KSU Wheat Market Outlook in Mid-July 2017 – MY 2017/18 Wheat S-D and Price Scenarios with World Less China Estimates

An analysis of U.S. and World wheat supply-demand factors and 2016-2017 price prospects following the USDA’s July 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/grain-marketing/grain-market-outlook-newsletter

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Summary

Wheat Market Response to the July 12th USDA Reports

Since the USDA’s July 12th World Agricultural Supply and Demand Estimates (WASDE) report, CME SEPT 2017 Kansas HRW Wheat futures have traded lower.  SEPT Kansas HRW wheat futures opened at $5.52 ¾ on 7/12/2017 – the day of the report – but closed lower to $5.38 ¾ that day.  Since then, SEPT 2017 HRW wheat futures have moved lower to a close of $5.02 ¾ on Tuesday, July 18th.

That same day Kansas cash wheat price terminal quotes in central and eastern Kansas ranged from $3.98 ¾ to $4.47 ¾ per bushel – with basis ranging from $1.04 under to $0.55 under SEPT 2017 futures.  In western Kansas, representative wheat elevator bids ranged from $4.05 to $4.34 per bushel – with basis ranging from $0.98 under to $0.69 under SEPT 2017 futures.  Although cash prices have improved considerably from fall 2016 when many wheat bids had fallen to marketing loan rates or lower, basis levels are still “wide and weak” compared to historic Kansas wheat basis historic patterns.

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

For the “new crop” 2017/18 marketing year (MY) beginning on June 1, 2017 the USDA projected the following. First, that World wheat total supplies would be 995.9 million metric tons (mmt) with total use of 735.3 mmt – both marginally lower than the record high levels of “old crop” MY 2016/17.

Second, that World wheat exports will also trend marginally lower to 178.4 mmt in the “new crop” 2017/18 marketing year – down from a record high of 181.6 mmt last year, but up from 172.9 mmt two years ago.

Third, that World wheat ending stocks would be a record high 260.6 mmt in “new crop” MY 2017/18 – up from the previous record of 258.05 mmt last year, and from a previous record high of 242.8 mmt two years ago.

Fourth, that World wheat percent ending stocks-to-use (S/U) would be 35.4% – up from 34.9% 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 260.6 mmt ending stocks and 35.4% 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.

Wheat Protein Supply Concerns & the “World Less China” Market Situation

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 typically less so.  This factor helps exports of U.S. Hard Red Spring (HRS) wheat (higher protein – good quality) relative to World wheat export competitors.  The drought conditions now occurring in the U.S. and Canadian hard red spring wheat producing regions has raised the demand and price premiums offered for high protein wheat supplies – whether they are from hard red winter wheat supplies or elsewhere.

Second, 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.  If this “China supply isolation factor” eventually leads to noticeably tighter global supplies of available-exportable wheat in coming months, then it will likely have a significant positive impact U.S. wheat market prices in “new crop” MY 2017/18.

However, unless there is this change in the broader, overriding focus of the World wheat market away from aggregate global supplies to available “World Less China supplies – 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 in later 2017.   Such disruptions elsewhere would likely cause the market to then focus on the limited availability of food quality wheat outside of China in the World market.   Also, ongoing strength in the U.S. dollar exchange rate continues to be a negative factor limiting the competitive affordability of U.S. wheat exports in World markets.

USDA U.S. Wheat Supply/Demand 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 July 12th Crop Production & World Agricultural Supply and Demand Estimates (WASDE) reports.

United States’ wheat plantings are projected to be 46.567 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 46.2 bu/ac, down from the 2016 record of 52.6 bu/acre.

Wheat production in the U.S. in 2017 is forecast to be 1.760 billion bushels (bb), down from 2.310 bb in 2015.  Projected “new crop” MY 2017/18 total supplies are 3.084 bb (down from 3.403 bb in “old crop” MY 2016/17), with total use of 2.146 bb (down from 2.219 bb in “old crop” MY 2016/17).

The USDA projected “new crop” MY 2017/18 ending stocks to be 938 million bushels (mb) (vs 1.184 bb a year ago), with percent ending stocks-to-use of 43.7% S/U (vs 53.4% last year and 50.0% the previous year).  United States’ wheat prices are projected to average $4.80 /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 50% probability of occurring.

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

To represent possible alternative outcomes from the USDA’s July 12th projection, three potential KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “new crop” MY 2017/18.

KSU Scenario 1) “5 Year Avg Yield” Scenario (20% 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, 38.115 ma harvested, 45.8 bu/ac 5-year average yield, 1.746 bb production, 3.030 bb total supplies, 975 mb exports, 150 mb feed & residual use, 2.146 bb total use, 884 mb ending stocks, 41.19% S/U, & $5.05 /bu U.S. wheat average price.

KSU Scenario 2) “Higher U.S. Wheat Exports” Scenario (20% probability) assumes the following for “new crop” MY 2017/18.  Planted acres of 46.657 ma are associated with 38.115 ma harvested, 45.8 bu/ac 5-year average yield, 1.746 bb production, 3.030 bb total supplies, 1.200 bb exports (due to foreign crop problems), 125 mb feed & residual use, 2.346 bb total use, 684 mb ending stocks, 29.16% S/U, & $6.00 /bu U.S. wheat average price;

KSU Scenario 3) “Short U.S. Wheat Crop” Scenario (10% probability) assumes the following for “new crop” MY 2017/18.  Planted acres of 46.657 ma, 83.72% harvested-to-planted, 38.115 ma harvested, 40.2 bu/ac low “crop stress” yield, 1.633 bb production, 2.917 bb total supplies, 975 mb exports, 125 mb feed & residual use, 2.121 bb total use, 796 mb ending stocks, 37.53% S/U, & $5.35 /bu U.S. wheat average price.

KSU Corn Market Outlook in Mid July 2017: “Next Crop” MY 2017/18 Probability Scenarios

An analysis of U.S. and World Corn supply-demand factors and “Next Crop” 2017/18 Marketing Year supply-demand and price prospects is provided in the following article summary.  This information follows the USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports on July 12, 2017.

A full version of this article is available on the KSU AgManager website http://www.agmanager.info/ at the following web address:

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

Following is a summary of the article on “Corn Market Outlook in Mid July 2017″

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Summary

Overview

Since the USDA’s July 12th World Agricultural Supply and Demand Estimates (WASDE) report, SEPT 2017 CME corn futures have fallen sharply.  CME SEPT 2017 corn futures opened at $4.00 on July 12th – the day of the report – then traded as low as $3.68 ½ on July 13th before closing at $3.76 ¼ on July 14th.  To date SEPT 2017 has remained above the recent contract low of $3.64 ½ on June 23, 2017, and the longer term contract lows of $3.48 ¼ on August 30-31, 2016.

Thus far in year 2017 U.S. corn prices have found moderate support due to spring corn planting and summer corn production uncertainties, and strong U.S. corn use in terms of ethanol production, wet corn milling, exports and – to a moderate degree – livestock feeding.   Although the USDA forecast in the June 30th Acreage report of 90.886 million acres (ma) of U.S. corn plantings in 2017 was above trade expectations, this projection is still down from 94.004 ma planted in 2016.  The USDA used a crop modeling approach to forecast 2017 U.S. corn yields to be 170.7 bu/acre in the July WASDE report.

However, in the upcoming survey-based August 10th Crop Production report, it is possible that various production problems resulting from dry conditions in the U.S. northern plains and late plantings elsewhere in the U.S. Corn Belt may result in U.S. corn yield projections closer to long term trend estimates of 165-168 bu/acre.  If this occurs, then 2017 U.S. corn production estimates could be in the range of 13.6 to 13.8 billion bushels (bb) in the August 10th USDA reports instead of the USDA projection of 14.255 bb in the July WASDE.

So far, 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 “next crop” MY 2017/18, coupled with ending stocks-to-use above 15.0%-16.0% in both “current” MY 2016/17 and “next crop” MY 2017/18.   Drought conditions in the northern plains states of North Dakota, South Dakota, and Montana as well as parts of Nebraska and Iowa may have a negative impact on 2017 U.S. corn production.  Also, corn production in 2017 may be negatively affected by carryover impacts from delayed plantings in the central Corn Belt earlier in Spring 2017, and periods of high temperatures that may have affected corn pollination in the first half of July.

Kansas Cash Corn Prices & Basis Bids

Cash corn bids at major grain elevators ranged from $3.36 ($0.40 under SEPT futures) to $3.76 ($0.00 under or par with futures) in Western Kansas and $3.21 ¼ ($0.55 under) to $3.41 ¼ ($0.35 under) in Central Kansas on Friday, July 14th.  This represents a marked increase since October-December 2016 when corn price bids statewide had fallen below $3.00 per bushel – down to $2.66-$2.96 on December 23rd – although not as low as marketing loan rates near $2.05 (central KS) to $2.19 (western KS) per bushel.  Cash corn price bids in east central and northeast Kansas – near river terminal locations – were near $3.44 – $3.46 on July 14th, up from the range of $3.26-$3.28 per bushel on 12/23/2016.  Cash corn bids at Kansas ethanol plants on July 17th ranged from $3.52 ¼ ($0.24 under) to $4.18 ¼ ($0.42 over) – 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 market signal that Kansas cash corn prices have enough support to have avoided falling down to USDA loan rate levels.

Major Corn Market Considerations

First, large beginning stocks of U.S. corn coming into “next crop” MY 2017/18 have been a “mitigating” or “limiting” factor affecting the response of the corn market to 2017 production risk.  The corn market is less anxious about having adequate corn supplies in the face of 2017 U.S. corn production risk when beginning stocks are 2.370 bb rather than 1.000 bb. 

Second, it is anticipated that moderately low prices of 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 summer-fall 2017. 

Third, at least moderate continued strength is expected in U.S. corn exports due to moderately low U.S. corn prices. Exports of U.S. corn are expected to continue at a “decent” pace” even though South American corn production will continue to be a competitive factor in World trade through at least the end of 2017.  

Fourth, the 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 have the potential to provide “shocks” to U.S. and World energy and grain markets.  However, the impact on the direction of U.S. and World corn markets of such disruptive events are difficult to anticipate – depending on which countries may be involved and their role in global corn export trade. 

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

The USDA has projected 2017 U.S. corn plantings to be 90.886 million acres or ‘ma’ (down 3.118 ma from 2016).   Harvested acres in 2017 are forecast at 83.496 ma (down 3.252 ma), with projected yields of 170.7 bu/ac (vs the record high of 174.6 in 2016). This leads to a USDA 2017 U.S. corn production forecast of 14.255 bb – down from the record high of 15.148 bb in 2016.  

The USDA forecast “next crop” MY 2017/18 total supplies to be 16.675 bb – down 265 mb from last year’s record high.  Total use is forecast at 14.350 bb – down 220 mb from last year’s record high.  Ending stocks are projected to be 2.325 bb (16.20% S/U) – down from 2.370 bb (16.27% S/U) in “current” 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 $3.30 /bu from “current” MY 2016/17. This scenario is given a 45% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.

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

Four alternative KSU-Scenarios for U.S. corn supply-demand and prices are presented for “next 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 July 12, 2017 WASDE report for “next crop” MY 2017/18. 

A – KSU “Next Crop” MY 2017/18 Scenario #1) “167.3 bu/ac – 13.815 bb” Scenario (25% 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, & $3.55 /bu U.S. corn average price for “next crop” MY 2017/18; 

B – KSU “Next Crop” MY 2017/18 Scenario #2) “165.0 bu/ac – 13.652 bb” Scenario (20% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 165.0 bu/ac yield, 13.625 bb production, 16.045 bb total supplies, 14.120 bb total use, 1.925 bb ending stocks, 16.63% S/U, & $3.60 /bu U.S. corn average price for “next crop” MY 2017/18;

C – KSU “Next Crop” MY 2017/18 Scenario #3) “160.0 bu/ac – 13.212 bb” Scenario (5% 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, & $3.80 /bu U.S. corn average price for “next crop” MY 2017/18;

D – KSU “Next Crop” MY 2017/18 Scenario #4) “150.0 bu/ac – 12.387 bb” Scenario (5% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 150.0 bu/ac yield, 12.387 bb production, 14.807 bb total supplies, 13.400 bb total use, 1.407 bb ending stocks, 10.50% S/U, & $4.20 /bu U.S. corn average price for “next crop” MY 2017/18;

Note: even with significant reductions in 2017 U.S. corn production as represented in KSU Scenarios C and D above, the presence of large beginning stocks of 2.370 bb in “next crop” MY 2017/18 limit the “tightness” of corn supplies, and lowers price prospects.

World Corn Supply-Demand – With & Without China

World corn production of 1,036.9 million metric tons (mmt) is projected for “next crop” MY 2017/18, down 3.0% from the record high of 1,068.8 mmt in “current” MY 2016/17, but still up 7.0% from 968.8 mmt in MY 2015/16.  Near record World corn total supplies of 1,264.4 mmt are projected for “next crop” MY 2017/18, down marginally from the record high of 1,281.6 mmt in “current” MY 2016/17, but up from 1,178.4 mmt in MY 2015/16. 

World corn exports of a near record 152.5 mmt are projected for “next crop” MY 2017/18, down 4.6% from the record high of 159.7 mmt in MY 2015/16, and up 27.5% from 119.6 mmt in MY 2015/16.  Projected World corn ending stocks of 200.8 mmt (18.9% S/U) in “next crop” MY 2017/18 are down from the record high 227.5 mmt (21.6% S/U) in “current” MY 2016/17, and from 212.8 mmt (22.0% 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 119.5 mmt (14.5% S/U and 40.5% of World corn stocks) in “next crop” MY 2017/18, down from 126.2 mmt (15.4% S/U and 44.5% of World stocks) in “current” MY 2016/17, but up from 102.0 mmt (13.6% S/U and 52.1% of World Stocks).  These figures show that World stocks 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 “next crop” MY 2017/18).  

These figures also show that Chinese ending stocks of corn as proportion of the World overall is declining – down from 52.1% in MY 2015/16 to 44.5% in “current” MY 2016/17, and down to 40.5% in “next 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.

KSU Weekly Grain Market Analysis: Updated US Corn S-D Price Probability Scenarios for MY 2017/18

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, July 7, 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_07-07-17.pdf

The recorded radio program was aired at 10:03 a.m. central time, Friday, July 7, 2017 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the July 7th recording is 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: Prepping for June 30th USDA Acreage and Stocks Reports

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program aired on on Friday, June 30, 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_06-30-17.pdf

The recorded radio program was aired at 10:03 a.m. central time, Friday, June 30, 2017 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the June 30th recording is 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: Weighing Uncertain 2017 Weather, Crop Production, S-D, and Grain Prices

Grain market summary notes, charts and comments ahead of the KSU Agriculture Today Grain Outlook that was played on Friday, June 23rd will be placed up 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_06-23-17.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, June 23rd on the K-State Radio Network (KSU Agriculture Today Radio) – web player available.

Later today the program can also be listened to via a link from the following website in the “Radio Interviews” section:  http://www.agmanager.info/sites/default/files/media/OBrien_06-16-17.mp3

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: S-D and Price Scenarios for MY 2017/18 Corn-Wheat

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, June 16, 2017 will be available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/sites/default/files/pdf/KSRE_GrainOutlook_06-16-17.pdf

The recorded radio program was aired at 10:03 a.m. central time, Friday, June 16, 2017 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the June 16th recording is 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: Anticipating the June 9, 2017 WASDE + Crop Production 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, June 9, 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_05-26-17.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, June 9, 2017 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the June 9th 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…