KSU Weekly Grain Market Analysis: Weighing Alternative U.S. Corn and Soybean Market Scenarios

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program that was played on Friday, September 22, 2017 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_09-22-17.pdf

The recorded radio program was aired at 10:03 a.m. central time, Friday, September 22, 2017 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the September 22nd recording will be available at the KSU Agriculture Today website.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

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KSU Soybean Market Outlook in Mid-September 2017 – Likelihood of Lower Production and Higher Price Outcomes

An analysis of U.S. and World soybean supply-demand factors and 2016-2017 price prospects following the USDA’s September 12th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports either is available on the KSU AgManager website (http://www.agmanager.info/default.asp).

Following is a summary of the article on Soybean Market Outlook – with the full article and accompanying analysis available on the KSU AgManager website at the following web address:

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

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Summary

Recent Soybean Futures Price Trends

Since the USDA’s September 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, soybean futures have increased.  CME NOV 2017 soybean futures opened at $9.60 ¾ on Tuesday, September 12th – the day of the report – then traded as low as $9.37 ½ that same day before closing $0.09 ½ lower that day at $9.50 ½.  Since then, NOV 2017 soybeans have trended “irregularly” higher to close at $9.70 ¾ on Thursday, September 21st.  

World Soybean Market Perspectives

Since 2014, World soybean market prices have been limited by a developing “large crop – low price” supply-demand regime, caused by consecutive record or near record World soybean production years for 2014 through projections for 2017.

Longer term, from MY 2008/09 to projected “new crop” MY 2017/18, a strong upward trend in World soybean production (up 7.1% annually) has “out-paced” annual increases in World soybean use (up 6.1% per year).  “Old crop” MY 2016/17 World production is estimated to have been a record high of 351.4 mmt, followed by a projection of near record World production of 348.4 mmt in “new crop” MY 2017/18.  In what is exceedingly good news for the World soybean market, total use has also increased along with production, to 329.8 mmt in “old crop” MY 2016/17, and to a projected record high of 344.3 mmt in “new crop” MY 2017/18.

The degree of “abundance” or “large quantities” in World soybean ending stocks have been a key issue leading to current “moderate-to-low” soybean prices in World markets relative to recent years.   Since World soybean ending stocks of 61.5 mmt (22.3% ending stocks-to-use or ‘S/U’) in MY 2013/14, soybean stocks grew sharply to 77.5 mmt (25.6% S/U) in MY 2014/15 and 77.7 mmt (24.7% S/U).  Then in “old crop” MY 2016/17 World ending stocks are estimated to have increased to a record level of 96.0 mmt (29.1% S/U), followed by a further increase to 97.5 mmt (28.3% S/U) in “new crop” MY 2017/18. 

A key World soybean market strategy will be to wait to figure out whether dry conditions or some other crop production malady will occur in late 2017 or early 2018 in South America that could limit 2018 soybean production in the southern hemisphere.  Although World soybean demand growth has been as strong as can be expected, it seems that a “supply shock” or “crop shortfall” in 2018 or following years would be the most likely factor to drive World soybean production and supply-demand balances low enough to alter the existing “large supply – buyer’s market” situation.  With prospects now pointing toward a near record 2017 U.S. soybean crop, World markets will turn their attention toward 2018 South American production prospects as the next major source of soybean market risk – providing the possibility of a change in paradigm and higher soybean prices in the next 12-18 months.

USDA Corn Supply-Demand & Price Forecast for “New Crop” MY 2017/18

The USDA made no adjustments in its projection of 2017 U.S. soybean plantings of a record high 89.513 million acres (ma) – up from 83.433 ma in 2016.  Forecast 2016 harvested acres of a record 88.731 ma is also up from 82.736 ma in 2016.  With near record high projected yields of 49.9 bu/ac (up 0.5 bu from August), 2017 U.S. soybean production is projected to be a record high 4.431 bb – up from 4.307 bb in 2016 (2nd highest) and from 3.926 bb in 2014.   With forecast “new crop” MY 2017/18 domestic crush at a record 1.940 bb and exports forecast to be a record 2.250 bb (up 25 mb), projected U.S. total soybean use is a record 4.326 bb – up from 4.183 bb in “old crop” MY 2016/17 and from 3.944 bb in the previous marketing year. 

Given these results, “new crop” MY 2017/18 U.S. soybean ending stocks are forecast to be an 11 year high of 475 mb (10.98% S/U), while U.S. soybean prices are forecast to be in the range of $8.35-$10.05 (midpoint = $9.20 /bu).  This U.S. soybean price forecast is down from $9.50 in “old crop” MY 2016/17, but up from $8.95 the year before.  This USDA projection scenario is thought to have a 60% probability of occurring in the judgment of Kansas State University Extension.

Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2017/18

Three alternative KSU-Scenarios for U.S. soybean supply-demand and prices to the USDA projection are presented for “new crop” MY 2017/18.  Each forecast scenario presents the likelihood that exists of higher U.S. soybean acreage, lower yields and lower production, and higher prices than projected by the USDA in the September 12, 2017 WASDE report. 

A – KSU “New Crop” MY 2017/18 “Lower Yield” Scenario #1) “48.0 bu/ac – 4.278 bb” Scenario (30% probability) assumes: 89.901 ma planted, 89.116 ma harvested, 48.0 bu/ac yield, 4.278 bb production, 4.648 bb total supplies, 4.226 bb total use, 422 mb ending stocks, 9.99% S/U, & $9.70 /bu U.S. average soybean price; 

B – KSU “New Crop” MY 2017/18 “Very Low Yield” Scenario #2) “45.85 bu/ac – 4.085 bb” Scenario (5% probability) assumes: 89.901 ma planted, 89.116 ma harvested, 45.85 bu/ac yield, 4.085 bb production, 4.455 bb total supplies, 4.106 bb total use, 349 mb ending stocks, 8.50% S/U, & $10.20 /bu U.S. average soybean price; 

C – KSU “New Crop” MY 2017/18 “Wildcard World Event” Scenario #3) “48.0 bu/ac – 4.278 bb” Scenario (5% probability) assumes: 89.901 ma planted, 89.116 ma harvested, 48.0 bu/ac yield, 4.278 bb production, 4.648 bb total supplies, 3.861 bb total use, 787 mb ending stocks, 20.38% S/U, & $7.00 /bu U.S. average soybean price; 

Note: The presence of large beginning stocks of 345 mb in “new crop” MY 2017/18 limit the “tightness” of supply-demand balances along with prospects for a record large 2017 U.S. soybean crop of 4.431 bb (USDA). Prospects for such large supplies of soybeans hinders any upward price responses in the KSU Scenarios A, B and C above.

KSU Corn Market Outlook in Mid-September: Assessing 2017 Corn Supply-Demand and Price Scenario Outcomes

This article provides an analysis of U.S. and World Corn supply-demand factors and price prospects for the “New Crop” 2017/18 marketing year following the USDA’s September 12, 2017 USDA Crop Production and https://www.usda.gov/oce/commodity/wasde/latest.pdf reports.

Following is a summary of the article on “Corn Market Outlook in Mid-September 2017″ with the full article and accompanying analysis are available  on the KSU AgManager website (www.AgManager.info) at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter/corn-market-outlook-mid-september-2017

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Summary

Overview

Since the USDA’s September 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, DEC 2017 CME corn futures prices have declined- although not by as much as may have been expected or feared following the “bearish” report results for corn supply-demand and price prospects.  CME DEC 2017 corn futures opened at $3.57 on Tuesday, September 12th – the day of the report – then traded as low as $3.45 ½ that day before closing at $0.06 lower at $3.51 ½.  Since that day, DEC 2017 corn trended first marginally higher, but since have trended essentially sideways to close at $3.51 ½ on September 18th.  

Looking back, until the August 10th USDA reports U.S. corn prices had found support due to 1) spring corn planting difficulties, 2) summer corn production problems in select parts of the U.S. Corn Belt, and 3) strong U.S. corn use for ethanol production, wet corn milling, exports and – to a moderate degree – livestock feeding.   Then when the USDA’s August 10th projection of 2017 U.S. corn production came in approximately 300 million bushels (mb) higher than average pre-report trade estimates, corn futures prices declined through the end of the month.  Once into September corn futures trended sideways within a trading range through the September 12th USDA reports.  Trade expectations coming into the September 12th report again were for the USDA to lower is 2017 U.S. corn yield and production numbers down closer to long term trend line levels in the 167-168 bu/acre range, with production closer to 14.000 billion bushels (bb).

However, in the September 12th USDA Crop Production report, the USDA projected 2017 U.S. corn yields to average 169.9 bu/ac, actually up from average pre-report trade estimates of 167.8 bu/acre.  As a result, the USDA projected 2017 U.S. corn production to be 14.184 bb. 

Since the September 12th reports, varying trade perspectives on 2017 U.S. corn production prospects have continued, but market expectations in line with the USDA projection of a “large supply – low price” scenario have predominated, leaving DEC 2017 corn futures to trade near $3.50 per bushel.  This difference between the USDA August and September 2017 yield projection and private trade expectations heightens the market’s focus on coming October and November 2017, and January 2018 USDA Crop Production reports.

During 2017 any significant corn futures or cash market price rallies in Spring 2017 have continued to be limited by expectations that ending stocks of U.S. corn will stay above 2.0 bb in “new crop” MY 2017/18, coupled with ending stocks-to-use of 15.0%-16.0%.   Drought conditions in the northern plains states of North Dakota, South Dakota, and Montana as well as parts of Iowa and Illinois may ultimately have a negative impact on 2017 U.S. corn production, as may carryover impacts from delayed plantings in Indiana earlier in Spring 2017.  Periods of high temperatures that may have affected corn pollination in Corn Belt states in the first half of July.  But the final impact of these factors likely will not be known until the 2017 harvest actually occurs.

Kansas Cash Corn Prices & Basis Bids

In Western Kansas on Monday, September 18th cash corn bids at major grain elevators ranged from $3.15 ($0.37 under DEC futures) to $3.42 ($0.10 under DEC futures), and ranged from $2.91 ½ ($0.60 under DEC) to $3.26 ½ ($0.25 under DEC) in Central Kansas.  Even though Kansas corn prices have remained low in recent weeks, these prices still are sharply higher than in Oct-Dec 2016 when bids statewide had fallen below $3.00 per bushel – down to $2.66-$2.96 on December 23rd.  These prices were still above marketing loan rates for corn across the state, with corn loans near $2.05 in Central Kansas and $2.19 per bushel in Western Kansas

Cash corn price bids in East Central and Northeast Kansas at major terminal locations were $3.11 ½ on September 18th, actually down from the range of $3.26-$3.28 per bushel on 12/23/2016.  Cash corn bids at Kansas ethanol plants on September 18th ranged from $3.19 ¾ ($0.35 under DEC) to $3.69 ¾ ($0.15 over DEC) – indicating continuing strength in ethanol demand for corn in Kansas and nationwide.  While the “large supply and tight storage availability” situation still predominates in local Kansas grain markets, it continues to be positive that Kansas cash corn prices have avoided falling down to USDA loan rate levels.

Major Corn Market Considerations for Fall 2017 through Spring 2018

First, large beginning stocks of U.S. corn coming into “new crop” MY 2017/18 have been a “mitigating” factor limiting the response of the corn market to 2017 summer-early fall production risk.  The corn market has been less responsive to any 2017 U.S. corn production threats since beginning stocks for “new crop” MY 2017/18 have been projected to be near 2.335 bb rather than down to 1.000 bb. 

Second, it is anticipated that low prices for U.S. corn will continue to help maintain strong usage for domestic U.S. ethanol and wet milling production, as well as livestock feeding through at least spring 2018. 

Third, at least moderate continued strength is expected in U.S. corn exports due to low U.S. corn prices and also to a moderate weakening of the U.S. dollar against other World currencies.  Exports of U.S. corn are expected to continue at a “decent” pace of 1.850 bb for “new crop” MY 2017/18 even though South American corn production will continue to be a competitive factor in World trade through at least the end of 2017.  Also, preliminary forecasts for 2018 are that Brazilian corn acreage will be lower due to low prices and poor profitability in 2017 – which may have a positive effect on U.S. corn exports and price prospects later in 2018.

Fourth, a continuing threat exists of U.S. and Foreign economic and/or financial system disruptions that could impact grain, energy, and other commodity markets in 2017-2018.  World geo-political events could provide “shocks” to U.S. and World energy and grain markets which could in turn impact grain prices in either direction depending on the circumstances and the countries involved and their role in global corn export trade.

USDA Supply-Demand & Price Forecast for “New Crop” MY 2017/18

With the USDA’s continuing projection of 2017 U.S. corn plantings at 90.886 million acres or ‘ma’ (down 3.118 ma from 2016), harvested acres of 83.496 ma (down 3.252 ma), and projected yields of 169.9 bu/ac (vs the record high of 174.6 in 2016), 2017 U.S. corn production is forecast to be 14.184 bb – down from the record high of 15.148 bb in 2016.  

The USDA forecast “new crop” MY 2017/18 total supplies to be 16.585 bb – down 355 mb from last year’s record high.  Total use is forecast at 14.250 bb – down 340 mb from last year’s record high.  Ending stocks are projected to be 2.235 bb (16.38% S/U) – down from 2.350 bb (16.11% S/U) in “old crop” MY 2016/17.  United States’ corn prices are projected to average $3.20 /bu (range of $2.80-$3.60).  This is down $0.15 /bu from the midpoint estimate of $3.35 /bu from “old crop” MY 2016/17. This scenario is given a 60% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.

Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2017/18

Three alternative KSU-Scenarios for U.S. corn supply-demand and prices are presented for “new crop” MY 2017/18.  Each forecast scenario presents the likelihood of lower U.S. corn acreage, yields and production than projected by the USDA in the September 12, 2017 WASDE report for “new crop” MY 2017/18. 

A – KSU “New Crop” MY 2017/18 Scenario #1) “167.3 bu/ac – 13.930 bb” Scenario (35% probability) assumes: 90.753 ma planted, 83.261 ma harvested, 167.3 bu/ac trend yield, 13.930 bb production, 16.330 bb total supplies, 14.215 bb total use, 2.115 bb ending stocks, 14.88% S/U, & $3.45 /bu U.S. corn average price; 

B – KSU “New Crop” MY 2017/18 Scenario #2) “164.0 bu/ac – 13.655 bb” Scenario (5% probability) assumes: 90.753 ma planted, 83.261 ma harvested, 164.0 bu/ac yield, 13.655 bb production, 16.055 bb total supplies, 14.095 bb total use, 1.960 bb ending stocks, 13.91% S/U, & $3.60 /bu U.S. corn average price;

C – KSU “New Crop” MY 2017/18 “Wildcard” Scenario #3) “167.3 bu/ac – 13.930 bb” Scenario (???% prob.) assumes: 90.753 ma planted, 83.261 ma harvested, 167.3 bu/ac trend yield, 13.930 bb production, 16.330 bb total supplies, 13.935 bb total use, 2.395 bb ending stocks, 17.19% S/U, & $3.00 /bu U.S. corn average price;

Note: even with moderate reductions in 2017 U.S. corn production as represented in the KSU Scenarios A, B and C above, the presence of large beginning stocks of 2.350 bb in “new crop” MY 2017/18 limit the “tightness” of corn supply-demand balances, and hinders any upward price responses.

World Corn Supply-Demand – With & Without China

World corn production of 1,032.6 million metric tons (mmt) is projected for “new crop” MY 2017/18, down 3.6% from the record high of 1,071.2 mmt in “old crop” MY 2016/17, but still up 6.5% from 969.6 mmt in MY 2015/16.  Near record World corn total supplies of 1,259.6 mmt are projected for “new crop” MY 2017/18, down marginally from the record high of 1,285.1 mmt in “old crop” MY 2016/17, but up from 1,179.2 mmt in MY 2015/16. 

World corn exports of a 150.6 mmt are projected for “new crop” MY 2017/18, down 8.9% from the record high of 165.3 mmt in “old crop” MY 2016/17, and up 25.8% from 119.7 mmt in MY 2015/16.  Projected World corn ending stocks of 202.5 mmt (19.2% S/U) in “new crop” MY 2017/18 are down from the record high 227.0 mmt (21.4% S/U) in “old crop” MY 2016/17, and from 213.9 mmt (22.2% S/U) in MY 2015/16.  

An alternative view of the World corn supply-demand is presented if Chinese corn usage and ending stocks are isolated from the World market.  “World-Less-China” corn ending stocks are projected to be 121.2 mmt (14.8% S/U) in “new crop” MY 2017/18, down from 125.7 mmt (15.2% S/U) in “old crop” MY 2016/17, but up from 103.1 mmt (13.4% S/U).  These figures show that World stocks-to-use of corn less China’s direct influence are projected to be down approximately 23% (i.e., 14.8% S/U for the “World Less China” versus 19.2% S/U for the “World” overall in “new crop” MY 2017/18).  

At the same time, these figures also show that Chinese ending stocks of corn as proportion of the World total are declining – down from 51.8% in MY 2015/16, to 44.6% in “old crop” MY 2016/17, and down to 40.1% in “new crop” MY 2017/18.  The deliberate actions in recent years – taken by the Chinese government to reduce feedgrain stockpiles – is impacting the relative amount of World total corn stocks they hold.

KSU Weekly Grain Market Analysis: U.S. Corn Supply-Demand Scenarios and 2017-2018 Crop Weather Trends

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program to be played on Friday, September 15, 2017 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_09-15-17.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, September 15, 2017 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the August 4th recording will be available at the KSU Agriculture Today website.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

KSU Weekly Grain Market Analysis: The Market’s “Stance” ahead of the Sept. 12th USDA Reports

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program to be played on Friday, September 8, 2017 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_09-08-17.pdf

The recorded radio program was aired at 10:03 a.m. central time, Friday, September 8, 2017 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the August 4th recording will be available at the KSU Agriculture Today website.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

KSU Wheat Market Outlook in Early-September 2017 – Possible Alternative Wheat Market Outcomes

An analysis of U.S. and World wheat supply-demand factors and 2017-2018 price prospects following the August 10, 2017 USDA 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/wheat-market-outlook-early-september-2017

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Summary

Wheat Market Response Following the August 10th USDA Reports

Since the USDA’s August 10th World Agricultural Supply and Demand Estimates (WASDE) report, CME DEC 2017 Kansas HRW Wheat futures initially traded lower through late August, then higher into early September.  DEC Kansas HRW wheat futures opened at $4.92 on 7/12/2017 – the day of the report – but closed lower to $4.75 ¾ that day.  Since then, DEC 2017 HRW wheat futures traded as low as $4.20 on August 29th, but have since moved higher to close at $4.55 on September 5, 2017.

The low end of wheat cash prices on 9/5/2017 in southwest Kansas are $0.20 higher than in central Kansas, and $0.40-$0.45 higher above marketing loan rates than in western Kansas.On September 5th Kansas cash wheat price terminal quotes in central and eastern Kansas ranged from $3.15 ($1.30 under DEC) to $3.65 ($0.80 under DEC) per bushel.  The Farm Service Agency (FSA) marketing loan rate in Saline County (Salina) in central Kansas for hard red winter (HRW) wheat is $3.07 per bushel – within $0.08 per bushel of the low end of the central Kansas cash wheat price range on 9/5/2017.   The high end of Kansas City, Missouri truck bids for Ordinary wheat were $3.69 ($0.50 under DEC).

In western Kansas, wheat elevator bids ranged from $3.35 ($1.10 under DEC) to $3.55 ($0.90 under DEC) per bushel.  The FSA marketing loan rate in Finney County (Garden City) in southwest Kansas for HRW wheat is $2.84 per bushel – $0.51 above the low end of the western cash wheat price range on 9/5/2017.

Key World Wheat Supply-Demand Findings in the August WASDE Report

For the “new crop” 2017/18 marketing year (MY) beginning on June 1, 2017 the USDA forecast that World wheat total supplies would be a record high 1,001.7 million metric tons (mmt) in “new crop” MY 2017/18 with total use of 737.05 mmt (2nd highest behind 739.3 mmt in “old crop” MY 2016/17).

World wheat exports are also projected to trend marginally lower to 179.9 mmt in the “new crop” MY 2017/18 – down from a record high of 182.3 mmt last year, but up from 172.9 mmt two years ago.

World wheat ending stocks are forecast to be a record high 264.7 mmt in “new crop” MY 2017/18 – up from the previous record of 258.6 mmt last year, and from 242.9 mmt two years ago.

Global wheat percent ending stocks-to-use (S/U) are projected to be 35.9% – up from 35.0% last year, and from 34.1% two years ago – rising to the highest level of World wheat supply-demand balances since 36.2% in MY 1999/00 and 36.5% in MY 1998/99.

Perspectives on Current World Wheat Stock Levels

For a perspective on how historically large World total wheat stocks and World wheat percent stocks-to-use now are, consider that in MY 2007/08 the 34-year low in World wheat ending stocks of 128.2 mmt and at least a 57-year low in percent ending stocks-to-use of 20.9% stocks/use both occurred.  The 2007/08 marketing year was the last significant World wheat “short crop” marketing year to have occurred.  The “tight supply-demand” situation in MY 2007/08 compares to the most recent USDA projections of 264.7 mmt ending stocks and 35.9% ending stocks-to-use projected for “new crop” MY 2017/18.  The present “large crop-over supply” situation in World and U.S. wheat markets continues to have a prevailing limiting influence on U.S. and World wheat prices – even with recent drought-fueled moves higher in the market.

Large Black Sea Crops, Drought in HRS Wheat, & the “World-Less-China” Market Situation

There are at least three (3) key factors affecting World wheat markets at this time.

First, Increased production among major Black Sea Region exporters in “new crop” MY 2017/18 is at least temporarily “crowding out” export trade for other major exporters – including the United States.  Combined wheat production in Russia, Ukraine and Kazakhstan of 118.0 mmt in “new crop” MY 2017/18 is up 3.2% from 114.3 mmt in “old crop” MY 2016/17, and up 15.6% from 102.1 mmt in MY 2015/16.

Wheat production from these three countries amounts to 15.9% of World production in “new crop” MY 2017/18, and 15.1% one year and 13.9% two years ago.  In comparison, combined exports from these same three countries is projected to be 55.0 mmt in “new crop” MY 2017/18 (30.6% of World exports), up from 52.6 mmt a year ago (28.9% of World exports), and 50.3 mmt two years ago (29.3% of World exports).

Second, while there are plentiful aggregate supplies of wheat available in the World market, the available supply of high protein milling wheat is typically less so.  This situation had been exacerbated earlier this year by drought conditions occurring in U.S. and Canadian Hard Red Spring (HRS) wheat production areas.  These drought conditions had raised the demand and price premiums offered for high protein wheat supplies – whether they are from hard red winter wheat supplies or elsewhere.   However, with recent reports show less impact of dry conditions on 2017 North American Hard Red Spring Wheat production than expected, wheat protein premiums declining sharply in recent weeks.

Third, while the aggregate supply of wheat in World markets has grown, the supply of wheat from a “World-Less-China” perspective is projected to have actually “contracted” or “diminished” further in “new crop” MY 2017/18.   “World-Less-China” wheat percent stocks-to-use have declined to the tightest level since at least MY 2008/09 when U.S. wheat cash prices averaged $5.70 /bu.  It seems likely that this “China supply isolation factor” eventually will lead to noticeably tighter global supplies of available-exportable wheat sometime in the next 1-2 marketing years – brought on by the inability of buyers to secure needed supplies without having to bid prices at least moderately higher in export markets.

USDA U.S. Wheat S/D Forecast for “New Crop” MY 2017/18

The USDA released their wheat production, supply-demand and price projections for “new crop” MY 2017/18 in the August 10th USDA Crop Production & WASDE reports.

United States’ wheat plantings continue to be projected to be 46.657 million acres (ma) – down from 50.154 ma in “old crop” MY 2016/17 to the lowest level since the early 1900s.  Harvested acres are forecast to be 38.115 ma (83.72% harvested-to-planted) – down from 43.890 ma a year ago.  The 2017 U.S. average wheat yield is projected at 45.6 bu/ac (down from 0.6 bu/ac from July), down from the 2016 record of 52.6 bu/acre.

Wheat production in the U.S. in 2017 is forecast to be 1.739 billion bushels (bb), down from 2.310 bb in 2016.  Projected “new crop” MY 2017/18 total supplies are 3.074 bb (down from 3.403 bb in “old crop” MY 2016/17), with total use of 2.141 bb (down 5 mb from July, and from 2.219 bb in “old crop” MY 2016/17).

The USDA projected “new crop” MY 2017/18 ending stocks to be 933 million bushels (mb) (vs 1.184 bb a year ago), with percent ending stocks-to-use of 43.6% S/U (vs 53.4% last year and 50.0% the previous year).  United States’ wheat prices are projected to average $4.80 /bu ($4.40-$5.20 /bu) – up from $3.89 in “old crop” MY 2016/17, but down from $4.89 /bu in MY 2015/16, and $5.99 /bu in MY 2014/15.   It is estimated by Kansas State University that these USDA projections for “new crop” MY 2016/17 have a 55% probability of occurring.

Four Alternative KSU U.S. Wheat S/D Forecast for “New Crop” MY 2017/18

To represent possible alternative outcomes from the USDA’s August 10th projection, four potential KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “new crop” MY 2017/18.

KSU Scenario 1) “Lower U.S. Production” Scenario (25% probability) assumes for “new crop” MY 2017/18 that the following occurs.  This scenario assumes that there will be 46.657 ma planted, 83.72% harvested-to-planted, 37.500 ma harvested, 44.0 bu/ac yield, 1.650 bb production, 2.984 bb total supplies, 975 mb exports, 150 mb feed & residual use, 2.141 bb total use, 843 mb ending stocks, 39.37% stocks/use, & $5.20 /bu U.S. wheat average price.

KSU Scenario 2) “Lower U.S. Wheat Exports” Scenario (10% probability) assumes the following for “new crop” MY 2017/18:  Production of 1.739 bb (same as the USDA), 3.074 bb total supplies, 800 mb exports, 150 mb feed & residual use, 1.966 bb total use, 1.108 bb ending stocks, 56.36% stocks/use, & $3.75 /bu U.S. wheat average price;

KSU Scenario 3) “Higher U.S. Wheat Exports” Scenario (5% probability) assumes the following for “new crop” MY 2017/18:  Production of 1.739 bb (same as the USDA), 3.074 bb total supplies, 1.200 bb exports, 150 mb feed & residual use, 2.366 bb total use, 708 mb ending stocks, 29.92% stocks/use, & $6.00 /bu U.S. wheat average price;

KSU Scenario 4) “Wildcard Foreign Events” Scenario (5% probability) assumes the following for “new crop” MY 2017/18:  Production of 1.739 bb (same as the USDA), 3.074 bb total supplies, less than 700 mb exports, 150 mb feed & residual use, less than 1.800 bb total use, more than 1.300 bb ending stocks, greater than 65% stocks/use, & less than $3.00 /bu U.S. wheat average price;

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KSU Corn Market Outlook in Early-September: Remaining Possible 2017 Corn Crop and S/D-Price Scenario Outcomes

This article provides an analysis of U.S. and World corn supply-demand factors and price prospects for both the “New Crop” 2017/18 marketing year following the USDA’s August 10, 2017 USDA Crop Production and https://www.usda.gov/oce/commodity/wasde/latest.pdf reports as well the crop growing conditions that have occurred since those reports were released.

Following is a summary of the article on “Corn Market Outlook in Early-September 2017″ with the full article and accompanying analysis to be available early next week (Monday-Tuesday, September 4-5, 2017) on the KSU AgManager website (www.AgManager.info) at the following web address:

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

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Summary

  1. Overview

Since the USDA’s August 10th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, DEC 2017 CME corn futures have fallen sharply.  CME DEC 2017 corn futures opened at $3.85 ½ on August 12th – the day of the report – then traded as low as $3.70 ¼ that day before closing at $0.15 ¼ lower at $3.71.  Since then DEC 2017 corn trended down to a contract low of $3.44 ¼ on August 31st, before closing at $3.55 ¼ on Friday, September 1st.

Until the August 10th USDA reports U.S. corn prices had found support due to 1) spring corn planting difficulties, 2) summer corn production problems in select parts of the U.S. Corn Belt, and 3) strong U.S. corn use for ethanol production, wet corn milling, exports and – to a moderate degree – livestock feeding.

However, in the August 10th USDA Crop Production report, the USDA projected 2017 U.S. corn yields to average 169.5 bu/ac, up from a number of pre-report trade estimates of 165-168 bu/acre.  As a result, the USDA projected 2017 U.S. corn production to be 14.153 billion bushels (bb) – markedly higher than the range of 13.6 to 13.8 bb that the grain markets were anticipating.

Since the August 10th reports, varying U.S. corn production prospects have continued, but market expectations of a “large supply – low price” scenario have predominated, leading to price declines.  This difference between the USDA August 2017 yield projection and trade expectations heightens the market’s focus on coming September, October and November 2017 USDA Crop Production reports.

During 2017 any significant corn futures or cash market price rallies in Spring 2017 have been limited by expectations that ending stocks of U.S. corn will stay above 2.0 bb in “new crop” MY 2017/18, coupled with ending stocks-to-use above 15.0%-16.0%.   Drought conditions in the northern plains states of North Dakota, South Dakota, and Montana as well as parts of Iowa and Illinois may ultimately have a negative impact on 2017 U.S. corn production, as may carryover impacts from delayed plantings in Indiana earlier in Spring 2017, and periods of high temperatures that may have affected corn pollination in Corn Belt states in the first half of July.

  1. Kansas Cash Corn Prices & Basis Bids

In Western Kansas on Friday, September 1st cash corn bids at major grain elevators ranged from $3.05 ($0.35 under SEPT futures) to $3.40 ($0.15 under DEC futures), and ranged from $2.92 ¼ ($0.63 under DEC) to $3.25 ¼ ($0.30 under DEC) in Central Kansas.  Even though Kansas corn prices have declined in recent weeks, these prices still are sharply higher than in October-December 2016 when corn price bids statewide had fallen below $3.00 per bushel – down to $2.66-$2.96 on December 23rd.  These prices were still above marketing loan rates for corn across the state, with corn loans near $2.05 in Central Kansas and $2.19 per bushel in Western Kansas.

However, cash corn price bids in East Central and Northeast Kansas at major terminal locations were in the range of $3.05 ¼ – $3.15 ¼ on September 1st, actually down from the range of $3.26-$3.28 per bushel on 12/23/2016.  Cash corn bids at Kansas ethanol plants on September 1st ranged from $3.22 ¾ ($0.35 under DEC) to $3.72 ¾ ($0.15 over DEC) – indicating continuing strength in ethanol demand for corn in Kansas and nationwide.  While the “large supply and tight storage availability” situation still predominates in local Kansas grain markets, it is a positive that Kansas cash corn prices have avoided falling down to USDA loan rate levels.

  1. Major Corn Market Considerations for Fall 2017 through Spring 2018

First, large beginning stocks of U.S. corn coming into “new crop” MY 2017/18 have been a “mitigating” factor limiting the response of the corn market to 2017 summer production risk.  The corn market has been less anxious about the adequacy of corn supplies in the face of 2017 U.S. corn production risk since beginning stocks for “new crop” MY 2017/18 have been up to 2.370 bb rather than down to 1.000 bb.

Second, it is anticipated that low prices for U.S. corn will help maintain strong usage for domestic U.S. ethanol and wet milling production, as well as livestock feeding through at least fall-winter 2017.

Third, at least moderate continued strength is expected in U.S. corn exports due to low U.S. corn prices and a moderate weakening of the U.S. dollar against other World currencies. Exports of U.S. corn are expected to continue at a “decent” pace of 1.850 bb for “new crop” MY 2017/18 even though South American corn production will continue to be a competitive factor in World trade through at least the end of 2017.  Also, preliminary forecasts for 2018 are that Brazilian corn acreage will be lower due to low prices and poor profitability in 2017 – which may have a positive effect on U.S. corn exports and price prospects.

Fourth, a possibility exists of broader U.S. and Foreign economic and/or financial system disruptions that could impact grain, energy, and other commodity markets in 2017-2018.  World geo-political events could  provide “shocks” to U.S. and World energy and grain markets which could in turn impact grain prices in either direction depending on the circumstances and the countries involved and their role in global corn export trade.

  1. USDA Supply-Demand & Price Forecast for “New Crop” MY 2017/18

With the USDA’s projection of 2017 U.S. corn plantings at 90.886 million acres or ‘ma’ (down 3.118 ma from 2016), harvested acres of 83.496 ma (down 3.252 ma), and projected yields of 169.5 bu/ac (vs the record high of 174.6 in 2016), 2017 U.S. corn production is forecast to be 14.153 bb – down from the record high of 15.148 bb in 2016.

The USDA forecast “new crop” MY 2017/18 total supplies to be 16.573 bb – down 367 mb from last year’s record high.  Total use is forecast at 14.300 bb – down 270 mb from last year’s record high.  Ending stocks are projected to be 2.273 bb (15.90% S/U) – down from 2.370 bb (16.27% S/U) in “old crop” MY 2016/17.  United States’ corn prices are projected to average $3.30 /bu (range of $2.90-$3.70).  This is down $0.05 /bu from the midpoint estimate of $3.35 /bu from “old crop” MY 2016/17. This scenario is given a 50% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.

  1. Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2017/18

Four alternative KSU-Scenarios for U.S. corn supply-demand and prices are presented for “new crop” MY 2017/18.  Each forecast scenario presents the likelihood of lower U.S. corn acreage, yields and production than projected by the USDA in the August 10, 2017 WASDE report for “new crop” MY 2017/18.

A – KSU “New crop” MY 2017/18 Scenario #1) “167.3 bu/ac – 13.815 bb” Scenario (35% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 167.3 bu/ac trend yield, 13.815 bb production, 16.235 bb total supplies, 14.245 bb total use, 1.990 bb ending stocks, 13.97% S/U, & $3.60 /bu U.S. corn average price for “new crop” MY 2017/18;

B – KSU “New crop” MY 2017/18 Scenario #2) “164.0 bu/ac – 13.543 bb” Scenario (10% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 164.0 bu/ac yield, 13.543 bb production, 15.963 bb total supplies, 14.120 bb total use, 1.843 bb ending stocks, 13.05% S/U, & $3.75 /bu U.S. corn average price for “new crop” MY 2017/18;

C – KSU “New crop” MY 2017/18 Scenario #3) “160.0 bu/ac – 13.212 bb” Scenario (4% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 160.0 bu/ac yield, 13.212 bb production, 15.632 bb total supplies, 13.920 bb total use, 1.712 bb ending stocks, 12.30% S/U, & $3.85 /bu U.S. corn average price for “new crop” MY 2017/18;

D – KSU “New crop” MY 2017/18 “Wildcard” Scenario #4) “167.3 bu/ac – 13.815 bb” Scenario (1% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 167.3 bu/ac trend yield, 13.815 bb production, 16.235 bb total supplies, 14.085 bb total use, 2.150 bb ending stocks, 15.26% S/U, & $3.45 /bu U.S. corn average price for “new crop” MY 2017/18;

Note: even with significant reductions in 2017 U.S. corn production as represented in the KSU Scenarios A, B, C and D above, the presence of large beginning stocks of 2.370 bb in “new crop” MY 2017/18 limit the “tightness” of corn supply-demand balances, and hinders any upward price responses.

  1. World Corn Supply-Demand – With & Without China

World corn production of 1,033.5 million metric tons (mmt) is projected for “new crop” MY 2017/18, down 1.7% from the record high of 1,070.5 mmt in “old crop” MY 2016/17, but still up 7.1% from 969.5 mmt in MY 2015/16.  Near record World corn total supplies of 1,262.1 mmt are projected for “new crop” MY 2017/18, down marginally from the record high of 1,284.0 mmt in “old crop” MY 2016/17, but up from 1,178.7 mmt in MY 2015/16.

World corn exports of a 152.0 mmt are projected for “new crop” MY 2017/18, down 6.4% from the record high of 162.4 mmt in “old crop” MY 2016/17, and up 27.1% from 119.6 mmt in MY 2015/16.  Projected World corn ending stocks of 200.9 mmt (18.9% S/U) in “new crop” MY 2017/18 are down from the record high 228.6 mmt (21.7% S/U) in “old crop” MY 2016/17, and from 213.5 mmt (22.1% S/U) in MY 2015/16.

An alternative view of the World corn supply-demand is presented if Chinese corn usage and ending stocks are isolated from the World market.  “World Less China” corn ending stocks are projected to be 119.6 mmt (14.5% S/U) in “new crop” MY 2017/18, down from 127.3 mmt (15.5% S/U) in “old crop” MY 2016/17, but up from 102.7 mmt (13.7% S/U).  These figures show that World stocks-to-use of corn less China’s direct influence are projected to be down approximately 23% (i.e., 14.5% S/U for the “World Less China” versus 18.9% S/U for the “World” overall in “new crop” MY 2017/18).

These figures also show that Chinese ending stocks of corn as proportion of the World overall is declining – down from 51.9% in MY 2015/16 to 44.3% in “old crop” MY 2016/17, and down to 40.5% in “new crop” MY 2017/18.  The deliberate actions taken by the Chinese government in recent years to reduce feedgrain stockpiles is impacting the relative amount of corn stocks they hold in the World corn market.