KSU Weekly Grain Market Analysis: “Grinding” Thru February in the U.S. on the way to Spring Planting

Grain market summary notes, charts and comments ahead of the KSU Agriculture Today Grain Outlook to played on Friday, February 17, 2017 are available on the Kansas State University www.AgManager.info website at the following web address:

https://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_02-17-17.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, February 17 on the K-State Radio Network (here) – with the program available to listen to online.  After the program airs, a recording can also be listened to from the KSU AgManager.info website via a link  in the “Radio Interviews” section: http://www.agmanager.info/news/default.asp

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Grain Market Update (5th of 5 parts) – Graphics of U.S. Soybean Market Outlook

In the following charts is the fifth of five (5) blog posts illustrating parts of the “Grain Market Outlook for 2017” presentation given by Kansas State University Extension Agricultural Economist Daniel O’Brien.  The complete presentation will be available on the www.AgManager.info website provided by the Department of Agricultural Economics at Kansas State University .

This fifth of five (5) related blog posts provides information on Soybean Market Situation and Outlook.

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Grain Market Update (2nd of 5 parts) – Graphics of U.S. Corn Market Outlook

In the following charts is the second of five (5) blog posts illustrating parts of the “Grain Market Outlook for 2017” presentation given by Kansas State University Extension Agricultural Economist Daniel O’Brien.  The complete presentation will be available on the www.AgManager.info website provided by the Department of Agricultural Economics at Kansas State University .

This second of five (5) related blog posts provides information on Corn Market Situation and Outlook.

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KSU Weekly Grain Market Analysis: Lower U.S. Winter Wheat Acres and Tighter U.S. Corn-Soybean Supply-Demand

Grain market summary notes, charts and comments supporting the KSU Agriculture Today Grain Outlook to be played on Friday, January 13th is available on the Kansas State University www.AgManager.info website at the following KSU web address:

https://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_01-13-17.pdf

The recorded radio program was aired at 10:03 a.m. central time, Friday, January 13th 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/news#ksrn-radio-interviews

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 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

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

An analysis of U.S. and World corn supply-demand factors and 2017/18 price prospects following the USDA’s December 1st Preliminary forecasts for “Next Crop” 2017/18 (https://www.usda.gov/oce/commodity/projections/) and the December 9, 2016 USDA  World Agricultural Supply Demand Estimates (WASDE) reports will be available on the KSU AgManager website:  http://www.agmanager.info/default.asp

Following is a summary of the article on “Corn Market Outlook in December 2016″ with the full article and accompanying analysis soon to be 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

Corn Futures & Kansas Cash Corn Market Situation

Since the USDA’s December 9th World Agricultural Supply and Demand Estimates (WASDE) report, MARCH 2016 CME corn futures have trended lower.  On the day of the report, MARCH 2016 corn futures closed at $3.59 ½ per bushel, and then moved to a high of $3.63 on December 15th, before declining to a close of $3.45 ¾ on Friday, December 23rd.  The USDA’s forecast of a record large 2016 U.S. corn crop 15.226 billion bushels (bb) and large 2016/17 marketing year ending stocks of 2.403 bb have continued to be the primary limiting focus of U.S. corn market prices.

Cash corn prices in at major grain elevators in central and western Kansas have declined below $3.00 per bushel down to the range of $2.66 to $2.96 per as of December 23rd, but have not fallen down to marketing loan rates near $2.05 (central KS) to $2.19 (western KS) per bushel.  Cash corn prices in east central and northeast Kansas – near river terminal locations – were in the range of $3.26-$3.28 per bushel on 12/23/2016.  Although the “large supply and tight storage availability” situation predominates in local Kansas grain markets, it is a positive sign that corn usage has provided enough market support that Kansas cash corn prices have not fallen down to USDA loan rate – price support levels.

Other Market Factors to Consider

Other market factors to consider that could affect the U.S. corn market in 2017 include: 1) the pace and timing of U.S. farmer marketing of the 2016 corn crop – much of which had been placed in storage after fall harvest and likely will be held for sale through the winter into at least early spring 2017, 2) anticipation of continued strong use of 2016 crop U.S. corn for domestic U.S. ethanol production and livestock feeding, 3) at least moderate strength in U.S. corn exports – driven partly by a poor harvest and lack of exportable supplies in Brazil in 2016 as well as other World corn market factors, and 4) the always present possibility of broader U.S. and Foreign economic and/or financial system disruptions impacting grain, energy, and other commodity markets in 2017.

For example, U.S. financial policy announcements by the U.S. Federal Reserve in 2017 could lead to increases in U.S. interest rates and the value of the U.S. dollar relative to other World currencies, which could in turn have a negative impact on U.S. corn exports.  Also, World geo-political events could provide an unanticipated “shock” to U.S. and World energy and grain markets – with the impact on the direction of U.S. and World corn markets being difficult to anticipate.

USDA Supply-Demand Forecast for “Current” MY 2016/17

With USDA projections of 2016 U.S. corn plantings of 94.490 ma, harvested acres of 86.836 ma, record high projected yields of 175.1 bu/ac (vs 168.4 bu/ac in 2015 and the previous record high of 171.0 bu/ac in 2014), 2016 U.S. corn production is forecast to be a record high 15.226 bb – up from 13.601 bb in 2015, the previous record of 14.216 bb in 2014, and 13.829 bb in 2013.

With forecast “current” MY 2016/17 total supplies of 17.031 bb (record high), total use of 14.610 bb (record high), and projected ending stocks of 2.403 bb (16.45% S/U) – up from 1.738 bb (12.72% S/U) in MY 2015/16 and the highest since 4.259 bb (54.90% S/U) in MY 2004/05 – U.S. corn prices are projected by the USDA to be in the range of $3.05-$3.65 (midpoint = $3.35 /bu) – being down from $3.61 /bu for MY 2015/16.  (continued)

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

With early USDA projections of 2017 U.S. corn plantings of 90.000 ma (down 4.490 ma), harvested acres of 82.300 ma (down 4.536 ma), projected yields of 170.8 bu/ac (vs the record high of 175.3 in 2016), 2017 U.S. corn production is forecast to be 14.060 bb – down from the record high of 15.226 bb in 2016.

With forecast “next crop” MY 2017/18 total supplies of 16.513 bb (down 500 mb from last year’s record high), total use of 14.215 bb (down 395 mb from last year’s record high), and projected ending stocks of 2.298 bb (16.17% S/U) – down from 2.403 bb (16.45% S/U) in “current” MY 2016/17 – U.S. corn prices are projected by the USDA to average $3.30 /bu. This scenario is given a 55% likelihood of occurring by KSU Extension Ag Economist D. O’Brien.

Alternative KSU Forecasts for “Next Crop” MY 2017/18

Three 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 yields and production than projected by the USDA in the December 1st USDA early supply-demand estimate for “next crop” MY 2017/18.

KSU “Next Crop” MY 2017/18 Scenario #1) “167.4 bu/ac – 13.777 bb” Scenario (25% probability) assumes: 90.000 ma planted, 82.300 ma harvested, 167.4 bu/ac trend yield, 13.777 bb production, 16.230 bb total supplies, 14.215 bb total use, 2.015 bb ending stocks, 14.18% S/U, & $3.55 /bu U.S. corn average price for “next crop” MY 2017/18;

KSU “Next Crop” MY 2017/18 Scenario 2) “165.0 bu/ac – 13.580 bb” Scenario (15% probability) assumes: 90.000 ma planted, 82.300 ma harvested, 165.0 bu/ac yield, 13.580 bb production, 16.033 bb total supplies, 14.215 bb total use, 1.818 bb ending stocks, 12.79% S/U, & $3.70 /bu U.S. corn average price for “next crop” MY 2017/18;

KSU “Next Crop” MY 2017/18 Scenario #3) “150.0 bu/ac – 12.345 bb” Scenario (5% probability) assumes: 90.000 ma planted, 82.300 ma harvested, 150.0 bu/ac yield, 12.345 bb production, 14.798 bb total supplies, 13.460 bb total use, 1.338 bb ending stocks, 9.94% S/U, & $4.30 /bu U.S. corn average price for “next crop” MY 2017/18;

World Corn Supply-Demand

Record high World corn production of 1,039.7 million metric tons (mmt) is projected for “current” MY 2016/17, up 8.2% from 961.1 mmt in MY 2015/16, and up 2.5% from 1,014.0 mmt in MY 2014/15.  Record high World corn total supplies of 1,248.7 mmt are projected for “new crop” MY 2016/17, up from 1,169.3 mmt in MY 2015/16, and from 1,188.8 mmt in MY 2014/15.

World corn exports of 147.7 mmt are projected for “new crop” MY 2016/17, up 21.8% from 121.2 mmt in MY 2015/16, and up 3.9% from 142.2 mmt in MY 2014/15.  Projected record high World corn ending stocks of 222.25 mmt (21.7% S/U) in “new crop” MY 2016/17 are up from 208.95 mmt (21.8% S/U) in MY 2015/16, and from 208.3 mmt (21.2% S/U) in MY 2014/15.

Although World corn ending stocks are projected to be a record high in “new crop” MY 2016/17 at 222.25 mmt, World corn percent ending stocks-to-use in “new crop” MY 2016/17 are forecast to actually decline marginally to 21.7% – indicative that strong World demand for corn at low prices is expected to continue – especially in Europe where grain production has been hampered by extreme weather conditions in the last year.

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Soybean Market Analysis – Graphics Focusing on Russell, Kansas (via KSU)

Following are a set of graphics showing key trends and relationships in U.S. and World Soybean markets.  These selected U.S. and World supply-demand 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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