KSU Wheat Market Outlook in Mid June 2016 – Assessing “New Crop” Market Possibilities during U.S. HRW Wheat Harvest

An analysis of U.S. and World wheat supply-demand factors and 2016-2017 price prospects following the USDA’s June 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 Wednesday, June 22, 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 June 10th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, U.S. and World wheat market prices have fallen sharply – especially as the U.S. hard red winter wheat harvest has advanced.

For the “new crop” 2016/17 marketing year the USDA projected:

1) World wheat total supplies of 973.8 mmt and total use of 716.0 mmt – both at record high levels,

2) that at least marginally weaker trade continues in World wheat exports with 165.7 mmt in the “new” marketing year – down from 168.3 mmt last year, but up from 164.1 mmt two years ago,

3) World wheat ending stocks at a record high 257.8 mmt compared to 243.0 mmt last year, and 216.5 mmt two years ago, and

4) World wheat percent ending stocks-to-use of 36.0% – 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 a perspective on how historically large World wheat stocks and percent stocks-to-use are, 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 “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, resulting in higher U.S. wheat ending stocks and % ending stocks-to-use, and is consequently causing U.S. wheat prices to fall sharply.

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, 2.921 bb total supplies (down 3 mb on reduced imports), 960 million bushels (mb) of food use, 775 mb of exports (down 5 mb), 140 mb of feed use, 1.941 bb of total use (down 5 mb), 980 mb ending stocks (up 2 mb), and 50.49% ending-stocks-to-use (up from 50.24% in May 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 when U.S. wheat ending stocks-to-use was 48.58%.

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

The USDA projected 2016 U.S. wheat plantings of 49.559 million acres (ma) – down 5.085 ma from 2015.  The USDA also implicitly forecast 2016 harvested acres of 42.737 ma which would be down 4.357 ma (-9.25%) vs 2015.  Based on projected 2016 U.S. wheat yields of 48.6 bu/ac (up from 43.6 bu/ac in 2015), 2016 U.S. wheat production is projected to be 2.077 bb (vs 2.052 bb in 2015), with total supplies of 3.182 bb (up from 2.921 bb in “old crop” MY 2015/16), and total use of 2.132 bb (up from 1.941 bb in “old crop” MY 2015/16).

Given these numbers, the USDA projected “new crop” MY 2016/17 ending stocks of 1.050 bb (vs 980 mb a year ago), with percent ending stocks-to-use of 49.25% S/U (vs 50.49% last year).  U.S. wheat average prices are projected to be in the range of $3.60 to $4.40 (midpoint = $4.00 /bu) – down from $4.90 /bu in “old crop” MY 2015/16.   It is assumed by Kansas State University that these USDA projections for “new crop” MY 2016/17 have a 35% probability of occurring.

KSU U.S. Wheat S/D 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.  However, based on historical U.S. percent harvested-to-planted acreage relationships, these KSU projections assumed 1.000 million less acres harvested than the implicit USDA estimate.  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 “Trend Yield – Moderate $USD” Scenario (30% 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, 3.025 bb total supplies, 850 mb exports, 2.079 bb total use, 946 mb ending stocks, 45.50% S/U, & $4.40 /bu U.S. wheat average price;

B) KSU “Trend Yield – Foreign Crop Problems – Moderate $USD” Scenario (15% probability) assumes: 49.559 ma planted, 41.737 ma harvested, 46.0 bu/ac yield, 1.920 bb production, 3.025 bb total supplies, 1.100 bb exports, 2.329 bb total use, 696 mb ending stocks, 29.88% S/U, & $5.50 /bu U.S. wheat average price;  and

C) KSU “Trend Yield – Fall 2017 Crop Problems – Moderate $USD” (20% 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, 3.025 bb total supplies, 1,000 mb exports, 2.229 bb total use, 796 mb ending stocks, 35.71% S/U, & $5.10 /bu U.S. wheat average price.

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