KSU U.S. Sorghum and World Coarse Grain Market Outlook in Late-July 2018

An analysis of U.S. and World Grain Sorghum & World Coarse Grain Market Outlook following the USDA’s July 12th USDA World Agricultural Supply Demand Estimates (WASDE) reports will be available on the KSU AgManager website  (http://www.agmanager.info/).

Following is a summary of the article on “U.S. Grain Sorghum and World Coarse Grain Market Outlook” with the full article and accompanying analysis on the KSU AgManager website available at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

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U.S. Grain Sorghum & World Coarse Grain Market Outlook

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

July 31, 2018

A. Perspectives on the U.S. Grain Sorghum Market

The Impact of Chinese Tariffs: During year 2018 market prospects for U.S. grain sorghum have been dramatically affected by the imposition of Chinese import tariffs as part of trade tensions between the U.S. and Chinese governments.  Since the Chinese tariffs went into effect, shipments of grain sorghum have almost literally stopped.  Although prices of U.S. grain sorghum have been relatively “low priced” and seemingly a “good buy” in World export markets, the relative abundance of U.S. corn supplies at moderately low prices have apparently “crowded out” U.S. grain sorghum exports over the last 11-12 weeks, i.e., since late April – early May.  This situation of low U.S. grain sorghum exports is unlikely to be sustained indefinitely, but has certainly been the case since Spring 2018.

Opportunities for Other Domestic Uses: Converse to the situation with U.S. grain sorghum exports, the availability of grain sorghum in domestic U.S. markets at low prices relative to corn have improved prospects for usage in the U.S. domestic ethanol industry and perhaps also the U.S. livestock feeding sector.  USDA projections for the “new crop” 2018/19 marketing year that will begin September 1, 2018 reflect this expectation for ethanol production, with sharp increases in industrial (i.e., ethanol) usage projected at that same time that grain sorghum exports are forecast to decline significantly. 

Alternative Future Sorghum Market “Paths”: Going forward, it seems that market prospects for U.S. grain sorghum in “new crop” MY 2018/19 can proceed in either of two directions.   The first possibility is that if the U.S.-China trade dispute is settled by say Fall 2018, that Chinese import purchases of U.S. grain sorghum will resume at or near pre-trade dispute levels.  IF that occurs, then it is likely again that U.S. sorghum exports will become the primary driver of grain sorghum usage, domestic prices, and market prospects going forward into the future.  In that event, U.S. grain sorghum would likely continue to find a sales niche in the Chinese government’s feed inventory management program, i.e., filling needs for lower priced feedgrains that Chinese buyers are unable to fill with artificially higher priced domestic supplies which are tied up in their corn stock management programs. 

The second possibility is a market path into the future focused more on a competitive “hammer & tongues” or “slug it out” strategy aiming toward a balance of feed, bionenergy, AND export usage.  This 2nd possibility assumes that there will STILL be significant demand for U.S. grain sorghum in World export markets, BUT not in the same manner or to the same degree as when China is exclusively focused on U.S. sorghum import purchases.  In this 2ND scenario, U.S. grain sorghum will compete with other feedgrains from the U.S. and abroad on a price, quality, and productivity basis for usage in bioenergy and livestock feeding industries.  

What is a “Prudent Direction” for U.S. Grain Sorghum to Take Going Forward?  Of these two possible paths for U.S. grain sorghum to pursue in the future, it may be prudent to prepare and proceed aiming for maximum competitiveness as a feedgrain alternative in domestic and foreign markets.  THEN if the large export demand opportunities present themselves again for U.S. grain sorghum export sales to China or elsewhere, then to of course take advantage of them.  Strategically speaking, there may be merit in following a balanced strategy of being prepared for a long term competitive usage environment with other feedgrains on the one hand, while being positioned to take advantage of periods on high export demand and prices may occur.

 

B. Kansas Cash Grain Sorghum Market Prices on July 30, 2018

Kansas grain sorghum basis levels at major terminal elevators have remained wide since the imposition of tariffs by China on U.S. grain sorghum imports in late winter 2017, and have been $0.25-$0.60 /bu lower than corn prices.  However, cash grain bids at Kansas ethanol plants at some locations have been equal to that of corn – indicating ready acceptance or sorghum as a competitive bioenergy source.

On July 30th cash grain sorghum price bids at major grain elevators in Western Kansas ranged from $3.07 to $3.27 /bu – with basis levels $0.60 to $0.40 /bu under CME SEPTEMBER 2018 corn futures.  The high bid of $3.27 /bu was in Sublette, Kansas in the livestock feeding demand center in Southwest Kansas.  The corn price that same day in Sublette was $3.67 /bu (even with SEP 2018).   

Central Kansas cash grain sorghum price bids on July 30th ranged from $3.07 to $3.22 /bu with basis $0.75 to $0.45 / bu under.  The high bid of $3.22 /bu was available in Salina, Wellington, and Arkansas City in Central and South Central Kansas.   The range of corn bids in these same three locations on July 30th was $3.42 ¼ to $3.47 ¼ /bu (from $-0.25 to $-0.20 under SEP 2018).

In East Central Kansas at Topeka, the reported grain sorghum cash bid was $3.07 /bu (basis = $0.75 under DEC 2018 corn).  On July 30th in Atchison and Topeka in east central and northeast Kansas, corn bids were $3.74 1/4  /bu ($0.07 /bu over SEP 2018 corn).   Note that in late-January 2018 at the height of Chinese export demand for U.S. grain sorghum, the Topeka, Kansas grain sorghum public bid was the highest in the state, with basis bids of $0.55-$0.60 /bu over MARCH 2018 corn futures. 

Kansas ethanol plant cash bids for grain sorghum on July 30th ranged from $3.37 to $3.92 /bu, with local grain basis being $0.25 under to $0.30 over SEPT 2018 corn futures.  Ethanol plant corn bids in Kansas the same day were $3.74 to $3.92, with basis bids of $0.12 /bu over to $0.30 over JULY 2018 corn futures.  So, the top grain sorghum bids at Kansas ethanol plants on July 30th were equal to those for corn at the same locations.

 

C. U.S. Grain Sorghum Supply-Demand for “New Crop” MY 2018/19

Trade disagreements between the U.S. and China have severely damaged U.S. grain sorghum exports in recent months (see Figure 7).  However, total use in “old crop” MY 2017/18 ending August 31st and “new crop” MY 2018/19 starting September 1, 2018 were NOT forecast to change appreciably by the USDA in the July 12th World Agricultural Supply and Demand Estimates (WASDE) report.  Rather, the USDA projects that the leading factor in U.S. grain sorghum use will change from exports to other domestic uses such as ethanol production.  With no shortage of U.S. corn supplies in “new crop” MY 2018/19 anticipated at this time, projected use of U.S. grain sorghum for livestock feeding remains stable.

In the July 12th WASDE report, the USDA projected 2018 U.S. Grain Sorghum plantings of 6,040,000 acres, up 7.4% or 404,000 acres from 5.626 million acres (ma) in 2017, but down 9.7% from 6.690 ma in year 2016 (Tables 1a-b, Figure 2)Harvested acres of U.S. Grain Sorghum in 2018 are projected to be 5,098,000 acres, up from 5.045 ma in 2017, but still down 14.1% from 6.163 ma in year 2016.   U.S. yields in 2018 are forecast at 67.3 bu/ac, down from 72.1 bu/ac in 2017, and 77.9 bu/ac in 2016 (Tables 1a-b, Figure 3)

The USDA forecast that the 2018 U.S. Grain Sorghum production would be 356 million bushels (mb) – the smallest U.S. crop in 6 years (Tables 1a-b, Figure 4).   This amount is down from 364 mb in 2017, 480 mb in 2016, and the 21-year high of 597 mb in 2015.  Total supplies of U.S. Grain Sorghum (i.e., beginning stocks + production + imports) are forecast to be 390 mb in “new crop” MY 2018/19, down from 399 mb in “old crop” MY 2017/18, 519 mb in MY 2016/17, and the 20-year high of 620 mb in MY 2015/16. 

Exports of U.S. Grain Sorghum are projected to be 175 mb in “new crop” 2018/19 – lowered 40 mb from the June WASDE report forecast (Tables 1a-b, Figures 5, 6, & 7).  Total U.S. grain sorghum exports of 175 mb in “new crop” MY 2018/19 would be down from the USDA’s forecast of 230 mb in “old crop” MY 2017/18, 238 mb in MY 2016/17, 342 mb in MY 2015/16 (2nd highest on record) and the record high of 352 mb in MY 2014/16.  Livestock feed & residual use is projected to be 80 mb in “new crop” 2018/19 – down from 85 mb in “old crop” MY 2017/18, and less than 133 mb in MY 2016/17 (Table 1a-b, Figures 5 & 6)

Food, Seed & Industrial (FSI) use (including for bioenergy production) is projected to be 100 mb in “new crop” 2018/19 – up sharply from a 4-year low of 50 mb in “old crop” MY 2017/18, but less than 115 mb in MY 2016/17 and the record high of 137 mb in MY 2015/16.  The 32-year low of 15 mb in FSI use came during the record high export year of MY 2014/15.  Total use of U.S. Grain Sorghum in “new crop” MY 2018/19 of 355 mb is forecast to be down from 365 mb in “old crop” MY 2017/18, from 485 in MY 2016/17, and from the 19-year high of 583 mb in MY 2015/16 (Tables 1a-b, Figures 5 & 6)

Ending stocks of U.S. Grain Sorghum in “new crop” MY 2018/19 are projected to be 35 mb (9.9% Stocks/Use or ‘S/U’) – up marginally from 34 mb (9.3% S/U) in “old crop” MY 2017/18, and from 33 mb (6.8% S/U) in MY 2016/17 (Tables 1a-b, Figures 5, 6 & 8)

The season average price for U.S. Grain Sorghum in “next crop” MY 2018/19 is projected to range from $3.10-$4.10 (midpoint = $3.60), with the midpoint being up from $3.15-$3.25 (midpoint = $3.20) in “old crop” MY 2017/18, and from $2.79 /bu in MY 2016/17 (Tables 1a-b, Figures 8 & 9)This USDA scenario for “new crop” MY 2017/18 is given a 50% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.

 

D. Alternative KSU Supply-Demand & Price Forecasts for “New Crop” MY 2018/19

The possibility exists of at least three (3) alternative supply-demand and price outcomes for U.S. Grain Sorghum markets in “new crop” MY 2018/19.  It is assumed that there is a 50% probability of the USDA forecast scenario in the July 12th WASDE report to ultimately occur.  Alternative possible outcomes identified by Kansas State University include the following (Table 1a):

#1) Higher 2018 Production & Use for Ethanol” for “New Crop” MY 2018/19 (20% probability):

2018 Planted / harvested acres of 6.040/5.292 ma;  75.0 bu/ac yield (up vs 67.3 bu/acUSDA);  2018 production of 397 mb (up vs 356 mbUSDA)total supplies of 431 mb (up vs 390 mb mbUSDA);  exports of 175 mb, food-industrial-seed (FSI) use of 135 mb (up vs 100 mbUSDA);  feed & residual use of 80 mb;  total use of 390 mb (up vs 355 mbUSDA);  ending stocks of 41 mb (down vs 35 mbUSDA);  10.51% ending stocks-to-use (up vs 9.94% S/UUSDA);  and $3.50 /bu U.S. average price (down vs $3.60 /buUSDA).

#2) Higher Feed & Ethanol Use plus Lower Exports” for “New Crop” MY 2018/19 (15% probability):

2018 Planted / harvested acres of 6.040/5.292 ma;  67.3 bu/ac yield;  2018 production of 356 mb;  total supplies of 390 mb;  exports of 150 mb (down vs 175 mbUSDA), food-industrial-seed (FSI) use of 115 mb (up vs 100 mbUSDA);  feed & residual use of 95 mb (up vs 80 mbUSDA)total use of 360 mb (up vs 355 mbUSDA);  ending stocks of 30 mb (down vs 35 mbUSDA);  8.33% ending stocks-to-use (down vs 9.94% S/UUSDA);  and $3.80 /bu U.S. average price (up vs $3.60 /buUSDA).

#3) “MUCH Higher Exports – Recovery to Pre-tariff Levels” for “New Crop” MY 2018/19 (15% probability):

2018 Planted / harvested acres of 6.040/5.292 ma;  67.3 bu/ac yield;  2018 production of 356 mb;  total supplies of 390 mb;  exports of 230 mb (up vs 175 mbUSDA), food-industrial-seed (FSI) use of 60 mb (down vs 100 mbUSDA);  feed & residual use of 80 mb;  total use of 370 mb (up vs 355 mbUSDA);  ending stocks of 20 mb (down vs 35 mbUSDA);  5.41% ending stocks-to-use (down vs 9.94% S/UUSDA);  and $4.25 /bu U.S. average price (up vs $3.60 /buUSDA).

 

E. World Coarse Grain Supply-Demand – All Countries

WORLD Coarse Grain Percent (%) Grain Ending Stocks-to-Use is tightening to the most constrained level in six (6) years – since MY 2013/14.  This tightening of available World Coarse Grain supplies relative to use signals that stronger World use of coarse grains is expected to continue, and that more strength in U.S. and World coarse grain prices may occur in the coming year than the World Coarse Grain market now anticipates.

Total Supplies of WORLD Coarse Grains in the “new crop” 2018/19 marketing year (MY) are projected to be 1,557.9 million metric tons (mmt) – the 3rd highest on record behind 1,577.2 mmt in “old crop” MY 2017/18 and the record high of 1,617.95 mmt in MY 2016/17.  World “Coarse Grains” include grain sorghum, corn, barley, oats, rye, millet, and mixed grains (Figure 10).

Forecast WORLD Coarse Grains Total Use in “new crop” MY 2018/19 of 1,378.1 mmt is the highest on record.  The “new crop” MY 2018/19 forecast of 1,378.1 mmt in total use of WORLD Coarse Grains is up vs previous record high of 1,356.2 mmt in “old crop” MY 2017/18, and vs 1,355.9 mmt (3rd highest on record) in MY 2016/17.  The estimated levels of WORLD Coarse Grain total use for MY 2016/17 – MY 2018/19 have “stepped up” or “expanded” from the range of 1,236.3 – 1,276.5 mmt during MY 2013/14 through MY 2015/16 (Figure 10).

Ending Stocks of WORLD Coarse Grains in “new crop” MY 2018/19 are projected to be 6-year low of 179.8 mmt – down 1.8 mmt from the June WASDE report.  This would be down 18.7% vs 221.0 mmt in “old crop” MY 2017/18, and down from 262.0 mmt in MY 2016/17, 248.1 mmt in MY 2015/16, and 244.0 mmt in MY 2014/15 (Figure 10).  

Percent (%) Ending Stocks-to-Use of WORLD Coarse Grains in “new crop” MY 2018/19 are projected to be a historic 44-year record low (the lowest since at least MY 1975/76) of 13.05% Stocks/Use (S/U).  This would be down vs 16.3% S/U in “old crop” MY 2017/18; from 19.3% S/U in MY 2016/17; 19.7% S/U in MY 2015/16; and 19.1% S/U in MY 2014/15 (Figure 11).  For the sake of comparison and context, WORLD Coarse Grain percent (%) S/U has declined as low as 14.6% in MY 2012/13; 13.9% in MY 2011/12; 15.2% in MY 2007/08; 13.7% in MY 2006/07, and 14.6% in MY 1975/76.   A six (6) year low in WORLD Coarse Grains ending stocks combined with continued growth in WORLD Coarse Grain Usage as resulted in a forecast of historically tight percent (%) ending stocks-to-use in “new crop” MY 2018/19.  “Tight” supply-demand marketing years for WORLD Coars Grains have generally been high priced time periods for U.S. feedgrains such as grain sorghum and corn.

 

F. World Coarse Grain Supply-Demand – The “WORLD-Less-China” Perspective

Percent (%) Ending Stocks-to-Use of “WORLD-Less-China” Coarse Grains have also tightened considerably, but less so than for the WORLD as a whole.

Ending Stocks of “WORLD-Less-China” Coarse Grains in “new crop” MY 2018/19 are projected to be 6-year low at 120.2 mmt – down 14.5% vs 140.6 mmt in “old crop” MY 2017/18.  This projection for “new crop” MY 2018/19 is also down from 160.0 mmt in MY 2016/17, 136.0 mmt in MY 2015/16, and 142.1 mmt in MY 2014/15 (Figure 12).   The record low of 62.6 mmt occurred in MY 1995/96, followed by 64.4 mmt in MY 1975/76, 77.5 mmt in MY 1982/83, and 83.9 mmt in 1996/97 – all years of relative price strength for U.S. Feed Grains.

Percent (%) Ending Stocks-to-Use of “WORLD-Less-China” Coarse Grains in “new crop” MY 2018/19 are also projected to be a 6-year low of 10.9% S/U.  This would be down vs 12.9% S/U in “old crop” MY 2017/18; and down from 14.5% S/U in MY 2016/17; 13.3% S/U in MY 2015/16; and 13.6% S/U in MY 2014/15 (Figure 12).  Historically, “WORLD-Less-China” Coarse Grain percent (%) S/U has declined as low as 10.2% in MY 2012/13; 10.4% in MY 2011/12; 11.55% in MY 2010/11; 11.8% in MY 2006/07; 11.2% in MY 1996/97; 8.7% in MY 1995/96; 13.5% in 1993/94; and 14.6% in MY 1975/76.  These marketing years were generally high priced time periods for U.S. feedgrains such as grain sorghum and corn.

 

U.S. Ethanol and Biodiesel Market-Profitability Graphics: Through Late-July 2018

Following are some graphics on U.S. Ethanol and Biodiesel Market price and profitability trends in the , which will soon be available on the KSU AgManager website:  http://www.agmanager.info/

The full presentation titled “U.S. Ethanol & Biodiesel Market Situation” made for WILL (Illinois Public Radio) on Friday, July 27th and will be located at the KSU AgManager.info website – at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

 

Following are the graphics of this presentation.

 

 

KSU Weekly Grain Market Analysis: Grain Futures and Kansas Cash Prices in Dynamic Markets

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program to be played on Friday, July 27, 2018 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter/weekly-grain-market-review

The recorded radio program was aired at 10:03 a.m. central time, Friday, July 27, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – online program link available. A copy of the July 27th recording is available at the KSU Agriculture Today website.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

KSU Soybean Market Outlook in Late-July 2018 – Weighing Impacts of U.S. Crop Prospects vs Trade Tensions

An analysis of U.S. and World soybean supply-demand factors and 2018 price prospects following the USDA’s July 12th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports will be available on the KSU AgManager website (http://www.agmanager.info/)

This article also analyzes information from the USDA’s Long Term Agricultural Projections for U.S. soybeans, particularly for the “New Crop” 2018/19 Marketing Year to begin on September 1, 2018.

Following is a summary of the article on Soybean Market Outlook in Late-July 2018 – with the full article and accompanying analysis to be available on the KSU AgManager website at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

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Soybean Market Outlook in Late-July 2018

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

July 26, 2018

A. What is “Known” & “Unknown” About the Soybean Market in Late-July 2018

The outlook for soybean markets in fall 2018 is now dominated by two major knownand unknown” factors.  What is known is that prospects for a large 2018 U.S. soybean crop have continued through most of July, with the critical U.S. soybean crop development month of August approaching.  What is “unknown” is the duration of the trade dispute between the U.S. and China, and the price impact of Chinese tariffs on U.S. soybean imports from now through fall 2018 (if the trade dispute is not solved by then).

What is “Known” – Strong 2018 U.S. Soybean Production Prospects: Market expectations for the 2018 U.S. soybean crop are “positive” as of the date of this article in late July 2018.  The USDA reports that 2018 U.S. soybean crop development is ahead of schedule, with 78% blooming on July 22nd in the 18 major states compared to the 2013-2017 average of 63% as of July 22nd.  Also, 44% of soybeans are blooming in the 18 major states compared to the 2013-2017 average of 23%.   The 2018 U.S. soybean crop is rated to be 70% Good-Excellent with 22% Fair, and only 8% Poor-Very Poor in the 18 major states.  This compares to 57% Good-Excellent, 29% Fair, and 14% Poor-Very Poor at the same time in 2017 in these same states.

In the July WASDE report, the USDA projected that the 2018 U.S. soybean crop would be a near record 4.310 billion bushels (bb), down 82 million bushels (mb) from the record high of 4.392 billion bushels (bb) in year 2017, but up from 4.296 bb in year 2016.  The August 10th USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports will provide the first in-the-field samples and farmer survey results for the 2018 U.S. soybean crop.  There are of course opportunities for surprises to occur in the August 10th reports, which represent the USDA’s estimate of 2018 U.S. soybean crop production prospects near August 1st.

What is “Unknown” – The Strength of U.S. Soybean Exports Through Fall 2018: The imposition by the Chinese government of a 25% tariff on U.S. soybean imports into their country has had a decidedly negative impact on U.S. soybean prices over the past few weeks.  However, in terms of actual shipments of U.S. soybeans at the current time, U.S. soybean exports are still running “on pace” to meet USDA projections for the “old crop” 2017/18 marketing year ending August 31st.  

The USDA Foreign Agricultural Service (FAS) reports that for the week ending July 19th the U.S. shipped 30.3 mb of soybeans for export, down marginally from the pace of 31.2 mb per week to meet the USDA’s forecast of 2.085 bb in U.S. soybean exports for the “old crop” 2017/18 marketing year ending August 31st (Figure 8).   Total shipments of 1.898 bb through July 19th were 91.0% of the USDA projection of 2.085 bb in “old crop” MY 2017/18, with 88.5% of the marketing year complete (i.e., 46/52 weeks). 

In terms of forward purchases, the USDA reports that an additional 240 mb of wheat have been “bought ahead” for export as of July 19th.  Adding the shipments-to-date of 1.898 bb and forward purchases of 0.240 bb together, total shipments and purchases amount to 2.138 bb, up 2.5% and 53 mb higher than the USDA’s projection of 2.085 bb for “old crop” MY 2017/18. 

As of July 19th a total of 361.2 mb of U.S. soybeans had also been purchased for shipment in the “new crop” 2018/19 marketing year, beginning on September 1, 2018.   This amount of pre-sales equals 17.7% of the USDA’s projection of 2.040 bb in U.S. soybean exports in “new crop” MY 2018/19.  However, it should be noted that the USDA lowered its projection of “new crop” MY 2018/19 U.S. soybean exports by 250 mb down to the 2.040 bb projection in the July 12, 2018 WASDE report in response to U.S.-Chinese trade actions.   

Taken together, prospects for U.S. soybean exports in “new crop” MY 2018/19 have been reduced at this point-in-time – down 10.9% from the June to the July WASDE report by the USDA’s estimates.  However, the current pace of U.S. soybean exports in “old crop” MY 2017/18 have not declined appreciably since the announcement of the Chinese soybean import tariff.  

While U.S. soybean exports in “old crop” MY 2017/18 to China are down 266 mb (down 20.8%) from a year ago through July 19th, U.S. exports to all other countries in “old crop” MY 2017/18 are up 176.4 mb or 24.8% over a year earlier.   Among the countries that have tangibly increased U.S. soybean imports from a year ago are some in the European Union (i.e., Germany, the Netherlands, and Portugal), Turkey, Taiwan, Indonesia, Iran, Israel, Pakistan, Thailand, Vietnam, Egypt, Tunisia, Columbia, Mexico, Cuba, Peru, and Venezuela.

B) Other Factors to Consider in Soybean Market Outlook

Prior to the escalation of the U.S.-China trade dispute, U.S. soybean market prospects where described as “neutral-to-cautiously optimistic” for the “new crop” 2018/19 marketing year.  Now with the uncertainty and potential negative impacts of 25% soybean import tariffs by China against U.S. soybeans, the “narrative consensus opinion” of the market has turned pessimistic price-wise, which has been reflected in “new crop” NOVEMBER 2018 Soybean futures.  NOV 2018 Soybean futures declined from a high of $10.43 ¾ on May 30th down to a low of $8.46 per bushel on July 17th (Figure 1).  Since then, NOV 2018 Soybean futures have increased moderately to a close of $8.76 on Thursday, July 26th

There are still other unsettled questions about key U.S. soybean supply-demand factors that need to be answered between now and fall harvest 2018.  These include: 1) remaining 2018 U.S. soybean production risk in Summer 2018; 2) expectations of continued strength in U.S. soybean domestic crush and to some degree exports in coming months; and 3) the possibility of tighter U.S. soybean supplies in terms of reduced ending stocks and percent ending stocks-to-use if a short crop develops in the U.S. this summer.   

Looking forward, it is possible that Brazilian soybean producers may respond to the current high prices they are receiving from Chinese purchases of their 2018 crop by sharply increasing their acreage and production prospects for 2019.  High soybean prices in Brazil have been brought on by the directed focus of China upon purchasing South American soybeans at the exclusion of the U.S. during the current trade dispute.  It is possible if not likely that farmers in Brazil and Argentina will sharply increase 2019 soybean planted acres, which with decent yields would result in an even larger 2019 soybean crop than would otherwise be expected – and more pressure on World soybean market prices.  

Planting of the South American soybean crop begins in late fall 2018 here in the United States.  This means that U.S. corn and soybean producers will have some amount of information on 2019 South American crop and market prospects when they make crop planting decisions in late winter – early spring 2019 here in the United States.   All else being equal, anticipated 2019 South American acreage trends may lead U.S. farmers to lower their 2019 U.S. soybean plantings and to raise their 2019 U.S. corn plantings.

C) Kansas Cash Soybean Prices & Basis Bids

Cash soybean price bids on Wednesday, July 25th in Central at major terminal elevator locations were in the range of $7.70 ¾ to $8.01 ¾ per bushel ($0.90 to $0.59 under AUGUST 2018).  At Topeka and Atchison in Northeast Kansas, cash prices ranged from $8.20 ¾ to $8.25 ¾ per bushel ($0.40 to $0.35 under AUGUST 2018).   These Central and Northeast Kansas prices on July 25th are down substantially from $9.88 – $9.93 ($0.35 to $0.30 under JULY) on May 30th.  Cash soybean bids at Kansas soybean processing plants in Emporia and Wichita on July 25th ranged from $8.40 ¾ to $8.45 ¾ per bushel ($0.15 to $0.20 under AUGUST 2018) – down substantially from May 30th when prices ranged from $9.86 ($0.37 under JULY) to $9.93 ($0.30 under). 

In Western Kansas cash soybean bids at major grain elevators on July 25th ranged from $7.36 to $7.76 per bushels ($1.30 to $$0.90 under AUGUST 2018), down substantially again from $8.88 ($1.35 under JULY 2018 futures) to $9.23 ($1.00 under) on May 30th.

D) South American Export Competition in “Old Crop” MY 2017/18

Soybean market signals from South American export competitors Argentina, Brazil and Paraguay have improved in recent months as a result of the U.S.-China trade dispute (Figure 14).  Serious drought had caused Argentina soybean production to decline by 32.7% from a USDA estimate of 55.0 million metric tons (mmt) in 2017 down to 37.0 mmt in 2018, and cut projected Argentine soybean exports by 55.9% to 3.1 mmt in the “old crop” 2017/18 marketing year (MY) ending August 31st (Tables 2 & 3).   Argentina soybean meal exports are projected to be 11.7% lower (27.65 mmt) in MY 2017/18, down from 31.3 mmt in MY 2016/17.

However, Brazilian soybean production is projected to be higher – offsetting Argentina’s declines to a degree.  Brazil is projected by the USDA to produce a record high 119.5 mmt of soybeans in year 2018, up 4.3% from the previous record of 114.5 mmt in year 2017.  Brazilian soybean exports are forecast to be 74.65 mmt in MY 2017/18 (ending August 31st), up 18.2% from 63.1 mmt in MY 2016/17 (Tables 2 & 3).  Brazil soybean meal exports are projected to be 14.1% higher (15.7 mmt) in MY 2017/18, up from 13.8 mmt in MY 2016/17.  

Paraguay soybean production is projected to be down marginally – providing a neutral influence to the market.  Paraguay is projected by the USDA to produce 10.0 mmt of soybeans in year 2018 – down marginally from 10.2 mmt in year 2017.  Paraguay soybean exports are forecast to be 6.25 mmt in MY 2017/18 (ending August 31st), up 2.0% from 6.13 mmt in MY 2016/17 (Tables 2 & 3). 

These three South American countries are the main competition in global soybean export markets for the United StatesArgentina, Brazil and Paraguay are forecast to comprise 55.2% (84.0 mmt) of forecast World soybean exports (152.2 mmt) in the “old crop” 2017/18 marketing year (MY). The U.S. is projected to make up 37.3% (56.7 mmt) of World soybean exports for MY 2017/18, with other countries making up the remaining 7.55% (11.5 mmt) (Table 3). 

The trade dispute between the U.S. and China has “pushed” Chinese soybean export purchases toward Brazil and away from the U.S. at least temporarily until the matter is either settled OR exportable South American supplies are eventually no longer available in fall 2018.  There has been both negative and positive news coming from these negotiations to date, with final agreements or lack there-of still to come.

E) U.S. Soybean Supply-Demand Projections for “Old Crop” MY 2017/18

In the July 12th USDA WASDE report the USDA projected “old crop” MY 2017/18 soybean Total Supplies to be up marginally from earlier WASDE reports at 4.715 billion bushels (bb) (Table 1 and Figure 6). 

Continued strength in U.S. soybean crush resulting from demand for soybean meal for domestic and foreign livestock feeding has supported domestic U.S. soybean demand (Table 1, Figures 7 & 9ab).  Projected U.S. soybean crush of 2.030 bb in “old crop” MY 2017/18 is a record high – up 15 mb from June and up 129 mb from MY 2016/17.  Strong crush of U.S. soybeans is related directly to strong demand for U.S. soybean meal. 

Projected exports of U.S. soybean meal of a record high 13.500 million short tons (mst) in “old crop” MY 2017/18 ending on September 30th are up from 11.580 mst last year – up from the previous record of 13.107 mmt in MY 2014/15.  Strong U.S. soybean meal exports in “old crop” MY 2017/18 are a direct result of shortfalls in Argentina soybean production and soybean meal exports due to drought conditions in early 2018, and possibly from the U.S.-China trade dispute and the 25% Chinese tariffs on U.S. soybean imports.    

The USDA’s World Agricultural Supply and Demand Estimates (WASDE) report monthly projections of U.S. soybeans exports for “old crop” MY 2017/18 have declined by nearly 80 mb since January 2018 – down to a projection of 2.085 bb (while up 20 mb from June) (Table 1, Figures 7 & 9ab).  This forecast of 2.085 bb for the current marketing year ending on August 31st is still the 2nd highest on record, but down from the record high of 2.174 bb in U.S. soybean exports a year earlier.   

Seed usage of U.S. soybeans is projected to be 104 mb in “old crop” MY 2017/18, with Residual use at 32 mb – both down marginally from MY 2016/17. 

Total Use of U.S. soybeans was projected to be a record high of 4.251 bb in “old crop” MY 2017/18 – up from the past record of 4.214 bb in MY 2016/17 (Table 1, Figures 7 & 9ab).

As a result of these supply and use projections for “old crop” MY 2017/18, ending stocks are projected to be the 2nd highest on record at 465 mb (down 40 mb from June) with percent ending stocks-to-use of 10.94% – both measures being up from 302 mb (7.17% S/U) in MY 2016/17 (Table 1, Figures 9ab & 10-11).  The record high occurred in MY 2006/07, with 574 mb ending stocks and 18.62% ending stocks-to-use. 

United States’ soybean prices for “old crop” MY 2017/18 are projected to average $9.35 /bu – down from $9.47 in MY 2016/17, and comparable to $8.95 /bu in MY 2015/16 (Table 1, Figures 10-11).  

F) U.S. Soybean Supply-Demand Projections for “New Crop” MY 2018/19

The USDA provided a forecast of U.S. soybean supply, demand, and prices for “new crop” MY 2018/19 In the July 12th USDA WASDE report.  Based on 2018 U.S. soybean production projections 88.557 million acres (ma) planted, 88.862 ma harvested, and 2018 U.S. soybean average yields of 48.5 bu/ac., the USDA forecast 2018 U.S. soybean production to be 4.310 bb.  This 2018 forecast of 4.310 bb would be down from the record high of 4.392 bb in 2017, and the 2nd highest amount of 4.296 bb in 2016 (Tables 1a-b, Figures 4-5-6). 

Total Supplies of U.S. soybeans in “new crop” MY 2018/19 are forecast to be a record high 4.800 bb, based on 465 mb in beginning stocks, 4.310 bb in production, and 25 mb in imports.  This amount is up from the previous record highs of 4.715 bb and 4.515 bb in U.S. soybean Total Supplies in “old crop” MY 2017/18 and MY 2016/17, respectively (Tables 1a-b, Figure 6). 

Soybean crush in “new crop” MY 2018/19 is forecast to be a new record high of 2.045 bb (up 45 mb from June) – to be driven by expected ongoing domestic usage for livestock feed and sharply higher U.S. soybean meal exports (Table 1a-b, Figures 7 & 9ab).  This would be up 15 mb in U.S. soybean crush from the previous record of 2.030 bb in “old crop” MY 2017/18.  

Exports of U.S. soybeans in “new crop” MY 2018/19 are forecast to decline 45 mb to 2.040 bb – down 250 mb from the June WASDE as a result of the expected impact of U.S.-China trade tensions (Figures 7-9).  A total of 361.2 mb of U.S. soybeans have been purchased for shipment in the “new crop” 2018/19 marketing year, beginning on September 1, 2018.   This amount of pre-sales equals 17.7% of the USDA’s projection of 2.040 bb in U.S. soybean exports in “new crop” MY 2018/19. 

Seed usage of U.S. soybeans is projected to be 103 million bushels (mb) in “new crop” MY 2018/19, with Residual use forecast at 32 mb – both essentially equal to “old crop” MY 2017/18 (Table 1a-b, Figures 9ab). 

Total Use is projected to be a near-record high of 4.220 bb – down 205 mb from June, and down from the previous record high of 4.251 bb last year (Table 1a-b, Figure 9b). 

As a result of these supply and use projections for “new crop” MY 2018/19, ending stocks are projected to be 580 mb (up 195 mb from June) with percent ending stocks-to-use of 13.74% – both up from 465 mb (10.94% S/U) in “old crop” MY 2017/18 (Tables 1a-b, Figures 9ab & 10-11).  United States’ soybean prices for “new crop” MY 2018/19 are projected in the range of $8.00-$10.50 (midpoint = $9.25 /bu) – all being down $0.75 /bu from the June WASDE report, and comparable to the midpoint projection of $9.35 /bu in “old crop” MY 2017/18.   This scenario is given a 50% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.

G) Alternative KSU Soybean Forecast Scenarios for “New Crop” MY 2018/19

Three alternative KSU-Scenarios to the USDA’s forecast for U.S. soybean supply-demand and prices are presented for “new crop” MY 2018/19 (Table 1b, Figure 10).  These projections show how varying 2018 U.S. soybean production and use scenarios could affect U.S. soybean supply-demand and price outcomes in “new crop” MY 2018/19.  Probability-weights are added to reflect judgements about how likely each scenario is to occur in “new crop” MY 2018/19, i.e., during the September 1, 2018 through August 31, 2019 time period.

#1 – KSU “Lower 2018 U.S. Soybean Exports” Scenario for “new crop” MY 2018/19: (20% probability): Assumptions: 88.557 ma planted, 88.862 ma harvested, 48.5 bu/ac yield, 4.310 bb production, 4.800 bb total supplies, 2.045 bb domestic crush, 1.890 bb exports (down 150 mb from USDA’s forecast), 4.070 bb total use, 730 mb ending stocks, 17.94% S/U, & $7.75 /bu U.S. soybean average price; 

#2 – KSU “Large 2018 U.S. Soybean Production” Scenario for “new crop” MY 2018/19: (15% probability): Assumptions: 88.557 ma planted, 88.862 ma harvested, 51.0 bu/ac yield (near the record high in year 2016 of 52.0 bu/ac), 4.532 bb production, 5.022 bb total supplies, 2.045 bb domestic crush, 2.150 bb exports (up 110 mb from USDA), 4.330 bb total use, 692 mb ending stocks, 15.98% S/U, & $8.25 /bu U.S. soybean average price; 

#3 – KSU “Small 2018 U.S. Soybean Production” Scenario for “new crop” MY 2018/19: (15% probability): Assumptions are: 88.557 ma planted, 88.862 ma harvested, 46.0 bu/ac yield (closer to recent lows of 40-44 bu /ac in years 2011-2013), 4.088 bb production, 4.578 bb total supplies, 1.950 bb domestic crush, 2.000 bb exports, 4.110 bb total use, 468 mb ending stocks, 11.38% S/U, & $9.50 /bu U.S. soybean price;

H) World Soybean Supply-Demand Prospects

World soybean production of a record high 359.5 million metric tons (mmt) is projected for “new crop” MY 2018/19, up 6.8% from 336.7 mmt in “old crop” MY 2017/18, and up 3.3% from the current record high of 348.1 mmt in MY 2016/17 (Figure 13, Table 2).  The “new crop” 2018/19 marketing year begins September 1, 2018 and continues through August 31, 2019.   World soybean total supplies of 455.5 mmt in “new crop” MY 2018/19 are forecast to be up 5.1% from 433.4 mmt in “old crop” MY 2017/18, and up 6.3% from 428.6 mmt in MY 2016/17. 

World soybean exports of a 157.3 mmt are projected for “new crop” MY 2018/19, up 3.0% from 152.2 mmt in “old crop” MY 2017/18, and up 6.8% from 147.35 mmt in MY 2016/17 (Table 3).  China would be the key World soybean importer in the coming marketing year, and shows little sign of abating yet in their annual soybean usage or import increases (Table 4, Figure 15).

Projected World soybean ending stocks of a record high 98.3 mmt (27.7% S/U) in “new crop” MY 2018/19 are up 2.3% from 96.0 mmt (28.3% S/U) in “old crop” MY 2017/18, up from the previous record high 96.7 mmt (29.7% S/U) in MY 2016/17, and 78.0 mmt (25.8% S/U) in MY 2015/16 (Figures 13 & 16, Tables 8-9).  

Projected Foreign (Non-U.S.) soybean ending stocks of 82.5 mmt (22.5% S/U) in “new crop” MY 2018/19, are down 1.1% from 83.4 mmt (22.2% S/U) in “old crop” MY 2017/18, and is down from 88.5 mmt (24.5% S/U) in MY 2016/17 (Tables 8-9).  

 

KSU Wheat Market Outlook in July 2018: Weighing Exporter vs Rest-of-World %Stocks/Use

An analysis of U.S. and World wheat supply-demand factors and 2018-2019 price prospects following the July 12 USDA Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports, and the market actions that have followed those reports are available on the KSU AgManager website (http://www.agmanager.info/).

Following is a summary – with the full analysis-article for Wheat to be found at this web location:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

***

Wheat Market Outlook in July 2018

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

July 19, 2018

Wheat Futures & Cash Market Trends Following the July 12th USDA Reports

Since the USDA’s July 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, CME SEPTEMBER 2018 Kansas Hard Red Winter (HRW) Wheat futures have traded mostly higher.  These reports were released during when hard red winter wheat harvest was nearing completion in Kansas, Oklahoma and Texas.  On the day of the reports (July 12, 2018), SEPT 2018 Kansas HRW wheat futures opened at $4.76 ¼, and traded as low as $4.71 ½ and as high as $4.86 ½ before closing $0.07 ¼ higher to $4.81 ¼ from the day prior.  The following four days SEPT 2018 HRW wheat futures trended lower, trading as high as $4.99 ½ on July 17th before closing at $4.96 ½ /bu on Thursday, July 19th (Figure 1).   

On July 19th – the 5th trading day after the USDA reports – Kansas cash wheat price terminal quotes in central Kansas ranged from $4.82 ½ to $4.98 ½ per bushel – with basis ranging from $0.14 under to $0.06 over SEPT 2018 futures (Figure 2).  Cash wheat prices in eastern Kansas grain terminals ranged from $4.66 ½ to $4.76 ½ with basis ranging from $0.30 under to $0.20 under SEPT 2018 futures.  These prices are up 36%-41% from the range of $3.42 ¼ to $3.83 ¼ /bu in late December 2017 in eastern and central Kansas – with basis at that time ranging from $0.80 under to $0.39 under nearby MARCH 2018 futures.   A Hard White Wheat (HWW) grain terminal bid was available in Wichita, Kansas for $5.02 ½ /bu, with a basis of $0.06 /bu over SEPT 2018 Kansas HRW wheat futures.

In western Kansas on July 19th with harvest nearly complete throughout the area, representative wheat elevator bids ranged from $4.62 to $4.77 /bu, with basis being from $0.30 under to $0.20 under SEPT 2018 futures.  These recent wheat cash price levels are up 31%-33% from $3.47 to $3.64 /bu in late December 2017 in western Kansas – when local basis varied from $0.85 under to $0.58 under MARCH 2018 futures.  

Lower 2018 production, higher protein levels in drought-damaged parts of the central and southern plains states of Texas, Oklahoma and Kansas, and to some degree foreign wheat crop concerns in competitive export countries such as Ukraine, Russia, and Australia, are the key market influencing factors credited for the increase in Kansas HRW wheat futures and cash prices since December 2017.  With this price strength, local wheat basis levels in Kansas that were “wide & weak” in December 2017 have strengthened by $0.45-$0.66 /bu in central Kansas, and by $0.38-$0.55 /bu in western Kansas as of July 19th

Early Harvest HRW Wheat Yield and Protein Results

Harvest results to date have shown low yields but higher protein in Oklahoma and parts of southern Kansas.  The July 13th Harvest Report of the U.S. Wheat Associates (http://www.uswheat.org/harvest) stated:

The 2018 hard red winter (HRW) harvest and sampling are more than 90% complete in Texas, Oklahoma, Kansas and southeast Colorado; and there was significant progress north through Nebraska and into southern South Dakota. Rain over the past week slowed harvest, as well as sample collection and processing, in eastern Colorado, northwest Kansas and western Nebraska. As a result, new official HRW data will be available in the July 20 Harvest Report, although Falling Number tests on a few existing samples show a very slight improvement in what remains a sound crop.”

“Industry contacts report that test weights in Nebraska and South Dakota are above 60 lbs/bu (78.9 kg/hl) with continued good protein levels. HRW harvest is also underway in Oregon (11% complete), and just starting in Washington and Idaho. In addition, domestic millers continue to be pleased with absorption and stability in the new crop.”

U.S. Wheat Associates indicated that according to its samples that average protein for the 2018 U.S. hard red winter wheat (HRW) crop averaged 12.8%, with average test weight of 60.3 lb/bu, 11.4% moisture, dockage of 0.5%. a falling number rating of 385 seconds, and 1.6% defects.  This compares to the 2017 U.S. HRW Wheat crop which according to U.S. Wheat Associates test data averaged 11.4% protein, 60.8 lbs/bu test weight, 10.6% moisture, 0.6% dockage, 367 seconds for the Falling Number test, and 1.1% defects.

Consequently, the moderately lower yields occurring during the 2018 HRW harvest in Kansas and Oklahoma (i.e., 38.0 bu/ac in 2018 in Kansas vs 48.0 bu/ac a year earlier, and 25.0 bu/ac in Oklahoma in 2018 vs 34.0 bu/ac a year ago) have been partially offset income-wise by higher protein wheat.

Key World Wheat Supply-Demand Results in the June 12th USDA WASDE Report

For the “new crop” 2018/19 marketing year (MY) which began on June 1, 2018, the USDA projected the following (Figures 13 thru 16b, Tables 2 thru 9):

World wheat total supplies in “new crop” MY 2018/19 would be a near record 1,009.75 million metric tons (mmt) accompanied by record high total use of 748.9 mmt – down 0.5% and up 1.0%, respectively, from “old crop” MY 2017/18.  The USDA in essence projects that the recent “large supply – large use” situation that has persisted for the global wheat market since the last “supply-demand” period in MY 2012/13 will continue (Figure 13).  However, there are concerns that 2018-2019 wheat crop production prospects and export supply potential of parts of the European Union, the Black Sea Region (Russia & Ukraine), and Australia (including several major World wheat exporters).   

CommentaryKSU: These aggregate World supply and use numbers do NOT bring light to the shortage of high protein wheat that is problematic in World markets, OR the sizable wheat stocks held by China that are isolated from the World wheat market.

World wheat exports are forecast to also be a new record high of 185.45 mmt in the “new crop” 2018/19 marketing year – up from a 181.9 mmt in “old crop” MY 2017/18, the previous record high of 183.2 mmt in MY 2016/17, and from 172.8 mmt in MY 2015/16 (Figure 13, Table 3).  While World wheat exports are forecast to increase by 11.8% since MY 2013/14 (i.e., 1 year after  the short crop year of MY 2012/13), over the same period U.S. wheat exports are projected to decline by 17.1% from 1.176 billion bushels in MY 2013/14 to 975 million bushels (mb) in “new crop” MY 2018/19. 

CommentaryKSU: Concerns about adequacy of exportable supplies in other major wheat exporting countries – aside from the U.S. – has raised the possibility of markedly stronger U.S. wheat exports occurring in “new crop” MY 2018/19.  This discussion reinforces the idea that the U.S. is currently positioned as an “emergency supplier of last resort” to many global wheat importers.     

World wheat ending stocks are projected to be 260.9 mmt in “new crop” MY 2018/19 – the 2nd highest on record following the record high of 273.5 mmt in “old crop” MY 2017/18 (Figure 13, Table 8).  World wheat ending stocks have been growing an average of 13.8 mmt per marketing year from the low of 177.9 mmt in MY 2012/13 – out-pacing the annual growth in total use of 10.3 mmt per marketing year. 

World wheat percent ending stocks-to-use (S/U) are forecast to be 34.8% in “new crop” MY 2018/19 – the 2nd highest on record (Figures 14a-b, Table 9).  The record high is 36.9% in “old crop” MY 2017/18.  World wheat % stocks-to-use has consistently increased each year since MY 2012/13 until the current year.  Since 25.89% stocks/use in short crop MY 2012/13, World wheat percent (%) ending stocks-to-use has increased to 28.3% in MY 2013/14; 31.35% in MY 2014/15;  34.4%-34.8% in MY 2015/16-2016/17; and to the record high of 36.9% S/U in “old crop” MY 2017/18; before the projected moderate decline to 34.8% in “new crop” MY 2018/19.

World-Less-China” Wheat Supply-Demand

The broader “large crop-over supply-low price” situation in the World wheat market may be “obscuring” some important underlying market issues – particularly in regards to the “masking” effect of Chinese wheat stocks on available World wheat supplies and stocks.  

From a World-Less-China perspective, forecast ending stocks-to-use of 19.9% would be the lowest level in 11 years (Table 9, Figures 15a-b)“World-Less-China” wheat ending stocks-to-use would be down sharply from 23.5% in “old crop” MY 2017/18, and from the range of 22.05% to 27.5% during the MY 2008/09 – MY 2017/18 period. 

IF this China supply isolation factor eventually leads to noticeably tighter available global supplies of purchasable wheat for buyers to gain access to in coming months, it could have a significant positive impact on U.S. and World wheat market prices in “new crop” MY 2018/19.  However, unless there is this change in the broader, overriding focus of the World wheat market AWAY FROM large aggregate global supplies over TO available “World-Less-China supplies, the attention of the World wheat market and market prices may not change in a positive direction.  The information in the following section may be an impetus for that change.

“Major Exporter” vs “Rest of World-less China” Wheat Supply-Demand Issues

Ending stocks among global wheat exporters including Argentina, Australia, Canada, the European Union, Russia, Ukraine, and the United States are projected to decline to 51.3 mmt in “new crop” MY 2018/19.  This amount would be down from 67.2 mmt in “old crop” MY 2017/18, and from the recent high of 68.5 mmt in MY 2016/17 (Figures 16).  Excluding the United States with its current large stocks situation, the ending stocks of the remaining six (6) major wheat exporters have declined to 24.5 mmt in “new crop” MY 2018/19.  This amount would be down from the recent high of 37.2 mmt in “old crop” MY 2017/18 and from the 36.4 mmt in MY 2016/17.

Rest of the World (ROW) Wheat ending stocks:  Excluding the major seven (7) global wheat exporters Argentina, Australia, Canada, the European Union, Russia, Ukraine, and the United States – wheat ending stocks for the Rest of the World (ROW) are projected to increase to a record high 209.6 mmt in “new crop” MY 2018/19.  This amount would be up from 206.3 mmt in “old crop” MY 2017/18, and up from 188.8 mmt in MY 2016/17.  Excluding China with its current large stocks situation – and limited participation in World wheat trade, the ending stocks of the Rest of the World-less-China have decreased to 124.8 mmt in “new crop” MY 2018/19 (Figure 17).  This amount would be down from the recent high of 146.7 mmt in “old crop” MY 2017/18, from 146.3 mmt in MY 2016/17, and the record high of 147.2 mmt in MY 2015/16.

Projected percent (%) ending stocks-to-use among global wheat exporters including Argentina, Australia, Canada, the European Union, Russia, Ukraine, and the United States are projected to decline to 30.7% in “new crop” MY 2018/19 – down from 31.9% in “old crop” MY 2017/18, from 31.6% in MY 2016/17 and the recent high of 32.7% in MY 2015/16 (Figure 16)Excluding the United States with its current large stocks situation, the percent (%) ending stocks-to-use of the remaining six (6) major exporters have declined to 26.5% in “new crop” MY 2018/19.  This amount would be down from 27.9% in “old crop” MY 2017/18, 27.3% in MY 2016/17, and the recent high of 28.2% in MY 2015/16.

CommentaryKSU: These results show that while World wheat ending stocks have declined moderately, “under the surface” of those numbers, wheat stocks are “tighter” among World exporters than they are for the rest of the World.  Tighter wheat stocks among exporters is a positive factor for U.S. wheat market price prospects (since it could eventually lead to larger U.S. wheat exports in “new crop” MY 2018/19.

U.S. Wheat Supply/Demand for “New Crop” MY 2018/19

The USDA released their wheat production, supply-demand and price projections for the U.S. for “new crop” MY 2017/18 in the July 12th Crop Production & WASDE reports (Tables 1a-b).   

U.S. wheat plantings are forecast to be 47.821 million acres (ma) in 2018, up from the record low of 46.012 ma in 2017, but down from 50.119 ma in 2016 (Table 1, Figure 5)Harvested acres are forecast at 39.571 ma in 2018 (82.75% harvested-to-planted), up from the record low of 37.586 ma (81.7% harvested-to-planted) in 2017, but down from 43.850 ma in 2016 (87.5% harvested-to-planted) (Table 1, Figure 5).   The 2018 U.S. average wheat yield is estimated at 47.5 bu/ac, up from 46.3 bu/ac in 2017, but down from the 2016 record high of 52.7 bu/acre (Table 1, Figure 6)

Wheat production in the U.S. in 2018 is forecast to be 1.881 billion bushels (bb), up from 1.741 bb in 2017, but down from 2.309 bb in 2016.  Projected “new crop” MY 2018/19 total supplies are forecast at 3.117 bb, up from 3.079 bb in “old crop” MY 2017/18, and down from 3.402 bb in MY 2016/17 (Table 1, Figure 7)

U.S. Wheat total use of 2.132 bb is forecast for “new crop” MY 2018/19 (up 35 mb from June), up from 1.978 bb in “old crop” MY 2017/18 (down 18 mb from June), and from 2.222 bb in MY 2016/17 (Table 1, Figure 8).  By usage category, U.S. wheat exports are projected to be 975 mb (up 25 mb from June) in “new crop” MY 2018/19, and up from 901 mb in “old crop” MY 2017/18, while being down from 1.051 bb in MY 2016/17 (Table 1, Figures 9 & 10)

CommentaryKSU: U.S. wheat exports fell to 47-year lows of 778 mb and 864 mb in MY 2015/16 and MY 2014/15, respectively, to levels just marginally above those pre-“Russian Grain Deal” in 1972.  This is more evidence of the only marginally competitive position that U.S. wheat exports find themselves in among foreign export competitors in recent years.  However, tightening supplies of foreign wheat exporters may cause U.S. wheat exports to strengthen in the later part of “new crop” MY 2018/19 (i.e., likely fall 2018)

Food Use of U.S. wheat is projected to be 965 million bushels (mb) in “new crop” MY 2018/19, up marginally from 963 mb in “old crop” MY 2017/18, and trending higher from 943 mb in MY 2016/17 (Table 1, Figure 8).   Feed & Residual Use of U.S. wheat is projected to be 130 mb in “new crop” MY 2018/19 (up 10 mb from June), up from 50 mb in “old crop” MY 2017/18 (down 20 mb from June), and from 161 mb in MY 2016/17 (Table 1, Figure 8).  

CommentaryKSU: With the USDA’s forecast of tighter U.S. corn and total feedgrain supplies along with higher feedgrain prices, the USDA is anticipating that feeding wheat to livestock will become more economically viable. 

The USDA projected “new crop” MY 2018/19 ending stocks to be 985 mb (46.2% stocks/Use), down from 1.100 bb in “old crop” MY 2017/18 (up 20 mb from June) (55.6% stocks/use), and 1.181 bb in MY 2016/17 (53.15% stocks/use) (Table 1, Figures 11 & 12).   

CommentaryKSU: Although only a moderate reduction, the forecast of 985 mb in ending stocks for “new crop” MY 2018/19 is the lowest in five (5) years since 752 mb (37.3% stocks/use) in MY 2014/15.  Still, until either a major wheat production shortfall or what would now be a “surprise” surge in U.S. wheat exports occurs, the U.S. will likely remain in the current “large supply – large ending stocks” situation.

United States’ wheat prices are projected to be in the range of $4.50-$5.50 /bu – averaging $5.00 /bu in “new crop” MY 2018/19 (down $0.10 /bu from June).  This would be up from $4.73 /bu in “old crop” MY 2017/18 (down $0.02 /bu from June), from $3.89 in MY 2016/17, and $4.89 /bu in MY 2015/16, but still down from $5.99 /bu in MY 2014/15 (Table 1, Figures 11 & 12).   CommentaryKSU: It is estimated by KSU that these USDA projections for “new crop” MY 2018/19 have a 50% probability of occurring.

Three Alternative KSU U.S. Wheat S/D Forecast for “New Crop” MY 2018/19

To represent possible alternative outcomes from the USDA’s July 12th projection, three potential KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “new crop” MY 2018/19 (Table 1a, Figure 11).    

KSU Scenario 1) “Higher Yields & Production” Scenario (5% probability):   This scenario assumes that there will be 47.821 ma planted, 82.75% harvested-to-planted, 39.571 ma harvested, 48.5 bu/ac average yield (up 1.0 bu/ac from USDA), 1.919 bb production (up 38 mb from USDA), 3.154 bb total supplies (up 38 mb from USDA), 975 mb exports, 130 mb feed & residual use, 2.132 bb total use, 1.022 bb ending stocks (up 38 mb from USDA), 47.9% Stocks/Use (up 1.75% S/U from USDA), & $4.90 /bu U.S. wheat average price (down $0.10 /bu from USDA).

KSU Scenario 2) “Higher Exports” Scenario (35% probability):   This scenario assumes that there will be 47.821 ma planted, 82.75% harvested-to-planted, 39.571 ma harvested, 47.5 bu/ac average yield, 1.881 bb production, 3.117 bb total supplies, 1.175 bb exports (up 200 mb from USDA), 130 mb feed & residual use, 2.332 bb total use (up 200 mb from USDA), 746 mb ending stocks (down 200 mb from USDA), 31.99% Stocks/Use (down 14.2% S/U from USDA), & $6.15 /bu U.S. wheat average price (up $1.15 /bu from USDA).

KSU Scenario 3) “Lower Exports” Scenario (10% probability):   This scenario assumes that there will be 47.821 ma planted, 82.75% harvested-to-planted, 39.571 ma harvested, 47.5 bu/ac average yield, 1.881 bb production, 3.117 bb total supplies, 775 mb exports (down 200 mb from USDA), 130 mb feed & residual use, 1.932 bb total use (down 200 mb from USDA), 1.146 bb ending stocks (up 200 mb from USDA), 59.32% Stocks/Use (up 13.1% S/U from USDA), & $4.50 /bu U.S. wheat average price (down $0.50 /bu from USDA).

KSU Corn Market Outlook in July 2018: The July WASDE Impact on 2018-2019 Corn Price Prospects

An analysis of Corn Market Situation & Outlook in July 2018 for the remainder of the “old crop”  2017/18 and “new crop” 2018/19 marketing years is provided in the following article from Kansas State University .  This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) report on July 12, 2018.

A full version of this article is or will shortly be available on the KSU AgManager website http://www.agmanager.info/ at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

Following is a summary of the article on “Corn Market Situation & Outlook in July 2018″

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Corn Market Situation & Outlook in July 2018

In response to the July 12, 2018 USDA WASDE Report

Daniel O’Brien – Extension Agricultural Economist, Kansas State University

July 13, 2018

Intro

The July 12, 2018 USDA reports contained positive news for corn market prospects on balance.  Corn markets generally responded in a moderately positive-to-neutral manner to the July 2018 USDA World Agricultural Supply and Demand Estimates (WASDE) report – with important changes occurring and trends emerging in both domestic U.S. and foreign corn grain supply-demand and price prospects.

Projections of: 1) changes in corn usage in the U.S. corn “old crop” 2017/18 marketing year (MY); 2) higher 2018 production and total use estimates for U.S. “new crop” MY 2018/19; and 3) a sharp tightening of foreign corn supply-demand balances forecast for “new crop” MY 2018/19, were each key elements found in the July 12th WASDE report.

1) Higher Usage of U.S. Corn in “Old Crop” MY 2017/18 (ending August 31st)

The USDA increased its projection of U.S. corn usage and tightened its forecast of ending stocks in the “old crop” MY 2017/18 supply-demand balance sheet for U.S. corn.  Total “old crop” use of U.S. corn was projected to be up 70 million bushels (mb) from a month earlier to a record high 14.910 billion bushels (bb).  This was due to a combination of a 100 mb increase in projected exports (2.400 bb), a 25 mb increase in corn ethanol use (5.600 bb), a 20 mb drop in non-ethanol food, seed and industrial use (1.460 bb), and a 50 mb drop in forecast feed & residual use (5.450 bb). 

Projected exports were raised in response to the level of forward purchases of U.S. corn exports – being affected by a reduction in the 2018 Brazilian corn crop and exportable supplies.  Forecast U.S. corn ethanol use was increased to match the pace of U.S. ethanol production that has been occurring.  Conversely, U.S. corn feed usage was lowered following the rate of corn use reported in the June 29th USDA Grain Stocks report.  Ending stocks of 2.027 bb were down 25 mb from a month earlier, with a drop in percent ending stocks-to-use from 14.2% in the June WASDE to 13.6% in July, and mid-range price estimates being unchanged at $3.40 per bushel.

2) Higher Production & Usage with Tighter Stocks of U.S. Corn in “New Crop” MY 2018/19

The USDA raised its projection of 2018 U.S. corn production by 190 mb to 14.230 bb due to the increase in 2018 U.S. corn planted acreage (89.128 million acres or ‘ma’) and harvested acres (81.770 ma) reported in the June 29th USDA Acreage report.  Projected total supplies in “new crop” MY 2018/19 were raised by 115 mb to 16.307 bb due to a combination of reduced beginning stocks and higher production.

Total use of U.S. corn in “new crop” MY 2018/19 is projected to be up 140 mb than a month earlier, up to 14.755 bb – 2nd highest on record.  This was due to a combination of a 140 mb increase in projected exports (2.225 bb), a 50 mb decrease in corn ethanol use (5.625 bb – still a record high), a 10 mb drop from a month earlier in non-ethanol food, seed and industrial use (1.480 bb), and a 75 mb increase in forecast feed and residual use (5.425 bb).  Forecast ending stocks of 1.552 bb were down 25 mb from a month earlier, with a drop in percent ending stocks-to-use from 10.8% in the June WASDE to 10.5% in July, and midrange price estimates being down $0.10 from a month earlier at $3.80 per bushel.

3) South American Corn Trends Affecting World Stocks & U.S. Export Prospects

For “old crop” MY 2017/18 the USDA lowered its projections for Brazil of both production (down 1.5 million metric tons or ‘mmt’ to 83.5 mmt) and exports (down 3 mmt to 26.0 mmt) from a month earlier.  Forecast Argentina corn exports for “old crop” MY 2017/18 were also lowered from a month earlier, down 1 mmt to 24.0 mmt.  These reductions in South American exports were partially offset by a 2.54 mmt (100 mb) increase in forecast U.S. corn exports for “old crop” MY 2017/18. 

Sizable increases in World corn production are forecast from 1,033.74 mmt in “old crop” MY 2017/18 to 1,054.30 mmt in “new crop” MY 2018/19 (up 2.0%) – beginning on September 1, 2018.  These year-to-year production increases are more than matched by expected increases in total use, from 1,069.67 mmt in “old crop” MY 2017/18 to 1,094.08 mmt in “new crop” MY 2018/19 (up 2.3%).   As a result, ending stocks and % stocks-to-use of World corn are forecast to decline significantly, from 191.73 mmt in (17.9% Stks/Use) “old crop” MY 2017/18 to 151.96 mmt in (13.9% Stks/Use) in “new crop” MY 2018/19 (down 22.5%).   

Implications of the July 12, 2018 WASDE Report for U.S. Corn Market Outlook

The July 12th WASDE report spoke more to the demand and usage potential for U.S. corn in 2018-2019 than to supply prospects.  The first USDA survey-based information on the size of the 2018 U.S. corn crop will be provided in the August 10th USDA Crop Production report provided by the USDA National Agricultural Statistical Service (NASS).  These NASS results will be used in the August World Agricultural Supply and Demand Estimates (WASDE) report that same day for the purpose of estimating corn market supply-demand and prices going forward into “new crop” MY 2018/19 (to begin on September 1st).

The possibility still exists of 2018 U.S. corn production ending up being markedly lower than the 14.230 bb forecast in the July WASDE report.  Dry conditions in various areas – particularly Missouri and eastern Kansas, along with excessive moisture in the northern Iowa – southern Minnesota – eastern South Dakota area could cause lower yields, as could such issues as warmer than normal night time temperatures, etc. throughout the U.S. Corn Belt.  So, it is too soon to indicate without reasonable caution that 2018 U.S. corn crop prospects are reliably proceeding toward a 14.0-14.2 bb or more U.S. corn crop.  However, it IS likely at this time that the 2018 U.S. corn crop will not be “short”, and that total supplies of 16.25 to 16.75 bb will occur in “new crop” MY 2018/19 – being the 2nd highest on record after 16.937 bb which is now projected in “old crop” MY 2017/18. 

Key Issue – U.S. Corn Use Supported by Large Supplies & Low Corn Input Prices

A key issue driving in the U.S. corn market is the ongoing positive impact of low corn prices on U.S. corn usage.  Low prices due to abundant supplies nationally have provided support for U.S. corn domestic ethanol and wet corn milling use, and feed usage, as well as U.S. corn exports.  It is of no small significance that U.S. corn ending stocks are projected to drop from 2.027 bb (13.59% Stks/Use) in “old crop” MY 2017/18 down to 1.552 bb (10.52% Stks/Use) in “new crop” MY 2018/19. 

Following these changes in ending stocks, U.S. corn prices are projected to rise from a range midpoint estimate of $3.40 in the “old crop” period up to the range of $3.30-$4.30 /bu (midpoint = $3.80 /bu) in “new crop” MY 2018/19.  There is support for the idea that after harvest occurs there may be enough domestic and foreign demand for U.S. corn that the U.S. corn price could end up being closer to the higher end of the USDA forecast range (i.e., closer to $4.30 /bu) by summer 2019.   

Whether that occurs or not may depend on the development of production prospects for the 2019 South American corn crop during the January-June 2019 period.   It is widely thought that high soybean prices in South America that are occurring now in response to the U.S. – China trade dispute may cause larger than normal planted areas of soybeans to be planted in Argentina and Brazil in 2019 – essentially “crowding out” or “limiting” corn production in these same areas.  IF that occurs, then lower 2019 South American corn exportable supplies will provide support for U.S. corn exports in spring 2019.   And if any weather or production threats were to impact prospects for 2019 South American corn production, well, it would provide strong support for U.S. corn exports and prices in the first half of year 2019.

Final Thoughts re: U.S. Corn Market Outlook

It seems prudent to plan to manage both “old crop” and “new crop” corn marketings in years 2018-2019 with the idea that there will be adequate U.S. corn supplies and no major short crop event occurring.  This leads to adoption of the attitude that a somewhat “normal” seasonal price pattern for corn is likely for the remainder of “old crop” MY 2017/18 and especially for “new crop” MY 2018/19.  This would result is some price volatility being likely for the remainder of July-August 2018, but then as harvest approaches the probability of a seasonal harvest price low in September-November 2018. 

However, this year, from November 2018 through January 2019, the “narrative consensus” of the corn market will likely have a greater focus on corn planting progress and early season development in Argentina and Brazil – particularly in tandem with a focus on similar reports about the acreage and progress of their soybean crops.  It is possible if not likely that news about the pace of usage of U.S. domestic corn and other feedgrains will have the attention of the U.S. corn markets.  The impact of this news will be exacerbated IF U.S. corn exports are spurred on to higher levels by worries about potentially lower South American corn supplies for export in spring 2019.  Then from late winter into spring 2019 U.S. corn markets will be simultaneously paying attention to the pace of U.S. corn domestic and export usage and to 2019 U.S. corn planting prospects.  The corn market will likely then be driven by 2019 U.S. corn production prospects from what remains of spring through Summer and early fall 2019. 

During this anticipated “normal seasonal” price pattern for corn in “new crop” MY 2018/19, U.S. producers will be making marketing decisions under conditions of “uncertainty” as profitable seasonal pricing opportunities present themselves.  For those with a “risk averse” perspective on corn price risk management, there will be a tendency to price corn “earlier” and in “greater quantities” to avoid the possibility of being forced to sell at lower prices later on.  This “early action” approach contrasts to those of producers who are less worried (i.e., “averse”) about being in what is essentially a “speculative storage” position in the corn market – holding unpriced corn in storage longer while waiting for the possibility of a better price.    

The key point is that the likelihood exists of there being greater than normal price strength in U.S. corn markets through the winter and spring 2019 months – given the likelihood of more South American crop area being planted into soybeans to the exclusion of corn and the strong domestic demand base for the crop.

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KSU Weekly Grain Market Review: Grain Market “Law of One Price” Will be At Play in U.S.-China Trade Dispute

Weekly Grain Market Review (KSU Ag Econ) for July 6, 2018

Question of the Hour in World Grain Markets:

How Will the “Law of One Price” Work Out for Grain Markets in the U.S.-China Trade Dispute?

By definition, “The law of one price is the economic theory that the price of a given security, commodity or asset has the same price when exchange rates are taken into consideration. The law of one price is another way of stating the concept of purchasing power parity. The law of one price exists due to arbitrage opportunities.” (Source: Investopedia, https://www.investopedia.com/terms/l/law-one-price.aspFeedback)

In regards to grain markets, here is more explanation:  “In case the two markets both produce and can trade a commodity in either direction the law of one price states that the price difference should be smaller or equal to transport and transaction costs.”

There are a number of studies in the grain markets within the last 10-20 years that appear to indicate that the Law of One price DOES hold in the grain markets in the long run, but that there may be short term (from several weeks to a month or so) during which prices may be “out of line” or “not aligned economically” in a manner that would otherwise be dictated by differences in transportation costs, exchange rates, or I would add, time, storage, or possibly even quality.

So, how do these definitions of the Law of One Price relate to the current situation in U.S., Chinese and World grain markets?  It seems that with 1) flexibility in the directional flow of grain, 2) the inflexible needs of domestic users of grain in terms of timing of usage and location of processing plants and/or livestock feeders, 3) the risks associated with point #2 and varying risk averse attitudes and approaches of domestic U.S. and foreign users, 4) the short term inflexibility of supplies coupled to the long term seasonal ability to adjust production plans, and other factors, that in the short term, grain markets may tend to be reactive, if not possibly over reactive to such an issue as tariffs on grain imports placed on U.S. soybeans, grain sorghum and other commodities by China.

However, past the initial reactions of the markets – to a degree rationally driven by short term needs of grain users, but to another degree perhaps driven by fear of the unknown in a risk averse environment, if not a herd mentality – there will be volatility in the grain markets.  In other words, it could be a challenge to figure out to what degree grain price volatility in the midst of a major trade dispute such as this between China and the U.S. should rationally affect grain prices.

There is a fair amount of confidence that grain markets will eventually readjust to changes in the directional flow of grain in international trade, and that livestock that has to be fed and processing plants that have to run will eventually receive their supplies.  But the period of adjustment could “try the mettle” and “test the courage, patience, and managerial ability” of both producers and users of grain, both in the U.S. and in China.

Finally, the reverberations from this event will likely persist and force themselves upon the grain markets over the next 1-2 years at least, as high soybean prices for export in South America may pull more Brazilian and Argentine acres into production for export to China, competing for corn acres in those countries, and affecting the decisions of U.S. corn producers in 2019.  And these speculations on future cropping patterns in response to the current U.S. – China trade dispute are only beginning.

Likely this trade dispute will eventually be settled – possibly by fall 2018 as China will need U.S. soybean supplies after South American supplies have run short.  If the trade dispute is settled by the U.S. 2018 soybean harvest, then the U.S. will likely ship soybeans to China directly.  If it is NOT settled by that time, then China will still need soybeans, but some form of trans shipments or substitution of inventories on an in and out basis via other countries may occur.  These and other questions will likely “roil up” the grain markets for months to come.

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Grain market summary notes, charts and comments supporting the Weekly Grain Market Review presented in the KSU Agriculture Today radio program to be played on Friday, July 6, 2018 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

The recorded radio program will be aired at 10:03 a.m. central time, Friday, July 6, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the July 6th recording will be available afterwards at the KSU Agriculture Today website.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…