(Updated) KSU Grain Sorghum Market Outlook in March 2016 – Adjusted Outlook Due to Chinese Corn Stockpile Policy Changes

Following is an updated analysis of U.S. Grain Sorghum and World Coarse Grain supply-demand factors and 2016-2017 price prospects. This article reflects the adjustment in U.S. grain sorghum prospects for “next crop” MY 2016/17 prices, profitability, and likely 2016 planted acreage and production following the March 29th announcement regarding changes in their corn stockpiling policy to be instituted in October 2016.  Details can be found at the following Reuters news article dated 3/29/2016.

http://www.reuters.com/article/us-china-corn-stockpiles-idUSKCN0WV06Z

The full updated article examining the USDA’s March 9th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports along with updated KSU projections (adjusted for this Chinese policy change) is available  on the KSU AgManager website:

http://www.agmanager.info/marketing/outlook/newletters/Sorghum.asp

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Summary

Updated on March 29, 2016 from previous day’s article

Chinese Government Announcement Re: Corn Stockpile Management Policy (Updated on 3/29/2016)

Within the last few days the Chinese government announced that “…it plans to scrap its corn stockpiling scheme and allow markets to set prices for grain.” Reuters article, March 29, 2016.  Quoted from the article – “And as domestic prices start to shift in line with international markets, Chinese demand for imports of corn and corn substitutes such as sorghum, feed-grade barley, and distillers’ grains is expected to tank, hitting major suppliers such as the United States and Australia.”  The Chinese government has indicated that these changes will be instituted in the “next crop” 2016/17 marketing year for Chinese feedgrains beginning in October 2016.  The anticipated negative impact on U.S. grain sorghum exports and on U.S. ag producers’ expectation of grain sorghum profitability and likely on planted acres are represented below in an updated KSU grain sorghum market outlook projection for “next crop” MY 2016/17.

KSU Forecast for “Next Crop” MY 2016/17 (Updated on 3/29/2016)

Based on the recent Chinese government announcement regarding changes it will make in its corn stockpile management policy and anticipated responses by U.S. farmers, KSU supply-demand and price projections for “next crop” MY 2016/17 have been adjusted.  Projected planted acres of grain sorghum in the U.S. has been lowered in anticipation that U.S. crop producers will lower their expectations of U.S. grain sorghum prices and profitability due to the change in Chinese grain sorghum import prospects.

KSU projections of 2016 planted acres equal 6.800 mb – down 500,000 acres from 7.300 ma projected by the USDA.  KSU projections for 2016 harvested acres are 5.746 ma (based on historic average harvested-to-planted acres relationships), with long term trend yields for 2016 of 67.3 bu/ac, and 2016 U.S. grain sorghum production of 3870 mb (down 23 mb from the USDA).  Total use of 385 mb includes 109 mb food, alcohol, and industrial use (up 10 mb from USDA), seed use of 1 mb (same as USDA), exports of 130 mb (down 70 mb vs USDA), and livestock feed and residual use of 145 mb (up 30 mb vs USDA).  Following these KSU supply and use projections, ending stocks are projected to be 670 mb (17.4% S/U), with U.S. sorghum prices projected by KSU to be $3.30 /bu – down $0.10 /bu from the USDA’s early projection of $3.40 /bu for “next crop” MY 2016/17.

When the USDA released its March 9th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, grain sorghum cash bids at export terminal and country elevators near Hutchinson, Kansas first trended higher for the week following the reports.  Then cash sorghum prices moved either sideways or lower based on location through Monday, March 28th .  The USDA has preliminarily projected lower U.S. grain sorghum production in 2016 at 410 million bushel (mb) – down sharply from 2015 U.S. sorghum production of 597 mb.  Grain sorghum market prospects for spring-summer 2016 and for the “next crop” 2016/17 marketing year depend largely on the planting and growing conditions for the U.S. 2016 feedgrain crops along with the ongoing strength of U.S. grain sorghum usage.

Negative Price Outlook Predominates

The USDA in its preseason forecasts has assumed that there will be no serious crop production problems in the summer of 2016, and has projected larger ending stocks-to-use and a continuation of low prices for U.S. grain sorghum in “next crop” MY 2016/17.   Absent any change in this projected “large supply / low price” scenario, U.S. grain sorghum cash prices are unlikely to rise from current levels (which are at or below $3.00 per bushel in Kansas) up to $4.00-$4.50+ by late spring and mid-summer 2016.   Also, if low “old crop” MY 2015/16 grain sorghum prices and enterprise profits persist through April-May 2016, then it is very possible that U.S. farmers’ 2016 grain sorghum planted acreage and 2016 production prospects may be negatively affected.

Production & Market Uncertainties

There are a variety of crop production and market factors could impact U.S. feedgrain market price direction and volatility during year 2016.  First, increasing prospects for a transition from the El Nino weather system that has prevailed in recent years / months to a La Nina weather pattern with an increased likelihood of hot, dry crop production conditions in the U.S. Corn Belt in the summer of 2016 could bring about swift, dramatic change in U.S. grain market supply-demand and price prospects, and improve prospects for grain sorghum profitability (in areas of the U.S. not impacted by drought!).  Second, total use of U.S. grain sorghum has been relatively high in “current crop” MY 2015/16 as low sorghum prices have helped feedgrain-using industries to lower their input costs and helped them to improve their profitability if not limit their financial losses.

Over time the combination of both a) lower production in response to low profits and/or crop production problems, and b) increased grain sorghum use supported by low grain prices for livestock feed, exports and grain processing use, are likely work together to bring about a change in the prevailing “large crop – low price” market scenario in U.S./World coarse grain markets.

USDA Estimate for “Current Crop” MY 2015/16

The USDA made no changes in its estimate of the U.S. grain sorghum supply-demand balance sheet for “current crop” MY 2015/16 – with 2015 U.S. sorghum production of 597 mb, and total supplies of 620 mb.  Total use is projected to be 555 mb – including food, alcohol and industrial use of 99 mb, seed use of 1 mb, exports of 325 mb, and feed and residual use of 130 mb.  Ending stocks are forecast at 65 mb (11.71% S/U) in “current crop” MY 2015/16 – up from 18 mb (4.0% S/U) in “old crop” MY 2014/15, and 34 mb (9.1% S/U) in MY 2013/14.  U.S. grain sorghum average cash prices are forecast to be in the range of $3.15-$3.45 /bu. ($3.30 midpoint) in “current crop” MY 2015/16 versus $4.03 in “old crop” MY 2014/15, $4.28 in MY 2013/14, and $6.33 (record high) in MY 2012/13.

USDA Forecast for “Next Crop” MY 2016/17

On December 14, 2015 the USDA released preliminary estimates of its USDA Agricultural Outlook Forum projections on February 25-26, 2016.  In its December 14th forecasts the USDA forecast U.S. grain sorghum supply-demand and prices for the “next crop” 2016/17 marketing year beginning September 1, 2016, but provided no further specifics in the February 25-26 meeting.

The USDA projected 2016 U.S. grain sorghum plantings of 7.300 million acres (ma) – down 1.159 ma or 13.7% from 2015.  Forecast 2016 harvested acres of 6.300 ma would be down 1.551 ma vs 2015.  With projected yields of 65.1 bu/ac, 2016 U.S. grain sorghum production is forecast to be 410 mb – down sharply from 597 mb in 2015, and comparable to 433 mb in 2013, and 392 mb in 2012.   With forecast “next crop” MY 2016/17 total use of 415 mb (down from 555 mb in “current crop” MY 2015/16), and projected ending stocks of 60 mb (14.46% S/U), U.S. sorghum prices are projected by the USDA to be $3.40 /bu – down $0.05 from the USDA corn price projection of $3.45 /bu for “next crop” MY 2016/17, but up from $3.30 /bu midpoint estimate for U.S. grain sorghum “current” MY 2015/16.

Potential KSU 2016 U.S. Sorghum and Corn “Short Crop” Scenario – 13.000 Billion Bu U.S. Corn Crop

If moderately significant corn production problems were to occur in the U.S. in the summer of 2016 resulting in a 13.000 bb corn (157.95 bu/ac yield on 82.300 ma harvested), then all else being equal, ending stocks of U.S. corn for “next crop” MY 2016/17 could decline to 1.172 bb (8.5% S/U), with U.S. corn prices likely to increase to $4.50-$5.50 per bushel.  Grain sorghum prices in the U.S. would likely in the $4.25 to $5.25 per bushel range for “next crop” MY 2016/17.

World Coarse Grains Supply-Demand

World total supplies of 1,504.7 million metric tons (mmt) are projected for “current” MY 2015/16, down marginally from 1,509.65 mmt in “old crop” MY 2014/15, but up from 1,444.5 mmt in MY 2013/14.  Projected World coarse grain ending stocks of 243.1 mmt (19.3% S/U) in “current crop” MY 2015/16 are up marginally from 241.15 mmt (19.0% S/U) in “old crop” MY 2014/15, and from 211.2 mmt (17.1% S/U) in MY 2013/14.

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