KSU Wheat Market Outlook in April 2017 – “Decent” U.S. HRW Wheat Exports and Possible Market Scenarios for MY 2017/18

An analysis of U.S. and World wheat supply-demand factors and 2016-2017 price prospects following the USDA’s April 11th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports, and the market actions that have followed those reports are available on the KSU AgManager website (http://www.agmanager.info/).

Following is a summary – with the full analysis-article for Wheat to be found at this web location:

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

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Summary

Since the USDA’s April 11th World Agricultural Supply and Demand Estimates (WASDE) report, U.S. and World wheat futures market prices first traded higher then turned lower.  CME MAY 2017 Kansas HRW Wheat futures gained $0.04 ¼ /bu to close at $4.29 ¾ on 4/11/2017 – the day of the report – but after trading higher for two days have since declined through Wednesday, April 19th – closing down to $4.16 ¾ that same day.

World Wheat Supply-Demand

For the “current crop” 2016/17 marketing year (MY), the USDA projected the following. First, World wheat total supplies of 993.1 million metric tons (mmt) and total use of 740.8 mmt – both at record high levels.  Second, that World wheat exports are continuing to trend higher to 180.7 mmt in the “current” marketing year – up from 172.8 mmt last year, and up from 164.45 mmt two years ago.  Third, World wheat ending stocks at a record high 252.3 mmt up from 241.7 mmt last year, and 217.6 mmt two years ago.  And fourth, World wheat percent ending stocks-to-use (S/U) of 34.05% – up from 34.0% last year, and from 30.85% two years ago –the highest since MY 2005/06.

For a perspective on how historically large World total wheat stocks and World wheat percent stocks-to-use now are, in MY 2007/08 the 34-year low in World wheat ending stocks of 128.1 mmt and at least a 57-year low in percent ending stocks-to-use of 20.9% stocks/use both occurred – the last major World wheat “short crop” marketing year.  The situation in MY 2007/08 compares to projections of 252.3 mmt ending stocks and 34.05% ending stocks-to-use projected for “current” MY 2016/17.  The present “large crop-over supply” situation in World and U.S. wheat markets have a prevailing negative influence on U.S. and World wheat prices.

However, the broader “large crop-over supply-low price” situation in the World wheat market may be “obscuring” at least a couple of other important market issues.  First, while the quantity of wheat available in the World is plentiful, the available supply of high protein milling wheat is less so.  This factor helps exports of both U.S. Hard Red Spring (HRS) wheat (higher protein – good quality) relative to World wheat export competitors.  Second, while the aggregate supply of wheat in World markets has grown, the supply of wheat in the “World Less China” is projected to have actually “contracted” or “diminished” in “current crop” MY 2016/17 compared to a year ago – down to the tightest supply-balances only marginally larger than existed in MY 2013/14.  If this “China factor” eventually leads to noticeably tighter available global supplies of exportable wheat to occur in coming months, it could have a positive impact U.S. wheat market prices in late-Spring 2017.

Even so, given the broader World wheat market’s current focus – it is likely that significant World wheat production problems and/or trade disruptions would need to occur in year 2017 in order to have wheat prices recover significantly by spring-summer 2017.  Ongoing strength in the U.S. dollar exchange rate is a serious negative factor limiting the competitive affordability of U.S. wheat exports.  These factors have resulted in higher U.S. wheat ending stocks and % ending stocks-to-use, and have caused U.S. and Kansas wheat cash prices to fall sharply – down near to and below the marketing loan rate in many Kansas locations.

USDA U.S. Wheat Supply-Demand Forecast for “Next Crop” MY 2017/18

On February 23-24, 2017 at the Agricultural Outlook Forum in Arlington, Virginia, the USDA released their grain market supply-demand and price projections for “next crop” MY 2017/18.  With additional acreage and usage information the March 31st USDA Prospective Plantings and Grain Stocks reports, and the April 11th USDA World Agricultural Supply and Demand Estimates (WASDE) report, the following projections for “next crop” MY 2017/18 are figured.

For “next crop” MY 2017/18, 2017 U.S. wheat plantings are projected to be 46.059 million acres (ma) – down from 50.154 ma in 2015.  Harvested acres for 2016 are forecast to be 39.050 ma – down from 43.890 ma a year ago.  Trendline 2017 wheat yields for 2017 are projected at 47.1 bu/a, down from the 2016 record of 52.6 bu/ac, while the adjusted 2017 U.S. wheat production forecast is 1.839 billion bushels (bb), down from 2.310 bb in 2015.  Projected “next crop” MY 2017/18 total supplies are 3.118 bb (down from 3.395 bb in “current” MY 2016/17), with total use of 2.191 bb (down from 2.236 bb in “current” MY 2016/17).

Given these numbers, the adjusted USDA projection of “next crop” MY 2017/18 ending stocks equals 927 million bushels (mb) (vs 1.159 bb a year ago), with percent ending stocks-to-use of 42.3% S/U (vs 51.8% last year and 50.0% the previous year).  United States’ wheat prices are projected to average approximately $4.25 /bu – up from $3.85 in “current” MY 2016/17, but down from $4.89 /bu in MY 2015/16, and $5.99 /bu in MY 2014/15.   It is assumed by Kansas State University that these adjusted USDA projections for “next crop” MY 2016/17 have a 50% probability of occurring.

Three Alternative KSU U.S. Wheat Supply-Demand Forecasts for “Next Crop” MY 2017/18

As an alternative to the USDA’s projection, three potential KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “next crop” MY 2017/18.

A. KSU Scenario 1) “Trend Yield” Scenario (25% probability) assumes for “next crop” MY 2017/18 that the following occurs.  It is assumed that there will be 46.059 ma planted, 39.334 ma harvested, 47.0 bu/ac trend yield, 1.849 bb production, 3.128 bb total supplies, 975 mb exports, 190 mb feed & residual use, 2.191 bb total use, 937 mb ending stocks, 42.8% S/U, & $4.20 /bu U.S. wheat average price.

B. KSU Scenario 2) “Higher U.S. Wheat Exports” Scenario (15% probability) assumes for “next crop” MY 2017/18 the following.  The following is forecast for “next crop” MY 2017/18, i.e., 46.059 ma planted, 39.334 ma harvested, 47.0 bu/ac trend yield, 1.849 bb production, 3.128 bb total supplies, 1.150 bb exports, 190 mb feed & residual use, 2.326 bb total use, 802 mb ending stocks, 24.10% S/U, & $4.90 /bu U.S. wheat average price;

C. KSU Scenario 3) “Short U.S. Wheat Crop” Scenario (10% probability) assumes for “next crop” MY 2017/18 that the following happens.  This scenario assumes 46.059 ma planted, 37.124 ma harvested, 40.0 bu/ac low yield, 1.485 bb production, 2.769 bb total supplies, 975 mb exports, 175 mb feed & residual use, 2.175 bb total use, 594 mb ending stocks, 27.31% S/U, & $5.50 /bu U.S. wheat average price.

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