KSU Wheat Market Outlook in Early June 2016

An analysis of U.S. and World wheat supply-demand factors and 2016-2017 price prospects following the USDA’s May 10th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports, and the market actions that have followed those reports will be available on the KSU AgManager website on Friday, June 3, 2016 (http://www.agmanager.info/default.asp).

Following is a summary – with the full analysis-article for Wheat to be found at this web location:  http://www.agmanager.info/marketing/outlook/newletters/Wheat.asp

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Summary

Overview

Since the USDA’s May 10th World Agricultural Supply and Demand Estimates (WASDE) report, U.S. and World wheat market prices have been volatile but have trended generally higher.  For the “new crop” 2016/17 marketing year the USDA projected: 1) World wheat total supplies of 969.9 mmt and total use of 712.6 mmt – both at record high levels, 2) that at least marginally weaker trade continues in World wheat exports with 163.9 mmt in the “new” marketing year – down from 166.9 mmt last year, and from 164.1 mmt two years ago, c) World wheat ending stocks at a record high 257.3 mmt compared to 242.9 mmt last year, and 216.5 mmt two years ago, and d), World wheat percent ending stocks-to-use of 36.1% – up from 34.3% last year and from 30.7% two years ago – up to their highest level in 15 years (since MY 2001/02).  For perspective, the 34-year low in World wheat ending stocks of 128.7 mmt and at least a 57-year low in percent ending stocks-to-use of 20.9% S/U both occurred in MY 2007/08, the last major World wheat “short crop” marketing year.

The World wheat market continues to monitor…

a) potential wheat production problems in major world wheat production areas such the Black Sea Region, China, parts of Europe, and elsewhere,

b) ongoing geopolitical conflicts and tensions in the Middle East and the Black Sea region that could impact commodity markets, and

c) spillover impacts into grain markets and other commodities from volatile World economies, and financial and currency markets.

Even so, the “large crop-over supply” situation that exists in World and U.S. wheat markets continues to have a strong prevailing negative influence on World wheat prices.

It is likely that significant World wheat production problems and/or trade disruptions would need to occur in coming weeks and months in order to have wheat prices recover significantly in spring-summer 2016.  Ongoing strength in the U.S. dollar exchange rate – although it has been weakening recently – also is a serious negative factor that is limiting U.S. wheat exports, raising U.S. wheat ending stocks and % ending stocks-to-use, and causing sharply lower U.S. wheat prices.

USDA U.S. Wheat S/D Forecast for “Old Crop” MY 2015/16

The USDA made minor changes in its supply-demand and price projections for U.S. wheat in the “old crop” 2015/16 marketing year – with 2.052 billion bushels (bb) production, 2.924 bb total supplies, 960 mb million bushels (mb) of food use (down 7 mb), 780 mb of exports (up 5 mb), 140 mb wheat feed use, 1.946 bb of total use (down 2 mb), 978 mb ending stocks (up 2 mb), and 50.24% ending-stocks-to-use (up from 50.09% in April to the highest level since 48.6% in MY 2009/10).  The USDA forecast of “old crop” MY 2015/16 U.S. average wheat prices to be $4.90 /bu – the lowest U.S. wheat marketing year average price since $4.87 /bu in MY 2009/10.

USDA U.S. Wheat S/D Forecast for “New Crop” MY 2016/17

Based on the May 10th WASDE and the March 31st Prospective Plantings report, the USDA projected 2016 U.S. wheat plantings of 49.559 million acres (ma) – down 5.085 ma from 2015.  Forecast 2016 harvested acres of 42.783 ma would be down 4.310 ma vs 2015.  Based on projected 2016 U.S. wheat yields of 46.7 bu/ac (up from 43.6 bu/ac in 2015), 2016 U.S. wheat production is projected to be 1.998 bb (vs 2.052 bb in 2015), with “new crop” MY 2016/17 total supplies of 3.106 bb (up from 2.924 bb in “old crop” MY 2015/16), and projected “new crop” MY 2016/17 total use of 2.077 bb (up from 1.946 bb in “old crop” MY 2015/16).

Given these numbers, the USDA projected “new crop” MY 2016/17 ending stocks of 1.029 bb (vs 978 mb a year ago), with percent ending stocks-to-use of 49.52% S/U (vs 50.24% last year).  U.S. wheat average prices are projected to be in the range of $3.70 to $4.50 (midpoint = $4.10 /bu) – down from $4.90 /bu in “old crop” MY 2015/16.   It is assumed by KSU that these adjusted USDA projections for “New crop” MY 2016/17 is assumed to have a 45% probability of occurring.

KSU Forecasts for “New Crop” MY 2016/17

Three alternative KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “new crop” MY 2016/17, with each assuming the same 2016 planted acreage as USDA, but 1.027 million less acres harvested than the adjusted USDA estimates based on historical percent harvested-to-planted acres relationships.  These KSU projections also assume at least a moderation in the high value of the U.S. dollar, and some improvement in U.S. wheat exports as a result.

A) KSU-Scenario A (Trend Yield) (35% probability) assumes for “new crop” MY 2016/17: 49.559 ma planted, 41.737 ma harvested, 46.0 bu/ac yield, 1.920 bb production, 3.028 bb total supplies, 850 mb exports, 2.031 bb total use, 997 mb ending stocks, 49.09% S/U, & $4.40 /bu U.S. wheat average price;

B) KSU-Scenario B (Foreign Crop Problems – Higher U.S. Exports) (10% prob.) assumes for “new crop” MY 2016/17: 49.559 ma planted, 41.737 ma harvested, 46.0 bu/ac yield, 1.920 bb production, 3.028 bb total supplies, 1.100 bb exports, 2.272 bb total use, 756 mb ending stocks, 33.27% S/U, & $5.55 /bu U.S. wheat average price;  and

C) KSU-Scenario C (Widespread 2016-2017 U.S. Crop Problems) (10% prob.) assumes for “new crop” MY 2016/17: 49.559 ma planted, 41.737 ma harvested, 43.0 bu/ac yield, 1.753 bb production, 2.861 bb total supplies, 900 mb exports, 2.081 bb total use, 780 mb ending stocks, 37.48% S/U, & $5.30 /bu U.S. wheat average price.

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