution to the problem of low farm prices. The Board, with a revolving fund of $500 million, had authority to make loans to cooperative associations, to make advances to members, and to make loans to stabilization corporations for the purpose of controlling any surplus through purchase operations (49).

The Board had no control over production or acreage. By the time the Board had spent $500 million in an attempt to raise prices, the effects of the Depression were felt. Wheat on the Chicago market fell from $1.20 (1929) to $0.39 (1931) a bushel. The Depression contributed tieavily to the Board's failure.

62 The next approach was to develop a program designed to cut back production instead of focusing entirely on increasing price. The Agricultural Adjustment Act of 1933 included provisions for parity price payments, processing taxes, and acreage allotments.

Parity was to be accomplished through the use, by the Secretary of Agriculture, of a number of methods. These included the authorization (1) to secure voluntary reduction of the acreage in basic crops through agreements with producers and use of direct payments for participation in acreage control programs; (2) to regulate marketing through voluntary agreements with processors, associations of producers, and other handlers of agricultural commodities or products; (3) to license processors, producer associations, and others handling agricultural commodities to eliminate unfair practices or charges; (4) to determine the necessity for and the rate of processing taxes; and (5) to use the proceeds of taxes and appropriated funds for the cost of adjustment operations, for the expansion of markets, and for the removal of agricultural surpluses (49).

This program was strictly a voluntary one with pa3rments as an inducement for cooperation. Under this program, participating producers who agreed to limit wheat acreage for the 1934 and 1935 crops received payments on the basis of their propor- tionate share of the national production domestically consumed.

Adjustment payments of around 30 cents per bushel were made for the crop years 1933, 1934, and 1935 on 54 percent of the average amount of wheat produced on the grower's farm during the years 1928-32. In return, the wheat farmer agreed to reduce his wheat acreage for the 1934 and 1935 crops by a percentage to be determined by the Secretary; but not to exceed 20 percent. The cut in wheat acreage required under the contracts was 15 percent for 1934 and 10 percent for 1935. Reduced wheat stocks, resulting from the droughts of 1933 and 1934 made it possible for wheat producers to avoid the large acreage cuts which were imposed on cotton growers. The wheat program stressed the importance of the pa3rments in increasing farm purchasing power and farm income and the necessity of restricting acreage enough to prevent an increase in production while the program was in effect (49). The processing tax provision led to the ultimate repeal of the 1933 Agricultural Adjustment Act (34). 28/

After termination of the Agricultural Act of 1933, the Soil Conservation and Do- mestic Allotment Act of 1936 was passed to accomplish objectives of soil conservation and production adjustment. It provided pa3mients for replacing soil depleting crops with soil conserving crops. It provided for voluntary participation by farmers. How- ever, because of high wheat prices, caused primarily by a severe drought in 1936, the Act was largely ignored by farmers. They planted a record 81 million acres (32.4 million hectares) of wheat in 1937, of which 64 million acres (25.9 million hectares) were harvested.

To achieve conservation, most of the provisions of the 1936 Act were rewritten into the Agricultural Adjustment Act of 1938. This act has served as a basis for much of the agricultural policy since. The 1938 Act was predicated on the philosophy that farm policy should accomplish five basic things: (1) yield farmers a fair share of the national income; (2) protect consumers against high prices by storage of reserve supplies; (3) protect farmers from low prices by a system of crop loans; (4) control agricultural supplies; and (5) seek new uses and new markets for agricultural commodities. It provided for: acreage allotments and marketing quotas under certain supply and price conditions; incentive payments to take land out of production when approved in a referendum; and price-support loans. The 1938 Act had been in effect only 4 years

28/ The wheat processing tax was fixed at 30 cents per bushel in July 1933, and was continued at that rate until the Supreme Court decision of 1936 repealed the authorization for collecting taxes of that kind.

63 when its marketing quota provisions were suspended in favor of all out production for World War II. Production in 194A was twice that of a decade earlier, and 30 percent above the 1940 level.

Demand for wheat decreased immediately following the war but production continued at about the same level. Wheat stocks accumulated and once again Congress reacted to a crisis, passing the Agricultural Adjustment Act of 1948. This act, which was in effect for only 1 year, provided for price supports at 90 percent of parity if farmers approved marketing quotas. Under the 1948 Act, the national wheat acreage allotment was computed as follows: that acreage which (with average yields) would produce a crop (with the estimated carryover at the beginning of the marketing year) large enough to supply a normal year's domestic consumption and exports, plus 15 percent. 29/ Furthermore, the act required marketing quotas when the total supply for the marketing year was estimated to be more than 20 percent larger than the normal supply or when the average price to growers in 3 successive months of the preceding marketing year was 66 percent of parity or less, provided the supply was not less than the normal supply. 30/

The Agricultural Act of 1949 amended the modernized parity formula of the Agricul- tural Act of 1948 to add wages paid hired farm labor to the parity index and to include wartime payments made to producers in the prices of commodities and in index of pr:.ces received. For wheat and other basic commodities, the effective parity price through 1954 was to be the old version or the modernized version, whichever was higher. For many nonbasic commodities, the modernized parity price became effective in 1950. How- ever, parity prices for individual commodities under the modernized formula, provided in the Act of 1948, were not to drop more than 5 percent a year from what they would have been under the old formula.

Government Programs Since 1950

U.S. wheat production more than doubled between the Depression and the end of World War II. Support prices, first applied to wheat in 1938, increased threefold by the late forties and early fifties, as did the average price received by farmers. Farm prices rose to higher levels, and still had not stabilized by the early fifties. Har- vested acres reached an all-time high of nearly 76 million acres (30.8 million hectares) in 1949, and year-end carryovers were mounting. Exports totaled less than 500 million bushels (13.6 million metric tons) in the early fifties. Total disappearance averaged a little less than 1 billion bushels (27 million metric tons), while production averaged just over 1 billion bushels. By the end of the 1954/55 marketing year, total carryover was also up to 1 billion bushels and was rapidly becoming too costly to support.

The farm price of wheat was supported at 90 percent of parity or more from 1949 through 1954. However, by the fifties, this degree of support began to exaggerate the financial needs of wheat producers. Technological advances had resulted in greater production efficiencies and higher yields. By the midfifties, the public began to question the public cost of increasing farm income.

The mounting volume of wheat carryover was not halted until after the early sixties. Starting in 1955, the national acreage allotment was set at 55 million acres (22.3 million hectares), down 7 million acres from 1954, and 18 million from 1951. The

29/ A normal year's domestic consumption and exports were defined as the average of the 10 marketing years immediately preceding the marketing year in which such consumption and exports were determined, adjusted for trends. 30/ Normal supply was defined as domestic consumption in the preceding marketing year and imports, plus an allowance for carryover equal to 15 percent of the domestic consumption, plus exports.

64 alloted acreage was also down sharply from the nearly 84 million acres (34 million hectares) planted in 1949. However, the effectiveness of the 1954 Act was less than anticipated. Increasing yields largely offset the benefits of lower acreages planted in the midfifties, and supply continued to be greater than demand. Figure 18 illustrates the activity within the wheat industry and relates this activity to the farm program in force at the time. Harvested acres were generally below national average allotments until the seventies. Except for a brief period, 1972 to 1976, farm wheat prices remained close to the support price. Years of low carryover were generally followed by increased seedings, but in 1976 and 1977, both carryover and seedings increased.

The 1956 Soil Bank Act was passed in an attempt to lessen the carryover crisis of the early fifties. The act included a conservation reserve program under which farmers entered long-term contracts with the Government to take cropland out of production. In return for diverting land to soil-conserving uses, the farmer received a yearly cash payment. During the life of the Soil Bank, U.S. farmers voluntarily placed about 29 million cropland acres (11.7 million hectares) in the conservation reserve at an average annual rental rate of $11.85 per acre. Nevertheless, carryover continued to mount, reaching 1.4 billion bushels (38.1 million metric tons) in 1960.

The buildup of stocks throughout the fifties caused declining prices and a period of production instability (annual upswings and downswings in harvested acreage and farm value), a pattern that continued throughout the sixties. Two important events in the history of U.S. wheat production and marketing occurred in the sixties. First, yields per harvested acre surpassed 25 bushels for the first time; second, export surpassed 500 million bushels (13.6 million metric tons). Congress did not renew the Soil Bank program after 1960. Instead, the short-term agricultural acts of 1961 and 1962 were passed, and these were essentially extensions of the 1954 Act. Effective acreage controls, along with growing exports, finally reversed the long trend of stock accumulation.

A new type of wheat program was adopted beginning in 1964. The Agricultural Act of 1964 provided for a voluntary program for the 1964 and 1965 crops; it was later extended through 1970 by the 1965 Agricultural Act. Producers had only to comply with assigned allotments to be eligible for price supports. Producers who diverted a specified acreage to conservation uses were eligible for income supplements in addition to marketing certificates (see glossary). Participation in the program was quite high, and the value of the certificates was 70 to 75 cents a bushel. Nonpar- ticipants could expect a market price about equal to feed value. The cost of the certificate program was also high, increasing to nearly $100 million annually by 1970. However, stocks were reduced sharply by 1966.

The composition of the carryover also changed drastically as stocks diminished. Hard red winter wheat, which accounted for nearly 80 percent of the total in the early fifties, comprised only about 50 percent by July 1, 1966. By contrast, the proportion of the carryover of hard red spring and durum wheat was nearly three times its level of the early sixties.

Half the annual wheat production was exported by the early sixties. The increased exports, however, caused new problems of maintaining price stability in the domestic market. Increased purchases by India and the USSR led to low stocks and increased prices. Forward buying—purchasing for future delivery—by importers was extensive in 1967 as many countries sought to cover their anticipated requirements. As the supply- demand picture changed, the market price exceeded the support price.

However, concern over low stocks soon prompted an increase in national allotments, and producers quickly responded by increasing production, once again forcing wheat prices back to near support levels. Production from 1967 through 1969 averaged about

65 Figure 18

U.S. Wheat Situation Under Enacted and Existing Farm Programs

Harvested Acreage and National Acreage Allotments Million acres 80 r

60 - •^ Harvested acreage

40 - National acreage allotments

20 ^--^J

_L JL Season Average Price Received by Farmers and Support Price Dollars per bushel 5 r-

4 - Season average price / received by farmers / 3 - / / 2 Support price 1 Loan rate

-L Acreage Planted and Volume of Carryover Million acres planted Carryover (July) million bushels 1,600 Acreage planted

60 - 1,200

40 800 / Volume of carryover

20 400

1950 1960 1970 1980

Period of Acreage and Conservation Reserves > m m • m 1- Cvj "^ 1948 Agricultural 1954 Agricultural Act CD (D 1965 Agr. and Consumer Adjustment Act. ^ Agricultural Act Protection Act of 1973 1956 Soil Agr. Acts 1949 Agricultural Act Bank Act 1971 Agr. Act Carryover (June 1) beginning 1970. Sources: {71 and 90). The support price is the established target price, guaranteed on production allotment acreage in 1974-77.

66 1.5 billion bushels (40.8 million metric tons) and the overcorrection caused stocks to climb above desirable levels. Expiration of the Act of 1965 necessitated new legislation in 1970. The Agricultural Act of 1971 was based on the new administration's view that programs should be tied more closely to world market prices and should give farmers more freedom to plant and to reduce Government costs. The 1971 Act also once again included provisions for conserving land. The program required producers who wanted to qualify for wheat marketing certificates and price support loans to set aside a part of their domestic allotment for conservation uses. Set-aside programs were intended to reduce stocks, improve farm incomes, and allow producers greater flexibility in planting crops.

As a result of the programs in effect from 1969 through 1972, harvested acres did not exceed 48 million bushels (19.4 million hectares) annually. Carryover dropped sharply from 885 million bushels (24.1 million metric tons) in 1969 to 438 million bushels (11.9 million metric tons) in 1972. In addition, there was a quick turnabout in the supply-demand situation throughout the world wheat economy in 1972.

Canada and Australia were also reducing their huge stocks. Canada instituted two new programs in 1970: LIFT (Lower Inventory For Tomorrow), a special 1-year program, and the Wheat Inventory Reduction program. World carryover decreased from 1.01 billion bushels (27.5 million metric tons) at the end of 1969 to 365 million bushels (9.9 million metric tons) at the end of 1972. Australia implemented delivery quotas in 1969. Farmers were guaranteed a price only on the quantity sold. Australia's wheat carryover dropped from 265 million bushels (7.2 million metric tons) at the end of 1969 to 26 million bushels (708 thousand metric tons) at the end of 1972. At the time that stocks of the major wheat-producing countries were lowered, poor harvests in many countries created a worldwide tight supply situation. In response to tight supplies, the U.S. prices more than doubled (tables 19, 20, and 21). In response to higher prices and low stocks, farmers planted an additional 4 million acres (1.6 million hectares) to wheat in 1973. Set-aside provisions were waived. The market price remained high in 1973 even with a record 1.7-billion-bushel crop (46.3 million metric tons) for 1973.

World-wide shortages and high domestic prices m^de possible the passage of the 1973 Agriculture and Consumer Protection Act. Under the act the domestic allotment concept which was in effect under the set-aside program was eliminated, and the former 55-million-acre (22.3 million hectares) national allotment was reestablished, not for the purpose of constraining production, but rather to serve as a basis for making payments to farmers. The 1973 Act eliminated conserving base requirements and did away with the set-aside provisions. The target price was set at $2.05 a bushel for 1974 and 1975, with provisions for adjustment during the last 2 years of the program, 1976 and 1977. For 1977, the target price was increased to $2.40 per bushel. With no restrictions on wheat acreage, farmers responded to the signals from the marketplace and planted 71 million acres (28.7 million hectares) in 1974, 75 million acres (30.4 million hectares) in 1975, and 80 million acres (32.4 million hectares) in 1976.

Wheat stocks were again reaching the levels of the early sixties and farm prices were depressed when the 1977 Food and Agriculture Act was passed.

The act continued the use of target prices and the use of loans at lower levels than target prices to allow crops to move freely in international trade. As in the 1973 Act, target prices were to be used only when market prices fell below target levels. Payment rates would be the difference between the target price and the higher of the 5-month weighted national average price received by all farmers, or the national loan level. There were to be no payments (as there had been before enactment of the Agriculture and Consumer Protection Act) when market prices were high. The target price for wheat was increased from $2.47 to $2.90 per bushel. For 1978, the target

67 price for wheat was set at $3.05 if production was not more than 1.8 billion bushels or $3.00 if production was above 1.8 billion bushels.

The wheat target price for 1979-81 crops is to be adjusted to reflect any change in the moving 2-year average of machinery, variable and general farm overhead costs. These include in addition to cost of production, expenditures for interest, taxes, insurance and replacement for machinery, and such costs as recordkeeping and utilities. Only for 1978 was a return to land and management provided in establishing the target price for wheat. The nonrecourse loan established a price floor as well as a source of credit for farmers. For the 1977 crop of wheat, minimum loan levels were left un- changed at $2.25 a bushel, the same as previously announced. The minimum loan rate for 1978-81 was set by the Act at $2.35 a bushel. A special provision in the law allowed a lowet loan level under certain circumstances, such as a 10-percent drop if the market price did not exceed the loan level by at least 5 percent in the previous year. However, the loan level could not fall below $2.00 regardless of special circumstances. The maximum loan level could not go above 100 percent of parity (49).

Later some of the provisions of this act were amended by the Emergency Agricul- tural Act of 1978. These amendments included:

1. 20 percent set-aside based on 1978 plantings for harvest. Growers had to comply with set-aside to be eligible for loans and payments. 2. Set-aside plus plantings could not exceed the normal crop average. 3. Loan rate was $2.25 per bushel, later raised to $2.35 per bushel. 4. Target price was set at $3.40 per bushel. 5. Disaster payments were $1 per bushel for disaster planting (crop failure) and $1.50 for low yield. 6. Payment limitation was $40,000 per operator (excluding disaster payments) for wheat, feed grains, and cotton programs combined. 7. Graze-out (or hay out) of wheat on 50 acres or an area equivalent to 40 percent of wheat, feed grains (excluding corn), and cotton plantings, whichever was higher, was allowed. Payment rate was 50 cents per bushel times the farm yield, times the acreage grazed out.

Price Supports

Price supports played a major economic role in the wheat industry from 1950 to 1978 (table 26). The support price for wheat was especially significant between 1951 and 1960, being higher than the average farm price (fig. 16). Nearly one-half the crop was placed under support in the most active year of Government supports, and the loan rate served as a floor for what might have been very low wheat prices, given the size of the total U.S. stocks. Total stocks reached 1.41 billion bushels as of July 1, 1961 (fig. 10). Hard red winter wheat accounted for a large percentage of these surpluses (table 27). Stocks owned or controlled by the Commodity Credit Corporation (CGC) amounted to 1.37 billion bushels, or 97 percent of total stocks in 1961 (table 28). CGC's role continued active, and by July 1, 1964, it owned or controlled 98.9 percent of the total U.S. stocks. CGC activity lessened after 1964, dropping in 1974 to its lowest levels since before 1950.

Commodity Credit Corporation

The CGC is a financial agent of the USDA farm program agency, originally set up in 1933 to take over the activities of the old Farm Board in supporting prices. Two programs have been undertaken by the CGC—nonrecourse loans and direct purchase. For wheat, most other grains, tobacco, and cotton, the nonrecourse loan was used. Under this program, the farmer puts—seals—his wheat in acceptable storage. He then ob- tains a loan reflecting the amount of the support price. If the market price rises above the loan rate, the farmer may sell his wheat and repay the loan. If the market

68 Table 26—U.S. wheat price-support operations

Support price Quantity put under support \l Acquired by CCC Percentage Crop : Percentage + or - Purchase Percentage under of year : Per of farm price Loan agreement Total of support production bushel parity Ij 3/ kl production program bj

Dol. Percent Cents Million bushels Percent Mil. bu. Percent

1950 • 1.99 90 - 1 188.3 8.6 196.9 19.3 41.9 4.1 1951 : 2.18 90 + 7 199.5 13.4 212.9 21.5 91.3 9.2 1952 : 2.20 90 + 11 398.6 61.3 459.9 35.2 397.7 30.4 1953 . 2.21 91 + 17 494.0 61.1 555.1 47.1 486.1 41.4 1954 : 2.24 90 + 12 401.2 28.8 430.0 43.7 391.6 39.8

1955 2.08 82 + 10 277.1 43.1 320.2 34.0 llhJ 29.5 1956 2.00 83 + 3 234.9 18.3 253.2 25.1 148.5 14.8 1957 2.00 80 + 7 223.5 32.8 256.3 26.8 193.5 20.2 1958 1.82 75 + 7 564.5 44.9 609.4 41.8 511.0 35.1 1959 1.81 11 + 5 299.1 20.0 319.1 28.3 181.9 16.2

1960 : 1.78 75 + 4 405.8 20.3 426.1 31.3 260.5 19.2 1961 : 1.79 76 - 4 262.4 9.6 272.0 22.0 119.9 9.7 1962 : 2.00 83 - 4 280.7 19.0 299.7 27.2 245.0 22.4 1963 :6/2.03 81 0 161.6 11.8 173.4 15.0 85.2 7.4 1964 : 6/1.78 71 - 2 197.9 7.1 205.0 16.1 86.9 6.8

1965 :6/1.72 67 - 7 170.1 1.8 171.9 13.1 11.3 .9 1966 :6/1.90 74 - 32 132.7 .2 132.9 10.2 12.4 1.0 1967 :6/1.85 71 - 2 281.0 .7 281.7 18.7 83.4 5.5 1968 :6/1.83 69 + 4 445.0 8.2 453.2 28.7 111,1 11.3 1969 : 6/1.94 70 + 5 406.9 .7 407.6 27.9 97.0 6.7

1970 :6/2.00 71 - 8 254.2 254.2 18.5 11.0 .8 1971 : 6/1.79 61 - 9 438.1 22.5 460.6 27.1 13.0 — 1972 :6/1.72 57 - 51 143.0 24.1 167.1 9.3 — — 1973 :6/1.46 43 -270 59.9 — 59.9 3.2 — — 1974 :6/2.05 53 -204 36.5 .8 37.3 2.1 — —

1975 :6/2.05 45 -151 48.0 48.0 2.2 46.3 2.2 1976 : 6/2.29 47 - 44 495.0 .3 495.3 23.1 .1 "

— = Not applicable. ll Represents loans made, purchases, and purchase agreements entered into. 2_¡ Percentage of parity price as of the beginning of the marketing year. _3/ Support price ± season average price received by all farmers, table 19. kj Starting with 1964, crop includes direct purchases. 5_l Acquisitions through loan cancellations and purchases (under agreement and direct) from crop harvested in the year indicated. 6/ A loan level of $1.82 in 1963, $1.30 in 1964, and $1.25 from 1965 to 1973, plus the average marketing certificate payment per bushel paid to program participants. The 1974-76 price was a target price guarantee on allotment production—$1.37 (loan rate) on entire production for 1974 and 1975 and $2.25 (loan rate) on entire production for 1976.

Source: (71), (77_) , and (90).

69 Table 27~CCC wheat stocks by class 11

Year ; Hard Hard • Soft Balancing beginning ; Red Red Durum Red White ■ Mixed item Total July 21 ; Winter Spring ' Winter 2/

Million I)usneis\ 11 tfi r\ ^S 1 i^ —

1950 196.4 1951 143.4 1952 NOTA VAILABLE 470.0 1953 774.6 1954 975.9

1955 950.7 1956 669.6 148.9 0.3 11.8 126.6 4.6 961.8 1957 624.5 158.2 4.1 2.9 36.9 2.3 + 1.5 830.4 1958 596.4 173.9 16.9 4.5 30.8 2.4 + 3.4 828.3 1959 867.1 187.6 11.3 7.8 57.2 1.9 + 1.7 1,134.6

1960 : 931.6 181.9 9.1 2.0 64.4 1.7 + 8.7 1,199.4 1961 : 976.8 198.8 5.3 3.1 37.6 1.2 -17.4 1,205.4 1962 : 894.2 175.6 3/ 3.0 8.2 1.3 +11.0 1,093.3 1963 : 906.0 179.9 16.6 2.1 9.0 1.3 — 1,114.9 1964 : 613.0 205.6 33.1 .5 .7 1.0 — 853.9

1965 : 440.0 170.1 28.5 1.1 .5 .6 640.8 1966 : 196.9 166.0 36.9 1.2 1.3 .4 — 402.7 1967 : 65.3 55.9 4.8 .8 .4 .3 — 127.5 1968 : 54.5 44.9 .2 1.7 .7 .3 — 102.3 1969 : 124.4 42.3 .4 11.1 5.1 .3 — 183.6

1970 : 230.9 41.2 2.6 14.2 6.1 .4 __ 295.4 1971 : 291.6 41.2 5.7 5.0 1.1 .3 — 344.9 1972 : 295.0 45.8 9.9 3.6 .6 .4 — 355.3 1973 : 42.8 25.0 .9 1.1 .4 .3 — 70.5 1974 : 0 0 .1 .1 .1 .3 — .6

1975 : 0 0 0 0 0 0 0 1976 : 0 0 0 0 0 0 — 0

— = Not applicable. Ij Does not include binsites and all other positions. 2^/ Adjustment to bring amount reported by classes in line with amount reported in inventory. V Less than 50,000 bushels.

Source: (90).

70 Table 28—U.S. Government and free wheat stocks

Commodity CGC owned or controlled stocks Government Free Credit Crop : Total stocks as Stocks Sealed stocks Corp. year : Gurrent Previous carryin percent of owned under Government stocks year crop 1/ total 1/ bond IJ A/

Million biishels — — — Percent Mil. bu.

1950 : 327.7 28.5 5.0 361.2 63.5 424.7 85.0 4.9 1951 : 196.4 8.9 2.3 — 207.6 192.3 399.9 51.9 3.0 1952 143.3 11.6 — — 154.9 101.1 256.0 60.5 1.1 1953 : 470.0 22.5 — — 492.5 113.0 605.5 81.3 8.4 1954 774.6 71.4 3.9 — 849.9 83.6 933.5 91.0 110.7

1955 975.9 11.3 2.8 990.0 46.2 1,036.2 95.5 142.6 1956 950.7 27.6 1.3 — 979.6 53.9 1,033.5 94.8 125.4 1957 823.9 9.5 3.3 — 836.7 72.1 908.8 92.1 91.0 1958 832.9 14.8 3.4 — 851.1 28.3 879.4 96.8 78.3 1959 1,146.6 52.2 9.9 34.0 1.242.7 52.4 1,295.1 96.0 81.1

1960 1,195.4 26.4 34.6 31.0 1,287.4 26.0 1,313.4 98.0 63.5 1961 1,242.5 42.0 45.4 38.0 1.367.9 43.4 1,411.3 96.9 70.6 1962 :1,096,6 18.0 40.0 37.0 1.191.6 130.4 1,322.0 90.1 59.5 1963 :1,082.5 41.9 25.7 29.0 1,179.1 16.1 1,195.2 98.7 38.3 1964 : 828.9 16.6 36.0 10.0 891.5 9.9 901.4 98.9 12.7

1965 :5/607.7 47.8 26.9 682.4 134.9 817.3 83.5 11.0 1966 : 262.1 32.2 43.1 3.0 340.4 194.8 535.2 63.6 9.5 1967 : 123.6 32.6 37.1 8.0 201.3 223.7 425.0 47.4 1.0 1968 : 102.3 165.7 55.2 — 323.2 216.2 539.4 59.9 0.7 1969 : 162.7 278.7 174.2 — 615.6 202.9 818.5 75.2 .8

1970 : 301.2 179.7 251.6 732.5 152.2 884.7 82.8 1.2 1971 : 369.9 73.5 118.2 8.0 569.6 161.9 731.5 77.9 1.8 1972 : 367.4 190.4 143.6 13.0 714.4 148.7 863.1 82.8 1.9 1973 : 144.1 10.8 45.6 11.0 211.5 227.0 438.5 48.2 1.8 1974 : 18.9 .1 .1 ~ 19.1 228.3 247.4 7.7 .3

1975 , 1.3 1.0 — — 2.3 324.3 326,6 .7 .0 19766/ 665.3 665.3

— = Not applicable. _!/ Included open market purchases, if any, and accordingly may include some new-crop wheat. IJ Data not available prior to July 1, 1959 _3/ Derived by subtracting CGC stocks, loans outstanding, and sealed under bond from total carryin. kj Wheat owned by CGC and stored in bins or other storage owned or controlled by CGC. _5/ Beginning July 1, 1965, based on CGC uncommitted inventory rather than fiscal reports. 6^/ Crop year beginning June 1.

Source: (71), (77), and (90).

71 price never reaches the loan rate, the fanner delivers the wheat to the Government and thereby fulfills his obligation.

The other major program has been one of direct purchase. These purchases are made at suppport levels. The CGC then disposes of its stocks in several ways such as (1) cash sales on the domestic open market when the price permits; (2) domestic food disposal program; (3) cash exports—usually under a special commodity export program; and, (4) food aid abroad—the principal and most flexible outlet for GGG wheat stocks.

Government involvement in wheat production and marketing since 1950 has been costly. In price supports alone, the Government had three programs for wheat that required the expenditure of funds by the CGC: (1) price supports to producers; (2) dif- ferential payments to U.S. exporters when domestic prices were higher than those in foreign markets; and, (3) purchases of wheat products for donations. 31/ In addition, GGG paid farmers for acreage diversion and crop disasters, as well as marketing certificates. Total net GGG pa3nnents associated with wheat and wheat products from October 17, 1933, to September 20, 1977, were $8.8 billion, or 16.3 cents for each bushel of wheat produced during the 44-year period (table 29). The storage and handling costs of all commodities owned by the GGG peaked in 1961 when costs averaged $1,162,000 per day. Still, total GGG payments were less for wheat than for corn and cotton. Figure 19 breaks down the GGG's total costs by commodity between 1933 and 1977. The data in figure 19 do not include the cost of wheat-marketing certificate payments which, although sometimes shown as a GGG cost, were reimbursed in part by flour millers according to program provisions. Also, these data do not show some of the program costs prior to 1961 such as Soil Bank, acreage reserve, and conservation payments which could not be directly related to a particular commodity. The approximate proportion of these old program costs allocated to wheat totaled $1.4 billion (83).

The realized net cost of the GGG programs is reimbursed by Gongressional appro- priations in accordance with Public Law 87-155, approved August 17, 1961. Since 1950, a large proportion of the GGG's expenditures was for price support programs, with the payments going to producers. For example, between 1969 and 1971, over 80 percent of total GGG expenditures were for farm price supports. At the beginning of 1972 nearly half the GGG pa5rments were made in the form of export payments. However, producer set- aside payments have accounted for a large part of the total GGG operating costs since 1971 (table 30).

As shown in tables 27 and 28, most price support operations and loan programs for wheat were sharply reduced after the big reduction in carryover and the sharp market price increase in 1972 and 1973. Producers, many for the first time in their farming careers, went into the 1974/75 crop year with no planting restrictions and no promise of Government payments. 32/ The guaranteed target price was far below both the expected farm price and costs of production.

31/ The GGG purchases flour and other processed wheat products in the open market for donation domestically to nonprofit school lunch programs and summer camps for children, assistance to needy persons, charitable institutions, and certain penal and correctional institutions. Products are donated abroad for famine relief and other assistance. 32/ USDA announced in early 1973 the elimination of the mandatory set-aside require- ment except for farmers who elected to participate in the voluntary provision. This announcement was in time for spring wheat growers to respond and set the stage for successive increases in wheat acreage in 1973 and 1974.

72 Table 29—Realized loss and cost of Commodity Credit Corporation programs, 1933-77

Net total Net loss on Export Commodity : . Producer Other operating commodity inventory : payments payments of item : and loan operations results

Million dollars

Feed grains: : Corn (and products) : 2,913.6 13,274.0 31.7 889.7 17,109.0 Grain sorghum : 972.0 2,575.7 20.6 105.1 3,673.4 Barley : 222.6 554.4 24.1 77.1 878.2 Oats (and products) : 206.0 7.8 119.5 333.3 Rye (and products) : 33.0 4.4 1.9 39.3 Wheat (and products) 2,769.4 4,114.5 1,625.2 289.4 8,798.5 Rice 401.6 129.0 313.7 844.3 Other 10,051.8 7,907.5 1,156.4 489.7 19,605.4

Total 17,570.0 28,555.1 3,183.9 1,972.4 51,281.4

Other costs and losses: Operating expenses net (principally administrative) ! 0.0 1,615.7 1,615.7 Other (principally interest) : ~ — 6,007.0 6,007.0

Subtotal : ~ ~ 7,622.7 7,622.7

Wartime consumer subsidy program: : — ~ 2,102.3 2,102.3

Total other costs : — ~ 9,725.0 9,725.0

Grand total : 17,570.0 28,555.1 3,183.9 11,697.4 61,006.4

— = Not applicable.

Source: (74).

73 Table 30—U.S. wheat acreage allotment, diversion acres, and Government pa5rments

Acres Payments earned diverted National Conser- Crop under Acreage acreage vation Market- year national reserve .Diver- Disas- Set- Soil allotment reserve ing cer- Total wheat sion . ter aside bank tificate program

- Million acres - - - Million dollars - -

1950 68.9 „ „ __ __ „ ______1951 1/72.8 — — — — — — — — — 1952 11 — — — — — — — — — 1953 11 — — — — — ~ — — — 1954 62.0 — — — — — — — — —

1955 55.0 1956 55.0 — 12.2 1.4 — — — — 43 43 1957 55.0 — 21.4 6.4 — — — — 230 230 1958 • 55.0 — 17.2 9.9 — — — — 104 104 1959 • 55.0 — — 22.5 — — — — — 2./

1960 55.0 28.7 11 1961 55.0 — — 28.5 — — — — — 11 1962 55.0 10.7 — 25.8 286 — — — — 286 1963 55.0 7.2 — 24.3 163 — — — — 163 1964 1/53.3 5.1 — 17.4 33 — 410 — — 443

1965 53.3 7.2 14.0 37 472 509 1966 51.6 8.3 — 13.3 26 — 655 — — 681 1967 68.2 11 — 11.0 11 — 727 — — 111 1968 59.3 11 — 9.2 11 — 746 — — 746 1969 51.6 11.1 — 3.4 11 — 748 — — 856

1970 45.5 15.7 .1 62 809 871 1971 4/19.7 13.5 — 5/ 14 — — 886 — 900 1972 19.6 20.1 — A/ 152 — — 727 — 879 1973 18.7 7.4 — — 110 — — 375 — 485 1974 55.0 — — — — 103 — — — 103

1975 53.5 51 — — — 51 1976 61.6 — — — —— 143 — ^~' —^ 143

— = Not applicable. \J Proclaimed but suspended. IJ None. _3/ Marketing quotas voted out for 1964 and were not in effect in succeeding three years. 4-/ Agricultural Act of 1970 changed wheat allotments to domestic allotments for 1971, 1972, and 1973. 5J Less than 50,000 acres.

Source: (71) and (73).

74 Figure 19 Commodity Credit Corporation Costs by Commodity and Program, October 17, 1933 through September 30, 1977

Com and p«vH|n! corn products 17.1 I '!^^.^.'l^'.'■^^^^'.^'.^^^^^^^^!^!^!.!^^^^^^^^^^^^^^^^!^^^^^^?!?!v^ Cotton 11.0 Wheat and g, wheat products °° ^ Dairy products 5.7 Other . g Inventory and feed grains loan operations Oils and oilseeds 1.5 Set-aside payments

Rice 0.8 Export payments

Tobacco 0.3 Other I 10 15 20 Billion dollars Source: (74).

Export Programs

U.S. export programs were a part of the overall policy during the years of CGC price support activity. Government-controlled or concessional exports accounted for over 50 percent of all wheat exports in every year from 1954 to 1969 (table 31). Government stocks accounted for two-thirds of total wheat exports during years of large inventories.

According to the Agricultural Act of 1949 CCC sales in the domestic market were made at not less than 115 percent of the current average loan rate (with certain ad- justments) or the market price, whichever was higher, plus a reasonable carrying charge. Sales for export were made at the domestic market price plus transportation costs to the port of export. Most CGC sales were channeled into export markets. Since the big increase in domestic market price in 1972, a large portion of GGG-owned wheat has been sold in domestic markets.

The United States used export subsidies intermittently for over 50 years to compete in the world market. Subsidies ranging from 1 to 95 cents a bushel were paid to grain export companies so they could gain access to world trade channels (90). These subsidy pajmients ended in September 1972 when the U.S. price came in line with the world market price and, as of April 1974, regulations covering export subsidy payments were revoked.

CCC wheat was frequently donated or traded for foreign currency. During fiscal years 1955-73, $22.3 billion dollars worth of farm products was exported under P.L. 480. An additional $2.4 billion worth was shipped under Mutual Security Act programs, bringing the total to $24.7 billion, or 22 percent of all agricultural exports during the period (87). Wheat exports under Government programs exceeded cash sales in 1971 for the last time (table 31).

75 Table 31—U.S. wheat and wheat flour exports, by type of sale

Crop year : Conanercial 1/ : Government programs Total

: Mil. bu. Pet. Mil. bu. Pet. Mil. bu. Pet.

1950 : 193 52.7 173 47,3 366 100.0 1951 : 316 66.4 159 33.6 475 100.0 1952 : 278 90.7 30 9.3 318 100.0 1953 : 116 53.6 101 46.4 217 100.0

1954 : 116 42.2 158 57.8 274 100,0 1955 : 108 31.3 238 68.7 346 100,0 1956 171 31.1 388 68.9 549 100,0 1957 147 36.5 255 63.5 406 100,0

1958 142 31.8 301 58.2 443 .100,0 1959 138 26.9 372 73.1 510 100,0 1960 234 35.5 428 64.8 662 100,0 1961 21 225 3k, 4 494 68.6 719 100,0

1962 : 164 25.5 480 74.5 644 100,0 1963 351 41.0 505 59.0 856 100,0 1964 : 156 21.5 569 78.5 725 100,0 1965 : 298 34.1 569 65.9 867 100.0

1966 : 371 49.9 373 50.1 744 100.0 1967 : 284 37.3 477 62.7 761 100.0 1968 : 242 44.5 302 55.5 544 100.0 1969 : 277 45.7 329 54.3 606 100.0

1970 : 402 54.5 336 45.5 738 100.0 1971 : 314 49.8 318 50,2 632 100.0 1972 : 991 83.6 195 16,4 1 ,186 100.0 1973 : 1,084 94.4 64 5.6 1 ,148 100.0

1974 : 911 87.7 128 12.3 1 ,039 100.0 1975 : 1,000 89.1 122 10.9 1 ,122 100.0 1976 : 719 81.0 169 19.0 888 100.0 1977 : 843 80.0 211 20.0 1 ,054 100.0

\j Includes short-term CCC credit. 2] Beginning 1961, bulgur and rolled wheat (grain equivalent) are included.

Sources: (n), (77), and (90).

76 Public Law 480 evolved from a temporary measure of surplus removal in 1954 into (1) a major tool in trying to reduce hunger, (2) an effective instrument to stimulate foreign agricultural development, and (3) a means of support for U.S. foreign policy goals. The Food for Peace Act of 1966 emphasized self-help to recipient countries and called upon other highly developed countries to help bring the world food supply into balance with the increasing world population. As a result of the 1966 amendments, P.L. 480 food aid was no longer limited to surplus commodities. The 1966 amendments also provided for a transition from sales for foreign currencies to sales for dollars on credit terms. The Food and Agriculture Act of 1977 extended the P.L. 480 program through 1981, and expanded its scope to fill humanitarian food needs and encourage long-term agricultural and economic development.

Title I—Sales for Dollars on Credit Terms

The only new P.L. 480 agreements since 1971 have been the long-term credit sales (Title I) and grants and donations (Title II). Title 1 includes all concessional sales—that is, sales made at terms more favorable to the recipient country than to the commercial buyer. Title I sales agreements have been negotiated either for long- term credit (dollar credit) or for currencies convertible to dollars (convertible local currency credit). Countries purchasing wheat on dollar credit have up to 20 years to pay for it. Such agreements may also include a grace period of up to 2 years in which no principal is paid. Countries purchasing wheat on convertible local currency credit may take up to 40 years for repayment, including a 10-year grace period. In- terest rates under both types of financing are set by law at a minimum of 2 percent during the grace period and 3 percent thereafter. The minimum interest rates have been used for the majority of Title I sales agreements.

Wheat sales under Title I peaked in 1965 accounting for about 90 percent of all sales under Government programs at that time. Wheat sales under Title I in 1976 and 1977 accounted for about 85 percent of total P.L. 480 shipments. However, total sales under Government programs were much lower than in the decade earlier (table 31).

Title II—Foreign Donations

Title II provides authority for the donations program of Public Law 480 and is jointly administered by the U.S. Department of Agriculture and the Agency for Inter- national Development. It authorizes the Government to donate food to alleviate famine and for other urgent or extraordinary relief, including: (1) combating malnutrition, especially of children, (2) providing economic and community development in friendly areas, and (3) assisting needy persons and nonprofit school lunch preschool feeding programs abroad.

Food aid donations since 1950 have accounted for about 30 percent of all P.L. 480 shipments. U.S. wheat donated under the Title II program has been shipped to people in over 100 countries.

Shipments under Title II and its predecessor programs increased in importance between 1965 and 1973 (87). The program has been sharply curtailed since 1973. Title II wheat accounted for 15 percent of total shipments under Government programs in 1977.

Classes of Wheat Exported under Government Programs

Hard red winter wheat has dominated the export market, accounting for about one- half of total U.S. exports in recent years (table 32). Most exports of hard red winter wheat and durum are for cash. Nearly one-third of the hard red spring, soft red winter, and white wheat exports are exported under CCC credit arrangements or P.L. 480 in some years. CCC credit shipments have recently grown in relation to P.L. 480 wheat. For all classes, 10 to 20 percent of total inspections for export have been noncash

77 Table 32—U.S. wheat classes inspected for export

Wheat (gral n only) inspected for export 1/ Year and program ] Hard red Hard red ; Soft red ] Durum : White : Mixed : Total winter [ spring ; winter

Million bushels

1974/75: :

Dollars : 425.6 126.7 104.4 46.6 162.5 4.5 870.3 CGC credit : 7.4 — — — — — 7.4

Total commercial : 433.0 126.7 104.4 46.6 162.5 4.5 877.7

P.L. 480 41.1 .4 24.4 — 25.2 3.0 94.1

Total 474.1 127.1 128.8 46.6 187.7 7.5 971.8

1975/76:

Dollars 505.2 151.1 103.7 50.7 188.6 0.8 1,000.1 CGC credit 11.9 2.6 3.8 — 6.8 — 25.1

Total commercial 517.1 153.7 107.5 50.7 195.4 .8 1,025.2

P.L. 480 36.6 .4 49.3 ~ 10.2 .9 97.4

Total 553.7 154.1 156.8 50.7 205.6 1.7 1,122.6

1976/77:

Dollars 312.2 111.6 116.0 39.6 138.9 0.3 718.6 GGG credit 32.4 .7 4.8 — 11.0 — 48.9

Total commercial 344.6 112.3 120.8 39.6 149.9 .3 767.5

P.L. 480 36.9 4.9 50.9 — 27.6 2/ 120.3

Total 381.5 117.2 171.7 39.6 177.5 .3 887.8

1977/78:

Dollars : 435.9 130.2 101.8 56.9 111.7 6.3 842.8 CGC credit : 33.3 15.1 32.9 1.5 32.6 — 115.4

Total commercial : 469.2 145.3 134.7 58.4 144.3 6.3 958.2

P.L. 480 : 22.4 2.8 49.1 2/ 21.2 ~ 95.5

Total : 491.6 148.1 183.8 58.4 165.5 6.3 1,053.7

— = Not applicable. 1/ Based on weekly reports of inspections for export. Does not include rail or truck movements to Canada or Mexico. 2/ Less than 50,000 bushels. Source: (90). 78 sales. Exports in 1977 accounted for the following percentages of production: hard red winter, 49.3; hard red spring, 37.4; soft red winter, 55.5; durum, 71.2; and white, 78.4.

Import Restrictions

Annual U.S. imports of wheat have been small relative to exports, less than 5 million bushels (100,000 metric tons) since 1962. Imported wheat was required to come through the U.S. Customs Service, and was controlled by a tariff and quota system throughout most of the period studied (98). The United States had imposed import quotas on wheat and flour until 1974. However, with the extremely high demand, low stocks, and high prices of 1973, President Nixon suspended import quotas for wheat and milled wheat products in mid-1974. Import duties of 21 cents per bushel of wheat and 51 cents per hundredweight of flour continued.

Under the U.S.-imposed import restrictions, Canada held by far the largest quota, 795,000 bushels (21,600 metric tons) of wheat, and 3.8 million pounds (1.7 million kilograms) of processed products (table 33). The total quota was set at 800,000 bushels (21,800 metric tons) of wheat and 4 million pounds (1.8 million kilograms) of wheat products. With quotas so small, merchants tended not to import, even when world prices favored imports, because of the inefficiencies of handling such small volumes. Yet, imports could have served to supplement the U.S. supplies in times of unusually low inventories or unusually high prices.

Future Policy

With the increasing importance of world trade and the growing effect of exports on U.S. farm policy, wheat production and marketing policies of other major producing countries gain new significance. Likewise, the demand of importing countries must be taken into consideration. These concerns may, in time, lead to an international agricultural production policy. In the meantime, information gained by crop forecasting from satellites may make it possible to estimate more accurately world wheat production, thereby preventing large shortages and surpluses from taking the world by sur- prise (19) .

An international grain reserve program may play a major role in future U.S. wheat policy. An international distribution system may be devised involving export quotas and price incentives to help stabilize production worldwide. The urgency of such a program is related to the rate of world population growth (67). The success of this type of program depends on the willingness of countries involved in world trade to share the burden of long-term wheat storage. There is usually no economic advantage in long-term storage. Yet there is a moral, or humanitarian, responsibility to store wheat in years of plenty for use in years of scarcity.

A continuation of some type of domestic price support system may be needed if prices in the free market continue to hover near or below the longrun average cost of production. Future policy will also likely be more attuned to consumer concerns than in the past. Price support programs heretofore have served primarily to place a floor under farm prices. No such protection has been afforded consumers in times of high wheat prices. Thus, to be more effective, future public policy may include protection against severe price fluctuations for both the producer (price floors) and the consumer (price ceilings).

79 Table 33—U.S. import quotas for wheat and milled wheat products _!/

Import quotas Import quotas

Wheat flour, \ Wheat flour. semolina, * semolina, Country [ crushed or [ Country \ crushed or Wheat cracked \ Wheat cracked wheat, and [ wheat, and similar wheat * similar wheat products ] products

Bushels Thousand pounds : Bushels Thousand pounds

Canada 795,000 3,815 : : Greece 1 China — 24 : iMexico 100 1 Hungary — 13 :Panama — 1 Hong Kong — 13 : : Uruguay — 1 — : Poland and Danzig — 1 o00 Japan 8 : United Kingdom 100 75 : : Sweden — 1 Australia — 1 : :Yugoslavia — 1 Germany 100 5 : ¡Norway — 1 Syria : 100 5 : ¡Canary Islands — 1 New Zealand : 1 : ¡Romania 1,100 — Chile : 1 : ¡Guatemala 100 — Netherlands : 100 1 : ¡Brazil 100 — Argentina : 2,000 14 : ¡USSR 100 — Italy : 100 2 : ¡Belgium : 100 — Cuba : 12 : France : 1,000 1 : ¡ Total 800,000 A, 000

— = Not applicable. 1/ Quotas in force until January 1, 1974.

Source¡ (98). WORLD PRODUCTION, CONSUMPTION, AND TRADE

Wheat occupies about one-fourth of the world's cropland and provides about one- fifth of all calories consumed by humans. It accounts for nearly 30 percent of the world's grain production and over 50 percent of total world grain trade. The value of wheat exports is an important factor in the balance of payments of major exporting countries. Wheat and other grain products usually account for a larger percentage of total food consumption in importing countries than in exporting countries.

Some factors that affect world trade—weather, yield, acreage—are the same as those that affect domestic wheat trade. Additional factors like tariffs, quotas, foreign exchange, and diplomacy also affect world trade.

World wheat production and trade have been unstable in recent years. The world food situation became critical in 1972 mainly because of bad weather, but also because of other events that compounded the effects of weather. The unprecedented boom in economic activity in developed countries led to a high demand for commodities. World- wide inflationary forces coupled with monetary instability and speculative activities created a tight food situation. World cereal prices rose sharply from 1972 to 197A. In spite of the generally good harvest in 1973, prices of wheat, rice, and other sta- ples more than doubled. Prices rose even higher by 1974 and then abated somewhat over the next few years.

Such price increases as took place from 1972 to 1974, while greatly helping the balance of payments in the exporting countries, inflict particular hardship on people in developing countries who spend the major part of their income for food. In 16 countries, the increase in food bills between 1972 and 1974 was more than 30 percent of their gross export earnings (66). When importing countries, especially developing countries, need wheat the most, they can often least afford it.

Production

World wheat production more than doubled from 1950 to 1977, increasing from 172 million to 382 million metric tons. During the same period, world trade increased from 28 million to 73 million metric tons, or 261 percent. In 1950, 16 percent of world production was moved into world trade channels and, in 1977, 19 percent was channeled into export markets. The U.S. share of the world wheat and wheat flour market was largest in 1973 and 1975, when it reached 43 percent.

Wheat is produced in most countries and is therefore harvested somewhere in the world in nearly every month of the year (fig. 20). Most wheat in the Northern Hemi- sphere is harvested between February and September, whereas wheat in the Southern Hemi- sphere is generally harvested in November, December, and January. The United States, Canada, Australia, and Argentina are the world's major exporters. (In some years, France and the USSR have also been large wheat exporters.)

Yield increases have been more responsible for increasing world wheat production since 1950 than have increases in cropland area. About 427 million acres of wheat (173 million hectares) yielding 14.9 bushels per acre (1 netric ton per hectare) were harvested in 1950. By comparison, 563 million acres (228 million hectares) yielding 24.9 bushels per acre (1.67 metric tons per hectare) were harvested in 1977. Yields increased 67 percent while area increased only 32 percent. In 1978, yields were projected at 1.93 metric tons per hectare and production at 436 million metric tons.

Wheat production in North America and Western Europe has declined relative to the rest of the world since 1950. These two areas accounted for 41 percent of world production in 1950 but only 33 percent in 1977. By contrast, the proportion of wheat produced in Eastern Europe, including the USSR, and Asia has increased (table 34).

81 Figure 20

Worldwide Wheat Sowing and Harvesting Seasons Regions Month ASONDJFMAMJJASQNDJ Afghanistan _► ^

Argentina ^ ^

Australia ■>

Austria . ! ^

Bulgaria and Romania ^ ——►

Canada ^ ^ ^

Chile ^ ^

China ^ ^^ ^

European Economic Community » ^ _►

Greece ^ ^

Hungary » _>.

India » _►

Japan _.—-►_ ^

Mexico » ^

Morocco ^ ^

Pakistan -_► ^

Poland ^ --► —>.

Scandinavia ^ ^ ^

Republic of South Africa » >

Spain and Portugal '. _► ^

Turkey ^ ^ ^

United Arab Republic ^ ^

United Kingdom ^ ^ ^

United States » .►«. ^

Union of Soviet Socialist Republics » .^«. _►

Fall Sowing Spring Sowing Harvesting ^ > ^ The seasons begin with the fall sowing in the northern hemisphere; and the span is 18 months. This represents the major sowing and harvesting periods only. A small amount of summer wheat is also grown in the Republic of South Africa. Source: (39).

82 Table 34—World wheat production

North ; South Eastern \ Western! Year Africa : Asia : Oceania : Total America [America \_l \ Europe 2j \ Europe

Million metric tons

1950 40 9 5 36 5 44 29 168 1951 42 5 5 40 5 48 28 173 1952 55 11 5 42 5 57 31 206 1953 49 10 6 43 6 57 33 204

1954 36 12 6 48 5 54 34 195 1955 40 10 6 49 5 62 35 207 1956 43 11 6 53 4 80 30 227 1957 37 9 6 55 3 75 37 222

1958 : 50 10 6 54 6 91 37 254 1959 43 9 6 54 6 87 39 244 1960 51 8 6 50 8 81 36 240 1961 41 9 5 48 7 83 34 227

1962 45 9 7 54 9 88 44 256 1963 51 13 6 54 9 67 37 237 1964 51 16 6 57 10 92 43 275 1965 53 11 6 60 7 82 45 264

1966 58 11 5 59 13 123 40 309 1967 57 12 6 64 8 103 47 297 1968 60 11 9 68 15 119 47 329 1969 58 12 7 72 11 105 45 310

1970 46 11 8 76 8 123 44 316 1971 58 12 9 80 9 129 51 348 1972 : 57 11 10 91 7 117 51 344 1973 63 12 8 85 12 141 51 372

1974 62 12 8 75 12 118 57 344 1975 75 15 9 94 12 95 49 349 1976 85 16 10 109 12 132 51 415 1977 77 9 8 104 10 127 48 383

1/ Includes Central America. 21 Includes the USSR.

Sources: (80, (82), and (86).

83 Eastern Europe and Asia accounted for 48 percent of total world production in 1950 and for 60 percent in 1977 (fig. 21).

The USSR leads all countries in wheat production, having increased its production from 31 million metric tons in 1950 to 96.9 million tons in 1976. USSR production in 1977 was 92 million metric tons. The United States is the second largest wheat- producing country. Whereas Soviet production tripled during the period studied, U.S. production only doubled. Production in France, Canada, Argentina, and Australia increased at about the U.S. rate. Production in China, India, and Turkey increased at or above the USSR rate. Italy's production remained nearly constant during the period studied. Ten countries accounted for 77 percent of the total world wheat production in 1976 and 76 percent in 1977 (table 35). Major production gains are occurring in the USSR, China, and India, three of the largest potential markets for U.S. wheat.

The major hard red winter wheat-producing regions are the United States, southern European Russia, the Ukraine, Australia, China, Europe, central India, and northern Africa. Australia and Argentina grow a medium hard wheat, 9 to 13 percent protein, that falls between the U.S. hard and soft classes. This wheat is often used for blending with other wheats. Hard red spring is the major wheat produced in Canada and the USSR. China is also a major producer of hard red spring wheat.

The soft wheats, red and white, are grown in the United States, Europe, Australia, Asia, and Latin America. Excluding that grown in the USSR and China, world soft wheat and world hard wheat production are nearly equal. The European Economic Community alone accounts for about 40 percent of the world's soft wheat production.

Major areas of durum wheat production are the United States, Canada, Argentina, the USSR, northern Africa, and southern Europe.

Figure 21 World Wheat Production, 1950 and 1977 Western Europe Eastern Europe ncluding USSR

World total = 100%

84 Table 35—Wheat production in selected countries

United ; Year USSR : China : India : France : Canada : Australia: Turkey Italy : Argentina States ;

Million metric tons

1950 27.7 31.0 14.5 6.8 7.7 12.7 5.0 4.0 7.8 5.8 1951 26.9 32.4 17.2 6.8 7.1 15.1 4.3 5.7 7.0 2.1 1952 35.6 43.8 18.1 6.3 8.4 19.1 5.3 6.6 7.9 7.6 1953 31.9 41.3 18.3 7.6 9.0 17.3 5.4 8.1 9.1 6.2

1954 26.8 42.4 23.4 8.1 10.6 9.0 4.6 5.0 7.3 7.7 1955 25.5 47.3 23.0 9.1 10.4 14.1 5.3 7.0 9.5 5.2 1956 27.4 67.4 24.8 8.9 5.7 15.6 3.7 6.5 8.7 7.1 1957 26.0 58.1 23.6 9.5 11.1 10.7 2.7 8.4 8.5 5.8

1958 39.7 76.6 24.8 8.0 9.6 10.8 5.9 8.7 9.8 6.7 1959 30.4 69.1 23.9 10.0 11.5 12.1 5.4 8.0 8.5 5.8 00 1960 36.9 64.3 21.0 10.3 11.0 14.1 7.4 7.0 6.8 4.0 Ln 1961 33.5 66.5 16.0 11.0 9.6 7.7 6.7 6.3 8.3 5.7

1962 29.7 70.8 20.5 12.1 14.1 15.4 8.4 6.8 9.5 5.7 1963 31.2 49.7 22.4 10.8 10.2 19.7 8.9 7.9 8.1 8.9 1964 34.9 74.4 25.3 9.9 13.8 16.3 10.0 7.0 8.6 11.3 1965 35.8 59.7 25.2 12.3 14.8 17.7 7.1 7.4 9.8 6.1

1966 35.5 100.5 27.7 10.4 11.3 22.5 12.7 8.2 9.4 6.2 1967 41.0 77.4 28.2 11.4 14.3 16.1 7.5 9.0 9.6 7.3 1968 42.4 93.4 25.4 16.5 15.0 17.7 14.8 8.4 9.7 5.7 1969 39.2 79.9 27.2 18.7 14.5 18.3 10.5 8.3 9.6 7.0

1970 36.8 99.7 31.3 20.1 12.9 9.0 7.9 8.0 9.6 4.9 1971 44.0 98.8 30.7 23.8 15.5 14.4 8.6 10.7 10.0 5.7 1972 : 42.0 86.0 35.9 28.4 18.1 14.5 6.6 9.5 9.4 6.9 1973 : 46.4 109.8 34.4 24.7 17.8 16.5 12.0 8.0 8.9 6.6

1974 : 48.9 83.9 37.0 21.8 19.1 13.3 11.4 8.3 9.7 6.0 1975 : 58.1 66.1 38.7 24.2 15.0 17.1 11.8 11.5 9.6 8.6 1976 : 58.3 96.9 45.0 28.8 16.1 23.6 11.7 13.0 9.5 11.0 1977 : 55.1 92.0 40.5 29.1 17.4 19.7 9.4 13.5 6.6 5.2

SourceiB: (80), a32), and (8(3). Consumption

Food uses account for approximately two-thirds of the world wheat demand. Feed and other uses account for the remainder, with the USSR alone accounting for half or more of the wheat used for feed worldwide.

World wheat consumption has increased at an average annual rate of 3.6 percent since 1960, while production has increased at a rate of 3.3 percent. Production exceeded demand in only 8 years of 18, from 1960 to 1977 (table 36). 33/ The inability of world production to keep pace with consumption resulted in major stock reductions, especially when back-to-back deficits in production occurred. World stocks were reduced by 35.5 million tons from 1961 through 1965; the net reduction was 51.4 million tons from 1969 through 1972. Such periods of back-to-back years of deficit production are largely unpredictable, and often lead to hunger and starvation in developing countries.

World consumption estimates for wheat are available only for feed and total use. Since the figure for total consumption includes feed, food, seed, industrial, and any waste or spoilage in the marketing process, it is not possible to project total or per capita food consumption by country. However, if no decrease in per capita consumption is assumed, it is possible to estimate the minimum expected growth in each country, using population data. The annual percentage changes in population growth between 1970 and 1975 for 16 of the largest wheat consuming countries were (95):

Country Percent Country Percent

Algeria 3.2 Italy .8 Brazil 3.0 Japan 1.2 China 1.7 Korea, Republic of South 2.1 Egypt 2.2 Netherlands .8 Germany .4 Pakistan 3.0 India 2.1 Poland .9 Indonesia 2.6 United Kingdom .2 Iran 2.6 USSR .9

These annual rates of growth compare with 0.8 percent for the United States and 1.9 percent for the world. They provide some indication of future market growth based on population change, although they do not consider changes in per capita consumption or changes in production within the country.

World Trade

Total world wheat and flour trade increased threefold from 1950 to the midseven- ties. U.S. exports accounted for about 40 percent of total wheat and flour trade throughout the period. Four countries—the United States, Canada, Australia, and Argentina—accounted for 80 to 90 percent of total world trade in most years since 1950.

Seventeen countries imported 1 million metric tons or more in either 1975 or 1976 (table 37). These countries accounted for about 70-75 percent of the wheat shipments of the four largest exporters.

33/ World production is purposefully reduced in some years to prevent large stock accumulations. Nevertheless, the vagaries of weather can, at any time, negate human ability to obtain production increases.

86 Table 36—World production and consumption of wheat

Crop year : Production : Consumption : Balance

Million metric tons

1960 : 240.2 238.4 1.8 1961 : 225.7 234.7 - 9.0 1962 255.6 252.3 3.3 1963 236.3 245.9 - 9.6

1964 272.6 274.0 - 1.4 1965 265.8 284.6 -18.8 1966 : 307.5 282.7 24.8 1967 : 295.8 292.0 3.8

1968 ! 328.4 304.2 24.2 1969 : 309.7 326.7 -17.0 1970 : 315.4 338.7 -23.3 1971 : 348.7 341.8 6.9

1972 : 343.4 361.4 -18.0 1973 : 372.2 364.0 8.2 1974 : 357.0 363.4 - 6.4 1975 : 350.0 352.8 - 2.8

1976 : 415.6 376.2 39.4 1977 : 381.6 391.6 -10.0

Source: (90),

87 Table 37—World wheat and flour trade by major country of origin and destination

Origin Tot al Destination Total four Argent ina All other 75/76 76/77 1/ United States Canada Australia countries 76/77 75/76 76/77 .75/76 76/77 75/76 76/77 75/76 76/77 75/76 75/76 76/77

1,000 metric tons

Japan : 3,3A4 3,153 1,602 1,329 1,121 1,159 0 0 6,067 5,641 5 0 6,072 5,641 USSR : 3,966 2,891 3,163 1,183 1,288 369 1,156 139 9,573 4,582 0 1 9,573 4,583 Egypt : 1,228 2,072 3 214 1,008 1,001 0 63 2,239 3,350 1,461 675 3,700 4,025 India : 4,180 2,027 470 149 314 1,260 0 0 4,964 3,436 877 140 5,841 3,576

United Kingdom 418 76 1,214 1,277 72 0 0 0 1,704 1,353 2,969 1,967 4,673 3,320 China 0 0 1,205 1,920 1,020 761 0 477 2,225 3,158 0 0 2,225 3,158 Italy 504 322 386 550 0 148 358 603 1,544 1,623 805 1,206 2,349 2,829 Brazil 2,582 617 524 975 0 0 571 1,055 3,677 2,647 59 0 3,736 2,647

Poland 716 496 350 773 0 0 0 629 1,066 1,898 579 617 1,645 2,515 West Germany 1,216 538 103 371 0 0 50 54 1,369 963 1,392 1,224 2,761 2,187 Korea, Rep. of S. 1,475 1,991 17 41 14 70 0 0 1,506 2,102 0 0 1,506 2,102 Netherlands 1,340 629 72 257 0 0 58 24 1,470 910 838 679 2,308 1,589

Algeria 848 359 82 428 0 0 61 207 991 994 677 379 1,668 1,373 Iran : 150 1,181 0 0 84 0 0 0 234 1,181 18 43 252 1,224 Indonesia 538 327 21 152 256 529 0 0 815 1,008 32 -1 847 1,007 Morocco : 440 323 73 21 0 0 0 375 513 719 913 110 1,426 829

Pakistan : 678 204 216 58 121 32 0 0 1,015 294 111 56 1,126 350

Subtotal : 23,623 17,206 9,797 9,698 5,298 5,329 2,254 3,626 40,972 35,859 10,736 7,096 51,708 42,955

All other : 7,907 8,538 2,336 3,184 2,622 3,186 929 1,969 13,793 16,877 4,695 4,344 18,488 21,221

World total : 31,529 25,744 12,133 12,382 7,920 8,515 3,183 5,595 54,765 52,736 15,431 11,440 70,196 64,176

ll Includes all countries importing 1 million metric tons or more in 1975/76 or 1976/77.

Source: (81). In two periods, 1957-59 and 1967-74, the U.S.^ market share declined while that of the other exporting countries increased, reaching a high of 43 percent in 1969 (table 38). The U.S. share increased from 29 percent in 1971 to about 44 percent in 1972, primarily because of the large sale to the USSR.

One of the factors responsible for the sharp increase in U.S. wheat prices in 1973 was the sharply falling value of the dollar in relation to other currencies. Even though foreign buyers were faced with much higher U.S. prices in terms of dollars, those high prices did not seem so high in their own currencies, and they were encour- aged to continue to buy wheat. The 1973/74 dollar was under much pressure due to national and worldwide inflation, while at the same time, the gold market was strong. The U.S. wheat futures markets sometimes appeared to move up or down as the value of gold changed. The relationship between wheat and gold prices (and, indirectly, the value of the U.S. dollar) was never closer than during this time (39). By 1978, however, gold bullion on the London market had reached a record high $207 per ounce, and the U.S. dollar had reached new lows on foreign markets. As the U.S. dollar dropped in value relative to foreign currencies in the late seventies, foreign buyers again became interested in U.S. wheat (64). When the dollar is strong relative to other currencies, importers look elsewhere for wheat, U.S. wheat prices decline, and the Government enacts financing plans like P.L. 480. The impact of currency value on prices would be greater except for the relatively inelastic demand for wheat (26), (52), and (56). "~

Pricing in International Trade

U.S. wheat must compete with that of other major exporting countries. Our major competitors by class of wheat are: hard red winter, Australia and Argentina; soft red winter, Australia and European Economic Community; hard red spring, Canada; white, Australia; and durum, Canada and Argentina.

The pricing system serves to equalize values and considers both volume of sales and degree of substitution. The real test of a country's merchandising ability is its success in marketing competitively-priced wheat. When domestic prices are above world prices, it is difficult to move wheat onto the world market. When wheat is placed on the world market at prices below the world price, charges of dumping are made by competing countries. Competition between exporting countries becomes particularly intense when the world carryover is large (48). At such time, price relationships of wheat offered by competing countries are especially important because it is more difficult for exporters to find market outlets than it is for importers to find wheat.

The relationship between wheat prices in the world market is not constant. De- pending on supply-demand balances, weather conditions, and export restrictions, relative prices of wheat classes and types will change (39) and (63).

One method used to stabilize both the quantity and the price of wheat moving in international trade over much of the last quarter century was the International Wheat Agreement (IWA). Over 50 nations are involved in this agreement, representing 80 to 90 percent of the wheat traded in world markets. The IWA, renewed periodically through 1979, was originally intended as a contract between specific importers and exporters, fixing quantities and price ranges. However, the inability of member nations to agree on price has plagued the IWA throughout its existence. Following is a brief history of the pricing problem.

Over half the world wheat exports in 1948/49 were traded under the IWA, with the United States accounting for 37 percent of the sales. The price range was set at $1.50 to $1.80 per bushel. However, prices did not return to low prewar levels as expected, and in 1953 the maximum was raised to $2.05. Then, in 1956, the maximum price was lowered to $2 at the insistence of the United Kingdom, the recipient of many of

89 Table 38—Volume and percent of total world wheat and flour exports by major wheat-producing countries

Crop year : United States : Canada Australia : Argent:Lna : Other countries : Total

Mil. M.T. Pet. Mil. M.T, Pet. Mil. M.T. Pet. Mil. M.T. Pet. Mil. M.T. Pet. Mil. M.T.

1950 10.0 39.1 6.0 23.4 3.5 13.7 2.8 10.9 3.3 12.9 25.6 1951 : 12.9 44.6 9.4 32.5 2.7 9.3 .8 2.8 3,1 10.7 28.9 1952 8.6 32.0 10.7 39.8 2.7 10.0 .8 3.0 4.1 15.2 26.9 1953 : 5.9 24.7 7.8 32.6 1.9 7.9 3.0 12.5 5.3 22.2 23.9

1954 : 7.5 28.3 6.9 26.0 2,5 9.4 3.6 13,6 6.0 22,6 26.5 1955 : 9.4 32.4 7.9 27.2 2,8 9.6 3.1 10.7 5.8 20,0 29.0 1956 : 15.0 41.3 7.7 21.2 3.4 9.4 2.7 7.4 7.5 20,7 36.3 1957 : 11.0 33.8 8.6 26.5 1.7 5.2 2.1 6.5 9.1 28,0 32.5

1958 12.1 33.9 8.2 23.0 2.0 5.6 2.8 7.8 10.6 29,7 35.7 vo 37.6 7.6 20.5 3.3 8.9 2.1 5.7 10.1 27,3 37.0 o 1959 13.9 1960 18.0 42.0 9.3 21.7 5.0 11.6 1.9 4.4 8.7 20,3 42.9 1961 19.7 41.0 9.9 20.6 6.3 13.1 2.4 5.0 9.7 20,2 48.0

1962 17.4 39.7 9.0 20.5 5.0 11.4 1.8 4.1 10.6 24,2 43.8 1963 23.1 40.8 15.0 26.5 7.8 13.8 2.8 4.9 7.9 14,0 56.6 1964 19.6 38.4 11.8 23.1 6.4 12.5 4,3 8.4 9.0 17,6 51.1 1965 23.4 37.4 14.9 23.8 5.7 9.1 7,9 12.6 10.7 17.1 62.6

1966 : 20.0 34.8 14.8 25.8 6.9 12.0 3.1 5.4 12.6 22,0 57,4 1967 : 20.2 37.8 8.9 16.6 7.0 13.1 1.4 2.6 16.0 29.9 53.5 1968 : 14.7 29.9 8.7 17.7 5.4 11.0 2,7 5.5 17.7 36.0 49.2 1969 : 16.5 28.2 9.0 15.4 7.4 12.6 2.1 3.6 23.5 40.2 58.5

1970 19.8 33.7 12.6 21.5 9.5 16.2 1.6 2.7 15.2 25.9 58.7 1971 16.9 28.8 15.8 26.9 8.7 14.8 1.3 2,2 16.0 27.3 58.7 1972 : 31.8 43.7 15.6 21.5 5.6 7.7 3.4 4,7 16.3 22.4 72.7 1973 31.1 45.3 11.7 17.0 5.4 7.9 1.1 1,6 19.4 28.2 68.7

1974 28.0 41.2 11.2 16.5 8.2 12.1 2.2 3,2 18.4 27.1 68.0 1975 ; 31.5 44.9 12.1 17.2 7.9 11.2 3.2 4.6 15.5 22.1 70.2 1976 : 25.7 40.0 12.9 20.1 8.5 13,2 5.6 8.7 11.5 17.9 64,2

Sources: ( 80) and (81) , the wheat shipments in the years following World War II. The IWA maximum price was reduced to $1.90 by 1959, a level at that time favored by most importers.

Two significant changes were made in the IWA in 1959. Quotas accepted by each importing country were expressed as a percentage of the country's total wheat imports rather than in absolute terms and exporters were guaranteed neither definite quantities nor a percentage of total sales. The latter change reduced the effectiveness of the IWA. Meanwhile, surpluses were growing throughout the world. The U.S. farm price in 1962 was $2.0A. In order to move U.S. wheat into world markets, an average export payment (see glossary) of 72-81 cents was paid in 1956; 46-55 cents in 1959; and 55-63 cents in 1962, the exact amount depending on the type of wheat (90).

Under the IWA, an effort was made to relate major wheat prices to the stated price for a particular kind and location of wheat. This agreement became more important as a reflector of price policy than as a determinant of price. Actual control over the postwar international wheat market was maintained by the United States and Canada, with Canada being the price leader (18). Competition between the United States and Canada was keen during the early sixties. As market development activities turned from cooperative to competitive, the IWA lost much of its effectiveness. Another key policy change in the IWA occurred in 1964 when the United States decided to sell wheat to Japan at less than the Canadian price. The reason for this policy was twofold: to stimulate declining U.S. cash wheat exports and to regain a market originally developed by the United States. Under the United States' new competitive policy, wheat prices were reduced 20 to 25 cents per bushel below those of other exporters.

U.S. objectives as stated in the 1965 IWA negotiations were in response to recent circumstances in world markets. Specifically, those objectives were to (1) assure access to world markets, (2) obtain a more equal sharing of world supply controls 34/ and (3) distribute the burdens of food aid among developed nations. The U.S. competitive price policy worked well from 1964 to 1967, during which time U.S. wheat surpluses decreased from 993.5 million bushels to 512.8 million bushels (table 5). World wheat prices dropped, as did world production. The low-price strategy also reduced surpluses from which food aid to developing countries had been granted.

Following the Kennedy Round negotiations of General Agreement on Tariffs and Trade (GATT), the International Grains Agreement (IGA) of 1967 was put into effect in mid- 1968. The IGA contained two separate conventions: the Wheat Trade Convention (WTC) and a Food Aid Convention (FAC). The WTC established several basing points for determining pure relationships for different kinds and locations of wheat. A Prices Review Committee was established on set world wheat prices. The wheat price range was increased by about 20 cents. Member countries of the FAC agreed to provide 4.5 million tons of grain annually for food aid, of which less than 50 percent was to be provided by the United States. This agreement represented a major step toward having all major wheat-producing countries share responsibility for stabilizing wheat surplus and providing food aid. However, in July 1969, agreed-upon price minimums were not ad- hered to by some exporting nations and there has been no operational mechanism in the IWA since that time. Nevertheless, the Food Aid Convention has continued to operate.

Essentially the agreement was extended for another 3 years in 1971. Similar agreements were signed in 1974 and 1976 with member countries agreeing to a fourth extension in 1978—a 1-year extension to June 30, 1979. Major areas of disagreement continue to be centered around prices as well as the size and allocation of world wheat reserve stocks.

34/ U.S. wheat acreages had been reduced in response to the worldwide surplus. This surplus had been kept off the market by U.S. storage and surplus disposal programs. While the U.S. government was paying the bill for storage and disposal programs, wheat acreage in the rest of the world was rapidly increasing.

91 Future Trade

Projected increases in the world population suggest a continued increase in demand for food. Part of the increase in demand for wheat may be met by increasing acreages and yields in importing countries. Most of the increase, however, will probably be met by the major exporting countries. Currently, the U.S. capacity to produce—a capacity that has never really been tested—exceeds its share of the world trade and domestic needs. Its continued ability to produce in excess of immediate demand will depend on many factors. According to recent trends (fig. 4), U.S. wheat yields may be level- ing off. Therefore, unless some technological breakthrough results in increased yields, future increases in U.S. wheat production and trade will largely depend on added acres.

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97 Appendix table 1—U.S. wheat acreage harvested, yield and production

Area harvested Yield Production State [ ^ , 1975 ; 1976 ; 1977 1975 1976 ; 1977 1975 1976 1977

Li. 000 acres Bushels - - - - 1_ 000 bushels - - Alabama 105 85 90 24.0 27.0 28.0 2,520 2,295 2,520 Arizona 260 431 140 70.0 75.0 72.0 18,200 32,325 10,080 Arkansas : 450 630 660 30.0 39.0 39.0 13,500 24,570 25,740 California 1,001 940 678 61.2 63.5 64.5 61,241 59,720 43,700 Colorado : 2,495 2,440 2,575 22.6 21.8 22.2 56,263 53,200 57,100

Delaware : 51 40 34 34.0 25.0 31.0 1,734 1,400 1,054 Florida : 13 14 13 25.0 30.0 29.0 325 420 377 Georgia : 135 115 100 27.0 31.0 33.0 3,645 3,565 3,300 Idaho 1,350 1,430 1,190 44.5 47.8 42.6 60,050 68,320 50,730 Illinois 1,730 1,850 1,590 39.0 39.0 43.0 67,470 72,150 68,370

Indiana : 1,400 1,500 1,240 44.0 36.0 45.0 61,600 54,000 55,800 Iowa : 100 130 85 34.0 35.0 37.0 3,400 4,550 3,145 Kansas : 12,100 11,300 12,100 29.0 30.0 28.5 350,900 339,000 344,850 Kentucky : 320 330 274 34.0 31.0 37.0 10,880 10,230 10,138 Louisiana : 16 23 27 16.0 33.0 34.0 256 759 918

Maryland : 156 138 118 34.0 38.0 37.0 5,304 5,244 4,366 Michigan : 900 870 825 38.0 38.0 40.0 34,200 33,060 33,000 Minnesota : . 2,867 4,056 3,327 30.8 32.2 39.6 88,368 130,482 131,894 Mississippi : 122 120 105 24.0 29.0 34.0 2,928 3,480 3,570 Missouri : 1,470 1,760 1,550 33.0 33.0 39.0 48,510 58,080 60,450

Montana 4,975 5,415 5,060 31.3 30.9 25.9 155,925 167,295 130,920 Nebraska 3,070 2,950 2,950 32.0 32.0 35.0 98,240 94,400 103,250 Nevada 31 31 28 58.7 54.1 55.7 1,820 1,677 1,560 New Jersey 54 55 42 36.0 42.0 31.0 1,944 2,310 1,302 New Mexico 440 262 425 26.0 26.0 21.5 11,440 6,825 9,137

New York 205 175 175 40.0 38.0 39.0 8,200 6,650 6,825 North Carolina 275 240 200 31.0 29.0 30.0 8,525 6,960 .6,000 North Dakota 10,213 11,655 9,254 25.9 24.7 24.8 264,392 287,830 229,907 Ohio 1,680 1,600 1,540 42.0 40.0 47.0 70,560 64,000 72,380 Oklahoma : 6,700 6,300 6,500 24.0 24.0 27.0 160,800 151,200 175,500

Oregon : 1,255 1,333 1,200 46.2 45.2 37.8 58,040 60,301 45,320 Pennsylvania : 317 300 270 32.0 30.0 33.0 10,144 9,000 8,910 South Carolina : 130 125 95 27.0 26.0 29.0 3,510 3,250 2,755 South Dakota : 2,965 2,990 3,016 21.1 13.2 23.9 62,610 39,520 71,964 Tennessee : 270 300 280 31.0 37.0 36.0 8,370 11,100 10,080

Texas ! 5,700 4,700 4,700 23.0 22.0 25.0 131,100 103,400 117,500 Utah 282 264 204 25.4 24.7 23.1 7,164 6,519 4,716 Virginia 292 240 205 31.0 32.0 31.0 9,052 7,680 6,355 Washington : 3,060 3,200 2,985 48.3 45.0 33.9 147,880 144,050 101,305 West Virginia 11 11 10 32.0 32.0 31.0 352 352 310

Wisconsin 93 93 75 30.3 34.8 41.0 2,820 3,238 3,075 Wyoming : 332 330 281 24.9 24.1 20.0 8,277 7,955 5,620 2,025,793 United States : 69,391 70,771 66,216 30.6 30.3 30.6 2,122,459, 2,142,362

Source: (75).

98 Appendix table 2—U.S. wheat volume and percentage of production by class

Year : Hard red beginning Hard refd Soft red er Durum White Total July 1/ wint spring winter

: Mil. bu. Pet. Mil. bu. Pet. Mil. bu. Pet. Mil. bu. Pet. Mil. bu. Pet. Mil. bu. Pet. 2/

1950 : 459 45.04 207 20.31 162 15.90 38 3.73 153 15.01 1,019 100.00 1951 : 382 38.66 256 25.91 148 14.98 36 3.64 166 16.80 988 100.00 1952 : 723 55.36 181 13.86 193 14.78 23 1.76 186 14.24 1,306 100.00 1953 : 504 42.97 217 18.50 231 19.69 14 1.19 207 17.65 1,173 100.00

1954 : 489 49.69 145 14.74 185 18.80 5 0.51 160 16.26 984 100.00 1955 : 416 44.49 184 19.68 173 18.50 20 2.14 142 15.19 935 100.00 1956 : 446 44.82 178 17.88 187 18.79 39 3.92 145 14.57 995 100.00 1957 : 425 44.69 167 17.56 159 16.72 40 4.21 160 16.82 951 100.00

1958 : 834 57.24 233 15.99 192 13.18 24 1.65 174 11.94 1,457 100.00 1959 620 55.31 151 13.47 156 13.92 20 1.78 174 15.52 1,121 100.00 1960 794 58.51 188 13.85 190 14.00 34 2.51 151 11.13 1,357 100.00 1961 754 61.05 116 9.39 202 16.36 21 1.70 142 11.50 1,235 100.00

1962 537 49.09 175 16.00 157 14.35 70 6.40 155 14.17 1,094 100.00 1963 545 47.72 161 14.10 219 19.18 51 4.47 166 14.54 1,142 100.00 1964 636 49.65 171 13.35 226 17.64 67 5.23 181 14.13 1,281 100.00 1965 673 51.14 209 15.88 185 14.06 70 5.32 179 13.60 1,316 100.00

1966 : 678 51.68 177 13.49 217 16.54 63 4.80 177 13.49 1,312 100.00 1967 : 706 46.39 230 15.11 274 18.00 66 4.34 246 16.16 1,522 100.00 1968 : 811 51.30 228 14.42 228 14.42 100 6.32 214 13.54 1,581 100.00 1969 : 790 54.11 189 12.94 194 13.29 106 7.26 181 12.40 1,460 100.00

1970 : 760 55.47 198 14.45 183 13.36 50 3.65 179 13.07 1,370 100.00 1971 : 747 46.14 367 22.67 212 13.09 92 5.68 201 12.42 1.619 100.00 1972 : 761 49.26 276 17.86 226 14.63 73 4.72 209 13.53 1,545 100.00 1973 : 957 56.13 328 19.24 159 9.33 79 4.63 182 10.67 1,705 100.00

1974 879 48.94 293 16.31 288 16.04 81 4.51 255 14.20 1,796 100.00 1975 : 1,053 49.32 326 15.27 343 16.07 123 5.76 290 13.58 2,135 100.00 1976 : 968 45.09 410 19.10 348 16.21 135 6.29 286 13.32 2,147 100.00 1977 : 997 49.43 396 19.63 331 16.41 82 4.06 211 10.46 2,017 100.00

If Year beginning June 1 since 1973. 2_l Totals may not add due to rounding. Source: (90). Appendix table 3—U.S. wheat supply and disappearance }J

Item 1950/51; 1951/52; 1952/53; 1953/54; 1954/55' 1955/56; 1956/57; 1957/58; 1958/59 1959/60

Million bushels All wheat: • Stocks 425 400 256 606 934 1,036 1,033 909 881 1 ,295 Production 1,019 988 1,306 1,173 984 935 1,004 951 1,457 1 ,121 Imports 12 32 22 6 4 10 8 11 8 7 Total supply 1,456 1,420 1,584 1,785 1,922 1,981 2,045 1,871 2,346 2 ,423 Exports 369 479 321 220 278 350 553 407 447 512 Domestic use 687 685 657 631 608 598 583 583 604 597 Total demand 1,056 1,164 978 851 886 948 1,136 990 1,051 1 ,109 Carryover 400 256 606 934 1,036 1,033 909 881 1,295 1 ,314

Hard red winter: Stocks 252 214 97 395 560 677 691 648 613 936 Production 459 382 723 504 489 416 446 425 834 620 Imports — — — — — — — — — — Total supply 711 596 820 899 1,049 1,093 1,137 1,073 1,447 1 ,556 Exports 199 251 184 78 124 164 254 220 259 292 Domestic use 298 248 241 261 248 238 235 240 252 262 Total demand 497 499 425 339 372 402 489 460 511 554 Carryover 214 97 395 560 677 691 648 613 936 1 ,002

Hard red spring:' Stocks 86 106 117 128 195 172 185 196 203 251 Production 207 256 181 217 145 184 178 167 233 151 Imports 12 32 22 6 4 10 8 11 8 7 Total supply 305 394 320 351 344 366 371 374 444 409 Exports 49 88 17 11 28 29 35 38 46 49 Domestic use 150 189 175 145 144 152 140 133 147 142 Total demand 199 277 192 156 172 181 175 171 193 191 Carryover 106 117 128 19^ 172 185 196 203 251 218

Soft red winter: Stocks 29 26 16 38 70 50 17 10 6 21 Production 162 148 193 231 185 173 187 159 192 156 Imports — — — — — — — — ~ ~ Total supply 191 174 209 269 255 223 204 169 198 177 Exports 30 23 40 56 62 69 60 30 43 40 Domestic use 135 135 131 143 143 137 134 133 134 127 Total demand 165 158 171 199 205 206 194 163 177 167 Carryover 26 16 38 70 50 17 10 6 21 10

Durum: Stocks 25 24 15 7 5 2 7 13 25 22 Production 38 36 23 14 5 20 39 40 24 20 Imports — — — — — — — — — — Total supply 63 60 38 21 10 22 46 53 49 42 Exports 10 14 3 — — 1 11 1 1 1 Domestic use 29 31 28 16 8 14 22 27 26 23 Total demand 39 45 31 16 8 15 33 28 27 24 Carryover 24 15 7 5 2 7 13 25 22 18

White: Stocks 33 30 11 38 104 135 133 42 34 65 Production 153 166 186 207 160 142 154 160 174 174 Imports — — — — — — — — — — Total supply 186 196 197 245 264 277 287 202 208 239 Exports 81 103 77 75 64 87 193 118 98 130 Domestic use 75 82 82 66 65 57 52 50 45 43 Total demand 156 185 159 141 129 144 245 168 143 173 Carryover 30 11 38 104 135 133 42 34 65 66

See footnotes at end of table. Continued-

100 Appendix table 3—U.S. wheat supply and disappearance l_l—Continued

Item : 1960/61; 1961/62; 1962/63; 1963/64; 1964/65 1965/66; 1966/67; 1967/68; 1968/69 1969/70

Million bushels All wheat: Stocks ,314 1,411 1,322 1,195 901 817 535 425 539 819 Production ,357 1,235 1,094 1,142 1,291 1,316 1,312 1,522 1,577 1,460 Imports 8 6 5 4 1 1 2 1 1 3 Total supply- ,679 2,652 2,421 2,341 2,193 2,134 1,849 1,948 2,117 2,282 Exports 664 720 642 859 725 867 744 761 544 606 Domestic use 604 610 584 581 651 732 680 648 754 791 Total demand ,268 1,330 1,226 1,440 1,376 1,599 1,424 1,409 1,298 1,397 Carryover ,411 1,322 1,195 901 817 535 425 539 819 885 Hard red winter: Stocks ,002 1,104 1,085 936 670 532 267 257 328 477 Production 794 754 537 545 636 673 678 706 811 790 Imports — — — — — — Total supply ,796 1,858 1,622 1,481 1,306 1,205 945 963 1,139 1,267 Exports 434 487 437 562 499 595 377 373 268 336 Domestic use 258 286 249 249 275 343 311 262 324 357 Total demand 692 773 686 811 774 938 688 635 592 693 Carryover ,104 1,085 936 670 532 267 257 328 547 574 Hard red spring: Stocks 218 237 187 195 180 200 186 109 129 210 Production 188 116 175 161 181 209 177 230 228 189 Imports 8 6 5 4 1 1 2 1 1 3 Total supply 414 359 367 360 362 410 365 340 358 402 Exports 32 42 39 48 25 86 120 73 80 89 Domestic use 145 130 133 132 137 138 136 138 138 133 Total demand 177 172 172 180 162 224 256 211 218 222 Carryover 237 187 195 180 200 186 109 129 140 180 Soft red winter: Stocks 10 12 24 5 4 7 8 15 30 33 Production 190 202 157 219 226 185 217 274 224 194 Imports — — — — — Total supply 200 214 181 224 230 192 225 289 254 227 Exports 54 56 40 84 80 45 68 121 50 28 Domestic use 134 134 136 136 143 139 142 138 171 176 Total demand 188 190 176 220 223 184 210 259 221 204 Carryover 12 24 5 4 7 8 15 30 33 23 Durum: Stocks : 18 20 5 46 41 68 54 29 24 41 Production 34 21 70 51 67 70 63 66 100 106 Imports : — — — — — Total supply: 52 41 75 97 108 138 117 95 124 147 Exports : 6 16 4 29 9 34 47 31 46 34 Domestic use 26 20 25 27 31 50 41 40 37 35 Total demand: 32 36 29 56 40 84 88 71 83 69 Carryover 20 5 46 41 68 54 29 24 41 78 White: : Stocks : 66 38 21 13 6 10 20 15 28 58 Production 151 142 155 166 181 179 177 246 214 181 Imports : — — — — Total supply: 217 180 176 179 187 189 197 261 242 239 Exports : 138 119 122 136 112 107 132 163 100 119 Domestic use : 41 40 41 37 65 62 50 70 84 90 Total demand: 179 159 163 173 177 169 182 233 184 209 Carryover : 38 21 13 6 10 20 15 28 58 30

See footnotes at end of table Continued-

101 Appendix table 3—U.S. wheat supply and disappearance \J—Continued

Item ; 1970/71; 1971/72; 1972/73; 1973/74* 1974/75 "* 1975/76; 1976/77 ; 1977/78 2/;

Million bushels All wheat: : Stocks : 885 735 868 599 340 435 664 1,111 Production : 1,351 1,618 1,545 1,705 1 ,796 2 ,135 2 .147 2,027 Imports 1 1 1 3 3 2 3 2 Total supply: 2,237 2,354 2,414 2,307 2 ,139 2 ,572 2 ,814 3,130 Exports 738 632 1,186 1,217 1 ,018 1 ,173 950 1,100 Domestic use : 768 854 785 750 686 735 753 858 Total demand: 1,506 1,486 1,971 1,967 1 ,704 1 ,908 1 ,703 1,958 Carryover : 731 868 443 340 435 664 1 ,111 1,182

Hard red winter : : Stocks : 57A 492 471 287 170 225 377 603 Production 755 747 761 957 879 1 ,053 968 997 Imports — — — — — — — — Total supply: 1,329 1,239 1,232 1,244 1 ,049 1 ,278 1 ,345 1,600 Exports : 450 337 704 775 510 581 418 565 Domestic use : 387 431 327 299 314 320 324 443 Total demand: 837 768 1,031 1,074 824 901 742 1,008 Carryover 492 471 201 170 225 377 603 592

Hard red spring:: Stocks : 180 150 280 212 87 104 118 252 Production : 198 366 276 328 293 326 410 396 Imports : 1 1 1 2 2 1 1 1 Total supply: 379 517 557 541 382 431 529 649 Exports : 113 104 198 245 130 160 124 150 Domestic use : 116 133 181 209 148 153 153 153 Total demand: 279 237 379 454 278 313 277 303 Carryover 150 280 178 87 104 118 252 346

Soft red winter:• Stocks 23 15 18 25 23 37 56 75 Production 174 212 226 159 288 343 348 331 Imports — — — — — — — — Total supply 197 227 244 184 311 380 404 406 Exports 26 43 68 27 136 165 181 180 Domestic use 156 166 168 134 138 159 148 160 Total demand 182 209 236 161 274 324 329 340 Carryover 15 18 8 23 37 56 75 76

Durum: Stocks 80 58 69 45 33 26 53 86 Production : 53 92 73 79 81 123 135 82 Imports : — — — — 1 2 1 Total supply : 133 150 142 124 114 150 190 169 Exports : 39 44 65 45 47 52 41 50 Domestic use : 36 37 40 47 41 45 63 45 Total demand : 75 81 105 92 88 97 104 95 Carryover : 58 69 37 33 26 53 86 74

White wheat: Stocks ': 30 20 30 30 27 43 60 95 Production : 171 201 209 182 255 290 286 211 Imports : — — 1 1 — — ~"~ Total supply \ 201 221 239 213 283 333 346 306 Exports 110 104 151 125 195 215 186 155 Domestic use : 71 87 69 61 45 58 65 57 Total demand 181 191 220 186 240 273 251 212 Carryover : 20 30 19 27 43 60 95 94

— = Not appli cable. 1/ ' Year beiginning Ji jly 1, 1950/51—1972/73; beginning June 1, 1973/74—1977/78. 1] Preliminary. Source : (90).

102 Appendix table 4—Wheat materials consumed by wheat-related industries, selected census years

SIC code and product 1972 : 1967 : 1963 ; 1958 ; 1954

2041 Flour and other grain-mill produc ts: : Wheat (mil. bu.) 573.2 531.2 583.1 563.1 486.0 Flour (1,000 cwt.) 7,726.2 7,292.9 3,479.3 4,597.6 2,806.1

2043 Breakfast cereal foods: Wheat (mil. bu.) 9.2 12.6 14.1 7.2 7.9 Wheat flour (1,000 cwt.) 1,728.0 1,873.1 2,386.7 1,162.2 245.1 Wheat germ (1,000 short ton) 0 3.3

2045 Blended and prepared flour: Wheat (mil. bu.) 1/ 1/ 1.5 2/ 2/ Wheat flour (1,000 cwt.) 11,931.2 11,787.4 10,974.5 5,177.0 5,793.1

2047 Dog, cat, and other pet feed: V Wheat (mil. bu.) 6.0 — — Wheat flour (1,000 cwt.) 1,671.4 ~ Wheat germ (1,000 short ton) 12.6 — Millfeed and screenings (1,000 short ton) 128.2

2048 Prepared feeds: Wheat (mil. bu.) 28.7 30.3 30.2 21.6 33.0 Wheat flour (1,000 cwt.) 7,301.8 8,234.4 5,946.0 2,414.8 1,697.2 Wheat germ (1,000 short ton) 121.1 160.7 Millfeed and screenings (1,000 short ton) 2,469.6 2,665.6 NA 2,119.0 2,090.0

2051 Bread, cake and related products Wheat flour (mil. lb.) 9,755.1 10,213.0 9,579.0 9,165.5 8,656.1 Prepared flour mixes (mil. lb.) 519.2 642.6 440.4 NA NA

2052 Cookies and crackers: Wheat flour (mil. lb.) : 2,437.5 2,392.9 2,268.6 1,962.7 1,723.2 Prepared flour mixes (mil. lb.) : 74.1 38.3 13.4 NA. NA

2098 Macaroni and spaghetti: Semolina and durum flour (1,000 cwt.) : 11,905.7 9,699.5 9,881.6 8,161.5 5,283.6 Farina and other wheat flour (1 ,000 cwt.) : 1,378.6 822.9 990.7 907.0 2,774.9

2038 Frozen specialties: Wheat flour (1,000 cwt.) : 5,645.0 NA NA NA NA

2932 Canned specialties: Wheat flour (1,000 cwt.) : 2,372.0 2,077.5 1,479.4 2/ NA

2035 Pickles, Sauces, and salad dress ings: Wheat flour (1,000 cwt.) : 52.0 16.9 2/ NA NA

2037 Frozen fruits and vegetables: Wheat flour (1,000 cwt.) : NA 2,520.0 2,877.6 3,124.7 bJ

2099 Food preparations : Wheat flour (1,000 cwt.) : 1,117.0 1,500.9 1,735.2 5/1,336.7 2,150.3

— = Not applicable. NA = Not available. \J Less than 50,000 bushels. _2/ Included elsewhere. 3^/ Reported separately from prepared feeds in 1972 for first time. kj 1954 and 1967 figures are not comparable because establishments primarily freezing and packing prepared foods such as frozen pies, meat pies, baked goods, complete dinners, etc., were classified into this industry from SIC 2099 food preparation for the first time. _5/ 1958 and 1954 figures are not comparable because of changes in the SIC between the two years. The leavening compounds industry SIC 2091 was moved into food preparation SIC 2099. Source: (91).

103 Appendix table 5—Relative value of wheat and other common feed materials compared with corn when fed to different types of livestock 1/

Wintering Horses Feed unit . Dairy : Feeder Feeder Item beef Hogs and Poultry value, U.S. cows cattle lambs cattle mules average

Percent

Grains: Corn 100 100 100 100 100 100 100 100 Oats 90 85 100 90 80 90 90 90 Barley 100 88 100 90 87 95 80 90 Wheat 105 105 — 103 85 95 105 105 Rye 90 95 — 80 85 — — 85 Sorghum 100 92 100 90 100 95 95 95

Other concentrates: Gluten meal 165 225 — 175 200 — — 165 Gluten feed 115 — — — 90 — — o 115 4N Brewer's dried grains 110 — — — 100 90 — 105 Distiller's dried grains (corn) 130 135 — — 200 — — 140 Wheat bran 95 — 75 — 90 85 70 90 Wheat middlings : 100 — — 105 — — 90 100 Oat millfeed : 45 35 — 30 35 45 — 40 Corn and cob meal : 90 90 — — — — 90 90 Hominy feed : 100 100 — 95 100 100 100 100 Molasses (cane) 90 85 — 70 85 80 50 80 Dried beet pulp 90 90 — — 90 — — 90 Wet beet pulp : 10 15 — — 15 — — 15 Alfalfa meal 65 — — 70 — — 70 70 Soybeans 170 200 — 150 200 125 100 160 Cottonseed 80 140 — — — — — 120 Cowpeas — — — — — — — 120 Velvet beans 100 190 — — — — — 120 Peanuts — — — 100 — — — 100

— = Not available. ll These values assume that the feed is fed as part of a properly balanced ration, and that it is fed to livestock of the age to which it is suited. Source: (44). Appendix table 6—Whole grain weights, measures, and conversion factors

Grain Pounds : Bushels per—

Bushels Metric ton Quintal

Barley 48 45.9296 4.59

Buckwheat : 48 45.9296 4.59

Corn: Shelled : 56 39.6383 3.96 Ear husked : 70 31.4946 3.15

Flaxseed 56 39.6383 3.96

Oats: « Light : 32 68.8945 6.89 Heavy : 38 58.0164 5.80

Rice, rough : 45 48.9916 4.90

Rye 56 39.6383 3.96

Sorghum 56 39.6383 3.96

Soybeans 60 36.7437 3.67

Wheat 60 36.7437 3.67

Miscellaneous factors:

Rice: 1 hundredweight of rough rice = 2.2 bushels 1 barrel of rough rice = 162 pounds or 3.60 bushels

Soybeans: 1 hundredweight of soybeans =1.67 bushels

Sorghum grain: 1 hundredweight of sorghum grain = 1.78 bushels

1 metric ton = 22.046 hundredwieght

1 metric ton = 2,204.623 pounds

1 short ton or ton = 2,000 pounds

1 long ton =2,240 pounds

1 quintal = 220.46 pounds

10 quintals = 1 metric ton

1 hectare = 2.471 acres

105 Appendix table 7—White pan bread: Retail price, marketing spreads, and farm value per 1-pound loaf

Farm value : Baker Miller's Farmer's ; Retail Retail Other : whole- flour share of Period price spread spreads All saler spread . Wheat consumer's 5/ [Ingredi- 1/ 2/ ¡spread V dollar ents 6^/ : 1!

Cents

1950 : 14.3 2.6 7.0 0.6 1.1 3.0 l.h 17 1955 : 17.4 2.6 9.4 .7 1.5 3.2 2.7 16 1960 19.8 3.8 10.9 .8 1.5 2.8 2.3 12 1965 20.8 4.2 11.2 .6 1.6 3.2 2.6 12

1970 24.2 5.6 12.8 .5 1.9 3.4 2.6 11 1971 : 24.8 5.4 13.6 .6 1.7 3.5 2.6 10 1972 24.7 4.6 13.8 .6 1.9 3.8 2.8 11 1973 27.6 5.4 14.0 1.0 1.7 5.5 4.1 15

1974 34.5 5.8 17.1 1.0 2.7 7.9 5.1 15 1975 : 36.0 4.6 21.3 .6 2.7 6.8 4.5 12 1976 : 35.3 3.4 23.3 .8 2.3 5.5 3.7 10 1977 35.5 3.1 25.0 .9 2.0 4.5 IJ 8

\J Based on monthly prices reported by Bureau of Labor Statistics. Tj Spread between retail and wholesale prices. V Spread between wholesale price of bread and cost to baker of all ingredients. kj Spread between mill sales value of flour and cost of wheat to miller. _5/ Charges for transporting, handling, merchandising farm ingredients; processing nonwheat farm ingredients; and cost to baker of nonfarm ingredients. 6^/ Returns to farmers for wheat, lard, shortening, nonfat dry milk and sugar used in a 1-pound loaf. Jj Returns to farmers for wheat, less imputed value of millfeed byproducts. Between July 1, 1964, and June 30, 1973, it includes value of commercial wheat marketing certificate (70 cents a bushel from July 1, 1964-June 30, 1965 and 75 cents thereafter).

Source: (90).

106 Appendix table S—Production costs per planted acre and per bushel, hard red winter wheat, 1978, projected 11 Ij

Central Southern Southwest United States Cost item Units Plains 3/ Plains 3/ 3/ average

Acre Bushel Acre Bushel Acre Bushel Acre Bushel

Variable Dois. 32.06 1.31 38.01 2.05 04.26 1.80 36.95 1.52

Seed do. : 3.84 0.16 4.64 0.25 11.59 0.20 4.52 0.19 Fertilizer do. : 6.21 .25 9.78 .53 23.93 .42 8.10 .33 Chemicals kj do. : .72 .03 1.34 .07 5.44 .09 1.19 .05 Custom operations _5/ do. : 2.64 .11 3.44 .18 8.02 .14 3.18 .13 All labor do. : 7.61 .31 6.83 .37 15.78 .27 7.52 .31 Fuel and lubrication do. : 4.55 .18 5.69 .31 20.69 .36 5.49 .22 Repairs do. : 5.10 .21 4.76 .26 7.57 .13 5.06 .21 Irrigation water do. : ~ 8.22 .14 .38 .02 Interest do. : 1.39 .06 1.53 .08 3.02 .05 1.51 .06

Machinery ownership do. : 17.18 .70 15.89 .86 25.00 .43 17.16 .71

Replacement do. : 11.47 .47 10.81 .58 16.86 .29 11.50 .48 Interest do. : 4.48 .18 4.00 .22 6.39 .11 4.44 .18 Taxes and insurance do. : 1.23 .05 1.08 .06 1.75 .03 1.22 .05

General farm overhead do. : 5.63 .23 4.56 .25 11.86 .20 5.61 .23

Management do. : 5.73 .23 4.90 .26 14.99 .26 5.79 .24

Total excluding land do. : 60.60 2.47 63.36 3.42 156.11 2.69 65.51 2.70

Land allocation composite with— Current value 6^/ do. : 32.96 1.35 24.46 .32 76.40 1.32 32.18 1.32 Average acquisition value l_l do. : 21.75 .89 14.60 .79 50.46 .87 20.29 .83

Yield per acre Bu. : 24.5 — 18.5 57.9 24.3 —

Less value of pasture Dois. : .06 .33 .12

— = Not applicable. 1/ Costs are average estimates for all types of conditions, i.e., summer fallow, continuous dryland and irrigation. 2/ Data developed by Firm Enterprise Data System, Commodity Economics Division, Econ., Stat., and Coop. Se7v., U.S. Dept. Agr., in cooperation with Oklahoma State University, Stillwater, Oklahoma. 2/ Included in the Central Plains are Colorado, Kansas, Nebraska, and South Dakota. Included in the Southern Plains are New Mexico, Oklahoma and Texas. Included in the Southwest are Arizona and California. 4/ Includes herbicides, insecticides, and rodenticide materials not otherwise included under custom operations. 5/ Includes custom application of crop chemicals, the cost of chemicals in some cases, and custom harvesting and handling. 6/ Based on prevailing tenure arrangements in 1974, reflecting actual combinations of cash rent, net share rent and owner-operator land allocations, land values, land tax rates, and cash rents updated to 1978. l_l Same as footnote 6 except average value of crop land during the last 35 years is used for owner- operated land instead of current land value.

Source: (97).

107 Appendix table 9—Production costs per planted acre and per bushel, soft red winter wheat, 1978, projected V y

; United States Cost item : Units . Northeast 3/ Corn Belt V : Southeast 3/ : average

: Acre Bushel Acre Bushel Acre Bushel Acre Bushel

Variable : Dois. : 61.75 1.76 49.21 1.27 56.46 1.82 51.28 1.39

Seed : do. : 7.25 .21 6.07 .15 6.79 .22 6.27 .17 Fertilizer : do. : 23.57 .67 20.93 .54 22.74 .73 21.42 .58 Lime : do. 1.98 .06 .75 .02 1.57 .05 .98 .03 Chemicals f^J : do. .09 5/ .27 .01 .25 .01 .26 .01 Custom operations 6/ : do. 7.05 .20 4.03 .10 5.22 .17 4.41 .12 All labor : do. 9.13 .26 6.42 .17 7.84 .25 6.84 .18 Fuel and lubrication : do. 5.21 .15 4.10 .11 4.83 .16 4.30 .12 Repairs do. 5.09 .14 4.28 .11 4.97 .16 4.46 .12 Interest do. 2.38 .07 2.36 .06 2.25 .07 2.34 .06

Machinery ownership do. 20.70 .59 19.69 .51 18.37 .59 19.47 .53

Replacement do. 14.13 .40 13.23 .34 12.28 .40 13.08 .36 Interest do. 5.16 .15 5.01 .13 4.72 .15 4.95 .13 Taxes and insurance do. 1.48 .04 1.45 .04 1.37 .04 1.44 .04

General farm overhead do. • 7.22 .21 6.69 .17 5.33 .17 6.44 .17

Management do. • 4.84 .14 5.45 .14 4.09 .13 5.14 .17

Total, excluding land do. : 94.51 2.70 81.04 2.09 84.25 2.71 82.33 2.26

Land allocation composite with— Current value IJ do. : 71.51 2.04 63.00 1.62 43.43 1.40 59.39 1.61 Average acquisition value 8^/ : do. : 29.73 .85 30.50 .79 21.80 .70 28.68 .78

Yield per acre 9^/ : Bu. : 35.0 — 38.8 ~ 31.0 — 37.0 ~

— = Not applicable. 1/ Costs are average estimates for all types of conditions, i.e., summer fallow, continuous dryland and irrigation. 2/ Data developed by Firm Enterprise Data System, Commodity Economics Division, Econ., Stat., and Coop. Se7v., U.S. Dept. Agr., in cooperation with Oklahoma State University, Stillwater, Oklahoma. 2/ Included in the Northeast are New York and Pennsylvania. Included in the Corn Belt are Illinois, Indiana, Michigan, Missouri, and Ohio. Included in the Southeast are Kentucky, North Carolina, Tennes- see, Virginia, and Arkansas. 4_/ Includes herbicides, insecticides, and rodenticide materials not otherwise included under custom operations. bj Less than 0.01 cent. 6^/ Includes custom application of crop chemicals, the cost of chemicals in some cases, and custom harvesting and handling. y Based on prevailing tenure arrangements in 1974, reflecting actual combinations of cash rent, net share and owner-operator land allocations, land values, land tax rates, and cash rents updated to 1978. 8/ Same as footnote 7 except average value of crop land during the last 35 years is used for owner- operated land instead of current land value. y Midpoint of yield estimate was used to compute per unit costs.

Source: W).

108 Appendix table 10—Production costs per planted acre and per bushel for durum, other spring, and white wheat, 1978, projected ll 2/

Cost item Units Durum 3/ Other spring V : Whit 2 3/

Acre Bushel Acre Bushel Acre Bushel

Variable Dois. 37.46 1.47 37.09 1.43 53.49 1.15

Seed do. 5.36 .21 5.14 .20 4.33 .09 Lime do. — — — — .44 .01 Fertilizer do. 5.64 .22 7.16 .29 13.83 .30 Chemicals h_/ do. .73 .03 1.00 .04 4.68 .10 Custom operations 5/ do. 3.47 .14 3.60 .14 4.89 .11 All labor do. 8.70 .34 7.40 .28 8.49 .18 Fuel and lubrication do. 5.77 .22 5.22 .20 5.76 .12 Repair do. 6.60 .25 5.99 .23 7.55 .16 Irrigation water do. — — — — 1.19 .03 Interest do. 1.19 .05 .96 .04 2.33 .05 Miscellaneous do. — — .14 .01 — —

Machinery ownership do. 21.26 .83 21.25 .82 30.45 .65

Replacement do. 14.08 .55 14.16 .55 20.87 .44 Interest do. 5.57 .22 5.50 .21 7.42 .16 Taxes and insurance do. 1.61 .06 1.59 .06 2.16 .05

General farm overhead do. 6.67 .26 6.30 .24 7.95 .17

Management do. 5.05 .20 4.29 .16 7.84 .17

Total, excluding land do. 70.44 2.76 68.93 2.65 99.73 2.14

Land allocation composite with— Current value 6/ do. 42.95 1.68 37.32 1.44 51.51 1.11 Average acquisition value l_l do. 23.33 .91 19.50 .75 32.86 .71

Yield per acre 8/ Bu. 25.5 ~ 26.0 — 46.5 ~

— = Not applicable. _!/ Costs are average estimates for all types of conditions, i.e., summer fallow, continuous dryland, and irrigation. 2^1 Data were developed by Firm Enterprise Data System, Commodity Economics Division, Econ., Stat., and Coop. Serv., U.S. Dept. Agr., in cooperation with Oklahoma State University, Stillwater, Oklahoma. V Durum and other spring wheat produced in the northern Great Plains. White wheat produced in the Pacific Northwest. 4^/ Includes herbicides, insecticides, and rodenticide materials not otherwise included under custom operations. _5/ Includes custom application of crop chemicals, the cost of chemicals in some cases, and custom harvesting and handling. 6^/ Based on prevailing tenure arrangements in 1974, reflecting actual combinations of cash rent, net share rent and owner-operator land allocations, land values, land tax rates, and cash rents updated to 1978. !_/ Same as footnote 6 except average value of crop land during the last 35 years is used for owner- operated land instead of current land value. 8^/ Midpoint of yield estimate was used to compute per unit costs.

Source: (97). GLOSSARY

Acreage allotment—acreage that could be planted to wheat, qualifying participating producers for program benefits.

Acreage diversion—removing land from the production of surplus crops; shifting wheat land to other crops.

Acreage reserve—a past Government program conceived as a temporary provision to reduce production and carryover of wheat and other specific "basic crops" by taking acres out of production.

Backward integration—gaining ownership and control over an earlier stage of the marketing process, or of the production process by a marketing firm.

Basis—difference over or under a designated future at which a commodity of a certain description is sold or quoted; usually the difference at any moment between the cash price and the current futures quotation; often referred to as "cash basis."

Blending—the process of drawing measured amounts of different lots from bins and mixing these parts into a uniform blend by grain assemblers and millers.

Bran—the coarse outer covering of the wheat kernel which is separated from cleaned and scoured wheat in the usual process of commercial milling.

Break flour—flour produced by the break rolls as the wheat passes through the break system of the milling process. (See Middlings rolls.)

Break system—the stage in the milling process where the wheat kernel is broken open and treated on successive rolls to separate the endosperm from the bran coat.

Broken kernel—kernels separated into two or more pieces, exclusive of insect boring or surface consumption.

Broker—a dealer in money, notes, bills of exchange, commodities, contracts, etc.; an individual who actually executes orders in the futures pits in the name of the commission house for which he performs the service; an agent entrusted with the execution of an order; there are also many brokers at country points who buy grain by carloads for merchants in the terminal markets and elsewhere, earning a brokerage.

Carryover—the amount of wheat in inventory at the beginning or end of a designated crop year; the stock of wheat available for consumption but not consumed during the year of production and is available for consumption the following year.

Cash-future spread—same as basis which is the difference in price between cash and futures; the normal relationship of cash to futures price is that the futures price tends to be above the cash price by the amount of the cost of storing and holding the commodity until the date of future delivery; as the delivery month is approached, the two prices tend to come together.

Clear flour—that portion of flour remaining after a "patent" cut of flour has been taken off; clear* flour is normally higher in ash and protein than patent and of secondary market value.

110 Club wheat—Triticum compactum; usually white wheat varieties, either winter or spring habit, heads are usually awnless, elliptical, oblong, or clávate in shape and short, compact, or laterally compressed; stem may be tall or short.

Coarse breaks—the term applied to break rolls which grind the larger particles in a break system where break stock is classified "coarse" and "fine" by size and ground on separate rolls. (See Fine breaks.)

Commodity Credit Corporation (CCC)—a financial agent of the U.S. Department of Agri- culture charged with managing surplus wheat stocks and administering the price support program; the CCC acquires, stores, and distributes wheat and other commodities.

Continuous crop—land that is cropped year after year as opposed to cropland that is occasionally left idle. (See Summer fallow.)

Country elevator—an elevator operated by a country grain dealer who buys most of the wheat handled from producers.

Crop year—the officially designated production-marketing year for a commodity. For wheat, the crop year is from June 1 to May 31.

Deferred payment—farmers with high incomes may not wish to sell wheat in the year it is produced, but may want to negotiate a market contract, receiving a delayed pa3nnent; under a deferred pa3anent contract the wheat may or may not be moved off the farm at the time of contract signing.

Demand—the quantity of an economic good that will be bought at a given price at a particular time.

Direct marketing—the practice of bypassing assembly points (middlemen), i.e., a farmer selling to a processor or a port terminal.

Disappearance—(See Utilization.)

Distant futures—the last futures month quoted, usually over 1 year in the future. (See Near futures.)

Dumping—the practice of placing a product on the market at prices below existing market prices, sometimes at prices below costs of production.

Durum wheat—Triticum durum, 14 chromosome pairs, spring seeded, very hard; a high- protein wheat used to make pasta products like macaroni, spaghetti, and egg noodles.

Elasticity of demand—the responsiveness of buyers (quantity of wheat purchased) to changes in wheat price.

Endosperm—the starchy portion of the wheat grain which is ground into flour,

Ethanol (grain alcohol)—alcohol made from nearly any kind of grain. The main require- ment is for sugar or starch to be in the grain.

Export payment—a subsidy paid to exporting firms so that higher priced U.S. wheat could be sold on the world market at a competing price.

Family flour—an all purpose flour used for baking bread, cakes, biscuits, and other pastries.

Ill Fancy patent—the most finely ground flour.

Farina—a very pure wheat endosperm, about the granulation of medium screen sizings.

Fine breaks—the break rolls which grind the smaller particles in a classified break system. (See Coarse breaks.)

First clear—a portion of a straight run flour remaining after a patent flour has been removed; higher in protein and ash content than the patent flour, but poorer in color, and with a lower commercial value; in hard wheat mills about 20-25 percent of the flour produced may be first clear; may be further divided into fancy clear and second clear.

Flour—soft, finely ground meal obtained from milling cereal grains, other seeds, or products; consists essentially of the starch and gluten of the endosperm.

Flour extraction rate—the pounds (percent) of flour extracted from 100 pounds of wheat.

Flow—the movement of wheat through channels of trade.

Freight tariff—published rates for transporting commodities or classes of commodities between specific points; in addition to rates, the tariff may include available routings, transit privileges, special services, etc.

Futures trading—method of buying and selling commodities in which the seller agrees to deliver a certain quantity of a product at some specified future time for a specified price, which is set when the contract is made, and the buyer agrees to accept the delivery at that future time and at the same price.

Gasohol—a mixture of ethanol and gasoline.

Glut—supply of a commodity in excess of the effective demand for it at the price being quoted.

Gluten—the rubberlike proteinaceous material remaining after water solubles and starch are washed out of dough; the quantity of gluten in flour is a measure of flour quality; gluten is insoluble in cold water and may be recovered very readily from a weighed sample of flour, by forming a dough ball and washing out the starch by pressing or squeezing the ball by hand, under a running water tap, over a coarse flour silk screen; when the water ceases to be cloudy the gluten becomes pure. One-third of the weight of wet gluten ap- proximates the protein content of the flour.

Grain reserve—planned inventory of grain.

Hard'"red spring wheat—Triticum aestivum; a common wheat, 21 chromosome pairs, spring seeded, may be either dark northern, northern, or red; a high-protein wheat, either with a hard endosperm or vitreous with soft endosperm; used primarily to produce bread flour.

Hard red winter wheat—Triticum aestivum, a common wheat, 21 chromosome pairs, fall seeded; may be either dark hard, hard, or yellow hard; a medium- to high- protein wheat; either with a hard endosperm or vitreous with a soft endosperm; used primarily to produce bread flour.

Hard wheat—a generic term applied to wheat, which, due to variety or breeding in combination with environmental influences has a vitreous endosperm suitable for

112 making bread flour or macaroni semolina; yields coarse, gritty flour that is free-flowing and easily sifted, consisting or regular-shaped particles that are mostly whole endosperm cells.

Heat damaged kernels—wheat kernels that have been affected by elevated temperature usually caused by mild spontaneous heating; may decrease the baking quality of the flour milled from it.

Hedging—a method of shifting price risks to others; most commonly accomplished by dealing in the cash and futures market at the same time; purchases in the cash market are hedged by making a sale in the futures market, and sales in the cash market are hedged by buying in the futures market; consists of making an equal but opposite trade in futures so that the cash transaction is protected; assumes that cash and futures prices will move in the same direction and maintain about the same relationship.

Horizontal integration—ownership and operation of more than one firm at a particular stage in the marketing process; i.e., 2 or more terminal elevators or flour mills.

International Wheat Agreement (IWA)—a multilateral effort organized for the purpose of stabilizing both the quantity and the price of wheat moving in international trade.

Loan price—the rate at which growers may obtain nonrecourse loans from the Government. (See Loan rate.)

Loan rate—a price support level; national acreage loan rates are converted into specific support prices for grades and qualities of wheat at specific locations; wheat under loan can be stored either on the farm, by CGC, or in commercial storage. (See Nonrecourse loan.)

Market certificate—a certification of compliance used in past national wheat programs which could be redeemed for a specified amount of money—a provision of the 1964 Agricultural Act.

Middlings—particles of wheat endosperm that have yet to be ground into flour, extracted from the break system; also commercially, a byproduct of milling consisting mainly of the coarse material tailing over the end of the reduction system; normally used for animal feed. (See Middlings rolls.)

Middlings rolls—a pair, or pairs, of smooth rolls used in the milling process to reduce middlings to flour particle size; also called reduction rolls.

Mill byproduct—a secondary product obtained in addition to the principal product in milling practice; may be used for food, feed, or industrial products.

Millfeed—any of the byproducts of the milling industry used in feeding livestock.

Multinational grain firms—firms with merchandising operations or offices in more than one country; firms usually involved in exporting wheat and other grain and oilseeds.

Multicars—more than one car carrying the same product on a given train.

Near futures—first maturing contract month in futures. (See Distant futures.)

113 Nonrecourse loan—if the market price at harvest is below the loan rate, the producer can place his wheat under loan; if in subsequent months the market price rises above the loan rate, the producer can redeem the wheat, repay the loan, and sell his wheat at the higher price; if the market price does not rise above the loan rate, the producer delivers his wheat to the Government, and thereby fulfills his obligation.

Ordinary protein—of common quality; a reference to protein content.

Overproduction—production in excess of demand for the current crop production-marketing year; sometimes referred to as surplus.

Parity—the concept that the price of an agricultural product should bear the same relationship to the average price of that product during a base period; in terms of wheat prices, full parity price or 100 percent of parity, means that a bushel of wheat can be exchanged for a like amount of goods or services farmers buy, as was possible during a specified base period.

Pasta—a general term that includes such food products as macaroni, spaghetti, and noodles; made principally out of durum wheat flour.

Patent flour—that "cut" of flour (combination of flour streams) from the front or head end of the mill; lower in ash and protein with good dress and color; considered highest in value of all grades of flour produced.

Place utility—(See Utility.)

Point-to-point rate—a transportation charge from a single point of origin to a single point of destination, e.g., from Wolf Point, Mont, to Seattle, Wash.; related services are usually highly restricted, and the rates are corresponding- ly low; often provided for multiple-car movement, like the 100-car unit train; may apply to all grain or to designated commodities, as with mileage rates.

Prepared flour mixes—include biscuit, cake, doughnut, and pancake mixes.

Price support—Government regulations, usually involving some form of public subsidy or financial aid to producers; designed to keep market prices from falling below a certain minimum level.

Production control—the practice, through Government policy, of reducing production of surplus crops by either voluntary or involuntary methods, i.e., acreage controls.

Product stream—any one of 125 to 150 mill streams in the flour manufacturing process. Various grades of flour are produced by the blending combinations of individual streams.

Protein—any of a large class of naturally occurring complex combinations of amino acids; one of the chief constituents of plant tissues containing carbon, hy- drogen, oxygen, nitrogen, and, frequently, sulfur; in wheat, protein is important for baking and nutritional qualities.

Protein premium—the amount of money per bushel that a high-protein wheat normally commands over wheat of the same grade specification having ordinary (lower) protein.

114 Public Law 480—the basic legal authority for sharing the surplus agricultural production of the United States with the developing countries that have food deficits. Since its inception in July 1954, it has evolved from a temporary measure of surplus removal into a major tool in the world struggle for freedom from hunger and an effective instrument to stimulate economic development and support of U.S. foreign policy goals.

Residual market—market serviced after demand has been saturated in more profitable markets.

Saline seep—during fallow periods with above normal precipitation, the root zone is replenished with water and excess water drains downward beyond the root zone to an impermeable substrata or shale layer forming a water table. This excess water gradually moves downslope, where it accumulates in pockers near the surface. As the water builds up, it eventually moves to the surface by capillary action to form a wet spot. This water, having a high salt content because of soluble salts in the subsoil, slowly evaporates, leaving the dis- solved salts behind. Saline seep areas become a bog that cannot be crossed with machinery.

Seasonal prices—those prices that regularly occur at a particular season or seasons; usually related to a marketing period rather than to a part of the calendar year; the most common use of seasonal prices is for determining the high or the low during a given marketing season or period; seasonal tops and seasonal low points are helpful in determining the amount of variation from one period to another, and also are valuable in indicating the probable trends after a turning point is reached.

Second clear flour—the lower grade portion or division of "clear flour" from the tail- end reductions of the milling system; has a higher ash and poorer color than flours from the first clear.

Semolina—a coarse separation of endosperm extracted from durum wheat, used for making macaroni, spaghetti, egg noodles, etc.

Set-aside—taking cropland out of wheat production; set-aside acres may be idled or placed in specified crops not in excess production.

Shorts—an inseparable mixture of bran, endosperm and wheat germ which remains after flour extraction (milling) has been completed; used for animal feed.

Soft red winter wheat—Triticum aestivum; a common wheat, 21 chromosome pairs, fall seeded; a low- to medium-protein wheat with a soft or floury endosperm; used primarily for making cakes and other pastries.

Soft wheat—wheat which, due to a combination of breeding and growing environment, has a chalky (nonvitreous) endosperm suitable for making pastry flour; yields a very fine flour consisting of irrregular shaped fragments of endosperm cells which adhere together and sift with difficulty.

Soil Bank—a term used in past Government programs to describe cropland taken out of production and placed in a conserving use practice; called the conservation reserve, the act provided for retirement of marginal crop acreage for periods of several years in anticipation of permanent retirement of this land.

Spring wheat—wheat that is sown in the spring and is harvested in the summer or fall, and that grows continuously until maturity.

115 Stocks—wheat in storage or transit; may include both stored wheat and wheat in working space; may also be used in reference to processed product inventories.

Straight flour—all of the flour extracted from a given blend (mill mix) of wheat without division or addition of flour from other runs.

Subterminal elevator—an elevator located in the production area which received grain from country elevators as well as from farmers; an intermediate-sized grain assembler, often having facilities for official weights and grades.

Summer fallow—the practice of leaving cropland idle for a year to rebuild subsoil moisture; usually tilled for weed control; in drier areas of the Great Plains wheat is often produced in a two-year crop-fallow rotation.

Supply—the quantity of an economic good available for sale in the market; in the case of wheat, the U.S. supply includes the current year's production, previous carryover, and imports.

Target price—a term used in the Agricultural and Consumer Protection Act of 1973 for determining payments to producers; if the national weighted average market price received by farmers during the first 5 months of the crop year was below a specified target price, payments representing the difference between the target price and the higher of (1) the national average loan rate or (2) the national average farm price were made to eligible producers.

Terminal elevator—an elevator located at a point of accumulation and distribution in the movement of grain; an elevator that ordinarily receives grain by carload as distinguished from one receiving in truck loads, like a country elevator; an elevator in the business of storing grain for hire for others; usually operated by a wholesale grain dealer as opposed to a country grain dealer. (See Country elevator.)

Test weight—a quality test used to determine the weight per bushel, i.e., the weight of a volume bushel; for wheat the standard bushel is 60 pounds.

Transit privilege—an arrangement permitting a shipper to stop a shipment for drying, storing, processing, inspecting, or mixing, then reshipping with the privilege of paying only the remainder of the through rate from the point of origin to final destination; limited to tariffs that have been filed with approval granted by the Interstate Commerce Commission; usually the privilege of stopping a shipment is limited to 1 year.

Uniform Grain Storage Agreement (UGSA)—an agreement between commercial elevators, warehouses and mills, and the Commodity Credit Corporation to store wheat and other commodities in approved storage facilities at specified rates.

Unit train—a train in which every car is filled with the same product.

Utility—a subjective measure of the value of place, time, form, and possession in the marketing process. For wheat, value is increased by transporting, storing, and processing plus the profits of ownership.

Utilization—the use of wheat or wheat products. The terms utilization, use, and consumption are interchanged with the terms disposition and disappearance; in a broad sense, may refer to specific uses—food, feed, seed, or industrial.

Variety—a group of strains or a single strain which, by its structural or functional characteristics, can be differentiated from another group; in wheat breeding, usually a strain that has been adopted or licensed for commercial production.

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*U.S. GOVERNMENT PRINTING OFFICE: 1979 0-280-931/ESCS-152 Vertical integration—ownership and control of successive stages of the marketing process, i.e., country elevators, terminal elevators, and port elevators, each owned by the same grain firm.

Vitreous—a wheat kernel characteristic whereby the endosperm is steely, flinty, glas- sy, or horny; vitreous kernels are hard, appearing translucent and bright against a strong light.

White pan bread—the common loaf of commercially baked white bread.

White wheat—Triticum aestivum, a common wheat, or Triticum compactum, a club wheat, 21 chromosome pairs, fall or spring seeded, soft or hard; low-protein wheat; used principally for pastry flours, and shredded and puffed breakfast foods; accounts for most of the U.S. club wheat acreage.

Winter wheat—wheat that is sown in the fall, lies dormant in the winter, and is harvested the following spring or summer.

World prices—a price determined by supply and demand conditions in all parts of the world; under such circumstances, prices in different countries tend to be interrelated and tend to follow the leadership of some market that is recognized as the focus of world price-making factors; wheat prices before World War II gave one of the best examples of world-determined prices. Liverpool was recognized as the dominant world wheat market. Currently the Rotterdam price is the most frequently quoted world wheat price.

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