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:
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;