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.

Key Supply-Demand Factors “Driving” Grain Markets (KSU Extension Ag Economics)

The following presentation on “Key Supply-Demand Factors ‘Driving” Grain Markets” was given on Tuesday, March 14, 2017 to the AgEcon 605 class on “Price Analysis and Forecasting” as a guest lecture.  The class is regularly taught by Dr. Richard Llewelyn of the Kansas State University Department of Agricultural Economics.

This presentation focuses on the key factors that have been “driving” or influencing grain markets over the last 15-25 years.   The full presentation will be available on the KSU Agricultural Economics website at the following web location:

http://www.agmanager.info/sites/default/files/pdf/OBrien_GrainMarketDrivers_03-15-17.pdf

 

 

 

KSU Wheat Market Outlook in December 2016: USDA and KSU Price Forecasts for “Next Crop” MY 2017/18

An analysis of U.S. and World wheat supply-demand factors and 2017 price prospects following the USDA’s December 9th World Agricultural Supply Demand Estimates (WASDE) report, and the market actions that have followed those reports will be available on the KSU AgManager website in the next few days (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/grain-marketing/grain-market-outlook-newsletter

***

Summary

Wheat Market Prices

Since the USDA’s December 9th World Agricultural Supply and Demand Estimates (WASDE) report, U.S. and World wheat futures market prices have traded higher – with CME MARCH 2017 Kansas HRW Wheat futures gaining $0.08 ¾ /bu to close at $4.13 ½ on 12/9/2016 – the day of the report – and trading as high as $4.20 ¾ per bushel through Wednesday, December 28th before closing down to $4.09 ½ that same day.

World Wheat Supply-Demand

For the “current crop” 2016/17 marketing year (MY), the USDA projected: 1) World wheat total supplies of 991.9 million metric tons (mmt) and total use of 739.8 mmt – both at record high levels, 2) that World wheat exports are continuing to trend higher to 176.8 mmt in the “current” marketing year – up from 172.5 mmt last year, and up from 164.4 mmt two years ago, 3) World wheat ending stocks at a record high 252.1 mmt up from 240.65 mmt last year, and 217.2 mmt two years ago, and 4) World wheat percent ending stocks-to-use (S/U) of 34.1% – up from 33.8% last year, and from 30.8% two years ago – up to the highest level 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 20.75% stocks/use both occurred – the last major World wheat “short crop” marketing year.  The situation in MY 2007/08 compares to projections of 252.1 mmt ending stocks and 34.1% ending stocks-to-use projected for “current” MY 2016/17.  The “large crop-over supply” situation that now exists in World and U.S. wheat markets continues to have a strong prevailing negative influence on U.S. and World wheat prices.

Factors that Could Change the “Large Crop – Over-Supply” Wheat Market Situation

However, the broader large crop-over supply-low price” situation in the World wheat market may be “hiding” 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 may eventually help exports of both U.S. Hard Red Spring (HRS) wheat (higher protein – good quality) and U.S. Hard Red Winter (HRW) wheat (moderate protein – good quality) relative to World wheat export competitors.  As evidence of this, exports of U.S. HRW wheat have been occurring at the pace needed to meet USDA projections – helped by both low purchase prices and acceptable protein and quality.  This raises the outside possibility of improved U.S. HRW prices in coming months.  Second, while the supply of wheat in World markets overall 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 situation since 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 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 that is 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 to and below the marketing loan rate in most of Kansas in fall / early winter 2016.

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

On December 1, 2016 the USDA released their preliminary Long Term Agricultural Projections to 2026, in which they projected 2017 U.S. wheat plantings of 48.500 million acres (ma) – down from 50.154 ma in 2015.  The USDA also forecast 2016 harvested acres of 41.100 ma which would be 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 2017 U.S. wheat production is forecast to be 1.936 billion bushels (bb), down from 2.310 bb in 2015.  Projected “next crop” MY 2017/18 total supplies are 3.199 bb (down from 3.410 bb in “current” MY 2016/17), with total use of 2.206 bb (down from 2.267 bb in “current” MY 2016/17).

Given these numbers, the USDA projected “next crop” MY 2017/18 ending stocks of 933 million bushels (mb) (vs 1.143 bb a year ago), with percent ending stocks-to-use of 45.0% S/U (vs 50.4% last year and 50.0% the previous year).  United States wheat average prices are projected to average $4.00 /bu – up from $3.70 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 USDA projections for “next crop” MY 2016/17 have a 50% probability of occurring.

Three Alternative KSU U.S. Wheat S/D Forecast 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.  These scenarios assume lower 2017 U.S. planted (47.624 ma) and harvested (38.385 ma) wheat acres than the USDA – due to larger than normal amounts of “graze out” and “crop switching” in 2017.

KSU Scenario 1) “Lower Acres, Trend Yield” Scenario (30% probability) assumes for “next crop” MY 2017/18: 47.624 ma planted, 38.385 ma harvested, 47.0 bu/ac trend yield, 1.804 bb production, 3.067 bb total supplies, 960 mb exports, 200 mb feed & residual use, 2.191 bb total use, 876 mb ending stocks, 39.98% S/U, & $4.00-$4.50 /bu U.S. wheat average price;

KSU Scenario 2) “Lower Acres, Trend Yield, +20% Exports” Scenario (10% probability) assumes for “next crop” MY 2017/18: 47.624 ma planted, 38.385 ma harvested, 47.0 bu/ac trend yield, 1.804 bb production, 3.067 bb total supplies, 1.152 bb exports***, 200 mb feed & residual use, 2.383 bb total use, 684 mb ending stocks, 24.10% S/U, & $5.25-$5.75 /bu U.S. wheat average price;

KSU Scenario 3) “Lower Acres, Short Crop Yield” Scenario (10% probability) assumes for “next crop” MY 2017/18: 47.624 ma planted, 38.385 ma harvested, 43.6 bu/ac low yield***, 1.674 bb production, 2.937 bb total supplies, 925 mb exports, 200 mb feed & residual use, 2.156 bb total use, 781 mb ending stocks, 36.22% S/U, & $4.40-$4.90 /bu U.S. wheat average price.

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Key Trends in World Currencies Important to U.S. Agriculture (via Kansas State University)

Following are a set of graphics showing key trends and relationships in World currencies versus the U.S. Dollar.  These selected currency relationships are among those most likely to impact U.S. agricultural imports and therefore U.S. grain prices.

These slides are part of a larger “Grain Market Outlook for 2017” presentation which is located on the KSU AgManager website (www.AgManager.info) in the “Grain Marketing” section (http://www.agmanager.info/grain-marketing).

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KSU Wheat Market Outlook in October 2016 – Strong U.S. Hard Red Winter Wheat Exports Provide a Positive Market Signal

An analysis of U.S. and World wheat supply-demand factors and 2016-2017 price prospects following the USDA’s October 12th 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/default.asp).

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

http://www.agmanager.info/wheat-market-outlook-october-2016

***

Summary

Overview

Since the USDA’s October 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, U.S. and World wheat futures market prices have traded higher – with CME DECEMBER 2016 Kansas HRW Wheat futures gaining approximately $0.25 per bushel through Thursday, October 20th.   Results of the USDA September 30th 2016 Small Grains Summary report were fully incorporated into the October USDA estimates.

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

1) World wheat total supplies of 984.1 million metric tons (mmt) and total use of 735.7 mmt – both at record high levels,

2) that World wheat exports are trending higher with 174.7 mmt in the “current” marketing year – up from 172.0 mmt last year, and up from 164.4 mmt two years ago,

3) World wheat ending stocks at a record high 248.4 mmt compared to 239.7 mmt last year, and 216.1 mmt two years ago, and

4) World wheat percent ending stocks-to-use (S/U) of 33.76% – up marginally from 33.69% last year, and from 30.60% two years ago – up to their highest level in 15 years (since MY 2001/02).

Perspective on Current “Large Supply – Low Price Scenario” vs MY 2007/08

For a perspective on how historically large World total wheat stocks and World wheat percent stocks-to-use are, the 34-year low in World wheat ending stocks of 128.0 mmt and at least a 57-year low in percent ending stocks-to-use of 20.8% S/U both occurred in MY 2007/08, the last major World wheat “short crop” marketing year.  The numbers for MY 2007/08 compare to projections of 248.4 mmt ending stocks and 33.8% ending stocks-to-use projected for “current” MY 2016/17.  The “large crop-over supply-low price” situation that now exists in World and U.S. wheat markets continues to have a strong prevailing negative influence on World wheat prices.

Positive Wheat Market Factors Not Necessarily Being Accounted for 

However, the broader large crop-over supply-low price” situation in the World wheat market may be “masking” or “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 may help exports of both U.S. Hard Red Spring (HRS) wheat (higher protein – good quality) and U.S. Hard Red Winter (HRW) wheat (moderate protein – good quality) relative to World wheat export competitors.  As evidence of this, exports of U.S. HRW wheat are running ahead of the pace needed to meet USDA projections – raising the possibility of improved U.S. HRW prices in coming months – helped by both low prices and acceptable protein and quality.

Second, while the supply of wheat in World markets overall is growing, 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 – to the tightest supply situation since MY 2013/14.

Relying of Future Supply-Shortfalls to “Adjust” the Market

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 coming months and early in year 2017 in order to have wheat prices recover significantly by spring-summer 2017.  Ongoing strength in the U.S. dollar exchange rate – although it has been “moderating” in recent months – also is a serious negative factor that is limiting 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 to the marketing loan rate in most of Kansas.

USDA U.S. Wheat Supply/Demand Forecast for “Current Crop” MY 2016/17

The USDA projected 2016 U.S. wheat plantings of 50.154 million acres (ma) – down 4.845 ma (-8.8%) from 2015.  The USDA also forecast 2016 harvested acres of 43.890 ma which would be down 3.428 ma (-7.2%) vs 2015.  Based on record high projected 2016 U.S. wheat yields of 52.6 bu/ac (up from 43.6 bu/ac in 2015), 2016 U.S. wheat production is forecast to be 2.310 bb (vs 2.062 bb in 2015), with total supplies of 3.410 bb (up from 2.927 bb in “old crop” MY 2015/16), and total use of 2.272 bb (up from 1.952 bb in “old crop” MY 2015/16).

Given these numbers, the USDA projected “current crop” MY 2016/17 ending stocks of 1.138 bb (vs 976 mb a year ago), with percent ending stocks-to-use of 50.09% S/U (vs 50.0% last year and 37.2% the previous year).  U.S. wheat average prices are projected to be in the range of $3.50 to $3.90 (midpoint = $3.70 /bu) – down from $4.89 /bu in “old crop” MY 2015/16 and $5.99 /bu in MY 2014/15.   It is assumed by Kansas State University that these USDA projections for “current crop” MY 2016/17 have an 80% probability of occurring.

Alternative KSU U.S. Wheat S/D Forecast for “Current Crop” MY 2016/17

As an alternative to the USDA’s projection, one potential KSU-Scenario for U.S. wheat supply-demand and prices is presented for “current crop” MY 2016/17 – and is given a 20% probability of occurring.  Assuming the same 2016 acreage, yields, imports, and production as USDA, as well as food and seed use, the alternative scenarios assumes a) higher U.S. wheat exports (1.125 bb vs 975 mb by USDA), and b) lower feed and residual use (240 mb vs 260 mb by USDA).

The resulting KSU “Higher Exports with Spring 2017 U.S. Wheat Development Problems” Scenario (20% probability) assumes for “current crop” MY 2016/17: 2.310 bb production, 3.410 bb total supplies, 1.125 bb exports, 240 mb feed & residual use, 1.008 bb ending stocks, 41.97% S/U, & $4.35 /bu U.S. wheat avg. price.

KSU U.S. Wheat S/D Forecasts for “Next Crop” MY 2017/18

Two alternative KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “next crop” MY 2017/18.  These scenarios assume a 5% decline in U.S. wheat planted and harvested acreage in 2017 (with a 7% decline for U.S. winter wheat, and no changes for other spring wheat and durum wheat classes.  These KSU projections also assume at least a continued moderation in the value of the U.S. dollar during the “next crop” 2017/18 marketing year, with some improvement in U.S. wheat exports as a result.

KSU Scenario A) “Trend Yield, Moderately Higher Exports” Scenario (65% probability) assumes for “next crop” MY 2017/18: 47.624 ma planted, 41.696 ma harvested, 47.0 bu/ac trend yield, 2.063 bb production, 3.326 bb total supplies, 1.000 bb exports, 250 mb feed & residual use, 2.286 bb total use, 1.040 bb ending stocks, 45.49% S/U, & $4.10 /bu U.S. wheat average price; and

KSU Scenario B) “Lower Yield, Average Exports” Scenario (35% probability) assumes for “next crop” MY 2017/18: 47.624 ma planted, 41.696 ma harvested, 43.6 bu/ac lower yield, 1.914 bb production, 3.177 bb total supplies, 980 mb exports, 240 mb feed & residual use, 2.256 bb total use, 921 mb ending stocks, 40.82% S/U, & $4.50 /bu U.S. wheat average price.

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KSU Wheat Market Outlook in Early September 2016 – Considering the “World Less China” and MY 2017/18 Wheat Scenarios

An analysis of U.S. and World wheat supply-demand factors and 2016-2017-2018 price prospects following the USDA’s August 12th 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, September 7, 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/grain-marketing/grain-market-outlook-newsletter

***

Summary

Market Action

Since the USDA’s August 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, U.S. and World wheat futures market prices traded sideways through August 22nd and then declined sharply through the end of August before modestly recovering through September 6th.

World Supply-Demand

For the “current crop” 2016/17 marketing year the USDA projected: 1) World wheat total supplies of 985.3 million metric tons (mmt) and total use of 732.5 mmt – both at record high levels, 2) that marginally higher trade continues in World wheat exports with 170.7 mmt in the “current” marketing year – up from 170.6 mmt last year, and up from 164.4 mmt two years ago, 3) World wheat ending stocks at a record high 252.8 mmt compared to 241.9 mmt last year, and 216.1 mmt two years ago, and 4) World wheat percent ending stocks-to-use (S/U) of 34.5% – up from 34.1% last year and from 30.6% two years ago – up to their highest level in 15 years (since MY 2001/02).

For a perspective on how historically large World total wheat stocks and World wheat 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.

“Not So Easily Perceived” Wheat Market Issues

The broader “large supply – low price” situation in the World wheat market may be “masking” or “obscuring” at least a couple of other significant 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 may help U.S. Hard Red Spring wheat markets and other sources of moderate to high protein wheat in the U.S. and abroad.  Second, while the supply of wheat in World markets overall is growing, the supply of wheat in the “World Less China” is projected to have “contracted” in “current crop” MY 2016/17 compared to a year ago to the tightest supply situation since MY 2013/14.

It is likely that significant World wheat production problems and/or trade disruptions would need to occur in coming months and early in year 2017 in order to have wheat prices recover significantly by spring-summer 2017.  Ongoing strength in the U.S. dollar exchange rate – although it has been weakening or “moderating” in recent months – 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 causing U.S. and Kansas wheat cash prices to fall sharply – down to the marketing loan rate in most of Kansas.

USDA U.S. Wheat Supply/Demand Forecast for “Current Crop” MY 2016/17

The USDA projected 2016 U.S. wheat plantings of 50.816 million acres (ma) – down 3.828 ma (-7.0%) from 2015.  The USDA also forecast 2016 harvested acres of 44.093 ma which would be down 3.001 ma (-6.4%) vs 2015.  Based on projected 2016 U.S. wheat yields of 52.6 bu/ac (up from 43.6 bu/ac in 2015), 2016 U.S. wheat production is projected to be 2.321 bb (vs 2.052 bb in 2015), with total supplies of 3.417 bb (up from 2.917 bb in “old crop” MY 2015/16), and total use of 2.317 bb (up from 1.936 bb in “old crop” MY 2015/16).

Given these numbers, the USDA projected “current crop” MY 2016/17 ending stocks of 1.100 bb (vs 981 mb a year ago), with percent ending stocks-to-use of 47.5% S/U (vs 50.7% last year).  U.S. wheat average prices are projected to be in the range of $3.35 to $4.05 (midpoint = $3.70 /bu) – down from $4.89 /bu in “old crop” MY 2015/16 and $5.99 /bu in MY 2014/15.   It is assumed by Kansas State University that these USDA projections for “current crop” MY 2016/17 have an 80% probability of occurring.

Alternative KSU U.S. Wheat S/D Forecast for “Current Crop” MY 2016/17

As an alternative to the USDA’s projection, one potential KSU-Scenario for U.S. wheat supply-demand and prices is presented for “current crop” MY 2016/17 – and is given a 20% probability of occurring.  Assuming the same 2016 acreage, yields, imports, and production as USDA, as well as food and seed use, the alternative scenarios assumes a) higher U.S. wheat exports (1.075 bb vs 985 mb by USDA), and b) lower feed and residual use (320 mb vs 330 mb by USDA).

KSU “Higher Exports with Spring 2017 U.S. Wheat Development Problems” Scenario (20% probability) assumes for “current crop” MY 2016/17: 2.321 bb production, 3.417 bb total supplies, 1.075 bb exports, 320 mb feed & residual use, 1.396 bb ending stocks,  40.50% S/U, & $4.25 /bu U.S. wheat average price.

KSU U.S. Wheat S/D Forecasts for “Next Crop” MY 2017/18

Two alternative KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “next crop” MY 2017/18.  These scenarios assume a 5% decline in U.S. wheat planted and harvested acreage in 2017 (with a 7% decline for U.S. winter wheat, and no changes for other spring wheat and durum wheat classes.  These KSU projections also assume at least a continued moderation in the value of the U.S. dollar during the “next crop” 2017/18 marketing year, with some improvement in U.S. wheat exports as a result.

KSU Scenario A) “Trend Yield, Higher Exports” Scenario (65% probability) assumes for “next crop” MY 2017/18: 48.258 ma planted, 41.873 ma harvested, 47.0 bu/ac trend yield, 2.072 bb production, 3.287 bb total supplies, 1.000 bb exports, 250 mb feed & residual use, 2.286 bb total use, 1.001 bb ending stocks, 43.79% S/U, & $3.95 /bu U.S. wheat average price; and

KSU Scenario B) “Lower Yield, Average Exports” Scenario (35% probability) assumes for “next crop” MY 2017/18: 48.258 ma planted, 41.873 ma harvested, 43.6 bu/ac lower yield, 1.922 bb production, 3.137 bb total supplies, 980 mb exports, 240 mb feed & residual use, 2.256 bb total use, 881 mb ending stocks, 39.05% S/U, & $4.35 /bu U.S. wheat average price.

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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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