KSU AgEcon: “The Impact of U.S.-China Trade Conflict on U.S. Corn Prices”

The Impact of U.S.-China Trade Conflict on U.S. Corn Prices

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

May 17, 2019

 

Overview

Estimates of the impact of U.S.-China trade conflicts from outside University sources range from $0.13-21 per bushel on the high side to $0.08 per bushel.  An analysis by Kansas State University Ag Economist Daniel O’Brien based on an analysis of seasonal price patterns estimates that average monthly impact from January through – mid May 2019 averaged $0.20 per bushel per month.

Underlying CFTC position of traders data confirms the record “bearish” short sale aggregate position of Managed Money (Spec) traders that began in January 2019 and trended to record bearish levels in April.

That market prospects for U.S. corn declined during the January – early May period is in evidence from the USDA World Agricultural Supply and Demand Estimates (WASDE) reports during this time.  The USDA increased its projected U.S. corn ending stocks-to-use from 11.85% in January to 14.45% in May 2019 for the “current crop” 2018/19 marketing year for U.S. corn.  During that time the only changes affecting U.S. corn supply-demand balances were adjustments on the usage side – with market expectations for U.S. corn use declining.  The U.S. corn projected season average price declined $0.10 per bushel from $3.60 in February down to $3.50 per bushel in the May WASDE report.

Crop revenue insurance coverage levels are an additional important factor to consider in assessing the impact of low U.S. corn futures prices during the January through early May 2019 period. The planning price for corn crop revenue insurance in year 2019 in Kansas was determined by taking the average of DEC 2019 Corn futures during the month of February 2019.  The calculated corn planning price for crop revenue insurance in Kansas for conventional (non-high amylose) corn was $4.00 per bushel.

To the degree that U.S.-China trade conflicts may have led to lower DEC 2019 corn futures prices during the February period, then Kansas and U.S. corn producers’ 2019 crop revenue insurance planning prices and revenue coverage are lower than would have occurred otherwise.  In a year with significant 2019 crop production risk to date, negative effects on U.S. corn producers’ crop insurance revenue coverage levels are likely to be a critically important factor.

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Introduction

Since December 2018, U.S. corn prices have been moving in a pattern contrary to normal seasonal price pattern found in Kansas, with essentially no seasonal price increases.  During the January 2019 through projected estimated May 2019 period, on a monthly basis U.S. corn prices were from $0.07 to as much as $0.34 / bushel under the levels they would have been if normal seasonal average price patterns prevailed that we have seen historically in Kansas corn markets.

The main idea of this article is that market perceptions about the progress of U.S.-China trade negotiations or lack thereof seem to have had a negative effect on U.S. corn markets from January through mid-May 2019 – at least until U.S. corn planting concerns began to predominate.

Following is a timeline since June 2018 of a U.S-China trade conflict actions and reactions, quoted from a Reuters article on May 8th, titled “Timeline: Key dates in the U.S.-China trade war”,

https://www.reuters.com/article/us-usa-trade-china-timeline/timeline-key-dates-in-the-u-s-china-trade-war-idUSKCN1SE2OZ

July 10, 2018 – S&P 500: +0.35% , United States unveils plans for 10% tariffs on $200 billion of Chinese imports.

Aug. 1, 2018 – S&P 500: -0.10% , Trump orders USTR to increase the tariffs on $200 billion of Chinese imports to 25% from the originally proposed 10%.

Aug. 7, 2018 – S&P 500: +0.28% , United States releases the list of $16 billion of Chinese goods to be subject to 25% tariffs. China retaliates with 25% duties on $16 billion of U.S. goods.

Aug. 23, 2018 – S&P 500: -0.17% , Tariffs on goods appearing on the Aug. 7 lists from both United States and China take effect.

Sept. 7, 2018 – S&P 500: -0.22% , Trump threatens tariffs on $267 billion more of Chinese imports.

Sept. 24, 2018 – S&P 500: -0.35% , U.S. implements 10% tariffs on $200 billion of Chinese imports. The administration says the rate will increase to 25% on Jan. 1, 2019. China answers with duties of its own on $60 billion of U.S. goods.

Dec. 1, 2018 – S&P 500: +1.09% (Monday, Dec. 3) , U.S. & China agree on a 90-day halt to new tariffs. Trump agrees to put off the Jan. 1 scheduled increase on tariffs on $200 billion of Chinese goods until early March while talks between the two countries take place. China agrees to buy a “very substantial” amount of U.S. products.

Feb. 24, 2019 – S&P 500: +0.12% (Monday, Feb 25) , Trump extends the March 1 deadline, leaving the tariffs on $200 billion of Chinese goods at 10% on an open-ended basis.

May 5, 2019 – S&P 500: -0.45% (Monday, May 6) , Trump tweets that he intends to raise the tariffs rate on $200 billion of Chinese goods to 25% on May 10.

May 8, 2019 – S&P 500: -0.16%

From this it seems that the DEC-JAN period started off quite positive for the U.S.-China trade negotiations, with a temporary 90 day halt of tariffs.  Then by the time we get to late February, there is a negative announcement in the market – apparently being interpreted by corn market participants that limited positive progress had been made in the negotiations.

 

Flat vs Seasonal Prices in the “Current Crop” 2018/19 Marketing Year

If monthly differentials are averaged across the December 2018 through projected May 2019 period, the average monthly price difference between a regular seasonal pattern of U.S. corn prices and what occurred is estimated to be $0.20 per bushel per month based on cash and futures prices available through May 16, 2019.  If the next step is taken to weight these prices by USDA estimates of monthly U.S. percent of cash corn sales, then the average monthly U.S. corn price difference is scaled down to $0.07 per bushel per month.  Which approach to take – weighting by average monthly sales percentages or not, is a matter of debate.

Figures 1abc and Figures 2a-b illustrate this pattern in futures and cash corn prices.  Figures 2a and 2b especially and Table 1a show specific details of how during January through mid-May 2019 U.S. cash corn prices have been less than would be occur should average seasonal price patterns occur based on historic seasonal corn price patterns in Kansas.

 

“Bearish” Corn Market Impact Shown in CFTC Commitment of Traders Data

The bearish tone of the U.S. corn market during the January to mid-May 2019 period is well documented, as shown by the Commodity Futures Trading Commission (CFTC) commitment of traders data in Figures 3a-d.  Note especially the record bearish or “sell” position of Managed Money Traders as shown in Figures 3a and 3d.  The implication is that grain market speculative traders held record bearish positions during parts of January to mid-May 2019.

The CFTC data for the aggregate trading positions of Managed Money Traders (Specs) or MMT-Specs shows something of the “effect” of a change in market sentiments about a positive resolution to the U.S.-China Trade conflict beginning to occur during January 2019 and continuing through mid-May 2019.

The CFTC Commitment of Traders data indicate that December 2018 was a time of relative optimism for MMT-Specs, as their long positions for the weeks ending 12/2-12/31 were net long by a range of 200-246 million bushels.

Progressing forward, January 2019 showed MMT-Specs week ending positions ranging from 246 mb long on 1/8/2019 to 49 mb short on 1/29/2019.

In February 2019, short positions of MMT-Specs grew from 33 mb short on 2/5/2019 to 590 mb short on 2/26/2019.

In March 2019 the trend to short positions for MMT-Specs accelerated, from 964 mb on 3/5/2019 to a range of 1.092 – 1.415 billion bushels the rest of the month.

Then in April 2019 new records were set for short positions for Corn futures, with a range of 1.319 bb to 1.721 bb for the month, with the record large net short position of 1.721 bb set for the week ending 4/23/2019.

For the week ending May 7, 2019 net short positions for corn futures traders were 1.480 bb.  Since then, planting concerns have taken over and MMT-Specs have been moving away from their short positions and rebalancing toward the long side.

This CFTC commitment of traders information indicates that corn market Managed Money (Spec) traders’ sentiments turned or transitioned to being decidedly bearish as time moved from the beginning the December 2018 through January and February 2019.  And that the bearish trend continued on to record short or “bearish” levels in April 2019 and early May 2019.

The implication here is that the lack of success in U.S.-China trade negotiations have been a primary causal factor in that occurring.   The success of the 2019 Brazilian 2nd corn crop also contributed – likely in a sort of “piling on” negative, confirming manner.

 

 “Direct” Impact on Soybeans Effect Expected Corn Market Supply-Demand & Prices

The primary news affecting grain markets during that period was the ongoing status of U.S.-China trade negotiations.  While U.S. corn exports to China have not been a main driver in U.S. grain markets and trader sentiments, sharp reductions in U.S. soybean exports to China as a result of these trade tensions had increased the likelihood of reductions in U.S. soybean planted acreage in 2019, and compensatory increases in U.S. corn acreage.

This is consistent with the USDA’s analysis at the 2019 Agricultural Outlook Forum in Arlington, VA in February 2019.  The direct effects on the U.S. soybean market from reduced U.S. soybean exports to China resulted in strong negative indirect secondary impacts on the U.S. corn market, as the USDA and the grain trade expected U.S. corn acreage and production to increase – with prices moving sharply lower for U.S. corn in fall 2019.  And that sentiment has held sway among the corn trade until recently in mid-May 2019 when 2019 U.S. corn planting problems became serious enough to cause corn futures prices to begin trending higher.

 

Evidence from USDA WASDE Report Projections

Also, it is noteworthy that in its World Agricultural Supply and Demand Estimate (WASDE) reports, since November-January 2019 the USDA has lowered its forecast of U.S. Corn season average prices by $0.10 per bushel from $5.60 to $5.50.  Note that this is calculated as a season average price “weighted by % monthly sales” basis by the percent of annual grain marketings projected for all 12 months of the “current crop” 2018/19 marketing year – starting September 2018 and lasting through August 2019.  So, the USDA’s price projection for “current crop” MY 2018/19 of $5.50 per bushel relies in large part on the accuracy of the USDA’s estimates of past monthly weightings of sales.

If in this marketing year, U.S. farmers have delayed sales during the harvest period of September-November in greater proportion than normal until later (say during December – April).  IF that occurred, THEN the estimated monthly percent of marketings used by the USDA’s calculation method would underestimate the impact on U.S. corn producers of the flat or non-seasonal price action that occurred during the January through mid-May 2019 period.

 

Impact on Crop Revenue Insurance Planning Prices from February 2019

An important factor to consider for the sake of U.S. corn producer’s risk management purposes is how the corn futures market’s bearish reaction U.S.-China trade issues potentially affected crop revenue insurance payments for the 2019 crop.  Revenue insurance planning prices for 2019 crops are calculated by taking the average of daily closes for DEC 2019 corn futures during the month of February 2019.  Therefore, to the degree that there was a negative effect on DEC 2019 Corn futures from U.S.-China trade negotiations, then planning prices for revenue-based crop insurance coverage for all U.S. corn producers will have been diminished – since DEC 2019 Corn futures prices were negatively affected by U.S.-China trade conflicts during February 2019.

 

Evidence from Other University Sources

KSU Agricultural Economist Nathen Hendricks cites other analyses that are for the most part consistent with these findings.  Hendricks cites the following studies and results:

  • Researchers at Iowa State University estimate that corn prices decreased by 4-6% or $0.13-$21/bushel as a result of the U.S.-China trade conflict. See p. 8 of their study: https://www.card.iastate.edu/products/publications/pdf/18pb25.pdf . They use a partial equilibrium model that essentially has supply and demand curves to simulate the impact of the tariffs.
  • Researchers at the University of Illinois estimate that corn prices decreased by $0.08/bushel in 2018 due to the U.S.-China trade conflict. See table 1 in their study: https://farmdocdaily.illinois.edu/2019/04/the-trade-conflict-impact-on-illinois-agriculture-in-2018.html. They use regression analysis where they effectively compare how much prices dropped from spring to fall 2018 and how much larger the price decrease was than would have been predicted based on the relatively large yield in 2018.

 

Joe Janzen of Kansas State University has also addressed some of these and other related issues on KSU Agriculture Today radio on Wednesday, May 15th.  Janzen discussed the probable impact of another round of trade aid for U.S. farmers.  In particular Jaznen examined the probable impact of direct trade mitigation that occurred for farmers through the first round of Market Facilitation Payments (MFP) as a compensation to U.S. farmers for the negative affect of incomes from the U.S.-China trade conflicts.

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KSU Weekly Grain Market Update – The position of grain markets just prior to the USDA Reports on 5/10/209

Grain market summary notes, charts and comments supporting the Weekly Grain Market Review from KSU Ag Economics presented in the KSU Agriculture Today radio program to be played on Friday, May 10, 2019 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, May 10, 2019 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the May 10th recording is be available at the KSU Agriculture Today website at this time.

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

KSU Wheat Market Situation in Early-May 2019 (Pre-May WASDE)

This report provides an analysis of U.S. and World wheat supply-demand factors and market price prospects following the USDA’s April 9, 2019 Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports, and the adjusted results of the February 21-22, 2019 USDA Agricultural Outlook Forum.   This article is available in full on the KSU AgManager website (http://www.agmanager.info/).

Following is a summary – with the full analysis-article for Wheat Market Outlook in Early-May 2019 to be found at this web location:

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

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Wheat Market Situation in Early-May 2019

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

May 7, 2019

 

Kansas HRW Winter Wheat Futures & Cash Markets

Hard red winter wheat market prices in the U.S. have continued to weaken since late January 2019, with declines in futures prices somewhat mitigated by stronger basis levels in Kansas Hard Red Winter (HRW) wheat cash markets.

After reaching highs of $6.34 on August 8, 2018, and $5.35 ½ on January 24, 2019, JULY 2019 HRW Wheat futures had declined down to lows of $3.90 ½ on Tuesday, April 30th and $3.91 ½ on Monday, May 6th – before closing at $4.03 the same day.  The closing price of $4.03 on May 6th is down 36.4% from the August 2018 high, and down 24.7% from the January 2019 high.

In central Kansas terminal markets on Monday, May 6th reflect these same lower price trends but with relatively strong basis levels compared to past large supply years.  These prices reflect cash market sentiments immediately after the 2019 Kansas Wheat Tour (April 30-May 2), and four days ahead of the scheduled USDA Crop Production and World Agricultural Supply-Demand Estimates (WASDE) reports due on May 10th.

On May 6th Central Kansas cash wheat price terminal quotes for ordinary U.S. no. 1 HRW ranged from $3.72 to $3.93 per bushel – with basis ranging from $0.31 to $0.08 under JULY 2019 KS HRW Wheat futures.  Cash wheat prices in eastern Kansas grain terminals in Topeka and Atchison ranged from $3.78 to $3.93 /bu with basis ranging from $0.25 to $0.10 under JULY 2019 futures.  These prices have declined to where they are only moderately above the range of $3.42 ¼ to $3.83 ¼ /bu that occurred in late December 2017 in eastern and central Kansas.  However, basis levels at that time were much wider (i.e., “weaker”), being from $0.80 under to $0.39 under nearby MARCH 2018 futures (Figure 2).

In comparison, in western Kansas on May 6th, bids for ordinary U.S. no. 1 HRW wheat at selected major grain elevators ranged from $3.53 to $3.74 /bu, with basis being $0.50 to $0.29 under JULY 2019 futures.  Recent wheat cash price bids in western Kansas are only marginally higher than the lows of $3.47 to $3.64 /bu that occurred in late December 2017 in this same area – when local basis varied from $0.85 under to $0.58 under MARCH 2018 futures.

A Hard White Wheat (HWW) grain terminal bid was available in Wichita, Kansas on May 6th for $3.95 per bushel, with a basis of $0.08 /bu under JULY 2019 Kansas HRW wheat futures.  On March 22, 2019 this bid was $4.4000 /bu, with a basis of $0.05 /bu under MAY 2019 Kansas HRW wheat futures.

 

A Deferred Future “Carrying Charge” View of KS HRW Winter Wheat Futures

On May 6th carrying charges between the JULY 2019 to SEPTEMBER 2019 Kansas HRW Wheat futures contracts (i.e., the JUL-SEP 2019 Spread) were $0.11 per bushel, or $0.0550 per bushel per month.  This compares to spreads of $0.22 /bu or $0.0733 /bu/mo. for SEP-DEC 2019, and $0.2250 /bu or $0.0750 /bu/mo. for DEC 2019-MAR 2020 Kansas HRW Wheat futures contracts.

These “full carry” deferred futures full contract storage cost contract spreads are influenced by large supplies on hand – which leads to higher Variable Storage Rates (VSR) among Kansas HRW Wheat futures contracts.  These large carries are encouraging storage of “new crop” 2019 Kansas HRW wheat on the one hand, and provide the basis for a potential return to storage hedges by producers and grain elevators for the 2019 HRW wheat crop on the other.

Extending this analysis further to later deferred contracts, whereas on May 6th harvest JULY 2019 Kansas HRW Wheat futures closed at $4.03 /bu, the JULY 2020 contract closed at $4.84 ¾ /bu for JULY 2020 – up 20.2% and $0.0681 /bu/month from JULY 2019.  Extending even further into the next year, on May 6th JULY 2021 KS HRW Wheat closed at $5.42 ½ /bu, up 11.9% and $0.0479 /bu/month from JULY 2020

From an economic viewpoint, these deferred years’ JULY Kansas HRW Wheat futures prices in years 2020 & 2021 could reflect market expectations that HRW wheat futures prices will eventually be higher than current bids for JULY 2019 futures – which is consistent with economic theory.  However, it also seems that the carrying charges now reflected across the range of available deferred KS HRW Wheat futures contracts appear to be being extended out to the distant “new crop” JULY 2020 and JULY 2021 contracts.

Restated, it appears these uninterrupted positive carrying charges are being inflexibly and mechanically applied to deferred KS HRW Wheat futures contracts as far as 24 months into the future – regardless of what expected fundamental supply-demand conditions may be in the wheat market that far out.   If this is so, then these deferred futures prices may present: a) opportunities for long-term market arbitrage positions to traders, or b) hedging opportunities for U.S. wheat producers IF they are able to financially manage the risk of potential margin calls should wheat prices should move unexpectedly higher.  For agricultural producers, these extended deferred futures prices provide profitable but at risk pricing opportunities should they choose to bear the risk of utilizing them.

 

Overall World Wheat Market Situation

Prospects for continued large World wheat supplies and ending stocks, ongoing weakness in U.S. wheat export shipments, and declining prospects for future U.S. wheat export sales have been the main causes of this downtrend in U.S. HRW wheat prices.  A general “malaise” in U.S. grain markets and grain prices may also be having a spillover impact on wheat markets.  “Malaise” is defined as a general feeling of discomfort, illness, or uneasiness whose exact cause is difficult to identify.

The current ongoing, large ending stocks situation that exists in the U.S. and World wheat markets has developed over the last 5-6 years.  This situation extends back to the historically important “short crop / tight stocks” situation that occurred in the 2012/13 marketing year.  Prior to that, the last “watershed” event in U.S. and World wheat markets were the record tight supply-demand 2007/08 marketing year for the U.S. and World wheat market.

A combination of market factors have all worked together to limit any improvement in U.S. wheat exports in “current” MY 2018/19 and any significant price improvement in current U.S. wheat markets.   These include:

#1) Large World carryover ending stocks from “old crop” MY 2017/18 which became “beginning stocks” in “current” MY 2018/19;

#2) Successful wheat crops in many other exporting and importing countries in the World; and

#3) The willingness of the Black Sea Region countries (i.e., Russia, Ukraine, Kazakhstan) to sell down their domestic reserve stocks to maintain their export market shares.

The selling off of domestic inventories has allowed Russia, Ukraine and Kazakhstan maintain their export market shares in “current” MY 2018/19.  However, this strategy also makes them more vulnerable to any repeated crop shortfalls that could occur in “new crop” MY 2019/20 – which will begin on June 1, 2019.   The risk of this action by Russia and other countries is that by deliberately allowing their domestic stocks to decline below normal levels in this marketing year they place themselves at risk to the effect of unforeseen short crops and tight supply situation in the future.  As a result, they and the broader global wheat export market are more vulnerable to market volatility and supply-demand disruptions because of their reduction in protective “buffer” carryover ending stocks.

 

Potential Sources of World Wheat “Supply Shocks”

For a turn-around in wheat market conditions to occur heading into “new crop” MY 2019/20, a disruptive, sizable, and currently unexpected shortfall or “supply shock” in World wheat production would have to occur.  The “new crop” 2019/20 marketing year will begin on June 1, 2019, and last until May 31, 2020.   Such a “change” in global wheat market supply-demand conditions is required to significantly diminish or constrain global wheat market supply-demand balances and markedly raise Wheat market prices.

In past years, wheat market rally’s have often been caused by significant wheat production shortfalls across the major exporting and growing countries.  Major exporting countries include the United States, Russia, Ukraine, Australia, the European Union, Argentina and Canada.  Other key importers and producers of wheat globally include several selected Middle East and Southeast Asia countries, India and China.

The possibility of sizable increases in Chinese purchases of U.S. wheat and other agricultural products IF a trade agreement between the U.S. and China is completed could provide a surprise boost to U.S. wheat exports in coming months.  But it seems judicious to not count on that occurring until such a trade agreement is finalized.

 

World Wheat Production for Major Exporters & Producers

World wheat production prospects for the “new crop” 2019/20 marketing year is somewhat mixed and uncertain – most notably among major World wheat exporters and producers.  In its International Crop & Weather Highlights report on May 7, 2019 the USDA gave the following assessments of developing crop conditions as they affect wheat production prospects.

In aggregate, forecast global World wheat production in “current” MY 2018/19 of 732.78 mmt is down 3.9% from last year’s record high of 763.19 mmt.   Lower production has occurred in the “current” 2018/19 marketing year (which began June 1, 2018) in some major exporting countries such as Australia, the European Union, and the Black Sea Region / Former Soviet Union-12 countries, China, and Mexico (Figures 13, 14a-b & 15a-b).  These declines were partially offset by production increases projected for exporters such as the United States, Argentina, and Canada.

  • United States: The United States is forecast to have produced 51.29 million metric tons (mmt) (1.884 billion bushels or bb) of wheat in the “current crop” 2018/19 marketing year, up from 47.38 mmt (1.740 bb) in “old crop” MY 2017/18, but down from 62.83 mmt (2.309 bb) in MY 2016/17.

Soil moisture conditions are projected to stay wet through May 13th according to the U.S. Climate Prediction Center (CPC) throughout most of the Hard Red Winter (HRW) wheat areas from the state of Texas north through Oklahoma, Kansas, Nebraska and South Dakota, while Soft Red Winter (SRW) wheat areas in the Eastern Corn Belt are also wet.  Parts of the White Wheat (WW) producing areas in Washington, Idaho and Montana are generally dry, as are the Hard Red Spring wheat and Durum wheat producing areas of northern and western North Dakota.

The U.S. Climate Prediction Center also forecasts that “moist soil conditions” will continue throughout the June-August period.  Moist conditions during May-June 2019 may encourage wheat disease development in the U.S. HRW and SRW wheat areas, although major wheat disease pressure has not occurred in these areas as of yet.

  • Australia: Australia is forecast to have produced 17.30 million metric tons (mmt) of wheat in the “current crop” 2018/19 marketing year, down from 21.30 mmt in “old crop” MY 2017/18, and from 31.82 mmt in MY 2016/17.

“Soaking rain overspread large portions of the drought-beleagured south and east (parts of Australia), promoting winter crop germination and emergence and likely triggering additional sowing.”  The USDA also indicated that, “Dry weather favored wheat, barley, and canola planting in the west, but more rain would be welcome.”

  • European Union: The EU is forecast to have produced 137.60 mmt of wheat in the “current crop” 2018/19 marketing year, down from 151.26 mmt in “old crop” MY 2017/18, and from 145.37 mmt in MY 2016/17.

In Europe, showers were indicated to have improved winter crop prospects”.  In particular, widespread showers “boosted soil moisture for reproductive winter crops in England, France and Germany, and provided timely moisture for southern Poland into the Balkans.”  In addition, “short-term dryness reduced soil moisture for wheat and rapeseed over northeastern Europe.”  And, “Sunny skies favored winter grain development in Spain after recent rain.”

  • Former Soviet Union (FSU-12): The FSU-12 is forecast to have produced 124.86 mmt of wheat in the “current crop” 2018/19 marketing year, down from 142.44 mmt in “old crop” MY 2017/18, and from 130.09 mmt in MY 2016/17.

Of this total, Russia is forecast to have produced 71.69 mmt of wheat in the “current crop” 2018/19 marketing year, down from 85.17 mmt in “old crop” MY 2017/18, and from 72.53 mmt in MY 2016/17.

Ukraine is forecast to have produced 25.06 mmt of wheat in the “current crop” 2018/19 marketing year, down marginally from 26.98 mmt in “old crop” MY 2017/18, and from 26.79 mmt in MY 2016/17.

Kazakhstan is forecast to have produced 13.95 mmt of wheat in the “current crop” 2018/19 marketing year, also down marginally from 14.80 mmt in “old crop” MY 2017/18, and from 14.99 mmt in MY 2016/17.

In the FSU,widespread showers” occurred.   Specifically, “widespread showers favored vegetative winter wheat across Moldova, Ukraine, and Russia.”

  • East Asia (China): China is forecast to have produced 131.43 mmt of wheat in the “current crop” 2018/19 marketing year, also down from 134.33 mmt in “old crop” MY 2017/18, but up from 130.09 mmt in MY 2016/17.

East Asia overall was characterized as having “showers in southern China; warm in the northeast.”  In particular, “showers continued in southern China…..”, and “warm weather in northeastern China encouraged corn, soybean, and rice planting.”

  • South Asia (India): India is forecast to have produced 99.70 mmt of wheat in the “current crop” 2018/19 marketing year, up from 98.51 mmt in “old crop” MY 2017/18, and up from 87.00 mmt in MY 2016/17.

In South Asia Tropical Cyclone Fani has occurred.  Specifically, “a severe tropical cyclone (Fani) brought high winds and downpours to northeastern India and Bangladesh.”

  • Middle East (Including Iraq, Iran, & Turkey): Selected Middle Eastern Countries are forecast to have produced 17.88 mmt of wheat in the “current crop” 2018/19 marketing year, up from 13.36 mmt in “old crop” MY 2017/18, but down from 19.16 mmt in MY 2016/17.

Similarly, Turkey is forecast to have produced 19.00 mmt of wheat in the “current crop” 2018/19 marketing year, down from 21.00 mmt in “old crop” MY 2017/18, and up from 17.25 mmt in MY 2016/17.

In the Middle East weather conditions are described as “showers continued in Turkey,” while “late-week rain arrived in Iraq.”  Specifically, “widespread light to moderate showers sustained good soil moisture for winter grains in Turkey.”  Also, “sunny skies promoted wheat and barley development in Syria, Iraq, and Iran, while heavy late-week showers maintained excellent yield prospects for crops entering or progressing through reproduction.”

  • Mexico: The wheat crop in Mexico is forecast to have produced 3.000 mmt of wheat in the “current crop” 2018/19 marketing year, down from 3.494 mmt in “old crop” MY 2017/18, and from 3.865 mmt in MY 2016/17.

In Mexico, “light showers develop in eastern corn areas”, in which “showers allowed corn planting to begin in southern Mexico, though more significant rain is needed.”   In Mexico wheat is sown in November-January, grows during February-later April, and is harvested from late April through June.

  • Canada: The wheat crop in Canada is forecast to have produced 31.80 mmt of wheat in the “current crop” 2018/19 marketing year, up from 29.98 mmt in “old crop” MY 2017/18, but down from 32.14 mmt in MY 2016/17.

For the “new crop” 2019-20 marketing year, the area seeded to wheat in Canada is forecast to increase by 9% from 2017-18 as a 4% decrease for winter wheat is more than offset by a 10% increase for spring wheat (Stats Canada, 1/25/2019). The spring wheat area is forecast to increase because of relatively good prices for wheat and a shift out of durum and winter wheat in Western Canada. Production is projected to rise by 8%.

For Canada, the Weather Channel has forecast that a “global pattern with widespread cold weather during April into early May”, is likely “persisting into June.” A “chilly pattern” is likely to persist in Canada.

  • Argentina: The wheat crop in Mexico is forecast to have produced 19.50 mmt of wheat in the “current crop” 2018/19 marketing year, up from 18.50 mmt in “old crop” MY 2017/18, and from 18.40 mmt in MY 2016/17.

In Argentina the months of June-July-August are the fall & winter seasons in Argentina.  May is the main month for planting winter small grains such as winter wheat, with final seedings occurring in June.  Wheat is progressing through the vegetative-heading-grain filling-maturity stages during September-November period, with December-early January being the harvest period.  Double crop soybeans are planted after wheat in December and harvested in late February-March – with temperatures cooling down to “fall-like” conditions in April-May (during which seeding for the next winter wheat crop occurs.

Currently in Argentina, “drier conditions aided Argentine harvests.”  Specifically, “drier weather improved conditions for summer grains, oilseeds, and cotton in Argentina.”   Therefore, “drier conditions” during May in Argentina are occurring during the main seeding season for that crop, which followed showers within the previous 1-2 weeks.  As in the U.S., heavy rainfall during winter wheat seeding is often welcome as long as soils eventually dry and the crop can be seeded in a timely manner.

World & World-Less-China Wheat Ending Stocks & % Stocks-to-Use

World Ending Stocks & % Stocks/Use

Record large carryover ending stocks of 281.89 mmt (37.91% stocks-to-use) from “old crop” MY 2017/18 have upheld total World supplies and projected ending stock balances – which are projected to be 275.61 mmt (37.29% stocks-to-use) in “current” MY 2018/19.

Percent ending stocks-to-use of 37.91% in “old crop” MY 2017/18 are a record high in the era since the early 1970s, while 37.29% stocks/use in “current” MY 2018/19 are the 2nd highest since the U.S. farm crisis years of the mid-1980s, and the 3rd highest since the early 1970s (Figures 13, 14a-b & 15a-b).  World

World-Less-China Ending Stocks & % Stocks/Use

Considering World wheat ending stocks adjusted for Chinese reserves (i.e., “World-Less-China”) provides a much tighter picture of “accessible” or “available” World wheat supply-demand balances than the aggregate “World” measure.   “World-Less-China” wheat carryover ending stocks are calculated to be 135.61 mmt in “current” MY 2018/19 – a five (5) year low.

This estimate of 135.61 mmt in World-Less-China ending stocks in “current” MY 2018/10 is down from a record high of 150.62 mmt in “old crop” MY 2017/18, and from the range of 143.67 – 148.00 mmt over previous three marketing years.  World-Less-China wheat ending stocks fell to 124.48 mmt in the tight stocks year of MY 2012/13, and 130.56 mmt for the following year in MY 2013/14.   Chinese wheat ending stocks comprised 49.2% of total World ending stocks of 275.61 mmt in “current” MY 2018/19, and 53.4% of World wheat stocks of 281.89 mmt in “old crop” MY 2017/18 (Figure 15ab).

“World-Less-China” percent (%) ending stocks-to-use are estimated to be an 11 year low of 22.08% in “current” MY 2018/19 – down from 24.19% in “old crop” MY 2017/18, and 23.77% in MY 2016/17.  This compares to aggregate World Stocks-to-Use of 37.29% in “current” MY 2017/18, a record high of 37.91% in “old crop” MY 2017/18, and 35.49% in MY 2016/17.

 

U.S. Exports of All Wheat & HRW Wheat

Export shipments of U.S. wheat have been running behind the pace needed to meet USDA export projections for “current” MY 2018/19 for U.S. Wheat overall, and for Hard Red Winter (HRW) wheat in particular.   According to USDA Foreign Agricultural Service (FAS) data, through April 25th forward sales of U.S. exports are still nearly on track to meet USDA forecasts of 945 million bushels (mb) in the “current” 2018/19 marketing year (MY) – ending on May 31, 2019 (Tables 1-1a, Figures 9ab-10ab).

Concerning all U.S. Wheat exports, as of April 25th, total shipments to date plus forward sales are projected to have reached 99.0% (935.6 mb) of the USDA’s April 9th WASDE report forecast of 945 mb for MY 2018/19 with 90.4% of the marketing year completed (i.e., 47/53 weeks).  However, actual physical shipments to date of 758.7 mb amount to only 78.1% of the USDA forecast, with a shipment rate of 31.1 mb per week needed through the end of “current” MY 2018/19 to meet the USDA target of 945 mb.   For the weeks of April 11th, 18th and 25th, U.S. Wheat shipments of 18.4 mb, 29.2 mb and 20.4 mb were less than the weekly average of 31.1 mb needed to meet the USDA’s projections by May 31, 2019.

Focusing on U.S. HRW wheat exports, as of April 25th, total shipments to date plus forward sales are projected to have reached 103.0% (340.1 mb) of the USDA’s April 9th WASDE report forecast of 330 mb for MY 2018/19 with 90.4% of the marketing year completed (i.e., 47/53 weeks).  However, actual physical shipments to date of 259.8 mb amount to only 78.7% of the USDA forecast, with a shipment rate of 11.7 mb per week needed through the end of “current” MY 2018/19 to meet the USDA target of 330 mb.   For the weeks of April 11th, 18th and 25th, U.S. HRW Wheat shipments of 5.5 mb, 15.4 mb and 8.5 mb averaged 9.8 mb/week, less than the weekly average of 11.7 mb needed to meet the USDA’s projections by May 31, 2019.

 

U.S. Wheat Supply-Demand & Prices

The USDA released their wheat production, supply-demand, and price projections for the U.S. for “current” MY 2018/19 in the April 9th WASDE (World Agricultural Supply and Demand Estimates report) (Tables 1-1a).  The USDA also released its preliminary projections for the “new crop” MY 2019/20 at it’s February 22nd Agricultural Outlook Conference (Table 1a).  The “new crop” 2019/18 marketing year for wheat represents the June 1, 2019 through March 31, 2020 period.   The next USDA projection for “new crop” MY 2019/20 will be provided in the upcoming May 10th USDA WASDE report.

These preliminary forecasts indicate USDA’s expectations of approximately 4.3% lower planted acreage in 2019, marginally lower production and total use in “new crop” MY 2019/20, large ending stocks, lower % ending stocks-to-use, and unchanged U.S. wheat prices.

U.S. Wheat Acreage

The USDA’s Prospective Plantings report on Friday, March 29, 2019 projected U.S. wheat plantings are forecast to be are record low of 47.754 million acres (ma) in 2019, down 4.3% from 47.800 million acres (ma) in 2018, down from the previous low of 46.052 ma in 2017, but down from 50.116 ma in 2016 (Tables 1-1a, Figures 5-6)Harvested acres are forecast at 38.744 ma in 2019 (84.68% harvested-to-planted).  This amount of harvested acres is projected to be up from 39.605 ma in 2018 (82.86% harvested-to-planted), and the record low of 37.555 ma (81.55% harvested-to-planted) in 2017, but still down from 43.848 ma in 2016 (87.49% harvested-to-planted) (Tables 1a-b, Figure 6).

Also in the March 29th Prospective Plantings report, the USDA projected that 31,504,000 acres of Hard Red Winter (HRW) wheat were seeded in the U.S. in fall 2018 – down from 32,535,000 acres in fall 2017, and 32,726,000 acres in fall 2016 (Figure 6).

The 2019 U.S. average wheat yield is forecast to be 47.8 bu/ac, up from 47.6 bu/ac in 2018, and 46.4 bu/ac in 2017, but down from the 2016 record high of 52.7 bu/acre (Tables 1a-b, Figure 7).

U.S. Wheat Production & Total Supplies

Wheat production in the U.S. in 2019 is forecast to be 1.852 billion bushels (bb), down from 1.884 bb in 2018, and up from 1.741 bb in 2017, but down from 2.309 bb in 2016 (Tables 1a-b, Figure 8).  With adjustments for updated beginning stocks estimates, projected “new crop” MY 2019/20 total supplies are forecast to be 3.084 bb, down from forecast “current” MY 2018/19 total supplies of 3.128 bb, and up from 3.079 bb in “old crop” MY 2017/18.  However, 3.084 bb in U.S. total wheat supplies in “new crop” MY 2019/20 would be down from 3.402 bb in MY 2016/17.

U.S. Wheat Total Use

U.S. Wheat total use is projected to be 2.108 bb in “new crop” MY 2019/20, up from a projection of 2.042 bb in “current” MY 2018/19, and from 1.980 bb in “old crop” MY 2017/18, but down from 2.222 bb in MY 2016/17 (Tables 1a-b, Figures 9a-b).

U.S. Exports

In “new crop” MY 2019/20, U.S. wheat exports are forecast to be 975 million bushels (bu), up from 945 mb in “current” 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 (Tables 1-1a, Figures 9a-b, & 10a).

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, down to levels just marginally above those pre-“Russian Grain Deal” levels 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.

U.S. Food Use

Food Use of U.S. wheat is projected to be 975 million bushels (mb) in “new crop” MY 2019/20, up marginally from 965 mb in “current” MY 2018/19, from 964 mb in “old crop” MY 2017/18, and 949 mb in MY 2016/17 (Table 1-1a, Figure 9ab).

U.S. Feed & Residual Use

Feed & Residual Use of U.S. wheat is projected to be 90 mb in “new crop” MY 2019/20, up from 70 mb in “current” MY 2018/19, up from 51 mb in “old crop” MY 2017/18, but less than 160 mb in MY 2016/17 (Table 1-1a, Figure 9ab).

CommentaryKSU: If 2019 U.S. corn plantings and 2019 corn production decline significantly, then U.S. wheat feeding may increase to “fill the gap”.     

U.S. Ending Stocks & % Stocks-to-Use

With an adjustment by KSU for new WASDE report information on beginning stocks, USDA projected “new crop” MY 2019/20 ending stocks to be 976 mb (46.02% S/U).  This projection is down from “current” MY 2018/19 ending stocks of 1.087 bb (53.24% S/U), both of which are down from 1.099 bb in “old crop” MY 2017/18 (55.50% S/U), and from 1.181 bb in MY 2016/17 (53.14% stocks/use) (Tables 1-1a, Figures 11 & 12).

CommentaryKSU: This projection of 976 mb in U.S. wheat ending stocks in “new crop” MY 2019/20 is the lowest in four (4) years – since 976 mb (49.99% stocks/use) in MY 2015/16.  However, it remains that until either a major wheat production shortfall and/or what could be an “unanticipated” surge in U.S. wheat exports occurs, the U.S. will likely remain in the current “large supply – large ending stocks” situation.

U.S. Wheat Prices

United States’ wheat prices are projected to be $5.20 /bu in “new crop” MY 2019/20, equal to the midpoint of $5.20 /bu in the range of $5.15-$5.25 /bu in “current” MY 2018/19.  This would be up from $4.72 /bu in “old crop” MY 2017/18, 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 (Tables 1-1a, Figures 11 & 12).

 

“Alt” KSU Scenario for U.S. Wheat S/D in “New Crop” MY 2019/20

To represent possible alternative outcomes for “new crop” MY 2019/20 in anticipation of the USDA May 10th WASDE report, a projected USDA scenario with a potential KSU-Scenario are provided (Tables 1-1a & Figure 11).

USDA Scenario (75% probability):   This scenario assumes:

2019 U.S. Planted Acres                   = 45.754 million acres

2019 U.S. Harvested Acres              = 39.733 million acres

2019 U.S. Yield                                 = 47.8 bushels/acre

MY 2019/20 Beginning Stocks         = 1.087 billion bushels (bb)

MY 2019/20 Production                   = 1.852 bb

MY 2019/20 Imports                        = 0.145 bb

MY 2019/20 Total Supplies            = 3.084 bb

MY 2019/20 Food Use                     = 0.975 bb

MY 2019/20 Seed Use                     = 0.068 bb

MY 2019/20 Exports                        = 0.975 bb

MY 2019/20 Feed & Residual Use   = 0.090 bb

MY 2019/20 Total Use                    = 2.108 bb

MY 2019/20 Ending Stocks              = 0.976 bb

MY 2019/20 % Stocks-to-Use           = 46.02%

MY 2019/20 Season Average Price = $5.20 / bushelUSDA; & $5.60 /buKSU

 

KSU Scenario “LOWER Acreage & Production” Scenario (25% probability):

This scenario assumes:

2019 U.S. Planted Acres                   = 45.754 million acres

2019 U.S. Harvested Acres              = 39.733 million acres

2019 U.S. Yield                                 = 44.0 bushels/acre                (down 3.89 bu/ac vs USDA)

MY 2019/20 Beginning Stocks         = 1.087 billion bushels (bb)

MY 2019/20 Production                   = 1.704 bb                               (down 0.148 mb vs USDA)

MY 2019/20 Imports                        = 0.145 bb

MY 2019/20 Total Supplies            = 2.936 bb                               (down 0.148 mb vs USDA)

MY 2019/20 Food Use                     = 0.975 bb

MY 2019/20 Seed Use                     = 0.068 bb

MY 2019/20 Exports                        = 0.975 bb

MY 2019/20 Feed & Residual Use   = 0.090 bb

MY 2019/20 Total Use                    = 2.108 bb                              

MY 2019/20 Ending Stocks              = 0.828 bb                               (down 0.081 ma vs USDA)

MY 2019/20 % Stocks-to-Use           = 39.28%                                 (down 6.74% vs USDA)

MY 2019/20 Season Avg. Price      = $6.00 / bushel                     (up $1.20 /bu vs USDA)

 

KSU Weekly Grain Market Update (5/3/2019) – 2019 Corn Planting Problems, Kansas Wheat Tour Results, and Positive Feedgrain Export Trends

Corn Market Decision Time re: Planting Prospects

and

Examining 2019 Kansas Wheat Tour Results

Daniel M. O’Brien, Extension Agricultural Economist-Kansas State University

May 3, 2019

Point #1) Delayed U.S. Corn Plantings in May 2019

The situation with 2019 U.S. corn plantings as of May 3, 2019 is the following.  First, as of April 28th the USDA reports that corn plantings are delayed in several key corn producing states in the U.S. Corn Belt – most notably in Illinois (9% vs 43% 5-yr avg), Minnesota (2% vs 24% 5-yr avg), Indiana (2% vs 17% 5-yr avg), and Ohio (2% vs 13% 5-yr avg).  Plantings in Iowa, Kansas, Missouri, Nebraska, North Carolina, North Dakota, and Tennessee are also trailing the most recent 5 year average pace, but not a seriously as in IL, MN, IN, and OH.  With credible weather service forecasts for significant rainfall over many of these central and eastern U.S. Corn Belt states over the next week, prospects for timely plantings of 2019 U.S. corn acres are declining in a quantifiable manner.

Corn futures markets have not responded to this decline in 2019 U.S. corn planting and associated production prospects.  Within the next 1-2 weeks it seems these issues of 2019 U.S. corn planting prospects, how plantings could affect 2019 U.S. corn production, supply-demand balances, and expected corn prices for what remains of the “current crop” 2018/19 marketing year (MY) through August 31, 2019, and for “new crop” MY 2019/20 will all likely have to be dealt with by the corn futures and cash markets.

If the 2019 U.S. corn crop is planted in a timely manner, then it will have fully adequate soil moisture to begin development with – and which could provide for growth from May through June and into July.

However, if instead of the 92.792 million acres (ma) projected for year 2019 by the USDA in the Prospective Plantings report on March 29th, actual 2019 U.S. corn plantings are reduced by 5% down to 88.152 ma, or by 10% down to 83.513 ma, it would likely have significant, tangible, negative impacts on 2019 U.S. corn production.

At its current projection of 92.792 ma planted, 84.723 ma harvested (91.30% harvested to planted acres), and 176.4 bu/ac yields, the USDA is implicitly forecasting U.S. corn production in year 2019 would be 14.945 billion bushels

However, IF 2019 U.S. corn plantings decline 5% to 88.152 ma, then with 91.30% harvested-to-planted acres, there would be 80.486 ma harvested.  And with the same 176.4 bu/ac yield, U.S. corn production would be 14.198 bbdown 747 mb from the initial USDA implicit forecast of 14.945 bb.

In addition, IF U.S. corn plantings are down 10% from the USDA projection to 83.513 ma, then using the same harvested-to-planted acres factor of 91.30% to figure 2019 U.S. corn harvested acres at 76.247 ma, and using 176.4 bu/ac again, then 2019 U.S. corn production would fall to 13.450 bb down 1.495 bb from the USDA’s initial levels of 14.945 bb 2019 U.S. corn production.

Therefore, either a 5% or especially a 10% reduction in U.S. 2019 Corn planted acres would have significant negative impacts on U.S. corn production in 2019, leading to much tighter U.S. corn ending stocks, and higher cash prices as usage would be rationed on smaller supplies.

Point #2) Examining the Results of the 2019 Kansas Wheat Tour

This week’s 2019 Kansas Wheat Tour projected the 2019 Kansas wheat yield to be 47.2 bu/ac, with an implicit harvested acreage estimate of 6.494 million acres (92.8% harvested-to-planted acres off of 7.000 ma planted), and 2019 Kansas wheat production of 306,500,000 bushels (i.e., 306.5 million bushels or mb).   According to KSU Extension Agronomist Romulo Lulato ( lollato@ksu.edu), the Kansas wheat crop is 3 to 4 weeks behind normal in maturity, with the next month being crucial to crop development and possible disease threats.

Since year 2014, the annual Kansas Wheat Tour has UNDER-forecast Kansas wheat production by 10.4% (in 2015), 18.2% (in 2016), 15..6% (in 2017), and 12.3% (in 2018).  The reason for this under estimate of Kansas production in recent years has been a combination of underestimated yields, and especially low projections of harvested acreage.   During the years 2011-2018 period the Kansas Wheat Tour underestimated final Kansas wheat harvested acres each year, ranging from 4% too low in 2016 to 13.7% in 2011.  For instance, in 2018 Kansas harvested acres of wheat were implicitly forecast to be 6.576 ma, but ended up being 7.300 ma as estimated by USDA.  Following the same trend, it is possible the implicit harvested acreage of 6.494 ma for wheat in Kansas for 2019 could end up being too low.

Finally, total Hard Red Winter (HRW) wheat production in the central and southern plains states of Nebraska, Colorado, Kansas, Oklahoma and Texas is forecast to be 638 million bushels (mb) in 2019, up from 523 mb for these states in 2018, but comparable to 635 mb in 2017, 870 mb in 2016, and 655 mb in 2015.  The 2019 forecast for Texas came from KSU Calculations, while those for Kansas, Nebraska, Colorado, and Oklahoma came from the 2019 Kansas Wheat Tour.

An additional factor to watch as the 2019 Kansas wheat crop develops will be the levels of protein and/or other quality factors.  It is likely that significant amounts of the high protein / good quality 2018 Kansas wheat crop likely still in storage in Kansas grain elevators.  As a result, IF the 2019 Kansas wheat crop were of lower protein / quality, THEN it is likely that carryover supplies from the higher protein/higher quality 2018 crop would be blended with the 2019 crop to enhance marketability.

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Grain market summary notes, charts and comments supporting the Weekly Grain Market Review from KSU Ag Economics presented in the KSU Agriculture Today radio program to be played on Friday, May 3, 2019 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, May 3, 2019 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the April 26th recording is be available at the KSU Agriculture Today website at this time.

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

KSU Weekly Grain Market Analysis Through 4/26/2019 – Watching Weather for Corn Planting plus Positive Sorghum and HRW Wheat Exports Weeks

Grain market summary notes, charts and comments supporting the Weekly Grain Market Review from KSU Ag Economics presented in the KSU Agriculture Today radio program to be played on Friday, April 26, 2019 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 was aired at 10:03 a.m. central time, Friday, April 26, 2019 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the April 26th recording is be available at the KSU Agriculture Today website at this time.

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

U.S. Ethanol and Biodiesel Markets and Profitability – Moderate Losses for Ethanol and Biodiesel in April to Date

A. Ethanol Price and Profitability Trends

By Iowa State University estimates, ethanol plants in Iowa and other Midwest states were operating at losses of $0.10 to $0.23 per gallon from September 2018 through March 2019 – with $0.14 /gallon losses in March 2019.  By Kansas State University calculations, these losses extended into the April 1-19 period, with losses of $0.12 / gallon.

During the April 1-19, 2019 period, corn input purchase prices for Iowa ethanol plants averaged $3.47 /bu – compared to 3.55 /bu in March.  Selling prices of distillers dried grains (DDGS) (10% moisture) averaged $138.17 /ton during April 1-19, up from $135.77 /ton a month earlier. The selling price of ethanol via tank car and truck shipment out of Iowa ethanol plants has averaged $1.29 /gallon during April 1-19, down from $1.3086 /gallon in March.

Overall, during the April 1-19, 2019 time frame, the estimated cost of production of a representative ethanol plant in Iowa has averaged $1.41 per gallon – comparable to $1.45 per gallon in March, and $1.44 in February.  This has lead to an estimated average negative net return of minus $0.12 per gallon produced so far in April 2019, with is comparable to losses of $0.14 /gallon in March and losses of $0.23 /gallon in February 2019.

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B. Ethanol Production & Stocks Trends

Since the beginning of the “current” 2018/19 marketing year (MY) for U.S. corn on September 1, 2018, U.S. ethanol production has averaged 1.026 million barrels per week over 32 weeks. At this average pace, U.S. ethanol production would reach 15.730 billion barrels in “current” MY 2018/19.  Further, at a rate of 2.83 gallons of ethanol per bushel of feedgrain used for ethanol production (corn and/or grain sorghum), at total of 5.558 billion bushels of feedgrains would be used for ethanol production in the current marketing year.

The USDA’s latest World Agricultural Supply and Demand Estimates (WASDE) report on April 9, 2018 seem to account for this.  In the April WASDE report the USDA projected that in current MY 2018/19 a total of 5.500 billion bushels (bb) of U.S. corn would be used for ethanol production, and that 100 million bushels (mb) of U.S. grain sorghum would be used for Food, Seed, and Industrial (FSI) uses – which is primarily industrial ethanol production.

However, the pace or weekly rate of U.S. ethanol production has slowed marginally during February – April 2019 (to date) compared to the September 2018 through January 2019 period.  For September 2018 through January 25, 2019, U.S. ethanol production averaged 1.034 billion barrels per week, while that rate slowed 3.1% to 1.004 per week for the weeks ending February 1st through April 12th.

At the same time U.S. ethanol stocks have remained at historically high levels – burdening the ethanol market and having a negative impact on U.S. ethanol prices.  To explain, for the “current” 2018/19 marketing year period from September 1, 2018 through the week ending April 12th, U.S. ethanol stocks have averaged 23.463 million barrels (mln brls) per week.  This compares to average end of week ending stocks for previous U.S. corn marketing years of 22.201 mln brls per week in “old crop” MY 2017/18; 21.259 mln brls per week in MY 2016/17; 20.846 mln brls in MY 2015/16; 19.466 mln brls in MY 2014/15; 16.618 mln brls per week in MY 2013/14; 18.104 mln brls per week in MY 2012/13; 19.569 mln brls per week in MY 2011/12; and 18.416 mln brls per week in MY 2010/11.  These data show the growing in U.S. ethanol stocks over the last few marketing years, and highlight the record size of U.S. ethanol supplies that burden the U.S. ethanol market at the present time.

C. Biodiesel Price & Profitability Trends

Reductions have also occurred in the estimated profitability of Biodiesel plants in Iowa and nearby states – although the losses are comparatively small relative to ethanol producing facilities during the April 1-19, 2019 period.

By Kansas State University estimates, during the April 1-19, 2019 period, soybean oil input purchase prices for Iowa biodiesel plants averaged $28.40 per cwt – down from an average price $29.13 /cwt in March 2019.   This occurred while Biodiesel selling prices averaged $2.77 /gallon during 4/1-19/2019, being down from $2.87 /cwt in March.

Also during the April 1-19 period, the cost of production at representative biodiesel plants in Iowa has averaged $2.81 per gallon – down from $2.86 per gallon March.  As a result, net returns of soy biodiesel product were down $0.05 /gallon, with a loss of $0.04 per gallon produced.  This is comparable to monthly average profits of $0.01-$0.02 /gallon during the January-March 2019 period. 

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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 Tuesday, April 23, 2019 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.

Corn Market Review – DEC 2019 Corn Trends, CFTC Position Data, Carry Issues, and a 1st Week in May Reckoning for Planting Concerns

This Corn Market Review from the Kansas State University Agricultural Economics Department (Daniel O’Brien – Author) will be placed on on the www.AgManager.info website at on April 22nd at the following web address:

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

Following is the text of the article, with selected figures included at the end.

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Corn Market Review KSU Ag Economics

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

Friday, April 19, 2019

With wet soils persisting in much of the U.S. Corn Belt, spring fieldwork and planting operations have begun to be been delayed.  As of April 19th U.S. corn markets have shown only limited signs of concern about potential 2019 U.S. corn crop planting delays or impacts upon U.S. corn production prospects.

 

1) “New Crop” DEC 2019 Corn Futures Trending Lower

Corn futures have been moderately “bearish” during the month April 2019 to date.  Since April 1st, “new crop” DEC 2019 Corn futures have traded in the range of a low of $3.84 ½ (on 4/1) to a high of $3.93 ½ (on 4/4) – closing at $3.86 ¼ on Thursday, April 18th.  In comparison, during the December 2018 – March 2019 period “new crop” DEC 2019 corn had traded in a range of $4.06 (on 1/18) to $3.84 ¼ (on 3/29). 

 

2) Placing a Market Value on “New Crop” 2019 Corn Price Uncertainty

On April 18th MAY 2019 Corn futures closed at $3.58 ¼ compared to $3.86 ¼ for DEC 2019 Corn.  The $0.28 /bu increase from MAY 2019 to DEC 2019 Corn futures provides some indication of the amount of uncertainty that exists in corn futures traders minds about seasonal production risks they are willing to account for in their “new crop” 2019 corn bids (relative to the present).  

 

3) Long Term Corn Price Expectations in Years 2020-2022

Whereas on April 18th MAY 2019 Corn futures closed at $3.58 ¼ compared to $3.86 ¼ for DEC 2019 Corn, these prices compare to longer term prices of $4.14 ¼ for DEC 2020 Corn, and $4.19 ¼ – $4.19 ½ for DEC 2021 & DEC 2022 Corn futures

As of today, looking two-to-four years ahead, when the corn market has little to go on other than current “old crop” and early “new crop’ supply-demand and prices, corn market price expectations for harvest in years 2020, 2021 and 2022 are in the $4.14-$4.19 per bushel range.  These price levels are up an additional $0.28-$0.32 per bushel from harvest 2019 corn futures as expressed by DEC 2019 Corn futures at $3.86 ¼ /bu, and up 15%-17% from current MAY 2019 Corn futures prices at $3.58 ¼ /bu.   

From an economic viewpoint, these deferred years’ DEC Corn futures prices in years 2020, 2021, & 2022 reflect market expectations that corn prices will eventually be higher than current bids for DEC 2019 Corn futures.  As part of these expectations, they also reflect market uncertainty about and the eventual likelihood of a short U.S. corn crop or crops sometime in the coming years – it is just not known when!

 

4) “Open Interest” – Indicating the Focus of Corn Futures

Corn futures contract open interest can be used as an indicator of the attention and/or focus in the corn trade on particular futures contracts and the time periods they represent.  “Open interest” in corn futures is the total number of outstanding “long” (i.e. buy position) or “short (sell position) contracts that remain open and have not been exited at any one time.  

As of April 18th, MAY 2019 Corn futures had 381,269 contracts (or 1.906 bb) in open interest, compared to 739,574 contracts (3.698 bb) for JULY 2019 Corn futures, 207,894 contracts (1.039 bb) in open interest for SEPT 2019 Corn futures, and 291,847 contracts (1.459 bb) for DEC 2019 Corn futures.  For selected deferred harvest-time corn futures contracts, DEC 2020 Corn had open interest of 31,435 contracts (157 million bushels or ‘mb’), while DEC 2021 Corn had open interest of 931 contracts (4.655 mb), and DEC 2021 Corn had open interest of 16 contracts (80,000 bushels).

These numbers indicate that most of the attention of the U.S. Corn futures market is on the MAY 2019 and especially the JULY 2019 Corn futures contracts, with lesser attention on SEPT 2019 and DEC 2019 Corn

 

5) Focus on Futures Carrying Charges & How MAY 2019 Affects DEC 2019 Corn

While most of the open interest in corn futures is concentrated in the two lead contracts (i.e., MAY 2019 and JULY 2019 Corn), the consistency of carrying charges from the MAY 2019 through DEC 2019 Corn futures causes movements in the upfront MAY 2019 Corn futures to influence or lead to changes in DEC 2019 Corn futures.  At this time, “price transmission” or at least a strong correlation is occurring between movements in the lead “current” marketing year contract (MAY 2019 Corn) and the 1st “new crop” contract (DEC 2019 Corn futures).

For example, on April 18th the following carrying charges existed in Corn futures contract prices.  The MAY 2019 to JULY 2019 corn futures carrying charge, “carry, or “spread” was $0.0875 /bu or $0.04375 /bu/mo.  Then, from the JULY 2019 to the SEPT 2019 contract, the carry was $0.0775 /bu or $0.03875 /bu/mo.  Further, the SEPT 2019 to DEC 2019 carrying charge was $0.1125 /bu or $0.0375 /bu/mo. 

As an indicator of possible grain market dynamics or changes, if and/or when the SEPT 2019 to DEC 2019 Corn futures carrying charge begins to weaken appreciably from its current level of $0.1125 /bu or $0.0375 /bu/mo, it may indicate that the Corn market is beginning to anticipate a large 2019 U.S. corn crop as it begins to discount harvest 2019 Corn futures prospects.  This would lead to a weakening trend in DEC 2019 corn futures into late summer and the 2019 fall harvest.

 

6) Managed Money (Spec) & Commercial Trader Positions in Corn Futures (CFTC Data)

The “bearish” position of the corn futures market is shown in futures trade positions within the last few weeks.  As reported by Commodity Futures Trading Commission (CFTC) trader position data, for the week ending April 16, 2019 Managed Money (Spec) traders indicate that a record “short” or “sell” position of 2.549 billion bushels (bb), based on 509,846 contracts @ 5,000 bu/contract.  The 2nd largest short position for Management Money (Spec) traders since at least June 2006 occurred a month ago for the week ending March 12, 2019 at 483,417 contracts (2.417 bb).  

There were also “long” or “buy” positions of 915 million bushels (mb) from 182,959 contacts for Managed Money (Specs) for the week ending 4/16/2019.  When combined, there was a record “net short” managed money position of 1.634 bb in corn futures for the week ending April 16, 2019 – the most recent available public record of trading data.  The previous record “net short” managed money position occurred for the week ending April 9, 2019 with 1.449 bb in corn futures “net short”.

Also of note, as of the week ending April 16th, Commercial Traders in Corn futures had a record large long or “buy” position in Corn futures of 575,164 contracts (2.876 bb), combined with a short or “sell” position of 608,567 contracts (3.043 bb).  The record high short or “sell” position for Corn futures since mid-year 2006 1,001,517 contracts (5.008 bb) for the week ending May 29, 2018.   It appears that commercial buyers of corn are taking advantage of the current low prices in Corn futures to hedge against the possibility of rising prices later in 2019.

 

7) The Beginning of 2019 Field Work & U.S. Corn Planting Issues to Come 

As of April 14th the USDA reported in it’s NASS Crop Progress Report that U.S. corn plantings were 3% complete compared to an average of 5% for the same time period during the 2014-2018 period.   Corn planting had progressed to 57% complete in Texas (vs 54% 5-year avg.), 16% in Tennessee (vs 14% 5-yr avg.), and 8% in Kentucky (vs 8% 5-yr avg.). 

But in the key “Three ‘I’ States” in the central U.S. Corn Belt, planting had not started in Illinois (vs a 4% 5-year average), had 1% planted in Indiana (vs 1% 5-year avg.), and had not started in Iowa (vs a 2% 5-year avg.).   In other key Corn Belt states affected by recent excess moisture, corn planting was 6% complete in Kansas (vs 14% 5-year avg.), had not started in Nebraska (vs 2% 5-year avg.), had not started in Minnesota (vs 2% 5-year avg.), and was 18% completed in North Carolina (vs 28% 5-year avg.). 

Consistent with the corn futures market bearish perspective, it seems too early for corn futures to express worries about wet soil conditions, delayed corn planting, and reduced corn acreage in 2019 (which could lead to reduced 2019 U.S. corn production and a tightening of the U.S. Corn Supply-Demand Balance sheet and higher corn prices in “new crop” MY 2019/20. 

The University of Illinois’ Farmdoc recent analysis titled “Here We Go Again: How Many Days Does It Take to Plant the U.S. Corn Crop” by Scott Irwin and Todd Hubbs on April 17th addressed this issue: https://farmdocdaily.illinois.edu/2019/04/here-we-go-again-how-many-days-does-it-take-to-plant-the-u-s-corn-crop.html

Quoting from their analysis concerning the key “Three ‘I’ States”: “The results indicate that it takes about 14 days, or two weeks, to plant the corn crop in each of the three states assuming maximum daily rates of planting progress and this conclusion is not altered by the addition of observations for 2018.”

These results from Irwin and Hubbs in Illinois indicate that the U.S. corn market would likely grow more concerned about potential 2019 planting delays in the U.S. Corn Belt if appreciable progress was not being made and appeared unlikely to occur in the first week of May 2019.  Until then, the Corn market is likely to continue to monitor the situation, but not to act in a “worried manner” until then.