KSU Wheat Market Outlook in Mid-May 2017 – “Next Crop” MY 2017/18 U.S., World, and “World Less China” Market Scenarios

This report provides an analysis of U.S. and World wheat supply-demand factors and “next crop” 2017/18 marketing year price prospects following the USDA’s May 10th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports.  This article will be available in full on the KSU AgManager website on Monday, May 22, 2017 (http://www.agmanager.info/).

Following is a summary – with the full analysis-article for Wheat Market Outlook in “Next Crop” MY 2017/18 to be found at this web location:

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

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Summary

Overview

Since the USDA’s May 10th World Agricultural Supply and Demand Estimates (WASDE) report, U.S. and World wheat futures market prices first traded lower then turned higher again.  CME JULY 2017 Kansas HRW Wheat futures closed at $4.39 ¼ on 5/10/2017 – the day of the report.  But after trading lower to close at $4.21 on May 16th, JULY 2017 Kansas HRW Wheat moved higher again to close at $4.38 on Friday, May 19th.

Projected World Wheat Supply-Demand in “Next Crop” MY 2017/18

For the “next crop” 2017/18 marketing year (MY) beginning on June 1st, the USDA projected the following.

First, that World wheat total supplies would be 993.2 million metric tons (mmt) with total use of 734.9 mmt – both marginally lower than the record high levels of “current” MY 2016/17.

Second, that World wheat exports will also trend lower to 178.35 mmt in the “next crop” 2017/18 marketing year – down from a record high of 179.7 mmt last year, but up from 172.85 mmt two years ago.

Third, that World wheat ending stocks would be a record high 258.9 mmt in “next crop” MY 2017/18 – up from 255.35 mmt last year, and from 242.4 mmt two years ago.

And fourth, that World wheat percent ending stocks-to-use (S/U) would be 35.1% – up from 34.5% last year, and from 34.0% two years ago – up to the highest level of World wheat supply-demand balances since 36.2% in MY 1999/00 and 36.5% in MY 1998/99.

Comparisons to “Short Crop” MY 2012/13

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 128.2 mmt and at least a 57-year low in percent ending stocks-to-use of 20.9% stocks/use both occurred – the last significant World wheat “short crop” marketing year.  The “tight supply-demand” situation in MY 2007/08 compares to projections of 258.3 mmt ending stocks and 35.1% ending stocks-to-use projected for “next crop” MY 2017/18.  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.

The Existing “Large Crop – Over Supply – Low Price” Market Condition

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 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 “next 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 average 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 occurring in coming months, it would likely have a positive impact U.S. wheat market prices in “next crop” MY 2017/18.

The Likely Direction of the World Wheat Market Unless Major S-D Changes Occur

However, unless there is a 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.  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.  These factors together 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 still be only $0.30 /bu above the marketing loan rate in many Kansas locations in mid-May 2017 (after earlier having to fallen below loan rates in Fall 2016).

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

The USDA released their grain market supply-demand and price projections for “next crop” MY 2017/18 in the May 10th World Agricultural Supply and Demand Estimates (WASDE) report.  United States’ wheat plantings are projected to be 46.059 million acres (ma) – down from 50.154 ma in “current” MY 2016/17.  Harvested acres are forecast to be 38.500 ma (83.59% harvested-to-planted) – down from 43.890 ma a year ago.  The 2017 U.S. average wheat yield is projected at 47.2 bu/ac, down from the 2016 record of 52.6 bu/acre.

Wheat production in the U.S. in 2017 is forecast to be 1.820 billion bushels (bb), down from 2.310 bb in 2015.  Projected “next crop” MY 2017/18 total supplies are 3.105 bb (down from 3.400 bb in “current” MY 2016/17), with total use of 2.191 bb (down from 2.241 bb in “current” MY 2016/17).

The USDA projected “next crop” MY 2017/18 ending stocks to be 914 million bushels (mb) (vs 1.159 bb a year ago), with percent ending stocks-to-use of 41.7% S/U (vs 51.7% last year and 50.0% the previous year).  United States’ wheat prices are projected to average $4.25 /bu – up from $3.90 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 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.

  1. 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, 82.50% harvested-to-planted, 37.999 ma harvested, 47.0 bu/ac trend yield, 1.786 bb production, 3.070 bb total supplies, 1.000 bb exports, 180 mb feed & residual use, 2.200 bb total use, 870 mb ending stocks, 39.6% S/U, & $4.45 /bu U.S. wheat average price.
  2. KSU Scenario 2) “Higher U.S. Wheat Exports” Scenario (15% probability) assumes the following for “next crop” MY 2017/18.  Planted acres of 46.059 ma are associated with 39.334 ma harvested (82.50% harvested-to-planted), 47.0 bu/ac trend yield, 1.786 bb production, 3.070 bb total supplies, 1.150 bb exports, 180 mb feed & residual use, 2.350 bb total use, 720 mb ending stocks, 30.6% S/U, & $5.10 /bu U.S. wheat average price;
  3. KSU Scenario 3) “Short U.S. Wheat Crop” Scenario (10% probability) assumes the following for “next crop” MY 2017/18.  Planted acres of 46.059 ma, 80.60% harvested-to-planted, 37.124 ma harvested, 40.0 bu/ac low yield, 1.485 bb production, 2.769 bb total supplies, 950 mb exports, 125 mb feed & residual use, 2.095 bb total use, 674 mb ending stocks, 32.17% S/U, & $5.00 /bu U.S. wheat average price.

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“Deep Numbers” Analysis of the May 10, 2017 USDA WASDE Report (D. O’Brien KSU)

A “deep numbers” analysis of the results of the May 10, 2017 USDA World Agricultural Supply and Demand Estimates (WASDE) report is available on the Agmanager.info website from Kansas State University. The May WASDE report considered “next crop” 2017/18 marketing year, “current” MY 2016/17, and MY 2015/16 supply-demand and price prospects for U.S. crops, and supply-demand prospects for global and country-by-country analysis.

Results are available at the following web address:

http://www.agmanager.info/wasde-quick-analysis-spreadsheet

This “deep numbers” analysis considers how the May 10th USDA WASDE and other National Agricultural Statistics Service (NASS) numbers compare to pre-report trade expectations, last month’s report estimates, and previous years.

World Wheat, Corn, Coarse Grain and Soybean supply demand numbers are also considered in an extended look at production, exports, imports, food-industrial and seed use (for corn and coarse grains), food use (for wheat), crush (soybeans), feed and residual use (corn, coarse grains and wheat), ending stocks, and % ending stocks to use.

Selections from this “deep numbers” WASDE report analysis are as follows:

 

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 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 (4th of 5 parts) – Graphics of U.S. Wheat Market Outlook

In the following charts is the fourth 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 fourth of five (5) related blog posts provides information on Wheat 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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