KSU Weekly Grain Market Analysis: Kansas Basis Trends for Corn, Sorghum, Wheat and Soybeans (Weak and Weaker)

Kansas Grain Basis Trend Situation & Outlook

Daniel O’Brien – Extension Agricultural Economist

September 21, 2018

Trends in local grain basis levels across Kansas reflect the expectation of large 2018 corn, grain sorghum and soybean crops to be harvested in the next 30-60 days in the United States as well as worries about grain demand – particularly U.S. exports resulting from U.S.-China trade tensions.  One exception is the trend toward narrower feedgrain and wheat basis levels in southeast (SE) Kansas – likely the result of dry conditions and lower production in Missouri to supply livestock feeding operations to in Arkansas and nearby locations.

A. Corn Basis Trends in Kansas

Corn basis levels in Southwest (SW), the western part of South Central (SC), and the Southeast (SE) corner of Kansas were the “narrowest” or “strongest” in Kansas as of September 19, 2018.  The weakest corn basis levels were found in North Central (NC) and western portion of Northeast (NE) Kansas.

Kansas corn basis levels have declined from their “narrowest” or “strongest” levels at major elevator locations in Colby (NW), Salina (Central-NC), Atchison (NE), and Hutchinson (Central-SC).  However, corn basis levels in the livestock feeding demand center of Garden City (SW) have remained at summer levels thus far heading into fall.  Corn basis levels in Columbus (SE) had sharply declined, but recently strengthened sharply again.  Recent corn basis levels in Hutchinson (C-SC) and especially Columbus (SE) have been at the strongest levels since at least the beginning of year 2015.

With corn harvest approaching throughout Kansas in the coming month and a large 2018 U.S. corn crop expected in most areas of the country, weaker cash prices and basis levels are expected during October-November 2018.  Surprise reductions in U.S. corn production estimates from the USDA in its October 11th and November 8th USDA NASS (National Agricultural Statistics Service) Crop Production reports could change current harvest price expectations and cause Kansas corn basis levels to strengthen.

B. Grain Sorghum Basis Trends in Kansas

Kansas grain sorghum basis levels have been near $0.50 per bushel under lead CME Corn futures contract prices across the state for most of the year.  The exception has been in the Southeast (SE) corner of Kansas were the “narrowest” or “strongest” in Kansas as of September 19, 2018.  The weakest corn basis levels were found in North Central (NC) and Central (C), Northeast (NE), and East Central (EC) Kansas.

Kansas grain sorghum basis levels have been quite consistent or “level” in 2018 across major elevator locations in the western 2/3 of the state, i.e., in Colby (NW), Salina (Central-NC), Garden City (SW), and Hutchinson (Central-SC).  However, grain sorghum basis levels Atchison (NE) have trended “lower” or “weaker” since mid summer, before “jumping” sharply higher again in the week ending September 19th.  Grain sorghum basis levels in Columbus (SE) have actually strengthened throughout most of year 2018 before a one time decline during late August-early September – and have been level since.  Just as for corn basis, since early July 2018 grain sorghum basis levels in Columbus (SE) have been at their strongest levels since at least the beginning of year 2015.

Just as with corn, with 2018 grain sorghum fall harvest approaching throughout Kansas in the coming month and a large 2018 U.S. feedgrain crop expected in most areas of the country, weaker cash prices and basis levels are expected during October-November 2018.  Any surprises from the USDA in its October 11th and November 8th USDA NASS (National Agricultural Statistics Service) Crop Production reports could change current harvest price expectations and cause Kansas grain sorghum basis levels to strengthen.

C. Wheat Basis Trends in Kansas

Kansas wheat basis levels have weakened significantly in all areas of the state of Kansas from June across nearly all areas of the state.  Wheat basis levels across major grain elevators in Colby (NW), Garden City (SW), Salina (C-NC), Hutchinson (C-SC), Atchison (NE), and Columbus (SE) are all near $0.50 per bushel under CME DEC 2018 Kansas HRW Wheat futures as of September 19, 2018.  These basis levels are “weaker” or “wider” by $0.40-$0.65 /bu since June 2018.

Possible surprises from the USDA in its September 28th USDA NASS (National Agricultural Statistics Service) Small Grain Annual Summary report could change current U.S. wheat supply-demand and price expectations and cause Kansas wheat basis levels to strengthen. However, stronger U.S. wheat exports would likely be needed to bring about higher U.S. HRW wheat prices and narrower basis – at least until spring-early summer 2019 when U.S. wheat production concerns could enter into the market’s “thinking”.

D. Soybean Basis Trends in Kansas

Kansas soybean basis levels have weakened significantly since June across major grain elevators across the state, such as in Colby (NW), Garden City (SW), Salina (C-NC), Hutchinson (C-SC), Atchison (NE) and Columbus (SE) through September 19, 2018.  The widest basis was $1.50 under CME NOV 2018 Soybean futures in Colby (NW) on 9/19/2018, with Garden City (SW) basis at nearly $1.30 under, $1.20 under in Salina (C-NC) and Hutchinson (C-SC), $0.90 under in Atchison (NE), and $0.80 under in Columbus (SE).

Just as with corn and grain sorghum, with 2018 soybean fall harvest approaching throughout Kansas and the U.S. in the coming month, and a large 2018 U.S. soybean crop expected in most areas of the country, as well as worries about U.S. soybean export prospects resulting from U.S.-China trade tensions, weaker cash prices and basis levels are expected during October-November 2018.  Any surprises from the USDA in its October 11th and November 8th USDA NASS (National Agricultural Statistics Service) Crop Production reports or an agreement the between the U.S. and China to avert further trade tensions and Chinese tariffs against U.S. soybean imports could change current harvest price expectations and cause Kansas soybean basis levels to strengthen.

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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, September 21, 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, September 21, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the August 4th recording will be 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…

 

Examining Corn % Stocks-to-Use vs Cash Prices for the U.S. & the “World-Less-China” (KSU Ag Economics)

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

September 14, 2018

In their September 12, 2018 World Agricultural Supply and Demand Estimates (WASDE) report, the USDA provided estimates of ending stocks and percent ending stocks-to-use for corn markets in the U.S., the World, and for the “World-Less-China”.  The following analysis estimates that U.S. corn prices are projected by the USDA to be $0.25 to $0.60 /bu lower in “new crop” MY 2018/19 than would have been the case following average stocks-to-use versus price relationships during the MY 2012/13 through “old crop” MY 2017/18 period. It also discusses why this may be happening, and what the implications may be for post-harvest price recovery.

A. U.S. Corn % Stocks-to-Use vs Prices

In spite of mostly pessimistic responses to recent USDA reports and other market projections, U.S. corn market supply-demand balances as represented by % ending stocks-to-use (% S/U) are forecast to tighten.  This continues the trend toward tighter U.S. corn % S/U since the 2016/17 marketing year.  Since the drought-induced U.S. short corn crop of 2012, % S/U has trended first higher and then lower.  In MY 2012/13 U.S. corn % S/U was a low of 7.4%, and then trended upward to 9.2% S/U in MY 2013/14, 12.6% S/U in MY 2014/15, 12.7% S/U in MY 2015/16, and the recent high of 15.7% in MY 2016/17.  Since then, U.S. corn supply-demand balances have declined to 13.4% in “old crop” MY 2017/18, and are projected to fall to 11.7% in “new crop” MY 2018/19 which began September 1, 2018. 

With U.S. corn % S/U declining to 11.7%, U.S. corn season average prices are projected to be in the range of $3.00 to $4.00 per bushel – with a midpoint projection of $3.50 /bu.  For market comparison sake, in the 2014/15 & 2015/16 marketing years with 12.6% S/U and 12.7% S/U, respectively, U.S. corn prices averaged $3.70 /bu & $3.61 /bu, respectively.  

From examining historic U.S. corn stocks-to-use versus U.S. corn marketing year average prices, it is estimated that the $3.50 /bu forecast at 11.7% S/U for “new crop” MY 2018/19 is approximately $0.25 lower than would have been the case during the MY 2012/13 – MY 2017/18 time period.  This assumes similar price responses to changing U.S. corn % S/U – all else being equal.  The assumption of “all else being equal” may or may not hold true – especially with current tensions affecting U.S. agricultural trade and market worries and concerns about their impact on U.S. corn supply-demand and prices.

B. “World-Less-China” Corn % S/U vs U.S. Corn Prices (Adjusted for the U.S. Dollar)

Similar to the U.S.-domestic based market analysis above, World corn market supply-demand balances (as represented by % S/U) are forecast to tighten.  Accounting for or “isolating” the impact of China’s large corn stock piles, “World-Less-China” corn % S/U is calculated. Following a similar approach to the U.S.-only calculations above, since the short corn crop year of 2012, % S/U has again trended first higher and then lower.  In MY 2012/13 “World-Less-China” corn % S/U was a low of 9.5%, and then trended upward to 12.2% S/U in MY 2013/14, 13.8% S/U in MY 2014/15, 12.9% S/U in MY 2015/16, and the recent high of 15.3% in MY 2016/17.  Since then, “World-Less-China” corn supply-demand balances have declined to 13.9% in “old crop” MY 2017/18, and are projected to fall to 11.5% in “new crop” MY 2018/19 which began September 1, 2018. 

With “World-Less-China” corn % S/U declining to 11.5% in “new crop” MY 2018/19, the U.S. corn season average price range-midpoint is forecast to be $3.50 /bu (as stated above).  Adjusting for the average U.S. dollar index value of 90.5480 in the first week of “new crop” MY 2018/19, the “dollar adjusted” U.S. corn price equals $3.17 /bu (compared to $3.50 /bu prior to U.S. dollar adjustment).

From examining historic “World-Less-China” corn stocks-to-use versus dollar-adjusted U.S. corn marketing year average prices, it is estimated that the $3.50 /bu forecast at 11.5% S/U for “new crop” MY 2018/19 is approximately $0.60 lower than would have been the case during the MY 2012/13 – MY 2017/18 time period – all else being equal.  

In other words, at an unadjusted U.S. corn price of $4.10 /bu (up $0.60 /bu from the USDA midrange price forecast of $3.50 /bu), the U.S. price would “fit” on the “World-Less-China” corn % S/U vs dollar adjusted U.S. corn price relationship (with 11.5% S/U and a dollar adjusted U.S. corn price of $3.71).

C. Corn Market Implications for “New Crop” MY 2018/19

There are important implications for the U.S. corn market if the findings of this article are accurate that U.S. corn prices are estimated to be $0.25 to $0.60 /bu lower than would have been the case under similar market conditions during the MY 2012/13 – MY 2017/18 period.  

First, the question of WHY this would be the case needs to be asked.  It is possible that prevailing market fears about how U.S. trade tensions with China, Mexico, Canada, Europe, and other countries may be being expressed in a somewhat pessimistic outlook for U.S. corn markets for the remainder of “new crop” MY 2019, i.e., from mid-September 2018 through August 2019.  Restated, fears about U.S. corn export prospects perhaps are being expressed in terms of lower corn bids in futures and cash markets.

Second, the seasonal focus of U.S. corn markets heading into the 2018 harvest is largely on prospects for a large if not near record U.S. corn crop, and this is likely having a strong negative affect on U.S. corn markets.   This would be an expected normal seasonal influence on U.S. corn markets in normal or large crop years. 

Third, IF U.S. corn prices ARE somewhat lower at this time than expected according to past market behavior and responsiveness to similar supply-demand balance scenarios, THEN it may be that post-harvest demand for U.S. corn in domestic and foreign markets may provide support for prices to move above pre-harvest / harvest levels in the U.S. during the post-harvest periodNormal seasonality tends to support post-harvest recovery of U.S. corn prices in normal or large crop years – as buyers typically have to bid higher to motivate farmer’s to sell corn out of on-farmer or even commercial storage. 

However, to the degree that U.S. corn prices may currently be lower than otherwise anticipated given U.S. supply-demand balances, THEN there seems to be an increased likelihood of a higher than normal post-harvest price recovery.

Fourth, the actions and reactions in coming months of farmers in both South America and the United States to corn and soybean market distortions brought about by U.S.-foreign trade tensions are likely to drive planting / acreage decisions and U.S. and World corn production prospects in 2019.   The prospect of higher soybean acres in Argentina and Brazil in 2019 in response to higher prices and other factors – and the possibility of lower corn acres in these countries as a result – may affect U.S. farmer’s expectations of corn versus soybean profitability in late-winter / spring 2019, and also their subsequent 2019 U.S. corn & soybean planting decisions.

D. Conclusions About Efficient Markets & the Purpose of this Article

Any analysis of the level of U.S. grain prices and whether they are justified at their current levels or not quickly turns to questions about the pricing efficiency and effectiveness of agricultural markets. While the seasonality of U.S. corn prices from harvest through post-harvest periods is not generally disputed by market analysts, there are often disagreements among them about the expected final levels of futures and cash markets in futures months or time periods.  

The purpose of this article is not necessarily to criticize the accuracy of current corn market price forecasts in the futures and options market.  However, it is intended to point out changing levels of price responsiveness to adjustments in U.S. and foreign corn percent ending stocks-to-use, and to help those marketing U.S. corn to make more informed sales and merchandising decisions in “new crop” MY 2018/19.

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Source: https://kscorn.com/2017/10/13/kansas-corn-estimate-rises-october-crop-report/

KSU Weekly Grain Market Analysis: The Status of U.S. Grain Markets Following the September USDA Reports

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, September 14, 2018 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/news

The recorded radio program will be aired at 10:03 a.m. central time, Friday, September 14, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the September 14th recording will be available at the KSU Agriculture Today website (http://www.ksre.k-state.edu/news/radio-network/ag-today.html)

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

KSU “Quick Analysis of the Numbers” Calculations of USDA September 12th Reports – Examining Grain Supply-Demand by Category and Country

A KSU “quick analysis” worksheet of the key grain marketing-related information found in the September 12, 2018 th USDA World Agricultural Supply and Demand Estimates (WASDE) report can be found on the Kansas State University AgManager.info website (http://www.agmanager.info/).

The spreadsheet contains a comparison of USDA September 2018 U.S. and Foreign grain supply-demand and market price forecasts for the “new crop” 2018/19 marketing year, with comparisons to

a) pre-report trade estimates,

b) the August 2018 USDA grain production and supply-demand projections, and

c) “old crop” MY 2017/18 U.S. wheat, corn, grain sorghum and soybean production and ending stocks data, and World wheat, coarse grain, corn and soybean supply-demand numbers.

Key information is contained on the following:

A. Brazil and Argentina crop production and supply-demand forecasts for 2018 and 2019 corn and soybeans.

B. Updated U.S. ending stocks projections for the “new crop” 2018/19 marketing year for major crops (corn, sorghum, wheat, and soybeans).

C. Updated World ending stocks projections for the “new crop” 2018/19 marketing year for major crops (corn, coarse grains, wheat, and soybeans).

The worksheet also contains a more extensive analysis of the September 12, 2018 WASDE report results in regards to World wheat, coarse grain, corn and soybean supply-demand results, focusing on country-by-country (or region-by-region in many cases) projections of production, imports, exports, domestic feed use, and ending stocks.

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Kansas Wheat to begin in earnest in October, 2018 (Source: Mark Parker, Farmtalk: www.farmtalknewspaper.com/news/crops/leaving-volunteer-wheat-tempting-but/article_9307e38c-f403-5a19-907c-5112bf01f293.html)

KSU Corn Market Outlook in Early-September 2018: Analyzing Harvest 2018 and Spring-Summer 2019 Corn Market Prospects

An analysis of U.S. and World Corn supply-demand factors for the “New Crop” 2018/19 & “Next Crop” 2019/20 Marketing Year supply-demand and price prospects is provided in the following article summary.  This information follows the USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports on August 10, 2018.

A full version of this article will 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 the article with supporting Tables and Charts for “Corn Market Outlook in Late-May 2018″

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Corn Market Outlook in Early September 2018

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

September 6, 2018

Overview of U.S. Corn Supply-Demand Prospects in Early-September 2018

The outlook and prospects for U.S. corn market prices through September-December 2018 has turned more negative.  This “negative consensus” of the overall market reflects the anticipation market participants of: 1) a large 14.6 billion bushel 2018 U.S. corn crop on the one hand, and 2) market concerns about U.S. agricultural trade conflicts and its potential impact the profitability of U.S. grain and livestock production in later 2018 and 2019.   Therefore, the outlook for U.S. corn prices is a “mixed bag” of factors that will likely have a combination of negative, positive, and as yet unknown impacts on corn prices throughout the “new crop” 2018/19 marketing year which began on September 1, 2018.  The corn market is weighing the following factors in assessing current and future supply-demand and price prospects (Tables 1 & 1a).

First, U.S. corn planted acres are estimated to have been 89.128 million acres (ma) in 2018, down 1.039 ma (-1.15%) from 90.167 ma year 2017, and down 4.876 ma (-5.2%) from 94.004 ma in year 2016 (Table 1, Figure 5).  Final U.S. corn harvested acres are estimated to eventually be 81.770 million acres (ma) in 2018, down 0.993 ma (-1.1%) from 82.703 ma year 2017, and down 4.979 ma (-5.7%) from 86.749 ma in year 2016.  

Q1? What will U.S. Corn Planted Acreage be in 2019?  A key corn market issue in will have to do with the amount of U.S. corn acres planted in Spring 2019.  With trade problems and lower prices for U.S. soybeans, there is some thought that U.S. corn planted area could increase by as much as 4 million acres plus, up to 93.000-94.000 million.  Prospects for South American 1st crop corn acreage to be planted in coming months and associated Southern Hemisphere crop size expectations may factor into U.S. farmers’ 2019 corn versus grain sorghum planting decisions along with 2019 U.S. soybean planting prospects.    

Second, the USDA projected 2018 U.S. corn yields to be a record high 178.4 bu/ac, up 4.4 bu/ac from July.  This projection of 178.4 bu/ac in U.S. corn yields in 2018 is up from 176.6 bu/ac in 2017 (2nd highest), and 174.6 bu/ac (3rd highest) in 2016, and 171.0 bu/ac (4th highest) in 2014 (Table 1, Figure 5).  As a result, 2018 U.S. corn production is forecast to be 14.586 billion bushels (bb) – up from a forecast of 14.230 bb a month earlier (Table 1, Figure 7)

Record 2018 corn yields of 178.4 bu/ac bring about 2018 U.S. corn production to 14.586 bb – still down from both 14.604 bb in 2017, and the record high of 15.148 bb in 2016.  With beginning stocks of 2.027 bb and imports of 50 million bushels (mb), total supplies of U.S. corn in “new crop” MY 2018/19 are forecast to be 16.664 bb, down from 16.937 bb in “old crop” MY 2017/18  (2nd highest), and the record high of 16.942 bb in MY 2016/18 (Table 1, Figure 7)

Q2? What will U.S. Corn Production be in 2019?  IF U.S. corn acres actually DO increase by 4 plus million acres plus to near 93.000 ma with harvested acres near 85.860 ma (92% harvested-to-planted acres), and IF the U.S. avoids any significant shortfall in corn yields in 2019 – with yields in the range of 173-176 bu/ac, THEN 2019 U.S. corn production would be a in the range of 14.802 bb to 15.111 bb.  These amounts of U.S. corn production would be up from 14.586 bb in 2018, but less than the record high of 15.148 bb in year 2016 (Table 1, Figure 7).

Q3? What will U.S. Corn Total Supplies be in “Next Crop” MY 2019/20?  IF as estimated above, 2019 U.S. corn production is in the range of 14.802-15.111 bb, and IF beginning stocks equal 1.684 bb (equal to the USDA August 10th projection of ending stocks for “New Crop” MY 2018/19) with imports of 50 mb, THEN “next crop” MY 2019/20 U.S. corn total supplies would be a in the range of 16.536 bb to 16.845 bb.  These amounts of U.S. corn total supplies would either the third or fourth lowest in four (4) marketing years, compared to 16.664 bb in “new crop” MY 2018/19, 16.937 bb in “old crop” MY 2017/18, and the record high of 16.942 bb in MY 2016/17 (Table 1, Figure 7).

Third, recent historic strength in U.S. total corn usage is projected to continue into “new crop” MY 2018/19.  The USDA projects U.S. corn total use to be a record high 14.980 bb in “new crop” MY 2018/19 – up 225 mb from July.  This amount of U.S. corn use would be up 70 mb from the current record high of 14.910 bb in “old crop” MY 2017/18 (2nd highest), and from 14.649 bb in MY 2016/17 (3rd highest) (Table 1, Figures 8 & 10)

By category, U.S. ethanol production and corn-ethanol usage continues to grow with support from a strong U.S. economy, associated gasoline demand, and the ongoing ethanol fuel usage requirements of the U.S. Renewable Fuels Standard (Table 1, Figures 9a-b-c).  United States’ corn usage for ethanol production is projected at a record high 5.625 bb in “new crop” MY 2018/19, up from 5.600 bb a year ago, and 5.432 bb two years ago.  Non-ethanol Food, Seed and Industrial usage is projected to be record high 1.480 bb – up from 1.460 bb and 1.453 bb the previous two (2) marketing years (Table 1, Figure 8).  

Exports of U.S. corn are projected to be 2.350 bb in “new crop” MY 2018/19 – down from the 11-year high (Table 1, Figures 8 & 11) of 2.400 bb in “old crop” MY 2017/18, and 2.294 bb in MY 2016/17 .  During the eight (8) previous years, U.S. corn exports averaged 1.702 bb – ranging from 730 mb to 1.979 bb.  This “new plateau” in the exports for My 2016/17 through projected “new crop” MY 2018/19 illustrates the recent strength of U.S. corn exports and their contribution to U.S. corn usage.  Improved U.S. corn export prospects are expected partly as a result of 2018 corn production problems for export competitors Argentina and Brazil. 

United States’ corn feed and residual use is projected to be 5.350 bb in “new crop” MY 2018/19 as a result of anticipated high levels of overall U.S. livestock production in the remainder of 2018 and 2019, as well as expectations on only moderate strength in U.S. corn prices (Table 1, Figures 7 & 9).  This feed use amount of 5.350 bb in “new crop” MY 2018/19 would be down from the 11-year high of 5.500 bb in “old crop” MY 2017/18, and down from 5.472 bb in MY 2016/17, but up from an average of 4.902 bb the previous 8 marketing years.

Q4? What will U.S. Corn Use be in “next crop” MY 2019/20?  The amount of U.S. corn total use in “next crop” MY 2019/20 will depend on the health of the various U.S. corn use sectors, such as the ethanol and wet corn milling industries, of livestock feed useage, and exports.  Recent trade tensions and related negotiations between the U.S. and various countries including China, Canada, Mexico, and other countries present a risk to both direct U.S. corn exports and indirect exports of corn through distillers grains and livestock products.  As a result, projections of U.S. corn usage for the September 1, 2019 through August 31, 2020 time-period (i.e., “next crop” MY 2019/20) have greater uncertainty than otherwise would exist in a more stable agricultural trade environment.

Fourth, expectations are that U.S. corn ending stocks in “new crop” MY 2018/19 will decline significantly from a year earlier – down to 1.684 bb, and that percent (%) ending stocks-to-use will drop to 11.24% as a result of moderately tighter total U.S. corn supplies and continued strong total U.S. corn use (Table 1, Figures 11-12).  These figures compare to 2.027 bb ending stocks and 13.59% stocks/use in “old crop” MY 2017/18, and to 2.293 bb ending stocks and 15.65% stocks/use in MY 2016/17. 

Q5? To what level would U.S. Corn Ending Stocks have to fall to have a positive impact on U.S. corn prices?  IF through a combination of lower 2018 production OR strength in U.S. corn usage during the remainder of 2018 through 2019, U.S. corn ending stocks were to decline to 1.500 bb or less from the current 1.684 bb projection in “new crop” MY 2018/19, THEN U.S. corn percent ending stocks-to-use would likely decline below 10% down 8% to 9%, with U.S. corn prices likely responding by increasing to the $3.90-$4.50 /bu (Table 1a, Figure 12).

Fifth, from Fall 2018 through Spring 2019 the path of U.S. corn prices will be primarily influenced by prospects for the final size of the 2018 U.S. corn crop.  As such, the market will be particularly sensitive to crop size information becomes available in the September & November 2018 and January 2019 USDA National Agricultural Statistics Service (NASS) reports on U.S. Crop Production.   With the information in hand through the August 10th USDA reports, the USDA projects that in “new crop” MY 2018/19 U.S. corn prices will range from $3.10-$4.10 per bushel – with a midpoint forecast of $3.60 /bu (Table 1).  If U.S. corn prices were to average $3.60 in “new crop” MY 2018/19, it essentially be equal to $3.61 /bu in MY 2015/16, equaling the highest price in five (5) years since $4.46 /bu in MY 2013/14.  That was the year of recovery following the catastrophic U.S. Corn Belt drought of MY 2012/13 when U.S. corn prices averaged a record high $6.89 /bu.   

The U.S. corn supply-demand and price scenario presented by the USDA in the August 10, 2018 World Agricultural Supply and Demand Estimates (WASDE) report is given a 50% likelihood of occurring by KSU Extension Agricultural Economist Kansas State University (Tables 1 & 1a).

Sixth, to what level would U.S. Corn Ending Stocks have to fall to have a positive impact on U.S. corn prices?  IF through a combination of lower 2018 production OR strength in U.S. corn usage during the remainder of 2018 through 2019, U.S. corn ending stocks were to decline to 1.500 bb or less from the current 1.684 bb projection in “new crop” MY 2018/19, THEN U.S. corn percent ending stocks-to-use would likely decline below 10% down 8% to 9%, with U.S. corn prices likely responding by increasing to the $3.90-$4.50 /bu (Table 1a, Figure 12).  This point is further discussed in Section 3 that follows, where alternative scenarios and outcomes for U.S. corn supply-demand and prices are presented for “new crop” MY 2018/19.

CME Corn Futures & Kansas Cash Corn Prices & Basis Bids

Corn Futures Price Trends

Since the release of the USDA’s August 10th World Agricultural Supply and Demand (WASDE) report, “old crop SEPTEMBER 2018 CME corn futures prices have been mixed – trading both higher and lower.  On August 10th, the day of the report, SEPT 2018 corn closed lower – down $0.11 ½ to $3.57 ½ per bushel.  However, since then SEPT 2018 corn has traded as high as $3.67 ¾ on August 17th and as low as $3.40 ¼ on August 29th before closing at $3.53 ½ /bu on September 6th (Figure 1).   “New crop DECEMBER 2018 CME corn futures prices also closed lower on August 10th – down $0.11 to $3.71 ¾ per bushel.  Then – just as for the SEPT 2018 contract, DEC 2018 corn futures traded as high as $3.82 ½ on August 17th and as low as $3.55 ¼ on August 29th before closing at $3.66 ¼ /bu on September 6th (Figure 1).  

A key point is that as of September 6th prices for both of these contracts had traded approximately $0.13 to $0.15 /bu lower than their lows on January 12th of $3.69 ¾ /bu for SEPT 2018 and $3.79 ¾ for DEC 2018 corn futures following the January 2018 USDA Annual Crop Production Summary, WASDE, and Grain Stocks reports.  During the November 10, 2017 through January 24, 2018 period, SEPT 2018 corn futures traded in the range of $3.69 ¾ to $3.82 ¾ compared to $3.51 ¾ /bu on September 5, 2018.  SEPT 2018 corn futures were generally higher than this range in the months prior and after this period.  During the same 11/10/2017-1/24/2018 period, DEC 2018 corn futures traded in the range of $3.79 ¼ to $3.87 ½ compared to $3.65 ¼ on September 5, 2018.  Current futures price levels for the SEPT 2018 and DEC 2018 corn futures contracts are now markedly below the post-harvest lows of the “old crop” 2017/18 marketing year.     

The “short” or “sell” positions of CME Corn futures traders have increased as the summer 2018 U.S. corn growing season has advanced – indicating the generally “bearish” narrative consensus of the overall corn market.  This increase in the short sales positions of both commercial and speculative (i.e., managed money) traders is indicated in position of traders data released by the Commodity Futures Trading Commission (CFTC) and illustrated in Figures 3abc.   This information is available from the CFTC at the following web address:

https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

Corn Cash Price & Basis Trends in Kansas

In Western Kansas on Wednesday, September 5th cash corn bids at major grain elevators ranged from $3.25 ($0.40 per bushel under DEC 2018 futures) to $3.70 ($0.05 over), and ranged from $3.30 ¼ ($0.35 under) to $3.45 ¼ ($0.20 under) in Central Kansas.  These prices are still higher than when corn bids statewide had fallen to $2.66-$2.96 /bu on December 23, 2016, and above marketing loan rates near $2.05 in Central Kansas and $2.19 per bushel in Western Kansas

Cash corn price bids in East Central and Northeast Kansas at major terminal locations were $3.43 ¼ – $3.48 ¼ /bu on September 5th, with basis bids being $0.22-$0.17 /bu under DEC 2018 corn futures.  These cash corn prices are still up from the range of $3.26-$3.28 per bushel on 12/23/2016 – though not by as much as in western and central Kansas.  Cash corn bids at Kansas ethanol plants on September 5th ranged from $3.48 ¼ /bu ($0.05 under DEC) to $3.78 ¼ ($0.25 over JULY) – continuing to indicate strength in ethanol demand for corn in Kansas and nationwide.

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

Three alternative KSU-Scenarios to the USDA’s forecast for U.S. corn supply-demand and prices are presented in what follows for “new crop” MY 2018/19 (Table 1a).  These projections show how varying 2018 U.S. corn production and export / total use scenarios could affect U.S. corn 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.

A – KSU “Lower 2018 U.S. Corn Production” Scenario for “new crop” MY 2018/19: (25% probability): Assumptions are: 88.128 ma planted, 81.770 ma harvested, 176.0 bu/ac yield (down vs the USDA yield of 178.4 bu/ac), 14.391 bb production (down vs the USDA’s 14.586 bb), 16.664 bb total supplies (down vs the USDA’s 14.468 bb), 14.980 bb total use, 1.488 bb ending stocks (down vs the USDA’s 1.684 bb), 9.93% S/U (down vs the USDA’s 11.24%), & $3.90 /bu U.S. corn average price (up vs the USDA’s $3.60 /bu)

B – KSU “Still Lower 2018 U.S. Corn Production” Scenario for “new crop” MY 2018/19: (5% probability): Assumptions are: 88.128 ma planted, 81.770 ma harvested, 173.0 bu/ac yield (down vs the USDA yield of 178.4 bu/ac), 14.046 bb production (down vs the USDA’s 14.586 bb), 16.073 bb total supplies (down vs the USDA’s 14.468 bb), 14.770 bb total use (down vs the USDA’s 14.980 bb), 1.303 bb ending stocks (down vs the USDA’s 1.684 bb), 8.82% S/U (down vs the USDA’s 11.24%), & $4.50 /bu U.S. corn average price (up vs the USDA’s $3.60 /bu);

C – KSU “Lower 2018 U.S. Corn Production & Higher Exports” Scenario for “new crop” MY 2018/19: (20% probability): Assumptions are: 88.128 ma planted, 81.770 ma harvested, 176.0 bu/ac yield (down vs the USDA yield of 178.4 bu/ac), 14.391 bb production (down vs the USDA’s 14.586 bb), 16.664 bb total supplies (down vs the USDA’s 14.468 bb), 2.450 bb exports (up vs the USDA’s 2.350 bb), 15.080 bb total use (down vs the USDA’s 14.980 bb), 1.388 bb ending stocks (down vs the USDA’s 1.684 bb), 9.20% S/U (down vs the USDA’s 11.24%), & $4.15 /bu U.S. corn average price (up vs the USDA’s $3.60 /bu);

 

World Corn Supply-Demand – Both With & Without China

World Production:  World corn production of 1,061.05 million metric tons (mmt) is projected for “new crop” MY 2018/19, up 2.7% from 1,033.3 mmt in “old crop” MY 2017/18, but down 1.6% from the record high of 1,078.6 mmt in MY 2016/17 (Figures 13).  The “new crop” 2018/19 marketing year begins September 1, 2018 and continues through August 31, 2019.  Production in Argentina of 41.0 mmt in 2019 would be a “rebound” from the short crop of 33.0 mmt projected in 2018, and equal again to 41.0 mmt produced in 2017.  Similarly, production in Brazil of 94.5 mmt in 2019 would also be a “rebound” from the short crop of 83.0 mmt projected in 2018, but down from 98.5 mmt in 2017.  The 2018 corn harvests for Argentina and Brazil occur in the later half of “old crop” MY 2017/18, i.e., February through August 2018.

World Total Supplies: World corn total supplies of 1,254.4 mmt in “new crop” MY 2018/19 are forecast to be down 0.5% from 1,261.1 mmt in “old crop” MY 2017/18, but up 2.65% from the record high of 1,288.6 mmt in MY 2016/17. 

World Exports: World corn exports of a 159.6 mmt are projected for “new crop” MY 2018/19, up 8.2% from 147.5 mmt in “old crop” MY 2017/18, but down 0.2% from the record high of 160.0 mmt in MY 2016/17 (Figure 14).

World Ending Stocks (% Stocks/Use):  Projected World corn ending stocks of 155.5 mmt (14.15% S/U) in “new crop” MY 2018/19, are down from 193.3 mmt (18.1% S/U) in “old crop” MY 2017/18, down from the record high 227.8 mmt (21.5% S/U) in MY 2016/17, and 210.1 mmt (21.2% S/U) in MY 2015/16 (Figure 14 & 15a).  Projected Foreign (Non-U.S.) corn ending stocks of 112.7 mmt (12.9% S/U) in “new crop” MY 2018/19, is down from 141.8 mmt (16.95% S/U) in “old crop” MY 2017/18, and is down from 169.6 mmt (20.0% S/U) in MY 2016/17. 

World-Less-China Ending Stocks (% Stocks/Use): An alternative view of the World corn supply-demand is presented if Chinese corn usage and ending stocks are isolated from the World market (Figures 15b-c).  “World-Less-China” corn ending stocks are projected to be 97.0 mmt (11.4% S/U) in “new crop” MY 2018/19, down from 113.8 mmt (13.8% S/U) in “old crop” MY 2017/18, and down from 127.1 mmt (15.3% S/U) in MY 2016/17.  These figures show that World stocks-to-use of corn less China’s direct influence are projected to be 19% lower (i.e., 11.44% S/U for the “World-Less-China” versus 14.15% S/U for the “World” overall in “new crop” MY 2018/19). 

World versus China Ending Stocks: At the same time, these figures also show that Chinese ending stocks of corn as proportion of the World total are declining – down from 52.7% in MY 2015/16, to 44.2% in MY 2016/17, to 41.15% in “old crop” MY 2017/18, and now are projected to be 37.6% in “new crop” MY 2018/19 (Tables 2-9).  The deliberate actions in recent years taken by the Chinese government to reduce feedgrain stockpiles is impacting the relative amount of World total corn stocks they hold.  These actions may eventually increase Chinese import demand for U.S. feedgrains if and when China has a severe short crop situation and limited stockpiles available to meet domestic demand.

 

Final Thoughts re: U.S. Corn Market Outlook

Given the development of the 2018 U.S. corn production, it seems likely that a seasonal harvest price low in may occur in during the harvest time-period, i.e., 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.

U.S. Ethanol and Biodiesel Market-Profitability Graphics: Through 9/2/2018

In August 2018 ethanol plants in Iowa (and by proxy – in the U.S.) are estimated to have been marginally under breakeven for the first time since March 2018, with small losses of approximately $0.01 /gallon.   Iowa ethanol prices estimated to have averaged $1.33 /gallon in August – down from the “tight” range of $1.40-$1.43 /gallon for March-July.  Distillers grains prices averaged near $129 per ton in August, up from $110 /ton in July, but still down from the range of $147-$175 in March-June.  Ethanol plant profits would have been much lower but for a continuation of lower corn input prices – estimated to have averaged $3.29 /bu – up from $3.21 /bu in July, but down from the range of $3.39-$3.70 /bu during March-June.  Given the sizable increase in U.S. ethanol stocks to record levels late summer levels that has occurred, it is somewhat surprising that U.S. / Iowa ethanol prices and ethanol profitability have remained as positive as they have in the summer of 2018.

By KSU estimates using an Iowa Biodiesel plant profitability model from Iowa State University Extension, U.S. / Iowa Biodiesel profitability has continued to be profitable, continuing an 8 month period (since January 2018) of positive, sizable returns over cost.  With Iowa Biodiesel prices estimated to have risen to $3.25 in August (up from $3.01 in July, and up from the range of $3.09-$3.22 during March-June, and with an estimated breakeven cost of $2.81 in August, estimated profits for the month in, U.S.-Iowa soy biodiesel profits are forecast to be plus $0.44 per gallon.  This would be up from estimated Iowa Ethanol Plant profits ranging from $0.16-$0.28 per gallon during March-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 Monday, September 2, 2018 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 Wheat Market Outlook in Late August 2018 – U.S., World, Top Exporters, and “World-Less-China” Market Scenarios for 2018-2019

This report provides an analysis of U.S. and World wheat supply-demand factors and 2018-2019 marketing year price prospects following the USDA’s August 10 Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports.  It also incorporates alternative U.S. wheat market supply-demand and price projections for the “next crop” 2018/19 marketing year from Kansas State University – weighing the likelihood of greater or lesser amounts of U.S. wheat exports with the associated U.S. wheat price ramifications. This article will be available in full on the KSU AgManager website in coming days (http://www.agmanager.info/).

Following is a summary – with the full analysis-article for Wheat Market Outlook in Late August 2018 to be found at this web location:

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

*****

Wheat Market Outlook in Late August 2018

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

August 30, 2018

A. Wheat Futures & Cash Market Trends Following the August 10th USDA Reports

Since the USDA’s August 10th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, CME SEPTEMBER 2018 Kansas Hard Red Winter (HRW) Wheat futures have traded mostly lower.  These reports were released during when hard red winter wheat harvest was complete in Kansas, Oklahoma and Texas, and nearly complete in Nebraska and Colorado.  Soft red winter wheat harvest was also all but complete in the central and eastern Corn Belt, while spring wheat harvest had not yet started in the northern states.  White wheat harvest in the Pacific Northwest was 44%-78% complete across states involved.  

On the day of the reports (August 10, 2018), SEPT 2018 Kansas HRW wheat futures opened at $5.78 /bu, and traded in the range of $5.59-$5.85 ½ before closing $0.18 ¾ lower to $5.59 ¾.  Since then, SEPT 2018 HRW wheat futures have trended lower, trading as high as $5.68 ¾ on August 17th and as low as $4.97 ¾ on August 29th before closing at $5.12 ¼ /bu on Thursday, August 30th (Figure 1).   

On August 30th – the 14th trading day after the USDA reports – Kansas cash wheat price terminal quotes for ordinary U.S. no. 1 HRW in central Kansas ranged from $4.92 ¼ to $5.19 ¼ per bushel – with basis ranging from $0.20 under to $0.07 over SEPT 2018 futures.  Cash wheat prices in eastern Kansas grain terminals ranged from $4.82 ¼ to $4.97 ¼ with basis ranging from $0.30 under to $0.15 under SEPT 2018 futures.  These prices are up 35%-44% 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 on 8/29/2018 for $5.07 ¼ /bu, with a basis of $0.05 /bu under SEPT 2018 Kansas HRW wheat futures.

In western Kansas on August 30th bids for ordinary U.S. no. 1 HRW wheat at selected grain elevators ranged from $4.72 to $4.96 /bu, with basis being $0.40 under to $0.16 under SEPT 2018 futures.  Recent wheat cash price bids are up approximately 36% 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.  

Key market factors that had positively influenced the hard red winter wheat market over the last few weeks include the following. These are: 1) lower 2018 U.S. hard red winter wheat production; 2) higher protein levels in drought-damaged parts of the central and southern plains states of Texas, Oklahoma and Kansas; and 3) foreign wheat crop concerns in competitive export countries. Major wheat producing countries and/or regions of the World in which there are currently concerns about either the quality or quantity of 2018 wheat production include the European Union, parts of the Black Sea Region, and parts of Australia. However, when the promise of higher U.S. wheat exports did not materialize – at least not yet – prices fell back. Local wheat basis levels that were “wide & weak” in December 2017 have strengthened by $0.46-$0.60 /bu in central Kansas, and by $0.42-$0.45 /bu in western Kansas as of August 30, 2018.

B. 2018 U.S. HRW Wheat Protein & Quality Results

Harvest results for 2018 have shown lower yields but higher protein in Oklahoma and Kansas.  The August 24th Harvest Report of the U.S. Wheat Associates (http://www.uswheat.org/harvest) stated:

U.S. farmers are almost done with a notable hard red winter (HRW) harvest. The run of excellent test weights and protein levels has held up through the entire harvest with less than 10% of the HRW in Montana and the Pacific Northwest remaining. Non-grade data changed very little with analysis from 19 new samples reported this week. Moisture dropped 0.2% from 11.3% to 11.1%, protein (12% moisture basis) remained at 12.5% overall while test weight increased to 60.8 lb/bu (79.9 kg/hl) up from 60.7 lb/bu (79.8 kg/hl) and the crop is sound. Grade factors improved a bit and the crop remained No. 1 U.S. HRW. Averages for mill, dough and bake results remain very good and USW will share that data after weighted averages are determined.

U.S. Wheat Associates indicated that according to 428 samples analyzed through August 24, 2018, that average protein for the 2018 U.S. hard red winter wheat (HRW) crop averaged 12.5%, with average test weight of 60.8 lb/bu, 11.1% moisture, dockage of 0.5%. a falling number rating of 372 seconds, and 1.3% defects.  This compares to the results of 488 samples for the 2017 U.S. HRW Wheat crop, which according to U.S. Wheat Associates test data averaged 10.6% 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, 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 levels – leading to higher cash market prices.

C. World Wheat Supply-Demand – “Large supplies but tightening stocks”

For the “new crop” 2018/19 marketing year (MY) which began on June 1, 2018, the USDA projected the following (Figures 13 thru 17):

World wheat total supplies in “new crop” MY 2018/19 would be a near record 1,002.70 million metric tons (mmt) accompanied by record high total use of 743.74 mmt – down 1.2% and up 0.2%, 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 have been concerns about 2018-2019 wheat crop production amount and quality prospects and resulting export supply potential from parts of the European Union (Germany and France), the Black Sea Region (Russia & Ukraine), and Australia (New South Wales).   

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.  There are concerns from the Black Sea Region about the amount of food versus feed quality wheat available for export on World markets this year.

World wheat exports are forecast to also be a new record high of 183.87 mmt in the “new crop” 2018/19 marketing year – up from a 182.64 mmt in “old crop” MY 2017/18, the previous record high of 183.27 mmt in MY 2016/17, and from 172.8 mmt in MY 2015/16 (Figure 13).  While World wheat exports are forecast to increase by 10.8% 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 12.8% from 1.176 billion bushels in MY 2013/14 to 1.025 bb 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 at least moderately 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 258.96 mmt in “new crop” MY 2018/19 – the 2nd highest in history following the record high of 273.07 mmt in “old crop” MY 2017/18 (Figure 13).  Since MY 2007/08 World wheat ending stocks have been growing an average of 13.5 mmt per marketing year from the low of 177.90 mmt in MY 2012/13 – out-pacing the annual growth in total use of 11.8 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 16a-b).  The record high is 36.8% 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 25.9% stocks/use in ‘short crop’ MY 2012/13, World wheat percent ending stocks-to-use (% S/U) increased to 28.3% in MY 2013/14; 31.35% in MY 2014/15; 34.5% in MY 2015/16, 34.8% in MY 2016/17; and to the record high of 36.8% S/U in “old crop” MY 2017/18; before a projected moderate decline to 34.8% in “new crop” MY 2018/19.

E. “World-Less-China” Wheat Supply-Demand – ““Tightening to an 11-Year Low”

The broader “large crop-over supply-low price” situation in the World wheat market may be continuing to “obscure” or “masking” the effect of large but somewhat isolated Chinese wheat stocks on actually available World wheat supplies and stocks.  

From a World-Less-China perspective, forecast ending stocks-to-use of 19.8% would be the lowest level in 11 years – since 17.5% S/U in MY 2007/08 (Figures 17a-b)“World-Less-China” wheat ending stocks-to-use is forecast to be down sharply from 23.4% 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.

F. “Major Wheat Exporters” % Stocks/Use – “Also Tightening to an 11-Year Low”

Ending stocks among global wheat exporters including Argentina, Australia, Canada, the European Union, Russia, Ukraine, and the United States are projected to decline to 49.9 mmt in “new crop” MY 2018/19.  This amount would be down from 66.25 mmt in “old crop” MY 2017/18, and from the recent high of 68.3 mmt in MY 2016/17.  Excluding the United States with its current large stocks situation, the ending stocks of the remaining six (6) major wheat exporters have declined to at least a 21-year low of 24.4 mmt in “new crop” MY 2018/19.  This amount would be down sharply from the recent high of 36.3 mmt in “old crop” MY 2017/18 and from the 34.8 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 209.1 mmt in “new crop” MY 2018/19.  This amount would be up from 206.8 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 122.8 mmt in “new crop” MY 2018/19 (Figure 17).  This amount would be down 16.0% from 146.25 mmt in “old crop” MY 2017/18 (2nd highest on record), from 146.1 mmt in MY 2016/17, and the record high of 147.2 mmt in MY 2015/16.

Top 7 Exporters Own % S/U:  The 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 13.0% in “new crop” MY 2018/19 – down from 16.8% in “old crop” MY 2017/18, from 17.4% in MY 2016/17 and the 21-year high of 22.2% in MY 2009/10 (Figure 15).  This amount of 13.0% S/U for the top 7 World wheat exporters is the second lowest in the last 21-years compared to 12.2% in the ‘short crop” 2007/08 marketing year.  

Top 7 Exporters Own Stocks as a % of World Use:  Relative to total World wheat stocks, the ending stocks of the top 7 World wheat exporters is projected to decline to 19.3% top 7 exporter end stocks / World use in “new crop” MY 2018/19, down from 24.3% in “old crop” MY 2017/18 (2nd lowest), and the lowest proportion since at least MY 1998/99 (i.e., the last 21-years) (Figure 14).

CommentaryKSU: These results show that while aggregate World wheat ending stocks have declined moderately, “under the surface” of those numbers, wheat stocks are projected to be “extremely tight” among World exporters – much tighter than for the rest of the World wheat market.   Tightening wheat stocks and % S/U among the top 7 wheat 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.  However, a large increase in U.S. wheat export sales and shipments may be “back loaded” in “new crop” MY 2018/19 – after supplies from other major exporters with transportation cost and/or currency exchange rate advantages over the United States have “run short” of exportable supplies.

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

The USDA released their wheat production, supply-demand and price projections for the U.S. for “new crop” MY 2018/19 in the August 10th 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 5-6)Harvested acres are forecast at 39.556 ma in 2018 (82.72% harvested-to-planted), up from the record low of 37.586 ma (81.69% harvested-to-planted) in 2017, but down from 43.850 ma in 2016 (87.49% harvested-to-planted) (Table 1, Figure 6).   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 7)

Wheat production in the U.S. in 2018 is forecast to be 1.877 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 3.112 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 8)

U.S. Wheat total use of 2.177 bb is forecast for “new crop” MY 2018/19 (up 80 mb from June, and up 45 mb from July), up from 1.978 bb in “old crop” MY 2017/18, and from 2.222 bb in MY 2016/17 (Table 1, Figure 9).  By usage category, in “new crop” MY 2018/19 U.S. wheat exports are projected to be 1.025 bb (up 75 mb from June, and 50 mb from July), 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 10 & 11)

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” in 1972.  This is more evidence of the only marginally competitive position in recent years that U.S. wheat exports find themselves in among foreign export competitors.  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 970 million bushels (mb) in “new crop” MY 2018/19, up marginally from 967 mb in “old crop” MY 2017/18, and trending higher from 949 mb in MY 2016/17 (Table 1, Figure 9).   Feed & Residual Use of U.S. wheat is projected to be 120 mb in “new crop” MY 2018/19 (down 10 mb from July), up from 48 mb in “old crop” MY 2017/18 (down 22 mb from June, and down 2 mb from July), and from 161 mb in MY 2016/17 (Table 1, Figure 9).  

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 compared to a year earlier – even with the 10 mb decline in the current marketing year forecast of feed & residual use. 

The USDA projected “new crop” MY 2018/19 ending stocks to be 935 mb (42.95% S/U).  Ending stocks of 935 mb are down 50 mb from July, while 42.95% S/U are down from 46.2% S/U in the July WASDE report.  Ending stocks of 935 mb (42.95% S/U) for “new crop” MY 2018/19 are down substantially from 1.100 bb in “old crop” MY 2017/18 (55.6% S/U), and from 1.181 bb in MY 2016/17 (53.15% stocks/use) (Table 1, Figures 11 & 12).   

CommentaryKSU: This projection of 935 mb in U.S. wheat ending stocks in “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 could be an “anticipated” 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 $4.60-$5.60 /bu – averaging $5.10 /bu in “new crop” MY 2018/19 (up $0.10 /bu from July).  This would be up from $4.73 /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 (Table 1, Figures 11 & 12).  

CommentaryKSU: It is estimated by KSU that these USDA projections for “new crop” MY 2018/19 have a 60% probability of occurring.

H. Three “Alt” KSU U.S. Wheat S/D Forecast Scenarios 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).    

KSU Scenario 1) “MODERATELY Higher Exports” Scenario (15% probability):   This scenario assumes that there will be 1.877 bb production, 3.112 bb total supplies (both same as USDA), 1.075 bb exports (up 50 mb from USDA), 120 mb feed & residual use, 2.227 bb total use (up 50 mb from USDA), 885 mb ending stocks (down 50 mb from USDA), 39.7% Stocks/Use (down from 42.95% S/U by USDA), & $5.35 /bu U.S. wheat average price (up $0.25 /bu from USDA).

KSU Scenario 2) “MUCH Higher Exports” Scenario (10% probability):   This scenario assumes that there will be 1.877 bb production, 3.112 bb total supplies (both same as USDA), 1.200 bb exports (up 125 mb from USDA), 120 mb feed & residual use, 2.352 bb total use (up 125 mb from USDA), 760 mb ending stocks (down 200 mb from USDA), 32.3% Stocks/Use (down from 42.95% S/U by USDA), & $5.90 /bu U.S. wheat average price (up $0.80 /bu from USDA).

KSU Scenario 3) “Lower Exports” Scenario (15% probability):   This scenario assumes that there will be 1.877 bb production, 3.112 bb total supplies (both same as USDA), 925 mb exports (down 100 mb from USDA), 120 mb feed & residual use, 2.077 bb total use (down 100 mb from USDA), 1.035 bb ending stocks (up 100 mb from USDA), 49.8% Stocks/Use (up from 42.95% S/U by USDA), & $4.80 /bu U.S. wheat average price (down $0.30 /bu from USDA).

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CFTC Position of Traders Info for CME KS HRW Wheat Futures through 8/21/2018

Figures 3a-c present the latest available Position of Traders data through August 21, 2018 on CME Kansas Hard Red Winter Wheat futures from the Commodity Futures Trading Commission (CFTC).   

Figure 3a shows Net Position of Traders for CME KS HRW Wheat with Futures Prices from June 2006 through August 21, 2018.  This chart shows the positions of Commercial Hedgers, Managed Money (Specs), and Swaps (Indexes) over time, along with changes in lead KS HRW Wheat futures. 

Commercial hedgers are designated as those traders who are involved with cash wheat positions and are primarily managing the risk from futures movements in their positions (i.e., they are “hedging” futures).  This chart shows the net position of commercial hedgers, showing the balance of both long and short futures positions.  In Figure 3a, commercial hedgers have been net short or in predominantly “sell” positions in CME KS HRW Wheat futures throughout most of 2018.  

Managed Money (Specs) generally are involve in speculative trading positions in an effort to profit from their trading activities.   Speculative trades add volume or liquidity to the market – allowing commercial hedgers to manage their cash market price risks.  Figure 3a shows that managed money (specs) traders have been net long or in predominantly “buy” positions in CME KS HRW Wheat futures throughout most of 2018.    

Swaps (Index) traders include commodity index traders who involve agricultural commodity futures such as KS HRW Wheat in their investment portfolios typically as an “inflation hedge.”  Figure 3a shows that swaps (index) traders have been consistently net long or in predominantly “buy” positions in CME KS HRW Wheat futures throughout most of 2018 and actually since June 2006 – which is consistent with their portfolio-risk management oriented strategies.   

Figure 3b provides Commercial Traders (Hedgers) Long & Short Positions for CME KS HRW Wheat with Futures Prices from June 2006 through August 21, 2018.  This chart shows that the “short” or “sell” positions of commercial hedgers have been consistently larger than “long” or “buy” positions since July 2017.

Figure 3c illustrates Managed Money Traders (Specs) Long & Short Positions for CME KS HRW Wheat with Futures Prices for the June 2006 through August 21, 2018.  This chart shows a large amount of volatility and change in the positions of “short” or “sell” positions of managed money traders (specs), but relative consistency in their aggregate amount of “long” or “buy” positions over the same period of time.  It is likely that in the next CFTC report on August 28th that the short or sell positions of managed market or spec traders will have expanded sharply – consistent with the sharp decline in CME Kansas HRW wheat futures since August 21st.

 

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