This report provides an analysis of U.S. and World wheat supply-demand factors and 2018 marketing year price prospects following the USDA’s December 12, 2017 Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports. It also incorporates U.S. wheat market supply-demand and price projections for the “next crop” 2018/19 marketing year from the USDA’s Long Term Agricultural Projections released on November 28, 2017. This article will be available in full on the KSU AgManager website in coming days (http://www.agmanager.info/).
Following is a summary – with the full analysis-article for Wheat Market Outlook in Late-December 2018 to be found at this web location:
A. Wheat Market Response to the December 12th USDA Reports
Since the USDA’s December 12th World Agricultural Supply and Demand Estimates (WASDE) report, CME MARCH 2018 Kansas HRW Wheat futures have traded higher. MARCH 2018 Kansas HRW wheat futures opened at $4.13 on 12/12/2017 – the day of the report – but closed lower to $4.11 ¼ that day. Since then, MARCH 2018 HRW wheat futures have trended higher to a close of $4.22 ¾ on Friday, December 22nd.
That same day Kansas cash wheat price terminal quotes in central and eastern Kansas ranged from $3.42 ¼ to $3.83 ¼ per bushel – with basis ranging from $0.80 under to $0.39 under MARCH 2018 futures. In western Kansas, representative wheat elevator bids ranged from $3.47 to $3.64 per bushel – with basis ranging from $0.85 under to $0.58 under MARCH 2018 futures. Although cash prices are markedly above marketing loan rates, basis levels are still “wide and weak” compared to historic Kansas wheat basis patterns.
B. Key World Wheat Supply-Demand Findings in the December 12th USDA 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 1,010.5 million metric tons (mmt) with total use of 742.1 mmt – both being record high levels for “new crop” MY 2017/18.
Second, that World wheat exports will also trend marginally lower to 182.15 mmt in the “new crop” 2017/18 marketing year – down from a record high of 183.2 mmt last year, but still up from 172.8 mmt two years ago.
Third, that World wheat ending stocks would be a record high 268.4 mmt in “new crop” MY 2017/18 – up from the previous record of 255.3 mmt in MY 2016/17, and from 241.4 mmt in MY 2015/16.
Fourth, that World wheat percent ending stocks-to-use (S/U) would be 36.24% – up from 34.5% last year, and from 33.9% two years ago – rising to the highest level since 36.25% in MY 1998/99.
C. 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 268.4 mmt ending stocks and 36.2% 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 prevalent limiting influence on U.S. and World wheat prices – even with recent drought-fueled moves higher in the market.
D. “World Less China” Wheat Market Situation
The broader “large crop-over supply-low price” situation in the World wheat market may be “obscuring” at some important underlying market issues.
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 2012/13 when U.S. wheat cash prices averaged a record high $7.77 /bu. If this “China supply isolation factor” eventually leads to noticeably tighter available global supplies of openly exportable wheat in the next 12 months, it could have a significant positive impact on U.S. and World wheat market prices.
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 2018 in order to have wheat prices recover significantly in 2018. 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.
E. U.S. Wheat Supply/Demand for “New Crop” MY 2017/18 & “Next Crop” MY 2018/19
The USDA released their wheat production, supply-demand and price projections for the U.S. for “new crop” MY 2017/18 in the December 12th WASDE report, and for “next crop” MY 2018/19 in its November 28th Long Term Agricultural Projections.
U.S. wheat plantings are forecast to be 45.000 million acres (ma) in 2018, down from 46.012 ma in 2017, and 50.119 ma in 2016, to the lowest level since the early 1900s. Harvested acres are forecast at 38.3 ma in 2018 (85.11% harvested-to-planted), up from 37.586 ma (81.69% harvested-to-planted) in 2017, but down from 43.850 ma in 2016.
The 2018 U.S. average wheat yield is estimated at 47.4 bu/ac, up from 46.3 bu/ac in 2017, but down from the 2016 record of 52.7 bu/acre.
Wheat production in the U.S. in 2018 is forecast to be 1.815 billion bushels (bb), up from 1.741 bb in 2017, but down from 2.309 bb in 2016. After adjustments by Kansas State University from the December 12th WASDE report, projected “next crop” MY 2018/19 total supplies are forecast at 2.910 bb, down from 3.071 bb in “new crop” MY 2017/18, and down from 3.402 bb in MY 2016/17. U.S. Wheat total use of 2.072 bb is forecast for “next crop” MY 2018/19, down from 2.111 bb in “new crop” MY 2017/18, and from 2.222 bb in MY 2016/17.
With previously mentioned KSU adjustments from the December 12th WASDE report, the USDA projected “next crop” MY 2018/19 ending stocks to be 838 million bushels (mb) (40.44% stocks/use), down from 960 mb in “new crop” MY 2017/18 (45.48% stocks/use), and 976 mb in MY 2016/17 (50.03% stocks/use).
United States’ wheat prices are projected to average $4.60 /bu in “next crop” MY 2018/19, unchanged from “new crop” MY 2017/18, but up from $3.89 in MY 2016/17, and comparable to $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 2017/18 have a 75% probability of occurring.
F. Two Alternative KSU U.S. Wheat S/D Forecast for “New Crop” MY 2017/18
To represent possible alternative outcomes from the USDA’s December 12th projection, two potential KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “new crop” MY 2017/18.
KSU Scenario 1) “Lower Export” Scenario (15% probability) assumes for “new crop” MY 2017/18 that the following outcome occurs. This scenario assumes that there will be 46.012 ma planted, 81.69% harvested-to-planted, 37.586 ma harvested, 46.3 bu/ac average yield, 1.741 bb production, 3.071 bb total supplies, 775 mb exports, 120 mb feed & residual use, 1.911 bb total use, 1.160 bb ending stocks, 60.70% Stocks/Use, & $4.10 /bu U.S. wheat average price.
KSU Scenario 2) “Higher U.S. Wheat Exports” Scenario (10% probability) assumes for “new crop” MY 2017/18 that the following outcome happens. This scenario assumes that there will be 46.012 ma planted, 81.69% harvested-to-planted, 37.586 ma harvested, 46.3 bu/ac average yield, 1.741 bb production, 3.071 bb total supplies, 1.150 bb exports, 120 mb feed & residual use, 2.286 bb total use, 785 mb ending stocks, 34.34% Stocks/Use, & $5.10 /bu U.S. wheat average price.