KSU Corn Market Outlook in Mid-February 2019: U.S. Corn Supply-Demand and Prices for 2019

An analysis of Corn Market Situation & Outlook in mid-February 2019 for the remainder of the “current”  2018/19 and “next crop” 2019/20 marketing years is provided in the following article from Kansas State University Department of Agricultural Economics.  This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) and other USDA reports on February 8, 2019.

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

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

Following is a summary of the article on “Corn Market Outlook in Mid-February 2019″

**************

Corn Market Outlook in Mid-February 2019

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

February 13, 2019

1) Introduction – An Overview of the U.S. Corn Market & USDA Reports

1A – Corn Market Overview

While the U.S. and World corn market has adequate supplies at this time, ending stocks have been trending lower since the 2016/17 marketing year (MY).  Market projections from the USDA are for this “tightening up” to continue through “next crop” MY 2019/20 which begins on September 1, 2019 and will last through August 31, 2020.   By its’ behavior, it is evident that the U.S. corn market continues to have a group “narrative view” that supplies of U.S. corn will remain plentiful through at least mid-summer 2019. 

Unless a short crop develops in South America in coming months, or there are serious corn planting delays in April-May 2019 in the United States – this predominant market narrative that there are“more than adequate U.S. corn supplies” will continue to limit any major upward movement in U.S. corn prices throughout Spring, Summer and Fall 2019.

Corn market price expectations in year 2019 are heavily influenced by seasonal grain futures price patterns over the most recent years and decades.  Over the last 20 years the frequency of economically important price increases in DEC Corn futures from February to November is 25%.  This occurred in years 2002 (up $0.20 /bu), 2006 (up $0.44 /bu), 2010 (up $1.47 /bu), 2011 (up $0.31 /bu), and 2012 (up $1.82 /bu).   No such increase in DEC Corn futures from the preceding February to the following November has occurred in the last six (6) years – since the major U.S. drought and resulting short crop of year 2012.  Since year 2012, February averages of DEC Corn futures have been greater than average prices for the following month of November by $1.26 /bu in 2013, $1.13 in 2014, $0.32 in 2015, $0.37 in 2016, $0.47 in 2017, and $0.28 in 2018.           

Consequently (and conversely), 75% of the time over the last two decades the monthly average of DEC Corn futures during the previous February have been greater than during the following November just ahead of the DEC Corn futures closing month.  Taking all these things together, the “consensus narrative opinion” of the corn market at this time seems to be that there will NOT be significant corn production problems in either South America or the United States this year.  As a result, DEC 2019 corn futures prices are most likely to end up equal to or lower than current mid-February levels near $4.00 per bushel once we get to Fall 2019.

1B – U.S. Corn Market Factors “Taken Together”

Considering all these factors together, the outlook for U.S. corn markets in 2019 will continue to be conservative due to large domestic corn supplies, but with upward potential based on prospects for moderate strength in domestic use and exports due to tighter foreign corn supply-demand balances”.  

1C – The USDA’s Reports on February 8, 2019

On February 8, 2019 the United States Department of Agriculture (USDA) released a set of reports providing market information that had been “back-logged” since December 11, 2018 – the last USDA agricultural market information released before the recent U.S. Federal government shutdown. 

The World Agricultural Outlook Board (WAOB) released its World Agricultural Supply and Demand (WASDE) estimates (https://www.usda.gov/oce/commodity/wasde/) after cancelling the scheduled January 11th report due to the U.S. government shutdown.

Similarly, the National Agricultural Statistical Service (NASS) released the latest Grain Stocks report for December 1, 2018 U.S. grain stocks levels, the 2019 Winter Wheat & Canola Seedings report, the February 2019 Crop Production report, and the 2018 Annual Crop Production Summary report (https://www.nass.usda.gov/Publications/Calendar/reports_by_date.php

The USDA Foreign Agricultural Service (FAS) also released it’s February 2019 reports on World Agricultural Production, and separate reports on World Markets and Trade for Grain and Oilseeds (https://www.fas.usda.gov/data-analysis/scheduled-reports-2019).  

 

2) “Limiting” 2019 Corn Market Factors as of February 13, 2019

There are several corn market supply-demand factors that are major determinants in corn market price direction, and that at this time provide resistance to corn prices moving higher.  These include historically large 2018 U.S. corn production and total U.S. corn supplies in “current crop” MY 2018/19, and “moderating” but demand for U.S. corn ethanol use.

2A – U.S. Corn Production in Year 2018 & Expectations for Year 2019:

  • The most important “negative” or at least “limiting” corn market factor continues to be the projected size of the 2018 U.S. corn crop at 420 billion bushels (bb) – forecast to be the third highest on record behind 15.148 bb in 2016, and 14.601 bb in 2017 (Table 1 & Figures 5-7).
  • In the February 8, 2019 USDA Annual 2018 Crop Production Summary report the USDA lowered its’ projection of 2018 U.S. corn production by 206 million bushels (mb) down to 14.420 bb due to late harvest and other production limiting influences in parts of the United States. If this decline in 2019 U.S. corn crop size occurred by itself with no other supply-demand adjustments, it would be at least a moderately positive factor for U.S. corn market prices. 
  • However, in the February 8th WASDE report the USDA also made offsetting reductions in projected U.S. corn ethanol use, non-ethanol food-seed-industrial (FSI) use, and feed and residual use in its’ “current crop” MY 2018/19 supply-demand balance sheet. These projected reductions in U.S. corn usage in “current crop” MY 2018/19 offset nearly ¾ (i.e., 146 mb) of the reduction in year 2018 projected U.S. corn production and supplies.  As a result of hese offsetting changes, the  netted a 46 mb reduction in projected ending stocks in “current crop” MY 2018/19. 
  • The USDA’s updated preliminary forecast from its Long Term Agricultural Projections released in fall 2018 are for 2019 U.S. corn production to be 14.930 bb. This amount of U.S. corn production in 2019 would very likely cause a continuation of the “large supplies – moderate-to-large stocks” situation in the U.S. corn market that has existed since the drought that occurred in the 2012/13 marketing year.

2B – Total U.S. Corn Supplies in “Current” MY 2018/19 & “Next Crop” MY 2019/20

  • In addition to a 14.420 bb U.S. corn crop in 2019, the USDA projects total supplies of U.S. corn in the “current crop” 2018/19 marketing year (MY) to be 600 bb. Although this figure was reduced 211 mb in the February 8th WASDE report, it is still the third highest on record – continuing to provide downward pressure on U.S. corn prices.  Total supplies of U.S. corn in MY 2016/17 were a record high of 16.942 bb, and were only marginally lower at 16.939 bb in “old crop” MY 2017/18 which ended on August 31, 2018 (Table 1 & Figure 7).
  • The USDA’s preliminary forecast of S. total corn supplies for “next crop” MY 2019/20 are approximately 16.715 bb after accounting for recent changes in implied USDA beginning stocks projections. “Next crop” MY 2019/20 will begin on September 1, 2019.  These figures are available from the USDA’s updated Long Term Agricultural Projections released in fall 2018.

2C – U.S. Ethanol Use of Corn

  • According to Energy Information Administration (EIA) data, for the period of September 1, 2018 through February 7, 2019, S. ethanol production has averaged 1.034 million barrels per day (range of 0.967 to 1.069 mb/d). Assuming 42 gallons of ethanol per barrel, and 2.8 gallons of ethanol per bushel of either corn or grain sorghum used in the production process, this rate of U.S. ethanol production would result in 5.529 bb of U.S. feedgrain use for ethanol in “current” MY 2018/19. 
  • It is assumed here that approximately 80-100 mb of S. grain sorghum will be used for ethanol production in “current crop” MY 2018/19 (i.e., versus 110 mb in total food, seed & industrial use of U.S. grain sorghum in the February 8, 2019 WASDE report). As a result, at the current pace of usage there would be 5.430-5.450 bb of U.S. corn used for ethanol production over the same period. 
  • Projected S. ethanol use of 5.430-5.450 bb of corn would be down 125-145 mb from the USDA’s projection of a near record 5.575 bb use for ethanol for “current” MY 2018/19 (Table 1, Figures 9abc-10). The USDA lowered its February 8th WASDE projection of U.S. corn use in ethanol production in “current” MY 2018/19 by 25 mb to 5.575 bb due to operating losses in U.S. ethanol plants during the September 2018 through January 2019 period, and expectations by the USDA of lower ethanol production as a result.
  • The Environmental Protection Agency’s (EPA’s) recent action to approve the use of E-15 gasoline blends on a season-round basis in U.S. motor fuels may lead to increased feedgrain use for ethanol during the remainder of “current” MY 2018/19 and in coming years.

3) “Supporting” 2019 Corn Market Factors as of February 13, 2019

There are also neutral-to-positive factors providing positive support for U.S. corn supply-demand and price prospects – including “moderating” but still historically strong demand for U.S. corn ethanol use and exports, and the risk of lower 2019 South American corn acreage and production prospects.

3A – U.S. Corn Exports

  • United States’ corn exports have been strong to date in the “current crop” 2018/19 marketing year – with shipments at a seven (7) year high through early February 2019. The USDA forecast that U.S. corn imports would reach 450 bb in exports for “current” MY 2018/19.  For the weeks ending January 17th, 24th, 31st and February 7th, the U.S. had corn export shipments of 44.4 mb, 35.2 mb, 35.5 mb, and 29.3 mb, respectively.  These were behind the pace of 53.0 mb needed to meet the USDA forecast of 2.450 bb.  At the most recent 4-week average pace of 36.1 mb/week, U.S. corn exports would reach 1.961 bb by the end of the marketing year – down 489.4 mb or 20% from the February 8, 2019 USDA WASDE projection.
  • Accumulated U.S. corn export shipments of 732.3 mb as of December 27th (just prior to the recent U.S. government shutdown) were 29.9% of the 2.450 bb USDA projection for “current” MY 2018/19 with what at that time was 32.7% (i.e., 17 of 52 weeks) of the marketing year completed. Total shipments and forward sales as of 12/27/2018 were approximately 1.253 bb – equaling 51.1% of the USDA’s 2.450 bb projection with 32.7% (i.e., 17 of 52 weeks) of “current” MY 2018/19 completed (Table 1 & Figures 10-11)

3B – Uncertain 2019 Prospects for South American Corn & Soybean Production

  • 2019 Brazil Soybean Production: Dry conditions in key agricultural areas of Brazil have caused declines of 5% to 8% in projected 2019 soybean production in that country – from early season projections of 120-122 million metric tons (mmt) down to 112-115 mmt. With parts of the country farther north and closer to the Equator, the Brazilian soybean harvest typically begins in early January and lasts through the end of May.  So, the majority of the Brazil harvest remains, with more accurate information yet to come.  The 2019 soybean crops in Brazil and Argentina will be counted in the “current” MY 2018/19 marketing year which extends to August 31, 2019. 
  • 2019 Argentina Soybean Production: Growing conditions in Argentina are generally estimated to be “wet”, but with no major concerns about crop damage to date. Being farther south, the Argentina soybean harvest typically begins in early March and lasts through the end of May.  Just as for Brazil, the majority of the Argentina harvest remains, with more accurate information yet to come on actual 2019 production.
  • 2019 Brazil Corn Production: The same dry conditions that have affected Brazil soybean production MAY eventually impact 2019 Brazil corn production. However, the 2nd crop planting of corn in Brazil began which began in mid-January will continue through mid-March, with harvest beginning in early May and lasting through the end of August.  Therefore, it is still “too early” to make accurate forecasts of how 2019 crop conditions may affect the 2nd crop corn harvest in Brazil.  The first crop of corn in Brazil is typically planted from mid-August through the end of December, with harvest occurring from January through May.  Common practice has been to allocate the 1st crop of corn in Brazil for domestic uses, with the second crop being used more in the export market. 
    • To date, the USDA projects there to be a recovery in Brazil 2019 corn production up to 94.0 mmt – the 2nd highest on record. This would be up 15% from a drought affected low of 82.0 mmt in 2018, but still down 4.6% from the record high of 98.5 mmt in 2017.  But the final 2019 corn production amount for Brazil is “yet to be determined”
    • Just as for soybeans, 2019 Brazil corn production will be counted in “current” MY 2018/19 marketing year ending on August 31, 2019. However, a large portion of the Brazilian corn exports from this crop will occur and count within the “next crop” 2019/20 marketing year beginning on September 1, 2019 and extending through the following August.
  • 2019 Argentina Corn Production: The same wet conditions that have affected 2019 Argentina soybean production MAY eventually impact that countries’ corn production.  Being further south, Argentina corn plantings occur in during September-December for its one annual crop, while the associated harvest typically follows in early March and lasts through the end of May.  
    • As in Brazil, it is still too early” to make accurate forecasts of how 2019 crop conditions may affect the 2nd crop corn harvest in Argentina. To date, projections from the USDA are that Argentina will have record 2019 corn production of 46.0 mmt – but that outcome is “yet to be determined”.    

 

4) CME Corn Futures & Kansas Cash Corn Prices & Basis Bids

4A – Corn Futures Price Trends

Since the release of the USDA’s February 8th World Agricultural Supply and Demand (WASDE) report, “lead contract MARCH 2019 CME corn futures prices initially moved lower, but have since partially recovered.   On February 8th, the day of the report, MAR 2019 corn opened at $3.76 ½ – trading as low as $3.74 and as high as $3.81 ¾ during the day before closing down $0.02 ¼ to $3.74 ¼ /bu.  Since that day, MAR 2019 corn has trended first lower down to $3.71 ¾ and then back up to $3.78 ¾ before closing at $3.78 ¼ on Wednesday, February 13th (Figure 1).   Considering long term trends in monthly, continuous Chicago Mercantile Exchange (CME) corn futures, recent lows of $3.18 ¼ (on 10/1/2014), $3.01 (on 8/31/2016), $3.38 (on 9/1/2017), and $3.36 ¼ per bushel (on 9/13/2018) have occurred.  These are comparable to the close of $3.78 ¼ in MARCH 2019 corn futures on February 13, 2019 (Figure 1).  

4B – Corn Futures Positions of Traders (CFTC Data)

Position of traders data released by the Commodity Futures Trading Commission (CFTC) is available from the CFTC at the following web address:  https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm .   The CFTC position of traders data on January 15th shows a “volatile” but at least temporarily “balanced” picture of corn futures trader sentiments, especially in regards to the offsetting quantities of “long” and “short” futures positions held by Management Money (Speculator or “Spec”) traders.

  • Net Positions of Commercial, Spec, & Index Traders: The net “long” or “buy” position of CME Corn futures speculative or “management money” traders was 78 million bushels (mb) on January 15, 2019 – following net “long” positions of 246 mb being held just one week earlier on January 8th (Figure 3a). The net short position of commercial hedgers on January 15th was 1.416 bb, down moderately from net short positions in the range of 1.497-1.855 bb during the December 4th – January 8th  The net position of index traders declined to 806 mb on January 15th, after having consistently been long during the 12/4/2018-1/8/2019 period, in the 909 mb-91 mb range. 
  • Commercial Hedgers Long & Short Positions: Both the “short / sell” and “long / buy” positions of CME Corn futures commercial hedgers have remained relatively consistent since early July 2018 (Figure 3b). Total commercial hedger “short / sell” positions have ranged from 3.727 bb to 4.024 bb during the 12/4/2018-1/8/2019 period, before declining to 3.638 bb in “short / sell” positions on 1/15/2019.  Typical risk management-related grain futures transactions and positions of commercial grain elevators and/or farmer hedgers would fall into this “short position” category.   Commercial hedger “long / buy” positions have ranged from 2.152 bb to 2.238 bb during the same period, with 2.222 bb in “long / buy” positions on 1/15/2019.  Typical risk management grain futures transactions and positions of commercial grain processors, ethanol plants, and livestock feeders would fall in this “long position” category.  
  • Managed Money (Specs) Long & Short Positions: The aggregate “short / sell” position of CME Corn futures management money (speculative) traders been increasing moderately since early December 2018 (Figure 3c).  Total speculator’s “short / sell” positions have ranged from 0.824 bb to 1.109 bb during the 12/4/2018 to 1/15/2019 period, with the largest amount of 1.109 bb in “short / sell” positions at the end of the period on 1/15/2019.   Speculator’s “long / buy” positions have also declined during this period, ranging from 1.187 bb to 1.446 bb during the same period, with the smallest amount of 1.187 bb in “long / buy” positions on 1/15/2019 at the end of the period.  

4C – Corn Cash Price & Basis Trends in Kansas

In Western Kansas on Wednesday, February 13th cash corn bids at major grain elevators ranged from $3.44 ($0.35 per bushel under MAR 2019 futures) to $3.81 ($0.02 basis over futures), and ranged from $3.35 ¾  ($0.43 under CME MAR 2019 corn) to $3.58 ¾ ($0.20 under) in Central Kansas.  These prices are much higher than when corn bids statewide had fallen to $2.66-$2.96 /bu on December 23, 2016. 

Cash corn price bids in East Central and Northeast Kansas at major terminal locations were $3.798 ¾ /bu on February 13th, with basis bids being $0.00 level with MAR 2019 corn futures.  These eastern Kansas cash corn prices are up from the range of $3.26-$3.28 per bushel on 12/23/2016.  Cash corn bids at Kansas ethanol plants on Wednesday, December 13th ranged from $3.77 ¼ /bu ($0.01 under MAR) to $3.98 ¼ ($0.20 over MAR 2019) – continuing to indicate strength in ethanol demand for corn in Kansas and nationwide. 

 

5) USDA & KSU S-D & Price Forecasts for “Current” MY 2018/19

The USDA’s projection and three alternative KSU-Scenarios to the USDA’s forecast for U.S. corn supply-demand and prices are presented in what follows for “current” MY 2018/19 (Tables 1-1a & Figures 12-12a).  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 yet in “current” MY 2018/19.  Probability-weights are added to reflect judgements about how likely each scenario is to occur in “current” MY 2018/19, i.e., during the September 1, 2018 through August 31, 2019 time period.

Scenario AMY 2018/19USDA WASDE Corn S-D Scenario for “Current” MY 2018/19: (75% prob.): Assumptions: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.465 bb food, seed & industrial use; 2.450 bb exports; 5.375 bb feed & residual use; 14.865 bb total use; 1.735 bb ending stocks; 11.67% Stocks/Use; & $3.60 /bu U.S. corn average price

Scenario BKSU “Lower U.S. Corn Exports” Scenario for “Current” MY 2018/19 (10% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.451 bb food, seed & industrial use; 2.350 bb exports (down 100 mb vs USDA’s 2.450 bb); 5.375 bb feed & residual use; 14.765 bb total use (down 100 mb vs USDA’s 15.030 bb); 1.835 bb ending stocks (up 100 mb vs USDA’s 1.735 bb); 12.43% Stocks/Use (up vs USDA’s 11.67% S/U); & $3.40 /bu U.S. corn average price (down vs USDA’s $3.60 per bushel);   

Scenario CKSU “Higher U.S. Corn Exports” Scenario for “Current” MY 2018/19 (10% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.465 bb food & industrial use; 2.550 bb exports (up 100 mb vs USDA’s 2.450 bb); 5.375 bb feed & residual use; 14.965 bb total use (up 100 mb vs USDA’s 14.865 bb); 1.635 bb ending stocks (down 100 mb vs USDA’s 1.735 bb); 10.93% Stocks/Use (down vs USDA’s 11.67% S/U); & $3.75 /bu U.S. corn average price (up vs USDA’s $3.60 per bushel).   

Scenario DKSU “Higher Ethanol Use of U.S. Corn” Scenario for “Current” MY 2018/19 (5% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.675 bb ethanol use (up 100 mb vs USDA’s 5.575 bb); 1.450 bb food & industrial use; 2.450 bb exports; 5.500 bb feed & residual use; 14.965 bb total use (up 100 mb vs USDA’s 5.575 bb); 1.635 bb ending stocks (down 100 mb vs USDA’s 1.735 bb); 10.93% Stocks/Use (down vs USDA’s 11.67% S/U); & $3.75 /bu U.S. corn average price (up vs USDA’s $3.60 per bushel).   

 

6) USDA Preliminary Market Forecast for “Next Crop” MY 2019/20

An adjusted version of USDA’s projection for U.S. corn supply-demand and prices for “next crop” MY 2019/20 (Table 1a).  These projections show the USDA’s projections for U.S. corn in the “next” marketing year, based on the U.S. corn harvest in year 2019, with the marketing year beginning on September 1, 2019 and lasting through August 31, 2020.  Liberty has been taken to make minor adjustments to the USDA’s projections following from the results of the December 11, 2018 USDA WASDE report.

Scenario AUSDA December 11th WASDE Corn S-D Scenario for “Next Crop” MY 2019/19: (75% prob.): Assumptions are: 92.000 ma planted (up 2.860 ma vs MY 2018/19), 84.600 ma harvested (up 2.833 ma vs MY 2018/19), 176.5 bu/ac yield (up 0.1 bu/ac vs MY 2018/19), 14.930 bb production (up 510 mb vs MY 2018/19), 16.715 bb total supplies (up 115 mb vs MY 2018/19), 5.700 bb ethanol use (up 125 mb vs MY 2018/19), 1.459 bb food & industrial use (up 25 mb vs MY 2018/19), 2.425 bb exports (down 25 mb vs MY 2018/19), 5.575 bb feed & residual use (up 200 mb vs MY 2018/19), 15.190 bb total use (up 325 mb vs MY 2018/19), 1.529 bb ending stocks (down 206 mb vs MY 2018/19), 10.07% Stocks/Use (down vs 11.67% S/U in MY 2018/19), & $3.90USDA /bu U.S. corn average price (up $0.30 /bu vs MY 2018/19); 

 

7) World Corn Supply-Demand – Both With & Without China

World Production:  World corn production of 1,099.61 million metric tons (mmt) is projected for “current” MY 2018/19, up 2.2% from 1,075.61 mmt in “old crop” MY 2017/18, but down 2.0% from the record high of 1,122.41 mmt in MY 2016/17 (Figures 14).  The “current” 2018/19 marketing year began September 1, 2018 and continues through August 31, 2019. 

Forecast corn production in Argentina of 46.00 mmt in 2019 would be a “rebound” from the short crop of 32.00 mmt projected in 2018, and above 41.00 mmt produced in 2017.  Similarly, production in Brazil of 94.50 mmt in 2019 would also be a “rebound” from the short crop of 82.00 mmt projected in 2018, but down from 98.50 mmt in 2017.  A large portion of the corn harvests for Argentina and Brazil occur in the later half of September 1st – August 31st marketing years, i.e., February through August.  For “current” MY 2018/19, the Argentina and Brazil corn harvests will be during February-August, 2019.

World Total Supplies:  World corn total supplies of a record high 1,440.42 mmt in “current” MY 2018/19 are forecast to be up 1.0% from 1,425.85 mmt in “old crop” MY 2017/18, and up 0.5% from the previous record high of 1,433.79 mmt in MY 2016/17.   The estimates of World corn total supplies were adjusted approximately 14% higher in the November 8th WASDE report to changes in Chinese domestic corn supply-demand balance sheets – with these adjustments carrying through to the December 11th and February 8, 2019 reports.

World Exports: World corn exports of a record high 167.36 mmt are projected for “current” MY 2018/19, up 14.4% from 146.29 mmt in “old crop” MY 2017/18, and up 4.6% from the previous record high of 160.05 mmt in MY 2016/17 (Figure 14).

World Ending Stocks (% Stocks/Use):  Projected World corn ending stocks of 309.78 mmt (27.40% S/U) in “current” MY 2018/19 are down from 340.81 mmt (31.41% S/U) in “old crop” MY 2017/18, down from the record high 350.24 mmt (32.32% S/U) in MY 2016/17, and 311.38 mmt (31.12% S/U) in MY 2015/16 (Figures 14 & 15a).    Projected Foreign (Non-U.S.) corn ending stocks of 265.70 mmt (28.87% S/U) in “current” MY 2018/19, are down from 286.44 mmt (33.48% S/U) in “old crop” MY 2017/18, and is down from 291.99 mmt (33.50% S/U) in MY 2016/17. 

Just as for total supplies, changes in Chinese corn ending stocks increased World corn ending stocks estimates by 93.0% in the November 2018 USDA WASDE report, and increased World ending stocks-to-use estimates from 14.39% in October 2018 up to 27.16% and 27.30% in the November 8th and December 11th WASDE reports, respectively, and to 27.40% in the February 8, 2019 WASDE.

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 101.97 mmt (11.95% S/U) in “current” MY 2018/19, down from 118.24 mmt (14.39% S/U) in “old crop” MY 2017/18, and down from 127.23 mmt (15.82% 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 56.4% lower or “tighter” (i.e., 11.95% S/U for the “World-Less-China” versus 27.40% S/U for the “World” overall in “current” MY 2018/19). 

World versus China Corn Ending Stocks: After the changes in World corn supply-demand reported in the November 8th WASDE report, which were carried forward into the December 11th and February 8, 2019 reports, the USDA showed that estimates of Chinese ending stocks of corn as proportion of the World total have increased significantly from the October 2018 WASDE report.   The updated figures show the percent of World corn stocks held by China to be 61.91% in MY 2014/15, 68.09% in MY 2015/16, 63.67% in MY 2016/17, 65.29% in “old crop” MY 2017/18, and now are projected to be 67.08% in “current” MY 2018/19. 

While China’s percent of World corn stocks is estimated to have increased with these new USDA figures,  “World-Less-China” percent corn ending stocks-to-use are estimated to be 11.95% in “current” MY 2018/19, the lowest percentage in 6 years (Figures 15a-b)“World-Less-China” corn stocks-to-use was 9.5%-9.9% during the years of MY 2011/12 – MY 2012/13, but increased to the range of 12.2% to 13.8% during the MY 2013/14 through MY 2015/16 period.  Then after a high of 15.82% in MY 2016/17, “World-Less-China” corn ending stocks-to-use declined to 14.39% in “old crop” MY 2017/18, and to a projected level of 11.95% in “current” MY 2018/19.   This decline supports the idea that corn stocks outside of China are “tightening up” – and that the overall World corn market has an increasing possibility of seeing higher prices in the future if these trends continue.

 

7) Final Thoughts re: Corn Market Focus in “Current” MY 2018/19

From mid-February 2019 through May 2019, the “narrative focus” of the corn market will likely be on corn the later part of the planting season in southern areas and early season development in Argentina and Brazil.   It is possible if not likely that news about the pace of usage of U.S. domestic corn and other feedgrains and the possibility of excessive moisture delaying U.S. corn planting progress will also have the attention of the U.S. corn markets during February-May 2019. 

The impact of this news will be exacerbated IF U.S. corn exports are spurred higher 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 progress.  The corn market would 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 “current” MY 2018/19, U.S. producers will be making marketing decisions under conditions of “uncertainty” as what may be profitable seasonal pricing opportunities present themselves.  For those with a “risk averse” perspective on corn price risk management, there will likely 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 at harvest during fall 2019.  This early action” approach contrasts to those corn producers who are less worried (i.e., “less risk averse”) about being in what is essentially a “speculative post-harvest storage” position in the corn market – i.e., holding unpriced corn in storage longer while waiting for the possibility of a better price that may come later.   

The key point to consider is that the likelihood exists of there being greater price strength in U.S. corn markets through the Winter and Spring 2019 months than many may now be taking into account.  Any such optimism in the U.S. corn market depends on the likelihood of 1) crop production problems for South American corn in 2019, b) the strong domestic demand base that seems to exist for the U.S. corn crop in “current” MY 2018/19, and c) the growing possibility of delayed planting for U.S. corn – particularly in the central, northern, and eastern parts of the U.S. Corn Belt.

“Beginning of 2019” Soybean Market Outlook Presentation – Kansas State University

The following slides present an “Early 2019 U.S. Soybean Market Outlook” presentation to be given by Daniel O’Brien, Extension Agricultural Economist – Kansas State University.  This full presentation will be place on the www.AgManager.info website in early 2019 at the following web address:

http://www.agmanager.info/grain-marketing/presentations

 

“Beginning of 2019” Wheat Market Outlook Presentation – Kansas State University

The following slides are part of an “Early 2019 U.S. Wheat Market Outlook” presentation to be given by Daniel O’Brien, Extension Agricultural Economist – Kansas State University.  This full presentation will be place on the www.AgManager.info website in early 2019 at the following web address:

http://www.agmanager.info/grain-marketing/presentations

 

“Beginning of 2019” Corn Market Outlook Presentation – Kansas State University

The following slides present an “Early 2019 U.S. Corn Market Outlook” presentation to be given by Daniel O’Brien, Extension Agricultural Economist – Kansas State University.  This full presentation will be place on the www.AgManager.info website in early 2019 at the following web address:

http://www.agmanager.info/grain-marketing/presentations

 

KSU Wheat Market Outlook in Late-December 2018 – World, “World-Less-China” and U.S. Market Scenarios

This report provides an analysis of U.S. and World wheat supply-demand factors and market price prospects following the USDA’s December 11, 2018 Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports.  It also incorporates U.S. wheat market supply-demand and price projections for the “next crop” 2019/20 marketing year from the USDA’s Long Term Agricultural Projections released in Fall 2018. 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 Late-December 2018 to be found at this web location:

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

*****

Wheat Market Outlook in Late-December 2018

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

December 26, 2018

A. Overview of World Wheat Markets

The United States’ wheat market has continued to “struggle” to find much strength since mid-October 2018 due to strong competition from foreign exports.  Although available supplies from major foreign exporters are historically “tight”, wheat supplies held by non-exporting countries in the rest of the World continue to be large – limiting foreign buying of U.S. wheat.  

Lower production has occurred in the “current” 2018/19 marketing year (which began June 1, 2018) in major exporting countries such as Australia (down 20.2% to 17.0 million metric tons or ‘mmt’ from a year ago).  Production has been lower in parts of the European Union (down 9.0% in total to 137.60 mmt).  In the Black Sea Region, wheat production is down in Russia (down 17.6% to 70.00 mmt) and Ukraine (down 7.3% to 25.00 mmt) (Figures 14a-b & 15a-b).   Globally, World wheat production in “current” MY 2018/19 of 733.41 mmt is down 3.9% from last year’s record high of 736.03 mmt.  But large carryover stocks from “old crop” MY 2017/18 have upheld total World supplies and supply-demand balances.  Due to both stronger U.S. currency values and adequate World wheat non-exporter supplies, rises in U.S. wheat prices have been limited (Figures 4 & 13).   

 

B. World Wheat Supply-Demand

“Near-Record World Supplies & Ending Stocks”

The USDA projects that the recent “large supply – large use” situation that has persisted for the World wheat market since the last “supply-demand” period in MY 2012/13 will continue (Figure 13).  Viewed in aggregate these World supply and use numbers do NOT bring light to periodic shortages of high protein wheat that are problematic in World markets.  Declining stocks of food quality wheat in major wheat exporting countries in the last 1-2 years may also be somewhat hidden.  For example, there are regular, annual concerns from the Black Sea Region about the amount of food versus feed quality wheat available for export on World markets this year.  They also do not account for the sizable wheat stocks held by China that are isolated from the World wheat market and which tend to distort the supply-demand picture presented by aggregate World market measures (Figures 15a-b)

World wheat production in “current” MY 2018/19 is projected to be 733.41 million metric tons (mmt) which would be the fourth highest amount on record.  This amount would be down 3.9% from the record high 763.06 mmt in “old crop” MY 2017/18, and down 3.1% from 756.51 mmt in MY 2016/17 (Figure 13)Total production of World wheat has increased annually on average from 612.23 mmt in MY 2007/08 to present levels at a rate of +11.0 mmt (+2.1% annually).  The “current” 2018/19 marketing year (MY) which began on June 1, 2018 and will last through May 31, 2019.

World wheat total supplies in “current” MY 2018/19 are projected to be a near record 1,013.35 mmt – down 1.05% from 1,024.10 mmt in “old crop” 2017/18, but up from 1,000.90 mmt in MY 2016/17. 

World wheat exports are forecast to be 177.36 mmt in the “current” 2018/19 marketing year – down from a 181.23 mmt in “old crop” MY 2017/18, and the record high of 183.35 mmt in MY 2016/17 (Figure 13).

World wheat exporting countries and regions are presented in order of size (i.e., largest to smallest): 

  • Russia wheat exports are projected to be 50 mmt in “current” MY 2018/19, down from 41.42 mmt in “old crop” MY 2017/18, but up from 27.81 mmt in MY 2016/17.
  • United States wheat exports are forecast to be 22 mmt in “current” MY 2018/19, up from 24.52 mmt in “old crop” MY 2017/18, but down from 28.60 mmt in MY 2016/17.
  • Canada wheat exports are forecast to be 00 mmt in “current” MY 2018/19, up from 21.95 mmt in “old crop” MY 2017/18, and up from 20.16 mmt in MY 2016/17.
  • European Union wheat exports are forecast to be 00 mmt in “current” MY 2018/19, down from 23.29 mmt in “old crop” MY 2017/18, and from 27.43 mmt in MY 2016/17.
  • Ukraine wheat exports are projected to be 50 mmt in “current” MY 2018/19, down from 17.78 mmt in “old crop” MY 2017/18, and 18.11 mmt in MY 2016/17.
  • Australia wheat exports are forecast to be 50 mmt in “current” MY 2018/19, down from 14.00 mmt in “old crop” MY 2017/18, and from 22.64 mmt in MY 2016/17.
  • Kazakhstan wheat exports are forecast to be 50 mmt in “current” MY 2018/19, down from 9.00 mmt in “old crop” MY 2017/18, but up from 7.40 mmt in MY 2016/17.

World total usage of wheat is projected to be a record high of 745.25 mmt in “current” MY 2018/19 – up marginally from 744.16 mmt in “old crop” MY 2017/18, and from 739.86 mmt in MY 2016/17 (Figure 13).  

World wheat ending stocks are projected to be 268.10 mmt in “current” MY 2018/19 – the 2nd highest in history following the record high of 279.94 mmt in “old crop” MY 2017/18, and 261.04 mmt in MY 2016/17 (Figure 13).  Since MY 2007/08, World wheat ending stocks have been growing an average of 12.7 mmt per marketing year (by 9.9% annually) from the 10-year low of 179.02 mmt in MY 2012/13 – out-pacing the annual growth in total use of 11.9 mmt per year (+1.9% annually) (Figures 14a-b).   

The distorting effect perpetually large Chinese wheat ending stocks on World wheat ending stocks figures of will be examined in the following section.

World wheat percent ending stocks-to-use (% S/U) are forecast to be 35.97% in “current” MY 2018/19 – the 2nd highest on record (Figures 14a-b).  The record high is 37.62% in “old crop” MY 2017/18, up from 35.28% on MY 2016/17 (3rd highest on record).  World wheat % stocks-to-use have consistently increased each year from the recent low of 26.02% in MY 2012/13 to the present – increasing to 28.5% in MY 2013/14; 31.7% in MY 2014/15; 34.2% in MY 2015/16, 35.3% in MY 2016/17; and to the record high of 37.6% S/U in “old crop” MY 2017/18; before a projected moderate decline to 36.0% in “current” MY 2018/19.

 

C. “World-Less-China” Wheat Supply-Demand

“11-Year LOW Ending Stocks”

The broader “large crop-over supply-low price” situation in the World wheat market continues to “obscure” or “mask” 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 20.01% for “current” MY 2018/19 would be the lowest level in 11 years – since 17.54% S/U in MY 2007/08 (Figures 15a-b)“World-Less-China” wheat ending stocks-to-use are forecast to be down sharply from 23.86% in “old crop” MY 2017/18, and from the range of 22.05% to 27.48% during the MY 2008/09 – MY 2017/18 period.   

This “World-Less-China” perspective compares to the aggregated World perspective, in which forecast World wheat ending stocks-to-use of 35.97% for “current” MY 2018/19 would be the 2nd highest level in 12 years – down only from the high of 37.62% S/U in “old crop” MY 2017/18 (Figures 14a-b)

IF in coming months this China supply isolation factor eventually leads to noticeably tighter available global supplies of purchasable wheat for buyers to gain possession of to meet their domestic needs, it could yet have a significant positive impact on U.S. and World wheat market prices during the January-May period of “current” MY 2018/19.  However, unless there is such a noticeable “tightening” in accessible, available wheat supplies for buyers in the broader, with a predominant move AWAY FROM a large aggregate global supplies perspective over TO tight available “World-Less-China supplies situation, the market’s attention on this factor may not positively affect the pro-active purchasing of World wheat market participants.  The information in the following section may be an impetus for that change.

 

D. Wheat Futures & Kansas Cash Markets Since the December 11th

CME Kansas HRW Wheat Futures

Since the USDA’s December 11th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, CME MARCH 2019 Kansas Hard Red Winter (HRW) Wheat futures have traded first higher, and then lower.  On the day of the reports, MAR 2019 Kansas HRW wheat futures opened at $5.10 ¼ /bu, and traded in the range of $5.01 ½ to $5.14 ½ before closing $0.05 ½ lower to $5.02 ½ .  Since then, MAR 2019 HRW wheat futures first trended higher, trading as high as $5.24 ½ on December 14th, but then trended down to a low of $4.97 ½ on December 24th , before closing at $5.02 ½ /bu on that same day (Figure 1).  

Kansas Cash Wheat Prices & Basis

On December 21st – the 8th trading day after the USDA reports – Kansas cash wheat price terminal quotes for ordinary U.S. no. 1 HRW in central Kansas ranged from $4.68 ¾ to $4.87 ¾ per bushel – with basis ranging from $0.34 under to $0.15 under MARCH 2019 KS HRW Wheat futures.  Cash wheat prices in eastern Kansas grain terminals ranged from $4.52 ¾ to $4.87 ¾ /bu with basis ranging from $0.50 under to $0.15 under MAR 2019 futures.  These prices are still up 27%-32% 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 being from $0.80 under to $0.39 under nearby MARCH 2018 futures.  

In western Kansas on December 21st bids for ordinary U.S. no. 1 HRW wheat at selected grain elevators ranged from $4.48 to $4.61 /bu, with basis being $0.55 under to $0.42 under MAR 2019 futures.  Recent wheat cash price bids in western Kansas are up 27% to 29% from $3.47 to $3.64 /bu 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 12/21/2018 for $4.82 ¾ /bu, with a basis of $0.20 /bu under MAR 2019 Kansas HRW wheat futures.

 

E. U.S. Wheat Supply/Demand

“Tighter, but still large stocks”

The USDA released their wheat production, supply-demand, and price projections for the U.S. for “current” MY 2018/19 in the December 11th Crop Production & WASDE reports (Table 1a).   There is also a preliminary projection of the USDA supply-demand balance sheet for “next crop” MY 2019/20 which will begin on June 1, 2019.   These preliminary forecast indicate USDA’s expectations of 6%-7% higher acreage, and 2.060 billion bushels of production in 2019, but only marginal changes to usage, ending stocks, and prices. 

U.S. Wheat Acreage

U.S. wheat plantings are forecast to be 51.000 million acres (ma) in 2019, up 6.7% from 47.800 million acres (ma) in 2018, which of itself was up from the record low of 46.022 ma in 2017, but down from 50.119 ma in 2016 (Tables 1a-b, Figures 5-6)Harvested acres are forecast at 43.100 ma in 2019 (84.51% harvested-to-planted).  This amount of harvested acres is projected to be up 8.8% from 39.605 ma in 2018 (82.72% harvested-to-planted), and the record low of 37.541 ma (81.69% harvested-to-planted) in 2017, but still down from 43.850 ma in 2016 (87.49% harvested-to-planted) (Tables 1a-b, 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 46.3 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 2.060 billion bushels (bb), up from 1.884 bb in 2018, and up from 1.740 bb in 2017, but down from 2.309 bb in 2016 (Tables 1a-b, Figure 8).  Projected “next crop” MY 2019/20 total supplies are forecast to be 3.164 bb, up from forecast “current” MY 2018/19 total supplies of 3.123 bb, and from 3.078 bb in “old crop” MY 2017/18.  However, 3.164 bb in U.S. total wheat supplies in “next crop” MY 2019/20 would be down from 3.402 bb in MY 2016/17. 

Seeding of U.S. Hard Red Winter (HRW) wheat has already occurred in fall 2018 – with preliminary USDA estimates that all U.S. wheat seeded acres in “next crop” MY 2019/18 will be up 6.7% – including winter, spring, and durum classes (Table 1a).  The USDA’s Winter Wheat and Canola Seedings report will be released by the USDA on Friday, January 11, 2019.   

U.S. Wheat Total Use

U.S. Wheat total use is projected to by 2.213 bb in “next crop” MY 2019/20, up from a projection of 2.149 bb in “current” MY 2018/19, and from 1.979 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: By usage category, in “next crop” MY 2019/20, U.S. wheat exports are forecast to be 1.050 bb, up from 1.000 bb in “current” MY 2018/19, and from 901 mb in “old crop” MY 2017/18, while being essentially equal from 1.051 bb in MY 2016/17 (Tables 1a-b, 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.  However, tightening supplies of foreign wheat exporters may cause U.S. wheat exports to strengthen in the later part of “current” MY 2018/19 (i.e., possibly in spring 2019)

U.S. Food Use: Food Use of U.S. wheat is projected to be 975 million bushels (mb) in “next crop” MY 2019/20, up marginally from 970 mb in “current” MY 2018/19, from 964 mb in “old crop” MY 2017/18, and 949 mb in MY 2016/17 (Table 1, Figure 9).  

U.S. Feed & Residual Use: Feed & Residual Use of U.S. wheat is projected to be 120 mb in “next crop” MY 2019/20, up from 110 mb in “current” MY 2018/19, up from 50 mb in “old crop” MY 2017/18, but less than 161 mb in MY 2016/17 (Table 1, Figure 9a-b).  

CommentaryKSU: With the USDA’s forecast of moderately tighter U.S. corn and total feedgrain supplies along with moderate support for feedgrain prices, the USDA is anticipating that feeding wheat to livestock will become more marginally more economical in “next crop” MY 2019/20 than in the current marking year.   

Ending Stocks & % Stocks-to-Use: With an adjustment by KSU for new WASDE report information, USDA projected “next crop” MY 2019/20 ending stocks to be 951 mb (42.97% S/U), down marginally from “current” MY 2018/19 ending stocks of 974 mb (45.34% S/U), both of which are down from 1.099 bb in “old crop” MY 2017/18 (55.53% S/U), and from 1.181 bb in MY 2016/17 (53.14% stocks/use) (Tables 1a-b, Figures 11a-b & 12).   

CommentaryKSU: This projection of 949 mb in U.S. wheat ending stocks in “current” 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 $5.20 /bu in “next crop” MY 2019/20, up from the midpoint of $5.15 /bu in the range of $5.05-$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 (Table 1, Figures 11a & 12).  

CommentaryKSU: It is estimated by KSU that these USDA projections for “current” MY 2018/19 have a 75% probability of occurring

 

F. “Alt” KSU Scenarios for U.S. Wheat S/D in “Current” MY 2018/19

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

KSU Scenario 1) “HIGHER Exports” Scenario (10% probability):   This scenario assumes that there will be 1.884 bb production, 3.123 bb total supplies, 1.100 bb exports (up 100 mb vs USDA), 110 mb feed & residual use, 2.249 bb total use (up 100 mb vs USDA), 874 mb ending stocks (down 100 mb vs USDA), 38.91% Stocks/Use (down vs 45.34% S/U by USDA), & $5.35 /bu U.S. wheat average price (up $0.20 /bu vs USDA).

KSU Scenario 2) “LOWER Exports” Scenario (15% probability):   This scenario assumes that there will be 1.884 bb production, 3.123 bb total supplies, 900 bb exports (down 100 mb vs USDA), 110 mb feed & residual use, 2.049 bb total use (down 100 mb vs USDA), 1,074 mb ending stocks (up 100 mb vs USDA), 52.42% Stocks/Use (up vs 45.34% S/U by USDA), & $4.80 /bu U.S. wheat average price (down $0.35 /bu vs USDA).

 

G. CFTC Position of Traders Info for CME KS HRW Wheat Futures

– through 12/18/2018

Figures 3a-c present the latest available Position of Traders data through December 18, 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 December 18, 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, and on 12/18/2018 were net short by 333,060 contracts, representing 1,665,300,000 bushels in “short” futures positions.  

Managed Money (Specs) generally are involved 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.  However, for the first time since late January 2018, from 11/13/2018 through 12/4/2018 Managed Money (Spec) positions were net short by 22,245 to 53,740 contracts, representing 111,225,000 bushels to 268,7000.000 bushels in “short” futures positions.  However, on 12/18/2018, Managed Money Spec positions were net “long” by 19,540 contracts, representing 97,700,000 bushels.

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.   On 12/18/2018 Swaps (Index) traders were net long by 211,715 contracts, representing 1,058,575,000 bushels in “long” futures positions.  

Figure 3b provides Commercial Traders (Hedgers) Long & Short Positions for CME KS HRW Wheat with Futures Prices from June 2006 through December 18, 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.  On 12/18/2018, Commercial Traders (Hedgers) held “short” or “sell” positions in CME Kansas HRW futures of 599,100 contracts (2,995,500,000 bu.), and “long” or “buy” positions of 266,040 contracts (1,330,200,000 bu.).

Figure 3c illustrates Managed Money Traders (Specs) Long & Short Positions for CME KS HRW Wheat with Futures Prices for the June 2006 through December 18, 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.  On 12/18/2018, Managed Money Traders (Specs) held “short” or “sell” positions in CME Kansas HRW futures of 374,490 contracts (1,872,450,000 bu.), and “long” or “buy” positions of 354,950 contracts (1,774,750,000 bu.).

 

KSU Soybean Market Outlook in Late-December 2018 – The Influence of U.S.-China Trade Conflicts

An analysis of U.S. and World soybean supply-demand factors and 2018 price prospects following the USDA’s December 11th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports is available on the KSU AgManager website (http://www.agmanager.info/)

Following an article on “Soybean Market Outlook in Late-December 2018” – with the full article and accompanying analysis to be available on the KSU AgManager website at the following web address:

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

************************

Soybean Market Outlook in Late-December 2018

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

December 21, 2018

Section I. Key Soybean Market Factors – Winter through Summer 2019

The U.S. soybean market outlook from now through Summer 2019 is anticipated to be driven by several key factors. 

 

No. 1 Factor – Record U.S. Soybean Supplies, Ending Stocks & % Stocks/Use

One factor that is known without doubt is that record large supplies of U.S. soybean exist in the “Current” 2018/19 marketing year which began on September 1, 2018, and that these large supplies are limiting upward movement opportunities for U.S. soybean prices. 

Projected U.S. soybean total supplies of 5.063 billion bushels (bb) are record large – up from 4.734 bb in MY 2017/18 – the 2nd highest on record, and from 4.515 bb in MY 2016/17 – the 3rd highest on record (Table 1, Figure 7).  

Ending stocks of U.S. soybeans of 955 million bushels (mb) in “Current” MY 2018/19 are also record large – up more than double from 438 mb a year ago in MY 2017/18, and from the 2nd highest amount on record of 574 mb in MY 2006/07 (Table 1, Figures 10a-b).  

Percent (%) ending stocks-to-use of U.S. soybeans in “Current” MY 2018/19 are forecast to be 23.25% – more than double the estimate of 10.20% stocks-to-use in MY 2017/18, and up from 7.17% S/U in MY 2016/17 (Table 1, Figures 12a-b & 13).  This projected supply-demand balance of U.S. soybeans of 23.25% stocks-to-use in “Current” MY 2018/19 is the highest since 18.62% in MY 2006/07, and the all-time record high of 28.53% stocks-to-use in MY 1985/86 during the U.S. farm crisis years.  

 

No. 2 Factor – Uncertain U.S.-China Trade Relations

As of this writing, a “truce” has been declared in what had been the ongoing trade conflict between the United States and China, with the removal of the 25% tariff that the Chinese had placed on U.S. soybean imports.  On December 12th it was announced that companies from China had made their first purchases of U.S. soybeans since they imposed 25% tariffs on U.S. soybean imports into their country in July 2018, with more purchases made by Chinese interests since then. 

As a result of these ongoing trade conflicts between the U.S. and China, the USDA lowered its projection of U.S. soybean exports in “Current” MY 2018/19 from 2.060 bb in the October 2018 WASDE report down to 1.900 bb in the November 8th and December 11th WASDE reports.  This projection of 1.900 bb is down 10.8% from 2.129 bb in U.S. soybean exports in “old crop” MY 2017/18 (Table 1, Figures 10a-b)

During the September 1st through December 13th period China bought and physically imported only 12.5 mb of U.S. soybeans, down 98.1% from 660.7 mb in China purchases from the U.S. for the same period a year earlier.  Massive switching of soybean import sources has occurred among the World’s soybean purchasing countries, with China purchasing almost exclusively from Argentina and Brazil at higher prices in order to avoid buying soybeans from the U.S..  This action on the part of the Chinese drove up South American prices, and caused other countries to then purchase U.S. soybeans at comparatively lower prices by as much as $2.00 per bushel or more.  

During this same period in “Current” MY 2018/19, U.S. exports to all other countries besides China totaled 553.8 mb – being up 95.2% from 283.7 mb to these non-Chinese buyers at this time a year earlier (Tables 2 & 3).   Among the countries that have tangibly increased U.S. soybean imports from a year ago are some in the European Union (i.e., Italy, the Netherlands, Portugal, Spain, Romania, and the United Kingdom), Japan, Iran, Israel, Pakistan, South Korea, Thailand, Saudi Arabia, Egypt, Argentina, Canada, Columbia, and Mexico.  

However, even with these increased purchases of U.S. soybeans by non-Chinese countries, Total U.S. soybean export sales to all countries during the 9/1/2018 – 12/13/2018 period of 566.4 mb were down 41.08% from 944.3 mb a year earlier during the same period.   

 

No. 3 Factor – Reduced U.S. Soybean Exports

The USDA Foreign Agricultural Service (FAS) reports that for the week ending December 13th that the U.S. shipped 566.4 mb of soybeans for export over the first 15 weeks of the “Current” 2018/19 marketing year – averaging 37.8 mb in shipments per week.  This is above the pace of 36.0 mb per week for the remainder “Current” MY 2018/19 to meet the USDA’s forecast of 1.900 bb in U.S. soybean exports (Figure 9).   This assumes that the pace of U.S. soybean export purchases will remain the same throughout the remainder of the “Current” 2018/19 marketing year.  However, reasons are given below as to why this may not be a reasonable assumption given the seasonal availability of South American soybean exports anticipated in Spring 2019.

The USDA Foreign Agricultural Service (FAS) reports that an additional 445.5 mb of U.S. soybeans have been “bought ahead” for export as of December 13th.  These forward purchases of U.S. soybeans would be for shipment yet in “Current” MY 2018/19 – through August 31, 2019.  Adding the shipments-to-date of 566.4 mb and forward purchases of 1,011.9 mb through December 13th together, total shipments plus purchases amount to 1.012 bb, equal to 53.3% of the USDA’s projection of 1.900 bb for “Current” MY 2018/19, with 28.8% of the marketing year complete (i.e., 15/52 weeks).  This total of shipments plus purchases of U.S. soybeans through December 13, 2018 are down 30.1% from the level of a year ago.

Given a deepening tightness in exportable South American soybean supplies until the availability of 2019 crop supplies in late-winter and spring months, it is likely that China will purchase substantial quantities of U.S. soybeans during the mid-December 2018 through March 2019 period.  However, either 1) a breakdown in U.S.-Chinese negotiations during that period, or 2) prospects for a large 2019 South American soybean harvest, may lead to sharply curtailed U.S. soybean exports during March-April 2019.

 

No. 4 Factor – The Size of 2019 South America Soybean Production

With an opportunity to sell soybeans to China given their distinct preference for imports from non-U.S. sources, key South American soybean producing countries such as Argentina and Brazil have reportedly increased plantings for their 2019 soybean crops.  In Brazil, initial estimates in October from private sources and the USDA are for a 1.0% increase in production to 120.4-120.5 million metric tons (mmt), up from the USDA estimate 119.8 mmt in 2018 (Figure 15)

Weather risks / threats to South American 2019 production will have to be dealt with over the coming months – with some negative effects on Argentina and Brazil production prospects already having appeared.  However, Current intentions and frankly – market expectations – are for South American soybean production to increase in 2019 – which would further increase the negative prospects for U.S. soybean prices in the later part of “Current” MY 2018/19 (Figures 17a-b).

Impact on U.S. Corn & Soybean Acres in 2019?  Planting of the 2019 South American soybean crop started in late fall 2018, with the later stages of crop development to occur in February-March 2019.  This means that U.S. corn and soybean producers will have some amount of information on 2019 South American crop production and market prospects when they make crop planting decisions in late winter – early spring 2019 here in the United States.   All else being equal, anticipated increases in 2019 South American soybean acreage and production prospects MAY lead U.S. farmers to take a more pessimistic view of U.S. soybean market price prospects for Fall 2019, and cause them to lower their 2019 U.S. soybean plantings and to raise their 2019 U.S. corn plantings.

 

No. 5 Factor – The Size of 2019 U.S. Soybean Planted Acres & Production

In its Long Term Agricultural Projections released in fall 2018 the USDA forecast that U.S. soybean planted acres will decline to 82.500 million acres (ma) in 2019, down from 89.145 ma in 2018, 90.142 ma in 2017, 83.433 ma in 2016, and 82.650 ma in 2015 (Table 1a, Figure 5).  The USDA also forecast that 2019 U.S. soybean production would be 4.090 bb – the 4th highest on record, down from the estimated record high of 4.600 bb in 2018, 4.411 bb in 2017, and 4.296 bb in 2016 (Table 1 & 1a, Figure 7).  

With 2019 U.S. soybean plantings to occur in Spring 2019, there is still a sizable amount of uncertainty about U.S. farmer’s final 2019 planting decisions to come.  Factors such as: 1) a potential drought and reduced production prospects in South America in early 2019, 2) a resumption of normal, non-conflicting U.S.-China trade relations, 3) the impact on farmers’ crop profitability expectations from market loss compensation payments by the U.S. government to them, or other factors could affect the motivation of U.S. farmers to plant soybeans in 2019.

The final level of 2019 U.S. soybean plantings will be a significant factor affecting U.S. and World soybean supply-demand and price prospects for calendar year 2019 and for “next crop” MY 2019/20.

 

Section 2. Other Factors to Consider in Soybean Market Outlook

  • The “Narrative Consensus” of the Soybean Market

Prior to the escalation of the U.S.-China trade dispute, U.S. soybean market prospects where described as “neutral-to-cautiously optimistic” for the “Current” 2018/19 marketing year.  Now with the uncertainty and potential negative impacts of 25% soybean import tariffs by China against U.S. soybeans (should they be reinstituted by China in March-April 2019), and a record large U.S. soybean carryover stocks anticipated going into the “next crop” 2019/10 marketing year on September 1, 2019, the narrative consensus opinion of the market seemingly has returned to being “neutral to cautiously optimistic” price-wise, which has been reflected in Soybean futures contract positions of traders data collected by the Commodity Futures Trading Commission (Figures 3a-b-c)

  • Soybean Futures Price Trends

Chicago Mercantile Exchange (CME) JANUARY 2019 Soybean futures declined from a high of $10.60 on May 29th, down to a low of $8.26 ¼ per bushel on September 18th (Figure 1).  Since then, JAN 2019 Soybean futures had increased to a high of $9.06 ¼ on October 15th before declining again to a low of $8.44 ½ on October 31st, before increasing again to a high of $9.28 on Wednesday, December 12th.  Since then, JANUARY 2019 soybeans trended lower – closing at $8.84 ¾ on Friday, December 21st.  In similar manner, CME NOVEMBER 2019 Soybean futures closed at $9.36 ½ per bushel on December 21st .

  • Kansas Cash Soybean Price & Basis Trends

Cash soybean price bids on Thursday, December 20th in Central Kansas at major terminal elevator locations were in the range of $7.81 ½ to $7.98 ½ per bushel ($1.12 to $0.95 under JAN 2019 CME soybean futures).  At Topeka and Atchison in Northeast Kansas, cash prices were both at $8.38 ½ per bushel ($0.55 under JAN 2019).   These Central and Northeast Kansas prices on December 20th are down substantially from $9.88 – $9.93 ($0.35 to $0.30 under JULY 2018 soybean futures) on May 30th (Figure 2)

Cash soybean bids at Kansas soybean processing plants in Emporia and Wichita on December 20th ranged from $8.38 ½ to $8.48 ½ per bushel ($0.55 to $0.45 under JAN 2019) – also down substantially from May 30th when prices ranged from $9.86 ($0.37 under JULY 2018) to $9.93 ($0.30 under) (Figure 2)

In Western Kansas cash soybean bids at major grain elevators on December 20th ranged from $7.49 to $7.69 per bushel ($1.45 to $1.25 under JAN 2019), down substantially again from $8.88 ($1.35 under JULY 2018 futures) to $9.23 ($1.00 under) per bushel on May 30th.

 

Section 3. South American Export Competition in “Old Crop” MY 2017/18

Soybean market signals from South American export competitors Argentina, Brazil and Paraguay have continued in their “improved” situation in recent months as a result of the U.S.-China trade dispute (Figures 15-16).  Serious drought had caused Argentina soybean production to decline by 31.3% from a USDA estimate of 55.0 million metric tons (mmt) in 2017 down to 37.8 mmt in 2018, and cut projected Argentine soybean exports by 70.0% to 2.11 mmt in the “old crop” 2017/18 marketing year (MY) which ended on August 31st.   Argentina soybean meal exports were also 10.5% lower (28.01 mmt) in “old crop” MY 2017/18, down from 31.28 mmt in MY 2016/17.

However, Brazilian soybean production was higher – offsetting Argentina’s declines to a degree.  Brazil is estimated by the USDA to have produced a record high 120.3 mmt of soybeans in year 2018, up 5.0% from the previous record of 114.60 mmt in year 2017.  Brazilian soybean exports are estimated to have been 76.20 mmt in “old crop” MY 2017/18 (ending August 31, 2018), up 20.7% from 63.14 mmt in MY 2016/17.  Brazil soybean meal exports are projected to be 16.8% higher (16.07 mmt) in MY 2017/18, up from 13.76 mmt in MY 2016/17.  

Paraguay soybean production is estimated to be down marginally – providing a neutral influence to the market.  Paraguay is projected by the USDA to have produced 9.81 mmt of soybeans in year 2018 – down moderately from 10.34 mmt in year 2017.  Paraguay soybean exports are estimated to have been 6.20 mmt in “old crop” MY 2017/18 (ending August 31st), up 1.1% from 6.13 mmt in MY 2016/17. 

These three South American countries are the main competition in global soybean export markets for the United StatesArgentina, Brazil and Paraguay are forecast to comprise 55.2% (84.51 mmt) of estimated World soybean exports (153.16 mmt) in “old crop” MY 2017/18.  The U.S. is estimated to have made up 37.8% (57.95 mmt) of World soybean exports for “old crop” MY 2017/18, with other countries making up the remaining 7.0% (10.70 mmt) (Table 3). 

The trade dispute between the U.S. and China has “pushed” Chinese soybean export purchases toward Brazil and Argentina and away from the U.S. at least temporarily until the matter is either settled OR exportable South American supplies become available again in quantity in Spring 2019.  There has been both negative and positive news coming from these negotiations to date, with any final agreement still to come.

 

Section 4. U.S. Soybean Supply-Demand Projections for “Current” MY 2018/19

The USDA provided a forecast of U.S. soybean supply, demand, and prices for “Current” MY 2018/19 In the December 11th USDA WASDE report.  Based on 2018 USDA estimates of 89.145 million acres (ma) planted, 88.343 ma harvested, and 2018 U.S. soybean average yields of 52.1 bu/ac., the USDA forecast 2018 U.S. soybean production to be 4.600 bb.  This 2018 forecast of a record high 4.600 bb in U.S. soybean production would be up from the previous record of 4.411 bb in 2017, and also up from the 2nd highest amount of 4.296 bb in 2016 (Table 1, Figures 5-6-7). 

Total Supplies of U.S. soybeans in “Current” MY 2018/19 are forecast to be a record high 5.063 bb, based on 438 mb in beginning stocks, 4.600 bb in production, and 25 mb in imports.  This amount is up from the previous record highs of 4.734 bb and 4.515 bb in U.S. soybean Total Supplies in “old crop” MY 2017/18 and MY 2016/17, respectively (Table 1, Figure 7). 

Soybean crush in “Current” MY 2018/19 is forecast to be a new record high of 2.080 bb – to be driven by expected ongoing domestic usage for livestock feed and ongoing strength in U.S. soybean meal exports (Table 1, Figures 8 & 10a-b).  This would be up 25 mb in U.S. soybean crush from the previous record of 2.055 bb in “old crop” MY 2017/18.  

Exports of U.S. soybeans in “Current” MY 2018/19 were forecast in November and again in the December 11th WASDE to be 1.900 bb – down 160 mb from October, and down from previous record highs of 2.129 bb in “old crop” MY 2017/18 and 2.166 bb in MY 2016/17 (Table 1, Figures 9, 10a-b, & 11).  See the previous discussion on U.S. soybean export prospects in section #1 above. 

Seed usage of U.S. soybeans is projected to be 96 million bushels (mb) in “Current” MY 2018/19.  Residual use is forecast at 32 mb.  Seed use of 96 mb is forecast to be down 7.7% from 104 mb in “old crop” MY 2017/18, and 8.6% from 105 mb in MY 2016/17 (Table 1, Figures 10a-b). 

Total Use is projected to be a near-record high of 4.107 bb – down 189 mb from the previous record high of 4.296 bb last year (Table 1, Figures 10a-b). 

As a result of these supply and use projections for “Current” MY 2018/19, ending stocks are projected to be a record high 955 mb – up 70 mb from October but unchanged from November, and percent ending stocks-to-use is projected to be 23.25%.  Both of these measures of U.S. soybean supply-demand balances are projected to be more than double from the previous marketing year, i.e., being up from 438 mb (10.20% S/U) in “old crop” MY 2017/18 (Table 1, Figures 10a-b, 12a-b, & 13). 

United States’ soybean prices for “Current” MY 2018/19 are projected in the range of $7.85-$9.35 (midpoint = $8.60 /bu) – with the midpoint projection being down $0.73 /bu from $9.33 /bu in “old crop” MY 2017/18 (Table 1, Figures 12a-b, & 13).   This scenario is given a 60% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.

 

Section 5. Alternative KSU Soybean Forecast Scenarios for “Current” MY 2018/19

Three alternative KSU-Scenarios to the USDA’s forecast for U.S. soybean supply-demand and prices are presented for “Current” MY 2018/19 (Table 1a, Figure 12b).  These projections show how varying U.S. soybean export-use and production scenarios in “Current” MY 2018/19 could affect U.S. soybean supply-demand and price outcomes.  Probability-weights are added to reflect judgements about how likely each scenario is to occur in “Current” MY 2018/19, i.e., during the September 1, 2018 through August 31, 2019 time period.

#1 – KSU “LOWER U.S. Soybean EXPORTS” Scenario for “Current” MY 2018/19: (20% probability): Assumptions: 89.145 ma planted, 88.343 ma harvested, 52.1 bu/ac yield, 4.600 bb production, 5.063 bb total supplies, 2.080 bb domestic crush, 1.750 bb exports (down 150 mb vs USDA), 3.957 bb total use (down 150 mb vs USDA), 1.106 bb ending stocks (up 151 mb vs USDA), 27.95% Stocks/Use (up vs 23.25% for USDA), & $8.35 /bu U.S. soybean average price (down vs $8.60 /bu for USDA)

#2 – KSU “HIGHER 2018 U.S. Soybean EXPORTS” Scenario for “Current” MY 2018/19: (15% probability): Assumptions: 89.145 ma planted, 88.343 ma harvested, 52.1 bu/ac yield, 4.600 bb production, 5.063 bb total supplies, 2.080 bb domestic crush, 2.200 bb exports (up 300 mb vs USDA), 4.410 bb total use (up 300 mb vs USDA), 653 mb ending stocks (down 302 mb vs USDA), 14.81% Stocks/Use (down vs 23.25% for USDA), & $9.05 /bu U.S. soybean average price (up vs $8.60 /bu for USDA)

#3 – KSU “LOWER 2018 U.S. Soybean PRODUCTION” Scenario for “Current” MY 2018/19: (5% probability): Assumptions: 89.145 ma planted, 88.343 ma harvested, 50.0 bu/ac yield (down 2.1 bu/ac vs USDA), 4.417 bb production (down 273 mb vs USDA), 4.880 bb total supplies (down 273 mb vs USDA), 2.080 bb domestic crush, 1.900 bb exports, 4.107 bb total use, 773 mb ending stocks (down 182 mb vs USDA), 18.82% Stocks/Use (down vs 23.25% for USDA), & $8.85 /bu U.S. soybean average price (up vs $8.60 /bu for USDA)

 

Section 6. USDA Soybean Forecast Scenario for “Next Crop” MY 2019/20

In its Long Term Agricultural Projections released in Fall 2018, the USDA provided its preliminary forecast of U.S. Soybean supply-demand and prices for “Next Crop” MY 2019/20 beginning on September 1, 2019 (Table 1a).  Minor adjustments have been made in beginning stocks, total use, ending stocks, and percent (%) ending stocks-to-use

USDA Preliminary Forecast for “Next Crop” MY 2019/20: Assumptions: 82.500 ma planted (down 6.645 ma vs Current MY), 81.800 ma harvested (down 6.543 ma vs Current MY), 50.0 bu/ac yield (down 2.1 bu/ac vs Current MY), 4.090 bb production (down 541 mb vs Current MY),  5.070 bb total supplies (up 7 mb vs Current MY), 2.075 bb domestic crush (down 5 mb vs Current MY), 2.075 bb exports (up 175 mb vs Current MY), 4.277 bb total use (up 170 mb vs Current MY), 793 mb ending stocks (down 162 mb vs Current MY), 18.54% Stocks/Use (down vs 23.25% in Current MY), & $8.75 /bu U.S. soybean average price (down vs $8.60 /bu for Current MY);

 

Section 7. World Soybean Supply-Demand Prospects

World soybean production of a record high 369.20 million metric tons (mmt) is projected for “Current” MY 2018/19, up 8.8% from 339.47 mmt in “old crop” MY 2017/18, and up 5.7% from the Current record high of 349.30 mmt in MY 2016/17 (Figure 14).  The “Current” 2018/19 marketing year begins September 1, 2018 and continues through August 31, 2019.   World soybean total supplies of 470.50 mmt in “Current” MY 2018/19 are forecast to be up 7.7% from 437.00 mmt in “old crop” MY 2017/18, and up 9.2% from 430.95 mmt in MY 2016/17. 

World soybean exports of a 156.09 mmt are projected for “Current” MY 2018/19, up 1.9% from 153.16 mmt in “old crop” MY 2017/18, and up 5.8% from 147.50 mmt in MY 2016/17 (Figure 14).  China is expected to continue to be the key World soybean importer in the coming marketing year, although there are signs that the Chinese are seeking to moderate their annual soybean usage or import increases through changes in livestock feeding approaches.  Also, disease pressures from the Asian Swine Flu in the Chinese swine heard are likely to moderate their overall soybean import demand.

Projected World soybean ending stocks of a record high 115.33 mmt (32.81% Stocks/Use) in “Current” MY 2018/19 are up from the previous record high of 101.30 mmt (30.14% S/U) in “old crop” MY 2017/18, up from 97.53 mmt (29.58% S/U) in MY 2016/17, and 81.06 mmt (25.73% S/U) in MY 2015/16 (Figures 14 & 17a).  

On a “World-Less-China” basis (i.e., excluding China from World demand and ending stocks numbers), projected World-Less-China” soybean ending stocks are a record high 95.50 mmt (39.47% Stocks/Use) in “Current” MY 2018/19.  This amount of “World-Less-China” ending stocks are up substantially from 77.76 mmt (33.84% S/U) (2nd highest on record) in “old crop” MY 2017/18, 76.87 mmt (33.98% S/U) (3rd highest on record) in MY 2016/17, and 63.91 mmt (4th highest on record) (29.17% S/U) in MY 2015/16 (Figure 17b).   Together, Figures 14 and 17a-b illustrate the distorting impact the massive buildup in World soybean ending stocks that has occurred outside of China – which is a key factor in lower World soybean market prices.

“A First Look at the Agricultural Improvement Act of 2018 (Farm Bill 2018)” from KSU Ag Economics

A First Look at the Agricultural Improvement Act of 2018 (Farm Bill 2018)

Robin Reid (robinreid@ksu.edu), G.A. “Art” Barnaby (barnaby@ksu.edu), Rich Llewelyn (rvl@ksu.edu), and Mykel Taylor (mtaylor@ksu.edu)
Kansas State University Department of Agricultural Economics
December 2018
After a long and heated debate, the 2018 Farm Bill is finally becoming law. While the 2014 Farm Bill had new farm programs and major changes, the 2018 Farm Bill is largely status quo with some improvements to Title I programs that should benefit farmers during these tough times in agriculture.
Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) are again offered, with ARC having a county and individual farm option, as before. Notable changes affecting both programs include:
Producers will elect a program per commodity for 2019 and 2020, but then have ANNUAL elections beginning in 2021. This will alleviate much of the pressure in having to make a 5-year decision, as it was for the previous farm bill. Producers can change their program preferences based on more current market conditions.
Base acres that have been planted to grass or pasture and planted none of their base acres to program crops for all years of 2009-2017 will effectively be “suspended” from receiving payments, but still maintain their historical base. These base acres will be eligible for the CSP grasslands program however and can receive a payment of $18/acre. These suspended acres will also be considered “planted” to program crops during this farm bill so it will maintain the base for future legislation. The definition of “grass” is uncertain at this time and will have to be interpreted by the Secretary.
Just as a side note: Senator Roberts was absolute in his statement that no farmer would lose base acres. Under this compromise, the intent is no loss of base. Freedom to Farm, sponsored by Senator Roberts in 1996, allowed farmers to plant for the market rather than being required to plant the program crop in order to receive payments. This made the payment more in line with WTO trade rules, but also allowed farmers to plant forages for livestock and not be required to plant a program crop in order to receive payments and maintain their base.
Farmers who are currently planting non-program crops on base acres are likely at some future point to risk losing base. In 1996, economists were arguing that it was good economics to allow farmers to plant for the market and not as requirement for payments.
In the current debate, some economists are now arguing farmers who don’t plant program crops shouldn’t receive payments. Acres that have been converted to hay and grazing are mostly wheat base. Corn belt acres are too valuable to grow forages, so the reduction in base acres and payments would come from wheat base. This idea was being pushed in the Corn Belt to generate more funds for ARC. As long as Senator Roberts is in the Senate, I think the loss of base is no great threat, but who knows under new leadership?. This was a major change from the House language, but it is likely just the first step, and more crops will be added the list of crops that can’t be planted on base acres and receive payments. The original House version would have eliminated base on acres planted to alfalfa, so this compromise greatly reduced the economic impact from the House planting restrictions and very few farmers will see any impact on their farm at this time.
  • Effective reference prices (ERP) now include a formula & could go up as much as 15% if commodity prices improve

Statutory reference prices remain the same, as follows:

Statute reference Maximum Effective reference (115%)
CORN $3.70 $4.26
SOYBEANS $8.40 $9.66
WHEAT $5.50 $6.33
GRAIN SORGHUM $3.95 $4.54

To set the effective reference price for both ARC and PLC programs, an Olympic average of the last five Marketing Year Average prices (MYA’s) will be multiplied by 85%. If this is higher than the statute reference price, this number will be used up to the maximum of 115% of the statutory reference prices.

For example:

Soybean MYA prices for the last 5 years were: $10.10, $8.95, $9.47, $9.33, and $8.60- (projected). An Olympic average of these MYA’s would be $9.25, which would be multiplied by 85% and become $7.86. Since this is less than the $8.40 statute reference, $8.40 would be used.

Because of the lower commodity prices in the last 5 years, the likelihood of this formula reference price becoming effective for our major Kansas crops is low.

  • The individual payment limit remains the same at $125,000, but allows the definition of family to extend to nieces, nephews, and first-cousins.

  • The Adjusted Gross Income cap remains at $900,000.

Some provisions that have changed specific to PLC:

  • All producers will get an opportunity to update their payment yields with the 2020 crop year.

The formula is somewhat complex. Average individual producer yields per planted acre from 2013 through 2017 crop years will be multiplied by 90% and then multiplied by a “detrending” ratio of the national average yield from 2008-2012 divided by the national average yield from 2013-2017.

There is also a 75% county plug yield that will replace any year that an individual producer yield is low. 

While this sounds complicated, the payment yield update decision will be easy.  If this formula yield is higher than the current PLC yield, then a producer will want to update.  This will increase PLC payments in the future, if they are made.

 

Some provisions that have changed specific to ARC-County:

  • ARC-County payments will be calculated based on the physical location of the farm, not the administrative county.
  • USDA Risk Management Agency (RMA) yields per planted acre will be used as the first source of county-yield information to set revenue guarantees and calculate payments.
  • The benchmark yield to set the ARC-County guarantee will again be an Olympic average of the last 5 years of county yields, but low years will be replaced by 80% of the transitional yield, AND a trend-adjustment factor will be
  • USDA Farm Service Agency (FSA) will be required to publish the source of data used to calculate the county yield along with the number and outcome of occurrences in which that yield was reviewed, changed, or determined not to
  • Approved insurance providers (AIP’s) will be required to submit producer yields 30 days after the final reporting date, hopefully speeding up the process of publishing a county yield value and allowing producer and lenders to estimate an ARC payment for cash flow This is particularly helpful for wheat, meaning that the yield and price for ARC should be known by July 1, allowing farmers and lenders to have a very good estimate of their ARC payment for wheat several months before the end of the marketing year, June 30 for wheat.

The Marketing Assistance Loans (MAL) and Loan Deficiency Payments (LDP) programs remain the same with rates increasing to the following:

CORN $2.20
SOYBEANS $6.20
WHEAT $3.38
GRAIN SORGHUM $2.20

 

  • Title I programs also includes Dairy Margin Coverage, which has undergone significant changes already with the Bipartisan Budget Act of 2018, reducing premiums and improving risk coverage for dairy farmers. A detailed discussion of dairy policy from Dr. Andrew M. Novakovic (Cornell University) and Dr. Mark W. Stephenson (University of Wisconsin) can be found at: https://dairymarkets.org/PubPod/Pubs/BP18-02.pdf

 

  • The Conservation Title saw some heated debate and changes in the 2018 Farm Bill. The CRP acre cap will be increased over time from 24 million acres currently to 27 million acres by 2023, but rental rates will be reduced to 85% of the average county rental rate for general sign-ups and 90% of the county average for continuous CRP enrollment.

 

  • The Conservation Stewardship Program (CSP) will be phased out as a standalone acre-based program and be administered with the current Environmental Quality Incentives Program (EQIP).

 

  • The Crop Insurance Title saw very little change, which will be a relief to most farmers who consider this their number one risk management tool. Enterprise units are now allowed across county lines. One other change involves how cover crops are handled and may increase the use of cover crops in some areas.

 

  • Also of interest to Kansas producers is the establishment of a federal vaccination bank with priority to Foot and Mouth disease.

 

  • The nutrition title (Title IV: SNAP), the most controversial part of the bill, which held up passage earlier in the year due to revisions regarding work requirements in the House version, ended up with virtually no change.