KSU Wheat Market Situation in Early-May 2019 (Pre-May WASDE)

This report provides an analysis of U.S. and World wheat supply-demand factors and market price prospects following the USDA’s April 9, 2019 Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports, and the adjusted results of the February 21-22, 2019 USDA Agricultural Outlook Forum.   This article is available in full on the KSU AgManager website (http://www.agmanager.info/).

Following is a summary – with the full analysis-article for Wheat Market Outlook in Early-May 2019 to be found at this web location:

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

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Wheat Market Situation in Early-May 2019

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

May 7, 2019

 

Kansas HRW Winter Wheat Futures & Cash Markets

Hard red winter wheat market prices in the U.S. have continued to weaken since late January 2019, with declines in futures prices somewhat mitigated by stronger basis levels in Kansas Hard Red Winter (HRW) wheat cash markets.

After reaching highs of $6.34 on August 8, 2018, and $5.35 ½ on January 24, 2019, JULY 2019 HRW Wheat futures had declined down to lows of $3.90 ½ on Tuesday, April 30th and $3.91 ½ on Monday, May 6th – before closing at $4.03 the same day.  The closing price of $4.03 on May 6th is down 36.4% from the August 2018 high, and down 24.7% from the January 2019 high.

In central Kansas terminal markets on Monday, May 6th reflect these same lower price trends but with relatively strong basis levels compared to past large supply years.  These prices reflect cash market sentiments immediately after the 2019 Kansas Wheat Tour (April 30-May 2), and four days ahead of the scheduled USDA Crop Production and World Agricultural Supply-Demand Estimates (WASDE) reports due on May 10th.

On May 6th Central Kansas cash wheat price terminal quotes for ordinary U.S. no. 1 HRW ranged from $3.72 to $3.93 per bushel – with basis ranging from $0.31 to $0.08 under JULY 2019 KS HRW Wheat futures.  Cash wheat prices in eastern Kansas grain terminals in Topeka and Atchison ranged from $3.78 to $3.93 /bu with basis ranging from $0.25 to $0.10 under JULY 2019 futures.  These prices have declined to where they are only moderately above the range of $3.42 ¼ to $3.83 ¼ /bu that occurred in late December 2017 in eastern and central Kansas.  However, basis levels at that time were much wider (i.e., “weaker”), being from $0.80 under to $0.39 under nearby MARCH 2018 futures (Figure 2).

In comparison, in western Kansas on May 6th, bids for ordinary U.S. no. 1 HRW wheat at selected major grain elevators ranged from $3.53 to $3.74 /bu, with basis being $0.50 to $0.29 under JULY 2019 futures.  Recent wheat cash price bids in western Kansas are only marginally higher than the lows of $3.47 to $3.64 /bu that occurred in late December 2017 in this same area – when local basis varied from $0.85 under to $0.58 under MARCH 2018 futures.

A Hard White Wheat (HWW) grain terminal bid was available in Wichita, Kansas on May 6th for $3.95 per bushel, with a basis of $0.08 /bu under JULY 2019 Kansas HRW wheat futures.  On March 22, 2019 this bid was $4.4000 /bu, with a basis of $0.05 /bu under MAY 2019 Kansas HRW wheat futures.

 

A Deferred Future “Carrying Charge” View of KS HRW Winter Wheat Futures

On May 6th carrying charges between the JULY 2019 to SEPTEMBER 2019 Kansas HRW Wheat futures contracts (i.e., the JUL-SEP 2019 Spread) were $0.11 per bushel, or $0.0550 per bushel per month.  This compares to spreads of $0.22 /bu or $0.0733 /bu/mo. for SEP-DEC 2019, and $0.2250 /bu or $0.0750 /bu/mo. for DEC 2019-MAR 2020 Kansas HRW Wheat futures contracts.

These “full carry” deferred futures full contract storage cost contract spreads are influenced by large supplies on hand – which leads to higher Variable Storage Rates (VSR) among Kansas HRW Wheat futures contracts.  These large carries are encouraging storage of “new crop” 2019 Kansas HRW wheat on the one hand, and provide the basis for a potential return to storage hedges by producers and grain elevators for the 2019 HRW wheat crop on the other.

Extending this analysis further to later deferred contracts, whereas on May 6th harvest JULY 2019 Kansas HRW Wheat futures closed at $4.03 /bu, the JULY 2020 contract closed at $4.84 ¾ /bu for JULY 2020 – up 20.2% and $0.0681 /bu/month from JULY 2019.  Extending even further into the next year, on May 6th JULY 2021 KS HRW Wheat closed at $5.42 ½ /bu, up 11.9% and $0.0479 /bu/month from JULY 2020

From an economic viewpoint, these deferred years’ JULY Kansas HRW Wheat futures prices in years 2020 & 2021 could reflect market expectations that HRW wheat futures prices will eventually be higher than current bids for JULY 2019 futures – which is consistent with economic theory.  However, it also seems that the carrying charges now reflected across the range of available deferred KS HRW Wheat futures contracts appear to be being extended out to the distant “new crop” JULY 2020 and JULY 2021 contracts.

Restated, it appears these uninterrupted positive carrying charges are being inflexibly and mechanically applied to deferred KS HRW Wheat futures contracts as far as 24 months into the future – regardless of what expected fundamental supply-demand conditions may be in the wheat market that far out.   If this is so, then these deferred futures prices may present: a) opportunities for long-term market arbitrage positions to traders, or b) hedging opportunities for U.S. wheat producers IF they are able to financially manage the risk of potential margin calls should wheat prices should move unexpectedly higher.  For agricultural producers, these extended deferred futures prices provide profitable but at risk pricing opportunities should they choose to bear the risk of utilizing them.

 

Overall World Wheat Market Situation

Prospects for continued large World wheat supplies and ending stocks, ongoing weakness in U.S. wheat export shipments, and declining prospects for future U.S. wheat export sales have been the main causes of this downtrend in U.S. HRW wheat prices.  A general “malaise” in U.S. grain markets and grain prices may also be having a spillover impact on wheat markets.  “Malaise” is defined as a general feeling of discomfort, illness, or uneasiness whose exact cause is difficult to identify.

The current ongoing, large ending stocks situation that exists in the U.S. and World wheat markets has developed over the last 5-6 years.  This situation extends back to the historically important “short crop / tight stocks” situation that occurred in the 2012/13 marketing year.  Prior to that, the last “watershed” event in U.S. and World wheat markets were the record tight supply-demand 2007/08 marketing year for the U.S. and World wheat market.

A combination of market factors have all worked together to limit any improvement in U.S. wheat exports in “current” MY 2018/19 and any significant price improvement in current U.S. wheat markets.   These include:

#1) Large World carryover ending stocks from “old crop” MY 2017/18 which became “beginning stocks” in “current” MY 2018/19;

#2) Successful wheat crops in many other exporting and importing countries in the World; and

#3) The willingness of the Black Sea Region countries (i.e., Russia, Ukraine, Kazakhstan) to sell down their domestic reserve stocks to maintain their export market shares.

The selling off of domestic inventories has allowed Russia, Ukraine and Kazakhstan maintain their export market shares in “current” MY 2018/19.  However, this strategy also makes them more vulnerable to any repeated crop shortfalls that could occur in “new crop” MY 2019/20 – which will begin on June 1, 2019.   The risk of this action by Russia and other countries is that by deliberately allowing their domestic stocks to decline below normal levels in this marketing year they place themselves at risk to the effect of unforeseen short crops and tight supply situation in the future.  As a result, they and the broader global wheat export market are more vulnerable to market volatility and supply-demand disruptions because of their reduction in protective “buffer” carryover ending stocks.

 

Potential Sources of World Wheat “Supply Shocks”

For a turn-around in wheat market conditions to occur heading into “new crop” MY 2019/20, a disruptive, sizable, and currently unexpected shortfall or “supply shock” in World wheat production would have to occur.  The “new crop” 2019/20 marketing year will begin on June 1, 2019, and last until May 31, 2020.   Such a “change” in global wheat market supply-demand conditions is required to significantly diminish or constrain global wheat market supply-demand balances and markedly raise Wheat market prices.

In past years, wheat market rally’s have often been caused by significant wheat production shortfalls across the major exporting and growing countries.  Major exporting countries include the United States, Russia, Ukraine, Australia, the European Union, Argentina and Canada.  Other key importers and producers of wheat globally include several selected Middle East and Southeast Asia countries, India and China.

The possibility of sizable increases in Chinese purchases of U.S. wheat and other agricultural products IF a trade agreement between the U.S. and China is completed could provide a surprise boost to U.S. wheat exports in coming months.  But it seems judicious to not count on that occurring until such a trade agreement is finalized.

 

World Wheat Production for Major Exporters & Producers

World wheat production prospects for the “new crop” 2019/20 marketing year is somewhat mixed and uncertain – most notably among major World wheat exporters and producers.  In its International Crop & Weather Highlights report on May 7, 2019 the USDA gave the following assessments of developing crop conditions as they affect wheat production prospects.

In aggregate, forecast global World wheat production in “current” MY 2018/19 of 732.78 mmt is down 3.9% from last year’s record high of 763.19 mmt.   Lower production has occurred in the “current” 2018/19 marketing year (which began June 1, 2018) in some major exporting countries such as Australia, the European Union, and the Black Sea Region / Former Soviet Union-12 countries, China, and Mexico (Figures 13, 14a-b & 15a-b).  These declines were partially offset by production increases projected for exporters such as the United States, Argentina, and Canada.

  • United States: The United States is forecast to have produced 51.29 million metric tons (mmt) (1.884 billion bushels or bb) of wheat in the “current crop” 2018/19 marketing year, up from 47.38 mmt (1.740 bb) in “old crop” MY 2017/18, but down from 62.83 mmt (2.309 bb) in MY 2016/17.

Soil moisture conditions are projected to stay wet through May 13th according to the U.S. Climate Prediction Center (CPC) throughout most of the Hard Red Winter (HRW) wheat areas from the state of Texas north through Oklahoma, Kansas, Nebraska and South Dakota, while Soft Red Winter (SRW) wheat areas in the Eastern Corn Belt are also wet.  Parts of the White Wheat (WW) producing areas in Washington, Idaho and Montana are generally dry, as are the Hard Red Spring wheat and Durum wheat producing areas of northern and western North Dakota.

The U.S. Climate Prediction Center also forecasts that “moist soil conditions” will continue throughout the June-August period.  Moist conditions during May-June 2019 may encourage wheat disease development in the U.S. HRW and SRW wheat areas, although major wheat disease pressure has not occurred in these areas as of yet.

  • Australia: Australia is forecast to have produced 17.30 million metric tons (mmt) of wheat in the “current crop” 2018/19 marketing year, down from 21.30 mmt in “old crop” MY 2017/18, and from 31.82 mmt in MY 2016/17.

“Soaking rain overspread large portions of the drought-beleagured south and east (parts of Australia), promoting winter crop germination and emergence and likely triggering additional sowing.”  The USDA also indicated that, “Dry weather favored wheat, barley, and canola planting in the west, but more rain would be welcome.”

  • European Union: The EU is forecast to have produced 137.60 mmt of wheat in the “current crop” 2018/19 marketing year, down from 151.26 mmt in “old crop” MY 2017/18, and from 145.37 mmt in MY 2016/17.

In Europe, showers were indicated to have improved winter crop prospects”.  In particular, widespread showers “boosted soil moisture for reproductive winter crops in England, France and Germany, and provided timely moisture for southern Poland into the Balkans.”  In addition, “short-term dryness reduced soil moisture for wheat and rapeseed over northeastern Europe.”  And, “Sunny skies favored winter grain development in Spain after recent rain.”

  • Former Soviet Union (FSU-12): The FSU-12 is forecast to have produced 124.86 mmt of wheat in the “current crop” 2018/19 marketing year, down from 142.44 mmt in “old crop” MY 2017/18, and from 130.09 mmt in MY 2016/17.

Of this total, Russia is forecast to have produced 71.69 mmt of wheat in the “current crop” 2018/19 marketing year, down from 85.17 mmt in “old crop” MY 2017/18, and from 72.53 mmt in MY 2016/17.

Ukraine is forecast to have produced 25.06 mmt of wheat in the “current crop” 2018/19 marketing year, down marginally from 26.98 mmt in “old crop” MY 2017/18, and from 26.79 mmt in MY 2016/17.

Kazakhstan is forecast to have produced 13.95 mmt of wheat in the “current crop” 2018/19 marketing year, also down marginally from 14.80 mmt in “old crop” MY 2017/18, and from 14.99 mmt in MY 2016/17.

In the FSU,widespread showers” occurred.   Specifically, “widespread showers favored vegetative winter wheat across Moldova, Ukraine, and Russia.”

  • East Asia (China): China is forecast to have produced 131.43 mmt of wheat in the “current crop” 2018/19 marketing year, also down from 134.33 mmt in “old crop” MY 2017/18, but up from 130.09 mmt in MY 2016/17.

East Asia overall was characterized as having “showers in southern China; warm in the northeast.”  In particular, “showers continued in southern China…..”, and “warm weather in northeastern China encouraged corn, soybean, and rice planting.”

  • South Asia (India): India is forecast to have produced 99.70 mmt of wheat in the “current crop” 2018/19 marketing year, up from 98.51 mmt in “old crop” MY 2017/18, and up from 87.00 mmt in MY 2016/17.

In South Asia Tropical Cyclone Fani has occurred.  Specifically, “a severe tropical cyclone (Fani) brought high winds and downpours to northeastern India and Bangladesh.”

  • Middle East (Including Iraq, Iran, & Turkey): Selected Middle Eastern Countries are forecast to have produced 17.88 mmt of wheat in the “current crop” 2018/19 marketing year, up from 13.36 mmt in “old crop” MY 2017/18, but down from 19.16 mmt in MY 2016/17.

Similarly, Turkey is forecast to have produced 19.00 mmt of wheat in the “current crop” 2018/19 marketing year, down from 21.00 mmt in “old crop” MY 2017/18, and up from 17.25 mmt in MY 2016/17.

In the Middle East weather conditions are described as “showers continued in Turkey,” while “late-week rain arrived in Iraq.”  Specifically, “widespread light to moderate showers sustained good soil moisture for winter grains in Turkey.”  Also, “sunny skies promoted wheat and barley development in Syria, Iraq, and Iran, while heavy late-week showers maintained excellent yield prospects for crops entering or progressing through reproduction.”

  • Mexico: The wheat crop in Mexico is forecast to have produced 3.000 mmt of wheat in the “current crop” 2018/19 marketing year, down from 3.494 mmt in “old crop” MY 2017/18, and from 3.865 mmt in MY 2016/17.

In Mexico, “light showers develop in eastern corn areas”, in which “showers allowed corn planting to begin in southern Mexico, though more significant rain is needed.”   In Mexico wheat is sown in November-January, grows during February-later April, and is harvested from late April through June.

  • Canada: The wheat crop in Canada is forecast to have produced 31.80 mmt of wheat in the “current crop” 2018/19 marketing year, up from 29.98 mmt in “old crop” MY 2017/18, but down from 32.14 mmt in MY 2016/17.

For the “new crop” 2019-20 marketing year, the area seeded to wheat in Canada is forecast to increase by 9% from 2017-18 as a 4% decrease for winter wheat is more than offset by a 10% increase for spring wheat (Stats Canada, 1/25/2019). The spring wheat area is forecast to increase because of relatively good prices for wheat and a shift out of durum and winter wheat in Western Canada. Production is projected to rise by 8%.

For Canada, the Weather Channel has forecast that a “global pattern with widespread cold weather during April into early May”, is likely “persisting into June.” A “chilly pattern” is likely to persist in Canada.

  • Argentina: The wheat crop in Mexico is forecast to have produced 19.50 mmt of wheat in the “current crop” 2018/19 marketing year, up from 18.50 mmt in “old crop” MY 2017/18, and from 18.40 mmt in MY 2016/17.

In Argentina the months of June-July-August are the fall & winter seasons in Argentina.  May is the main month for planting winter small grains such as winter wheat, with final seedings occurring in June.  Wheat is progressing through the vegetative-heading-grain filling-maturity stages during September-November period, with December-early January being the harvest period.  Double crop soybeans are planted after wheat in December and harvested in late February-March – with temperatures cooling down to “fall-like” conditions in April-May (during which seeding for the next winter wheat crop occurs.

Currently in Argentina, “drier conditions aided Argentine harvests.”  Specifically, “drier weather improved conditions for summer grains, oilseeds, and cotton in Argentina.”   Therefore, “drier conditions” during May in Argentina are occurring during the main seeding season for that crop, which followed showers within the previous 1-2 weeks.  As in the U.S., heavy rainfall during winter wheat seeding is often welcome as long as soils eventually dry and the crop can be seeded in a timely manner.

World & World-Less-China Wheat Ending Stocks & % Stocks-to-Use

World Ending Stocks & % Stocks/Use

Record large carryover ending stocks of 281.89 mmt (37.91% stocks-to-use) from “old crop” MY 2017/18 have upheld total World supplies and projected ending stock balances – which are projected to be 275.61 mmt (37.29% stocks-to-use) in “current” MY 2018/19.

Percent ending stocks-to-use of 37.91% in “old crop” MY 2017/18 are a record high in the era since the early 1970s, while 37.29% stocks/use in “current” MY 2018/19 are the 2nd highest since the U.S. farm crisis years of the mid-1980s, and the 3rd highest since the early 1970s (Figures 13, 14a-b & 15a-b).  World

World-Less-China Ending Stocks & % Stocks/Use

Considering World wheat ending stocks adjusted for Chinese reserves (i.e., “World-Less-China”) provides a much tighter picture of “accessible” or “available” World wheat supply-demand balances than the aggregate “World” measure.   “World-Less-China” wheat carryover ending stocks are calculated to be 135.61 mmt in “current” MY 2018/19 – a five (5) year low.

This estimate of 135.61 mmt in World-Less-China ending stocks in “current” MY 2018/10 is down from a record high of 150.62 mmt in “old crop” MY 2017/18, and from the range of 143.67 – 148.00 mmt over previous three marketing years.  World-Less-China wheat ending stocks fell to 124.48 mmt in the tight stocks year of MY 2012/13, and 130.56 mmt for the following year in MY 2013/14.   Chinese wheat ending stocks comprised 49.2% of total World ending stocks of 275.61 mmt in “current” MY 2018/19, and 53.4% of World wheat stocks of 281.89 mmt in “old crop” MY 2017/18 (Figure 15ab).

“World-Less-China” percent (%) ending stocks-to-use are estimated to be an 11 year low of 22.08% in “current” MY 2018/19 – down from 24.19% in “old crop” MY 2017/18, and 23.77% in MY 2016/17.  This compares to aggregate World Stocks-to-Use of 37.29% in “current” MY 2017/18, a record high of 37.91% in “old crop” MY 2017/18, and 35.49% in MY 2016/17.

 

U.S. Exports of All Wheat & HRW Wheat

Export shipments of U.S. wheat have been running behind the pace needed to meet USDA export projections for “current” MY 2018/19 for U.S. Wheat overall, and for Hard Red Winter (HRW) wheat in particular.   According to USDA Foreign Agricultural Service (FAS) data, through April 25th forward sales of U.S. exports are still nearly on track to meet USDA forecasts of 945 million bushels (mb) in the “current” 2018/19 marketing year (MY) – ending on May 31, 2019 (Tables 1-1a, Figures 9ab-10ab).

Concerning all U.S. Wheat exports, as of April 25th, total shipments to date plus forward sales are projected to have reached 99.0% (935.6 mb) of the USDA’s April 9th WASDE report forecast of 945 mb for MY 2018/19 with 90.4% of the marketing year completed (i.e., 47/53 weeks).  However, actual physical shipments to date of 758.7 mb amount to only 78.1% of the USDA forecast, with a shipment rate of 31.1 mb per week needed through the end of “current” MY 2018/19 to meet the USDA target of 945 mb.   For the weeks of April 11th, 18th and 25th, U.S. Wheat shipments of 18.4 mb, 29.2 mb and 20.4 mb were less than the weekly average of 31.1 mb needed to meet the USDA’s projections by May 31, 2019.

Focusing on U.S. HRW wheat exports, as of April 25th, total shipments to date plus forward sales are projected to have reached 103.0% (340.1 mb) of the USDA’s April 9th WASDE report forecast of 330 mb for MY 2018/19 with 90.4% of the marketing year completed (i.e., 47/53 weeks).  However, actual physical shipments to date of 259.8 mb amount to only 78.7% of the USDA forecast, with a shipment rate of 11.7 mb per week needed through the end of “current” MY 2018/19 to meet the USDA target of 330 mb.   For the weeks of April 11th, 18th and 25th, U.S. HRW Wheat shipments of 5.5 mb, 15.4 mb and 8.5 mb averaged 9.8 mb/week, less than the weekly average of 11.7 mb needed to meet the USDA’s projections by May 31, 2019.

 

U.S. Wheat Supply-Demand & Prices

The USDA released their wheat production, supply-demand, and price projections for the U.S. for “current” MY 2018/19 in the April 9th WASDE (World Agricultural Supply and Demand Estimates report) (Tables 1-1a).  The USDA also released its preliminary projections for the “new crop” MY 2019/20 at it’s February 22nd Agricultural Outlook Conference (Table 1a).  The “new crop” 2019/18 marketing year for wheat represents the June 1, 2019 through March 31, 2020 period.   The next USDA projection for “new crop” MY 2019/20 will be provided in the upcoming May 10th USDA WASDE report.

These preliminary forecasts indicate USDA’s expectations of approximately 4.3% lower planted acreage in 2019, marginally lower production and total use in “new crop” MY 2019/20, large ending stocks, lower % ending stocks-to-use, and unchanged U.S. wheat prices.

U.S. Wheat Acreage

The USDA’s Prospective Plantings report on Friday, March 29, 2019 projected U.S. wheat plantings are forecast to be are record low of 47.754 million acres (ma) in 2019, down 4.3% from 47.800 million acres (ma) in 2018, down from the previous low of 46.052 ma in 2017, but down from 50.116 ma in 2016 (Tables 1-1a, Figures 5-6)Harvested acres are forecast at 38.744 ma in 2019 (84.68% harvested-to-planted).  This amount of harvested acres is projected to be up from 39.605 ma in 2018 (82.86% harvested-to-planted), and the record low of 37.555 ma (81.55% harvested-to-planted) in 2017, but still down from 43.848 ma in 2016 (87.49% harvested-to-planted) (Tables 1a-b, Figure 6).

Also in the March 29th Prospective Plantings report, the USDA projected that 31,504,000 acres of Hard Red Winter (HRW) wheat were seeded in the U.S. in fall 2018 – down from 32,535,000 acres in fall 2017, and 32,726,000 acres in fall 2016 (Figure 6).

The 2019 U.S. average wheat yield is forecast to be 47.8 bu/ac, up from 47.6 bu/ac in 2018, and 46.4 bu/ac in 2017, but down from the 2016 record high of 52.7 bu/acre (Tables 1a-b, Figure 7).

U.S. Wheat Production & Total Supplies

Wheat production in the U.S. in 2019 is forecast to be 1.852 billion bushels (bb), down from 1.884 bb in 2018, and up from 1.741 bb in 2017, but down from 2.309 bb in 2016 (Tables 1a-b, Figure 8).  With adjustments for updated beginning stocks estimates, projected “new crop” MY 2019/20 total supplies are forecast to be 3.084 bb, down from forecast “current” MY 2018/19 total supplies of 3.128 bb, and up from 3.079 bb in “old crop” MY 2017/18.  However, 3.084 bb in U.S. total wheat supplies in “new crop” MY 2019/20 would be down from 3.402 bb in MY 2016/17.

U.S. Wheat Total Use

U.S. Wheat total use is projected to be 2.108 bb in “new crop” MY 2019/20, up from a projection of 2.042 bb in “current” MY 2018/19, and from 1.980 bb in “old crop” MY 2017/18, but down from 2.222 bb in MY 2016/17 (Tables 1a-b, Figures 9a-b).

U.S. Exports

In “new crop” MY 2019/20, U.S. wheat exports are forecast to be 975 million bushels (bu), up from 945 mb in “current” MY 2018/19, and up from 901 mb in “old crop” MY 2017/18, while being down from 1.051 bb in MY 2016/17 (Tables 1-1a, Figures 9a-b, & 10a).

CommentaryKSU: U.S. wheat exports fell to 47-year lows of 778 mb and 864 mb in MY 2015/16 and MY 2014/15, respectively, down to levels just marginally above those pre-“Russian Grain Deal” levels in 1972.  This is more evidence of the only marginally competitive position that U.S. wheat exports find themselves in among foreign export competitors in recent years.

U.S. Food Use

Food Use of U.S. wheat is projected to be 975 million bushels (mb) in “new crop” MY 2019/20, up marginally from 965 mb in “current” MY 2018/19, from 964 mb in “old crop” MY 2017/18, and 949 mb in MY 2016/17 (Table 1-1a, Figure 9ab).

U.S. Feed & Residual Use

Feed & Residual Use of U.S. wheat is projected to be 90 mb in “new crop” MY 2019/20, up from 70 mb in “current” MY 2018/19, up from 51 mb in “old crop” MY 2017/18, but less than 160 mb in MY 2016/17 (Table 1-1a, Figure 9ab).

CommentaryKSU: If 2019 U.S. corn plantings and 2019 corn production decline significantly, then U.S. wheat feeding may increase to “fill the gap”.     

U.S. Ending Stocks & % Stocks-to-Use

With an adjustment by KSU for new WASDE report information on beginning stocks, USDA projected “new crop” MY 2019/20 ending stocks to be 976 mb (46.02% S/U).  This projection is down from “current” MY 2018/19 ending stocks of 1.087 bb (53.24% S/U), both of which are down from 1.099 bb in “old crop” MY 2017/18 (55.50% S/U), and from 1.181 bb in MY 2016/17 (53.14% stocks/use) (Tables 1-1a, Figures 11 & 12).

CommentaryKSU: This projection of 976 mb in U.S. wheat ending stocks in “new crop” MY 2019/20 is the lowest in four (4) years – since 976 mb (49.99% stocks/use) in MY 2015/16.  However, it remains that until either a major wheat production shortfall and/or what could be an “unanticipated” surge in U.S. wheat exports occurs, the U.S. will likely remain in the current “large supply – large ending stocks” situation.

U.S. Wheat Prices

United States’ wheat prices are projected to be $5.20 /bu in “new crop” MY 2019/20, equal to the midpoint of $5.20 /bu in the range of $5.15-$5.25 /bu in “current” MY 2018/19.  This would be up from $4.72 /bu in “old crop” MY 2017/18, from $3.89 in MY 2016/17, and $4.89 /bu in MY 2015/16, but still down from $5.99 /bu in MY 2014/15 (Tables 1-1a, Figures 11 & 12).

 

“Alt” KSU Scenario for U.S. Wheat S/D in “New Crop” MY 2019/20

To represent possible alternative outcomes for “new crop” MY 2019/20 in anticipation of the USDA May 10th WASDE report, a projected USDA scenario with a potential KSU-Scenario are provided (Tables 1-1a & Figure 11).

USDA Scenario (75% probability):   This scenario assumes:

2019 U.S. Planted Acres                   = 45.754 million acres

2019 U.S. Harvested Acres              = 39.733 million acres

2019 U.S. Yield                                 = 47.8 bushels/acre

MY 2019/20 Beginning Stocks         = 1.087 billion bushels (bb)

MY 2019/20 Production                   = 1.852 bb

MY 2019/20 Imports                        = 0.145 bb

MY 2019/20 Total Supplies            = 3.084 bb

MY 2019/20 Food Use                     = 0.975 bb

MY 2019/20 Seed Use                     = 0.068 bb

MY 2019/20 Exports                        = 0.975 bb

MY 2019/20 Feed & Residual Use   = 0.090 bb

MY 2019/20 Total Use                    = 2.108 bb

MY 2019/20 Ending Stocks              = 0.976 bb

MY 2019/20 % Stocks-to-Use           = 46.02%

MY 2019/20 Season Average Price = $5.20 / bushelUSDA; & $5.60 /buKSU

 

KSU Scenario “LOWER Acreage & Production” Scenario (25% probability):

This scenario assumes:

2019 U.S. Planted Acres                   = 45.754 million acres

2019 U.S. Harvested Acres              = 39.733 million acres

2019 U.S. Yield                                 = 44.0 bushels/acre                (down 3.89 bu/ac vs USDA)

MY 2019/20 Beginning Stocks         = 1.087 billion bushels (bb)

MY 2019/20 Production                   = 1.704 bb                               (down 0.148 mb vs USDA)

MY 2019/20 Imports                        = 0.145 bb

MY 2019/20 Total Supplies            = 2.936 bb                               (down 0.148 mb vs USDA)

MY 2019/20 Food Use                     = 0.975 bb

MY 2019/20 Seed Use                     = 0.068 bb

MY 2019/20 Exports                        = 0.975 bb

MY 2019/20 Feed & Residual Use   = 0.090 bb

MY 2019/20 Total Use                    = 2.108 bb                              

MY 2019/20 Ending Stocks              = 0.828 bb                               (down 0.081 ma vs USDA)

MY 2019/20 % Stocks-to-Use           = 39.28%                                 (down 6.74% vs USDA)

MY 2019/20 Season Avg. Price      = $6.00 / bushel                     (up $1.20 /bu vs USDA)

 

KSU Wheat Market Outlook in March 2019 – Unfilled Hopes on U.S. Exports With Weather-Crop Uncertainty Approaching

This report provides an analysis of U.S. and World wheat supply-demand factors and market price prospects following the USDA’s March 8, 2019 Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports, and the results of the February 21-22, 2019 USDA Agricultural Outlook Forum.   This article will be available in full on the KSU AgManager website (http://www.agmanager.info/).

Following is a summary – with the full analysis-article for Wheat Market Outlook in March 2019 to be found at this web location:

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

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Wheat Market Outlook in March 2019

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

March 23, 2019

A. Wheat Market Overview

Hard red winter wheat market prices in the U.S. have weakened considerably since late January 2019.  Ongoing weakness in export shipments of U.S. wheat on the one hand, and declining prospects for future U.S. wheat export sales on the other, have been the main causes along with general bearishness across grain futures prices. 

In Fall-Winter 2018 prospects for short wheat crops among some major World wheat exporters improved prospects for U.S. export sales in the later part of the “current” 2018/19 marketing year (MY).  “Current” MY 2018/19 began on 6/1/2018 and will finish on 5/31/2019.  In particular, short crops in the Black Sea Region countries of Russia, Ukraine and Kazakhstan, parts of the European Union (France and other countries), and Australia were of concern. 

However, a combination of #1) large carryover stocks in World markets from “old crop” MY 2017/18, #2) successful wheat crops in many other exporting and importing countries in the World, and #3) the willingness of the Black Sea Region countries to sell down their domestic reserve stocks to maintain their export market shares, worked together to limit any improvement in U.S. wheat exports, and consequently limit any price gains from such an event. 

The selling off of domestic inventories may have allowed Russia and other countries to have maintained their export market shares in “current” MY 2018/19, but it makes them more vulnerable to any repeated crop shortfalls that could occur in “new crop” MY 2019/20 – which will begin on June 1, 2019.   The risk of tightening stocks is that these countries place themselves at risk to the effect of market shortfalls in the future – because they have reduced their “buffer” stocks. 

Going forward, it seems that wheat production risk in the major exporting countries – including the United States, Russia, Ukraine, Australia, and the European Union – will be the key driving factor in U.S. grain markets in year 2019.  The possibility of rumored sizable increases in Chinese purchases of U.S. wheat and other agricultural products IF a trade agreement between the U.S. and China is completed could provide a surprise boost to U.S. wheat exports in coming months.  But it seems judicious to not count on that occurring until such a trade agreement is finalized.

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B. Trends in CME Kansas Hard Red Winter Wheat Futures

Prices for the MAY 2019 Chicago Mercantile Exchange (CME) Kansas Hard Red Winter (HRW) Wheat futures contract declined from a high of $5.23 per bushel (/bu) on January 25, 2019 to a low of $4.18 ¼ /bu on March 12th, a drop of $1.04 ¼ or 20%.  Since then, MAY 2019 CME HRW wheat has moved higher to a close of $4.45 on March 22nd – down 15% from late-Jan. 2019 highs (Figures 1-2-3abc)

Currently CME MAY 2019 Kansas HRW Wheat futures are trading near historic lows since the beginning of year 2007.  Prices for MAY 2019 futures in the $4.40-$4.50 range compare to longter term lows of: a) $4.33 /bu for the MAY 2007 contract on 4/2/2007; b) $3.98 ¾ /bu for MAY 2017 on 4/21/2019; and $4.04 /bu for DEC 2017 on 11/28/2018.   IF crop conditions and crop progress for the 2019 U.S. HRW Wheat crop are “good” in April 2019 it is possible that prices could AGAIN decline to $4.00 /bu or less (Figures 1-2).  

It is notable that a record large net short (or sell) position is held by Management Money (Speculator) traders in CME HRW wheat according to the most recent March 19th Commodity Futures Trading Commission (CFTC) Commitment of Traders Report (Figures 3abc).  Actual short (sell) positions held by Management Money (Spec) traders are near record levels, combined with declining long positions on these contracts. This report can be found at the following web address: https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm

Taken together, these data indicate a predominant “bearishness” among Management Money (Spec) traders in the CME Kansas HRW Wheat futures contract.  This consensus “bearish market narrative” or “pessimistic group mindset” would have to be overcome or changed by some combination of World and U.S. wheat supply-demand factors in the wheat market for CME futures to begin to move appreciably higher.   The key issue to watch in these markets will likely be whether there continue to be successful aggregate crop production prospects among major World wheat producing, exporting, and importing countries throughout calendar year 2019.

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C. Kansas HRW Wheat Cash Price & Basis Levels

In central Kansas on March 22nd – the 10th trading day a full two weeks after the USDA reports – Kansas cash wheat price terminal quotes for ordinary U.S. no. 1 HRW ranged from $4.19 to $4.55 per bushel – with basis ranging from $0.26 under to $0.10 over MAY 2019 KS HRW Wheat futures.  Cash wheat prices in eastern Kansas grain terminals ranged from $4.30 to $4.50 /bu with basis ranging from $0.15 under to $0.05 over MAY 2019 futures.  These prices are still up 19% to 22% from the range of $3.42 ¼ to $3.83 ¼ /bu in late December 2017 in eastern and central Kansas – with basis at that time being from $0.80 under to $0.39 under nearby MARCH 2018 futures (Figure 2).  

In comparison, in western Kansas on March 22nd, bids for ordinary U.S. no. 1 HRW wheat at selected grain elevators ranged from $3.92 to $4.19 /bu, with basis being $0.55 under to $0.28 under MAY 2019 futures.  Recent wheat cash price bids in western Kansas are up 13% to 15% from $3.47 to $3.64 /bu in late December 2017 in this same area – when local basis varied from $0.85 under to $0.58 under MARCH 2018 futures. 

A Hard White Wheat (HWW) grain terminal bid was available in Wichita, Kansas on 3/22/2019 for $4.4000 /bu, with a basis of $0.05 /bu under MAY 2019 Kansas HRW wheat futures.

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D. World Wheat Production

In aggregate, forecast global World wheat production in “current” MY 2018/19 of 733.00 mmt is down 3.9% from last year’s record high of 763.07 mmt.   Lower production has occurred in the “current” 2018/19 marketing year (which began June 1, 2018) in some major exporting countries such as Australia (down 18.8% to 17.30 million metric tons or ‘mmt’ from a year ago) and the European Union (down 9.0% in total to 137.60 mmt).  In the Black Sea Region, wheat production is down in Russia (down 15.6% to 71.69 mmt), Ukraine (down 7.3% to 25.00 mmt), and Kazakhstan (down 5.5% to 13.95 mmt) (Figures 13, 14a-b & 15a-b)

These declines were partially offset by production increases projected for exporters such as the United States (up 8.3% to 51.29 mmt or 1.884 billion bushels, i.e., ‘bb’), Argentina (up 5.4% to 19.5 mmt), and Canada (up 6.1% to 31.80 mmb).  Production in China is projected to be down 2.2% to 134.43 mmt, while India wheat production is forecast to be up 1.2% to 99.70 mmt. 

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E. World Wheat Ending Stocks & % Stocks-to-Use

Record large carryover ending stocks of 279.61 mmt (37.56% stocks-to-use) from “old crop” MY 2017/18 have upheld total World supplies and supply-demand balances – which are projected to be 270.53 mmt (36.45% stocks-to-use) in “current” MY 2018/19.  Percent ending stocks-to-use of 37.56% in “old crop” MY 2017/18 were record high in the modern era since the early 1970s, while 34.46% stocks/use in “current” MY 2018/19 are the 2nd highest since the farm crisis years of the mid-1980s, and the 4th highest in the modern era (Figures 13, 14a-b & 15a-b).  

In response to lower production, Russia has chosen to “sell down” it’s carryover wheat stocks to maintain market position in global trade.  Russia wheat ending stocks are projected to be 6.55 mmt in “current” MY 2018/19, down from 11.87 mmt in “old crop” MY 2017/18, and from 10.83 mmt in MY 2016/17.  In the short run this strategy of “mining” of carryover stocks by Russia DOES allow it to maintain World export market share in “current” MY 2018/19.  HOWEVER, this strategy ALSO may leave future Russian supply-demand balances more vulnerable to any domestic crop shortfall that may occur in “new crop” MY 2019/20 and succeeding years.

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F. “World-Less-China” Wheat Ending Stocks & % Stocks-to-Use

Considering World wheat ending stocks adjusted for Chinese reserves (i.e., “World-Less-China”) provides a much tighter picture of “accessible” or “available” World wheat supply-demand balances than the aggregate “World” measure.   “World-Less-China” wheat carryover ending stocks are calculated to be 130.53 mmt in “current” MY 2018/19 – down from 148.35 mmt in “old crop” MY 2017/18.  These figures compare to World ending stocks of 270.61 mmt in “current” MY 2018/19, and 249.61 mmt in “old crop” MY 2017/18 (Figure 15ab).  

“World-Less-China” percent (%) ending stocks-to-use are estimated to be and 11 year low of 21.15% in “current” MY 2018/19 – down from 23.80% in “old crop” MY 2017/18.  This compares to aggregate World Stocks-to-Use of 36.45% in “current” MY 2017/18, and 37.56% in “old crop” MY 20017/18.

This “tightness” in “World-Less-China” wheat stocks along with tighter exportable supplies in the European Union and the Black Sea region appear to have provided quiet support to World wheat market prices, but has not as of yet caused any major rallies.

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G. 2019 U.S. Winter Wheat Conditions

Prospects for the 2019 U.S. winter wheat crop are mostly “Fair to Good” at this time in the southern and central plains region of the country.  Reports from the USDA National Agricultural Statistics Service (NASS) in Kansas for the week ending March 17, 2019 indicated that a survey of observers in the state of winter wheat acreage rated the crop as 5% “excellent”, 44% “good”, 40% “fair”, 8% “poor”, and 3% “very poor”.   In Oklahoma, the HRW wheat crop was rated as 5% “excellent”, 55% “good”, 35% “fair”, 5% “poor”, and 0% “very poor”.  Similarly, in Texas, the HRW wheat crop was rated as 6% “excellent”, 27% “good”, 44% “fair”, 17% “poor”, and 6% “very poor”.  

As the 2019 hard red winter wheat crop breaks dormancy and begins spring growth in late March-early April, the condition in which the crop survived somewhat challenging winter conditions will become apparent.  The USDA’s National Agricultural Statistics Service (NASS) Crop Production reports first and preliminarily on April 9th, and then especially as the crop is more developed on May 10th, June 11th and July 11th will provide more substantiated information on 2019 U.S. HRW Wheat production prospects.

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H. U.S. Wheat Exports

Export shipments of U.S. wheat have been running behind the pace needed to meet USDA export projections for U.S. Wheat overall, and for Hard Red Winter (HRW) wheat in particular.   According to USDA Foreign Agricultural Service (FAS) data, through March 14th forward sales of U.S. exports are still on track to meet USDA forecasts of 965 million bushels (mb) in the “current” 2018/19 marketing year (MY) – ending on May 31, 2019 (Tables 1-1a, Figures 9ab-10ab)

Total shipments to date plus forward sales are projected to have reached 88.1% (850.4 mb) of the USDA’s forecast on March 14th with 78.8% of the marketing year completed (i.e., 41/52 weeks).  However, actual physical shipments to date of 638.4 mb amount to only 66.1% of the USDA forecast, with a shipment rate of 29.7 mb per week needed through the end of “current” MY 2018/19 to meet the USDA target of 965 mb.   For the weeks of March 7th and 14th, U.S. Wheat shipments of 27.3 mb and 13.1 mb were behind the weekly average of 29.7 mb needed to meet the USDA’s projections by May 31, 2019.  Shipments of U.S. HRW Wheat are in a similar situation, as strong weekly shipments are still needed through August 31st to attain the USDA U.S. export projection of 320 mb in “current” MY 2018/19.

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I. U.S. Wheat Supply-Demand & Prices

The USDA released their wheat production, supply-demand, and price projections for the U.S. for “current” MY 2018/19 in the March 8th WASDE (World Agricultural Supply and Demand Estimates report) (Tables 1-1a).  The USDA also released its preliminary projections for the “new crop” MY 2019/20 at it’s February 22nd Agricultural Outlook Conference (Table 1a).  The “new crop” 2019/18 marketing year for wheat represents the June 1, 2019 through March 31, 2020 period.   These preliminary forecasts indicate USDA’s expectations of 1%-2% lower planted acreage in 2019, approximately 1% higher production and total use in “new crop” MY 2019/20, and marginally higher prices.

U.S. Wheat Acreage

U.S. wheat plantings are forecast to be 47.000 million acres (ma) in 2019, down 1.67% from 47.800 million acres (ma) in 2018, up from the record low of 46.052 ma in 2017, but down from 50.119 ma in 2016 (Tables 1-1a, Figures 5-6)Harvested acres are forecast at 39.800 ma in 2019 (84.68% harvested-to-planted).  This amount of harvested acres is projected to be up 0.5% from 39.605 ma in 2018 (82.86% harvested-to-planted), and the record low of 37.555 ma (81.55% harvested-to-planted) in 2017, but still down from 43.848 ma in 2016 (87.49% harvested-to-planted) (Tables 1a-b, Figure 6).   The 2019 U.S. average wheat yield is forecast to be 47.8 bu/ac, up from 47.6 bu/ac in 2018, and 46.4 bu/ac in 2017, but down from the 2016 record high of 52.7 bu/acre (Tables 1a-b, Figure 7).

The USDA’s Prospective Plantings report will be released by the USDA on Friday, March 29, 2019.   Average pre-report projections of U.S. total wheat for 2019 seedings total 46.9 million acres (ma), with estimates ranging from 45.9 to 48.0 ma. Preliminary estimates of 2019 winter wheat seedings (average = 31.5 ma, 30.6 – 32.5 ma range), spring wheat (average = 13.4 ma, 12.3 – 13.9 ma range), and durum acreage (average 2.0 ma, 1.6 – 2.3 ma range).

In its Winter Wheat and Canola Seedings report on January, 11, 2019, the USDA projected that 31,290,000 acres of Hard Red Winter (HRW) wheat were seeded in the U.S. in fall 2018 – down from 32,535,000 acres in fall 2017, and 32,726,000 acres in fall 2016 (Figure 6).  The upcoming March 29th Prospective Plantings report will provide more information on HRW wheat seedings, as well as for soft red winter (SRW), hard red spring (HRS) wheat, and white wheat (WW) varieties.

U.S. Wheat Production & Total Supplies

Wheat production in the U.S. in 2019 is forecast to be 1.902 billion bushels (bb), up from 1.884 bb in 2018, and up from 1.741 bb in 2017, but down from 2.309 bb in 2016 (Tables 1a-b, Figure 8).  Projected “new crop” MY 2019/20 total supplies are forecast to be 3.097 bb, down from forecast “current” MY 2018/19 total supplies of 3.128 bb, and up from 3.079 bb in “old crop” MY 2017/18.  However, 3.097 bb in U.S. total wheat supplies in “new crop” MY 2019/20 would be down from 3.402 bb in MY 2016/17.

U.S. Wheat Total Use

U.S. Wheat total use is projected to by 2.108 bb in “new crop” MY 2019/20, up from a projection of 2.073 bb in “current” MY 2018/19, and from 1.980 bb in “old crop” MY 2017/18, but down from 2.222 bb in MY 2016/17 (Tables 1a-b, Figures 9a-b).

 U.S. Exports

In “new crop” MY 2019/20, U.S. wheat exports are forecast to be 975 million bushels (bu), up from 965 mb in “current” MY 2018/19, and up from 901 mb in “old crop” MY 2017/18, while being down from 1.051 bb in MY 2016/17 (Tables 1-1a, Figures 9a-b, & 10a).

CommentaryKSU: U.S. wheat exports fell to 47-year lows of 778 mb and 864 mb in MY 2015/16 and MY 2014/15, respectively, down to levels just marginally above those pre-“Russian Grain Deal” levels in 1972.  This is more evidence of the only marginally competitive position that U.S. wheat exports find themselves in among foreign export competitors in recent years. 

U.S. Food Use

Food Use of U.S. wheat is projected to be 980 million bushels (mb) in “new crop” MY 2019/20, up marginally from 965 mb in “current” MY 2018/19, from 964 mb in “old crop” MY 2017/18, and 949 mb in MY 2016/17 (Table 1-1a, Figure 9ab).

U.S. Feed & Residual Use

Feed & Residual Use of U.S. wheat is projected to be 90 mb in “new crop” MY 2019/20, up from 80 mb in “current” MY 2018/19, up from 51 mb in “old crop” MY 2017/18, but less than 160 mb in MY 2016/17 (Table 1-1a, Figure 9ab).

CommentaryKSU: With the USDA’s forecast of moderately tighter U.S. corn and total feedgrain supplies along with moderate support for feedgrain prices, they are anticipating that feeding wheat to livestock will become more marginally more economical in “new crop” MY 2019/20 than in the current marking year.   

U.S. Ending Stocks & % Stocks-to-Use

With an adjustment by KSU for new WASDE report information, USDA projected “new crop” MY 2019/20 ending stocks to be 989 mb (46.92% S/U).  This projection is down from “current” MY 2018/19 ending stocks of 1.055 bb (50.89% S/U), both of which are down from 1.099 bb in “old crop” MY 2017/18 (55.50% S/U), and from 1.181 bb in MY 2016/17 (53.14% stocks/use) (Tables 1-1a, Figures 11 & 12).

CommentaryKSU: This projection of 989 mb in U.S. wheat ending stocks in “new crop” MY 2019/20 is the lowest in four (4) years – since 976 mb (49.99% stocks/use) in MY 2015/16.  However, it remains that until either a major wheat production shortfall or what could be an “anticipated” surge in U.S. wheat exports occurs, the U.S. will likely remain in the current “large supply – large ending stocks” situation.

U.S. Wheat Prices

United States’ wheat prices are projected to be $5.20 /bu in “new crop” MY 2019/20, up from the midpoint of $5.15 /bu in the range of $5.10-$5.20 /bu in “current” MY 2018/19.  This would be up from $4.72 /bu in “old crop” MY 2017/18, from $3.89 in MY 2016/17, and $4.89 /bu in MY 2015/16, but still down from $5.99 /bu in MY 2014/15 (Tables 1-1a, Figures 11 & 12).

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J. “Alt” KSU Scenario for U.S. Wheat S/D in “New Crop” MY 2019/20

To represent possible alternative outcomes from the USDA’s March 8th WASDE and February 22nd Agricultural Profitability Conference projections.  One potential KSU-Scenario for U.S. wheat supply-demand and prices is presented in comparison to the USDA forecast for “new crop” MY 2019/20 (Tables 1-1a & Figure 11).    

USDA Scenario (50% probability):   This scenario assumes:  

2019 U.S. Planted Acres                   = 47.000 million acres

2019 U.S. Harvested Acres              = 39.800 million acres

2019 U.S. Yield                                 = 47.8 bushels/acre

MY 2019/20 Beginning Stocks         = 1.055 billion bushels (bb)

MY 2019/20 Production                   = 1.902 bb

MY 2019/20 Imports                        = 0.140 bb

MY 2019/20 Total Supplies            = 3.097 bb

MY 2019/20 Food Use                     = 0.980 bb

MY 2019/20 Seed Use                     = 0.063 bb

MY 2019/20 Exports                        = 0.975 bb

MY 2019/20 Feed & Residual Use   = 0.090 bb

MY 2019/20 Total Use                    = 2.108 bb

MY 2019/20 Ending Stocks              = 0.989 bb

MY 2019/20 % Stocks-to-Use           = 46.92%

MY 2019/20 Season Average Price = $5.20 / bushel

KSU Scenario “LOWER Acreage & Production” Scenario (50% probability):   This scenario assumes:  

2019 U.S. Planted Acres                   = 45.000 million acres (down 2.000 ma vs USDA)

2019 U.S. Harvested Acres              = 39.800 million acres (down 0.700 ma vs USDA)     

2019 U.S. Yield                                 = 47.8 bushels/acre

MY 2019/20 Beginning Stocks         = 1.055 billion bushels (bb)

MY 2019/20 Production                   = 1.821 bb (down 0.0.81 ma vs USDA)

MY 2019/20 Imports                        = 0.140 bb

MY 2019/20 Total Supplies            = 3.097 bb (down 0.081 ma vs USDA)

MY 2019/20 Food Use                     = 0.980 bb

MY 2019/20 Seed Use                     = 0.063 bb

MY 2019/20 Exports                        = 0.975 bb

MY 2019/20 Feed & Residual Use   = 0.090 bb

MY 2019/20 Total Use                    = 2.108 bb                              

MY 2019/20 Ending Stocks              = 0.908 bb (down 0.081 ma vs USDA)

MY 2019/20 % Stocks-to-Use           = 43.07% (down 3.85% vs USDA)

MY 2019/20 Season Avg. Price      = $5.20 / bushel (up $0.40 /bu vs USDA)

 

 

2019 USDA Outlook Forum – “Grain and Oilseeds Market Outlook for 2019” (February 22, 2019)

The USDA is holding their 2019 Agricultural Outlook Conference in Arlington, Virginia on February 21-22, 2019.  On Friday morning of the conference the USDA provides its “Grain and Oilseeds Market Outlook for 2019”.  This report is prepared by members of the
Wheat, Feed Grains, Rice, and Oilseeds Interagency Commodity Estimates Committees in the U.S. Department of Agriculture

The public will be able to access this information at the following web address:

https://www.usda.gov/oce/forum/2019/At-A-Glance.htm

Following is the actual USDA Report of “Grain and Oilseeds Market Outlook for 2019”.

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Agricultural Outlook Forum 2019

Released: Friday, February 22, 2019

GRAINS AND OILSEEDS OUTLOOK FOR 2019

Prepared by Members of the Wheat, Feed Grains, Rice, and Oilseeds Interagency Commodity Estimates Committees   (This paper includes contributions from the World Agricultural Outlook Board, the Economic Research Service, the FPAC-BC, and the Foreign Agricultural Service.)

U.S. Department of Agriculture

Planted Acreage Outlook for 2019 (Table 1)

This paper provides USDA’s projections of 2019/20 U.S. supply, demand and prices for wheat, corn, rice, soybeans and soybean products. Projections presented in this paper include implications of the February 8 NASS Winter Wheat and Canola Seedings report, which estimated winter wheat area declined 4 percent to the lowest level since 1909. The projections assume normal weather conditions for spring planting and summer crop development, and the continuation of tariffs by China on a number of U.S. agricultural products. These forecasts will be updated in the May 10 World Agricultural Supply
and Demand Estimates (WASDE) report. The May WASDE will incorporate farmers’ 2019 planting intentions as indicated in the March 29 NASS Prospective Plantings report and survey-based forecasts for winter wheat production, as well as global, country-by-country supply and demand projections.

Among the 3 major crops, this year’s outlook represents a dramatic change from prior years because of China’s imposition of tariffs on U.S. soybeans. Relative to a year ago, soybean cash prices have declined, with pronounced weakness in the Northern Plains and Western Corn Belt, two areas that are particularly exposed to variations in the export market. In contrast, soybean cash prices have shown relative strength in the Eastern Corn Belt. Offsetting a forecast decline in soybean acres are increases in spring wheat, corn, and cotton acres. The total of 3-crop plantings, at 224 million acres, would be down 2.1 million from final plantings in 2018. This largely reflects expectations of a return to a more typical level of prevented plant acres. Season-average corn prices received by producers are expected to reach $3.65 per bushel, up 5 cents from the 2018/19 forecast. Soybean prices are expected to rise to $8.80 per bushel while wheat prices are up to $5.20.

Wheat Supply, Demand, and Price Outlook for 2019/20 (Table 2)

The 2019/20 outlook for U.S. wheat is for reduced supplies, minimally lower use, and decreased ending stocks. U.S. wheat production is projected 1 percent higher from 2018/19 at 1,902 million bushels despite the NASS Winter Wheat and Canola Seedings report showing 2019 winter wheat planted area at the lowest level since 1909. Higher expected net returns for spring wheat compared to soybeans in the Northern Plains is anticipated to result in greater spring wheat plantings in 2019 with total wheat acreage projected at 47.0 million acres, down 2 percent from last year. The all-wheat yield for 2019/20 is projected slightly up from the previous year to 47.8 bushels per acre and is based on a linear trend. The higher yield coupled with increased harvested area at
39.8 million acres offsets reduced planted area to raise 2019/20 production from last year. Lower carryin stocks are still expected to result in reducing 2019/20 supplies by 2 percent to 3,052 million bushels.

Projected 2019/20 total use is down only slightly from a year earlier. Domestic use is up 2
percent, primarily due to modest increases in both food and feed and residual use to 1,133 million bushels. The higher domestic use is more than offset by lower projected exports for 2019/20 to 975 million bushels. Greater export competition is seen from Australia and the EU in 2019/20 as both recover from last year’s drought. Although 2019/20 total use falls slightly, reduced supplies will result in ending stocks declining by 7 percent to 944 million bushels. While stocks remain burdensome, stronger export competition is expected to result in a modestly higher season-average farm price (SAFP) at $5.20 per bushel, compared to the 2018/19 SAFP midpoint price of $5.15.

Corn Supply, Demand, and Price Outlook for 2019/20 (Table 3)

The U.S. corn outlook for 2019/20 is for increased production, domestic use, and exports, and lower stocks. The corn crop is projected at 14.9 billion bushels, 3 percent above a year ago as an increase in area more than offsets a lower yield. The yield projection of 176.0 bushels per acre is based on a weather-adjusted trend assuming normal planting progress and summer growing season weather. Despite beginning stocks that are forecast down from a year ago, total corn supplies are up slightly on a larger crop.

Total U.S. corn use in 2019/20 is forecast to rise 1 percent from a year ago on increases to domestic use and exports. Food, seed, and industrial (FSI) use is projected unchanged at 7.0 billion bushels. Corn used for ethanol is unchanged from a year ago, based on expectations of flat motor gasoline consumption and a slight decline in ethanol’s inclusion rate into gasoline that is essentially offset by continued growth in exports. Feed and residual use is up 125 million bushels to 5.5 billion, with a larger crop and continued growth in grain consuming animal units. Corn exports are up 25 million bushels to
2.5 billion, reflecting expectations of modest growth in global trade and a slight decline in U.S. market share with competition from other exporters. Ending stocks are projected at 1.7 billion bushels, down 5 percent from 2018/19, supporting a 5 cent per bushel increase from a year ago in the expected season-average farm price to $3.65 per bushel.

Rice Supply, Demand, and Price Outlook for 2019/20 (Tables 4 & 5)

The 2019/20 outlook for U.S. rice is for reduced production, increased use, and lower ending stocks.  U.S. rice production is projected at 203 million cwt, down 9 percent from 2018/19. All of the production decrease is for long-grain as combined medium- and short-grain production increased nearly 2 million cwt. Rice planted area for 2019/20 totals 2.66 million acres, down 290,000 acres from the previous year. The long-grain area projection is down 300,000 acres but combined medium- short-grain rice is projected slightly higher. The all rice yield is projected up slightly from the previous year on byclass
trend analysis. Imports are projected to increase 0.3 million cwt to another record; aromatics are expected to continue to account for the bulk of U.S. rice imports. led especially by aromatic rice imports from Asia. Total 2019/20 U.S. rice supplies are down 3.2 million cwt from the previous year to 278.9 million cwt.

Total 2019/20 use is up 2 million cwt to 237 million all on higher exports, which are now projected at 102 million cwt. Long-grain accounts for the entire year-over-year export increase. Ending stocks for 2019/20 are down 5.2 million cwt from the previous year and below the 5-year-average of 43.5 million cwt. The all rice season average farm price is up $0.10 per cwt from the midpoint of the previous year to $12.20.

Soybean Supply, Demand, and Price Outlook for 2019/20 (Tables 6, 7 & 8)

The 2019/20 outlook for U.S. soybeans is for record supplies, higher crush and exports, and lower ending stocks. Soybean supplies are projected at 5.1 billion bushels, up 2 percent from 2018/19 with higher beginning stocks more than offsetting lower production. Soybean production is projected at 4.2 billion bushels, 8 percent below last year on lower harvested area and trend yields. The national average soybean yield of 49.5 bushels per acre is 2.1 bushels below last year. The yield forecast is based on a weather-adjusted trend assuming normal growing season weather.

Soybean domestic use is projected at 2.2 billion bushels, up 1 percent on higher crush. Crush is projected at a record 2.1 billion bushels as higher domestic use of soybean meal more than offsets lower exports. Lower soybean product exports reflect a recovery of Argentina’s crop after last year’s drought.  Soybean crush margins remain relatively strong with higher soybean prices mostly offset by small gains for soybean meal and soybean oil prices. Soybean meal prices are forecast at $320 per short ton.  Domestic use of soybean oil is projected up 2 percent for 2019/20 on gains for edible oil and biodiesel consumption. With lower projected soybean oil exports, soybean oil ending stocks for 2019/20 are projected at 2.04 billion pounds, down 3 percent from 2018/19. Soybean oil prices are forecast at 30.5 cents per pound, up slightly from 2018/19.

Soybean exports for 2019/20 are projected at 2.03 billion bushels, up 150 million from the 2018/19 forecast. With rising global demand and reduced supplies in Brazil this fall, some recovery in U.S. exports is expected despite continued import duties assumed for U.S. soybeans in China.

Soybean ending stocks for 2019/20 are projected at 845 million bushels, historically high, but down 65 million from 2018/19. With a smaller harvest and a 4 percent increase in total soybean disappearance, the ending stocks-to-use ratio is projected at 19.8 percent, down from 22.2 percent in 2018/19. The soybean season-average farm price is projected at $8.80 per bushel, up 20 cents from 2018/19.

Image result for usda agricultural outlook forum 2019

“Beginning of 2019” Wheat Market Outlook Presentation – Kansas State University

The following slides are part of an “Early 2019 U.S. Wheat Market Outlook” presentation to be given by Daniel O’Brien, Extension Agricultural Economist – Kansas State University.  This full presentation will be place on the www.AgManager.info website in early 2019 at the following web address:

http://www.agmanager.info/grain-marketing/presentations

 

KSU Wheat Market Outlook in Late-December 2018 – World, “World-Less-China” and U.S. Market Scenarios

This report provides an analysis of U.S. and World wheat supply-demand factors and market price prospects following the USDA’s December 11, 2018 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” 2019/20 marketing year from the USDA’s Long Term Agricultural Projections released in Fall 2018. This article is available in full on the KSU AgManager website (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:

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

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Wheat Market Outlook in Late-December 2018

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

December 26, 2018

A. Overview of World Wheat Markets

The United States’ wheat market has continued to “struggle” to find much strength since mid-October 2018 due to strong competition from foreign exports.  Although available supplies from major foreign exporters are historically “tight”, wheat supplies held by non-exporting countries in the rest of the World continue to be large – limiting foreign buying of U.S. wheat.  

Lower production has occurred in the “current” 2018/19 marketing year (which began June 1, 2018) in major exporting countries such as Australia (down 20.2% to 17.0 million metric tons or ‘mmt’ from a year ago).  Production has been lower in parts of the European Union (down 9.0% in total to 137.60 mmt).  In the Black Sea Region, wheat production is down in Russia (down 17.6% to 70.00 mmt) and Ukraine (down 7.3% to 25.00 mmt) (Figures 14a-b & 15a-b).   Globally, World wheat production in “current” MY 2018/19 of 733.41 mmt is down 3.9% from last year’s record high of 736.03 mmt.  But large carryover stocks from “old crop” MY 2017/18 have upheld total World supplies and supply-demand balances.  Due to both stronger U.S. currency values and adequate World wheat non-exporter supplies, rises in U.S. wheat prices have been limited (Figures 4 & 13).   

 

B. World Wheat Supply-Demand

“Near-Record World Supplies & Ending Stocks”

The USDA projects that the recent “large supply – large use” situation that has persisted for the World wheat market since the last “supply-demand” period in MY 2012/13 will continue (Figure 13).  Viewed in aggregate these World supply and use numbers do NOT bring light to periodic shortages of high protein wheat that are problematic in World markets.  Declining stocks of food quality wheat in major wheat exporting countries in the last 1-2 years may also be somewhat hidden.  For example, there are regular, annual concerns from the Black Sea Region about the amount of food versus feed quality wheat available for export on World markets this year.  They also do not account for the sizable wheat stocks held by China that are isolated from the World wheat market and which tend to distort the supply-demand picture presented by aggregate World market measures (Figures 15a-b)

World wheat production in “current” MY 2018/19 is projected to be 733.41 million metric tons (mmt) which would be the fourth highest amount on record.  This amount would be down 3.9% from the record high 763.06 mmt in “old crop” MY 2017/18, and down 3.1% from 756.51 mmt in MY 2016/17 (Figure 13)Total production of World wheat has increased annually on average from 612.23 mmt in MY 2007/08 to present levels at a rate of +11.0 mmt (+2.1% annually).  The “current” 2018/19 marketing year (MY) which began on June 1, 2018 and will last through May 31, 2019.

World wheat total supplies in “current” MY 2018/19 are projected to be a near record 1,013.35 mmt – down 1.05% from 1,024.10 mmt in “old crop” 2017/18, but up from 1,000.90 mmt in MY 2016/17. 

World wheat exports are forecast to be 177.36 mmt in the “current” 2018/19 marketing year – down from a 181.23 mmt in “old crop” MY 2017/18, and the record high of 183.35 mmt in MY 2016/17 (Figure 13).

World wheat exporting countries and regions are presented in order of size (i.e., largest to smallest): 

  • Russia wheat exports are projected to be 50 mmt in “current” MY 2018/19, down from 41.42 mmt in “old crop” MY 2017/18, but up from 27.81 mmt in MY 2016/17.
  • United States wheat exports are forecast to be 22 mmt in “current” MY 2018/19, up from 24.52 mmt in “old crop” MY 2017/18, but down from 28.60 mmt in MY 2016/17.
  • Canada wheat exports are forecast to be 00 mmt in “current” MY 2018/19, up from 21.95 mmt in “old crop” MY 2017/18, and up from 20.16 mmt in MY 2016/17.
  • European Union wheat exports are forecast to be 00 mmt in “current” MY 2018/19, down from 23.29 mmt in “old crop” MY 2017/18, and from 27.43 mmt in MY 2016/17.
  • Ukraine wheat exports are projected to be 50 mmt in “current” MY 2018/19, down from 17.78 mmt in “old crop” MY 2017/18, and 18.11 mmt in MY 2016/17.
  • Australia wheat exports are forecast to be 50 mmt in “current” MY 2018/19, down from 14.00 mmt in “old crop” MY 2017/18, and from 22.64 mmt in MY 2016/17.
  • Kazakhstan wheat exports are forecast to be 50 mmt in “current” MY 2018/19, down from 9.00 mmt in “old crop” MY 2017/18, but up from 7.40 mmt in MY 2016/17.

World total usage of wheat is projected to be a record high of 745.25 mmt in “current” MY 2018/19 – up marginally from 744.16 mmt in “old crop” MY 2017/18, and from 739.86 mmt in MY 2016/17 (Figure 13).  

World wheat ending stocks are projected to be 268.10 mmt in “current” MY 2018/19 – the 2nd highest in history following the record high of 279.94 mmt in “old crop” MY 2017/18, and 261.04 mmt in MY 2016/17 (Figure 13).  Since MY 2007/08, World wheat ending stocks have been growing an average of 12.7 mmt per marketing year (by 9.9% annually) from the 10-year low of 179.02 mmt in MY 2012/13 – out-pacing the annual growth in total use of 11.9 mmt per year (+1.9% annually) (Figures 14a-b).   

The distorting effect perpetually large Chinese wheat ending stocks on World wheat ending stocks figures of will be examined in the following section.

World wheat percent ending stocks-to-use (% S/U) are forecast to be 35.97% in “current” MY 2018/19 – the 2nd highest on record (Figures 14a-b).  The record high is 37.62% in “old crop” MY 2017/18, up from 35.28% on MY 2016/17 (3rd highest on record).  World wheat % stocks-to-use have consistently increased each year from the recent low of 26.02% in MY 2012/13 to the present – increasing to 28.5% in MY 2013/14; 31.7% in MY 2014/15; 34.2% in MY 2015/16, 35.3% in MY 2016/17; and to the record high of 37.6% S/U in “old crop” MY 2017/18; before a projected moderate decline to 36.0% in “current” MY 2018/19.

 

C. “World-Less-China” Wheat Supply-Demand

“11-Year LOW Ending Stocks”

The broader “large crop-over supply-low price” situation in the World wheat market continues to “obscure” or “mask” the effect of large but somewhat isolated Chinese wheat stocks on actually available World wheat supplies and stocks.  

From a World-Less-China perspective, forecast ending stocks-to-use of 20.01% for “current” MY 2018/19 would be the lowest level in 11 years – since 17.54% S/U in MY 2007/08 (Figures 15a-b)“World-Less-China” wheat ending stocks-to-use are forecast to be down sharply from 23.86% in “old crop” MY 2017/18, and from the range of 22.05% to 27.48% during the MY 2008/09 – MY 2017/18 period.   

This “World-Less-China” perspective compares to the aggregated World perspective, in which forecast World wheat ending stocks-to-use of 35.97% for “current” MY 2018/19 would be the 2nd highest level in 12 years – down only from the high of 37.62% S/U in “old crop” MY 2017/18 (Figures 14a-b)

IF in coming months this China supply isolation factor eventually leads to noticeably tighter available global supplies of purchasable wheat for buyers to gain possession of to meet their domestic needs, it could yet have a significant positive impact on U.S. and World wheat market prices during the January-May period of “current” MY 2018/19.  However, unless there is such a noticeable “tightening” in accessible, available wheat supplies for buyers in the broader, with a predominant move AWAY FROM a large aggregate global supplies perspective over TO tight available “World-Less-China supplies situation, the market’s attention on this factor may not positively affect the pro-active purchasing of World wheat market participants.  The information in the following section may be an impetus for that change.

 

D. Wheat Futures & Kansas Cash Markets Since the December 11th

CME Kansas HRW Wheat Futures

Since the USDA’s December 11th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, CME MARCH 2019 Kansas Hard Red Winter (HRW) Wheat futures have traded first higher, and then lower.  On the day of the reports, MAR 2019 Kansas HRW wheat futures opened at $5.10 ¼ /bu, and traded in the range of $5.01 ½ to $5.14 ½ before closing $0.05 ½ lower to $5.02 ½ .  Since then, MAR 2019 HRW wheat futures first trended higher, trading as high as $5.24 ½ on December 14th, but then trended down to a low of $4.97 ½ on December 24th , before closing at $5.02 ½ /bu on that same day (Figure 1).  

Kansas Cash Wheat Prices & Basis

On December 21st – the 8th trading day after the USDA reports – Kansas cash wheat price terminal quotes for ordinary U.S. no. 1 HRW in central Kansas ranged from $4.68 ¾ to $4.87 ¾ per bushel – with basis ranging from $0.34 under to $0.15 under MARCH 2019 KS HRW Wheat futures.  Cash wheat prices in eastern Kansas grain terminals ranged from $4.52 ¾ to $4.87 ¾ /bu with basis ranging from $0.50 under to $0.15 under MAR 2019 futures.  These prices are still up 27%-32% from the range of $3.42 ¼ to $3.83 ¼ /bu in late December 2017 in eastern and central Kansas – with basis at that time being from $0.80 under to $0.39 under nearby MARCH 2018 futures.  

In western Kansas on December 21st bids for ordinary U.S. no. 1 HRW wheat at selected grain elevators ranged from $4.48 to $4.61 /bu, with basis being $0.55 under to $0.42 under MAR 2019 futures.  Recent wheat cash price bids in western Kansas are up 27% to 29% from $3.47 to $3.64 /bu in late December 2017 in this same area – when local basis varied from $0.85 under to $0.58 under MARCH 2018 futures. 

A Hard White Wheat (HWW) grain terminal bid was available in Wichita, Kansas on 12/21/2018 for $4.82 ¾ /bu, with a basis of $0.20 /bu under MAR 2019 Kansas HRW wheat futures.

 

E. U.S. Wheat Supply/Demand

“Tighter, but still large stocks”

The USDA released their wheat production, supply-demand, and price projections for the U.S. for “current” MY 2018/19 in the December 11th Crop Production & WASDE reports (Table 1a).   There is also a preliminary projection of the USDA supply-demand balance sheet for “next crop” MY 2019/20 which will begin on June 1, 2019.   These preliminary forecast indicate USDA’s expectations of 6%-7% higher acreage, and 2.060 billion bushels of production in 2019, but only marginal changes to usage, ending stocks, and prices. 

U.S. Wheat Acreage

U.S. wheat plantings are forecast to be 51.000 million acres (ma) in 2019, up 6.7% from 47.800 million acres (ma) in 2018, which of itself was up from the record low of 46.022 ma in 2017, but down from 50.119 ma in 2016 (Tables 1a-b, Figures 5-6)Harvested acres are forecast at 43.100 ma in 2019 (84.51% harvested-to-planted).  This amount of harvested acres is projected to be up 8.8% from 39.605 ma in 2018 (82.72% harvested-to-planted), and the record low of 37.541 ma (81.69% harvested-to-planted) in 2017, but still down from 43.850 ma in 2016 (87.49% harvested-to-planted) (Tables 1a-b, Figure 6).   The 2019 U.S. average wheat yield is forecast to be 47.8 bu/ac, up from 47.6 bu/ac in 2018, and 46.3 bu/ac in 2017, but down from the 2016 record high of 52.7 bu/acre (Tables 1a-b, Figure 7)

U.S. Wheat Production & Total Supplies

Wheat production in the U.S. in 2019 is forecast to be 2.060 billion bushels (bb), up from 1.884 bb in 2018, and up from 1.740 bb in 2017, but down from 2.309 bb in 2016 (Tables 1a-b, Figure 8).  Projected “next crop” MY 2019/20 total supplies are forecast to be 3.164 bb, up from forecast “current” MY 2018/19 total supplies of 3.123 bb, and from 3.078 bb in “old crop” MY 2017/18.  However, 3.164 bb in U.S. total wheat supplies in “next crop” MY 2019/20 would be down from 3.402 bb in MY 2016/17. 

Seeding of U.S. Hard Red Winter (HRW) wheat has already occurred in fall 2018 – with preliminary USDA estimates that all U.S. wheat seeded acres in “next crop” MY 2019/18 will be up 6.7% – including winter, spring, and durum classes (Table 1a).  The USDA’s Winter Wheat and Canola Seedings report will be released by the USDA on Friday, January 11, 2019.   

U.S. Wheat Total Use

U.S. Wheat total use is projected to by 2.213 bb in “next crop” MY 2019/20, up from a projection of 2.149 bb in “current” MY 2018/19, and from 1.979 bb in “old crop” MY 2017/18, but down from 2.222 bb in MY 2016/17 (Tables 1a-b, Figures 9a-b).  

U.S. Exports: By usage category, in “next crop” MY 2019/20, U.S. wheat exports are forecast to be 1.050 bb, up from 1.000 bb in “current” MY 2018/19, and from 901 mb in “old crop” MY 2017/18, while being essentially equal from 1.051 bb in MY 2016/17 (Tables 1a-b, Figures 9a-b, & 10a)

CommentaryKSU: U.S. wheat exports fell to 47-year lows of 778 mb and 864 mb in MY 2015/16 and MY 2014/15, respectively, down to levels just marginally above those pre-“Russian Grain Deal” levels in 1972.  This is more evidence of the only marginally competitive position that U.S. wheat exports find themselves in among foreign export competitors in recent years.  However, tightening supplies of foreign wheat exporters may cause U.S. wheat exports to strengthen in the later part of “current” MY 2018/19 (i.e., possibly in spring 2019)

U.S. Food Use: Food Use of U.S. wheat is projected to be 975 million bushels (mb) in “next crop” MY 2019/20, up marginally from 970 mb in “current” MY 2018/19, from 964 mb in “old crop” MY 2017/18, and 949 mb in MY 2016/17 (Table 1, Figure 9).  

U.S. Feed & Residual Use: Feed & Residual Use of U.S. wheat is projected to be 120 mb in “next crop” MY 2019/20, up from 110 mb in “current” MY 2018/19, up from 50 mb in “old crop” MY 2017/18, but less than 161 mb in MY 2016/17 (Table 1, Figure 9a-b).  

CommentaryKSU: With the USDA’s forecast of moderately tighter U.S. corn and total feedgrain supplies along with moderate support for feedgrain prices, the USDA is anticipating that feeding wheat to livestock will become more marginally more economical in “next crop” MY 2019/20 than in the current marking year.   

Ending Stocks & % Stocks-to-Use: With an adjustment by KSU for new WASDE report information, USDA projected “next crop” MY 2019/20 ending stocks to be 951 mb (42.97% S/U), down marginally from “current” MY 2018/19 ending stocks of 974 mb (45.34% S/U), both of which are down from 1.099 bb in “old crop” MY 2017/18 (55.53% S/U), and from 1.181 bb in MY 2016/17 (53.14% stocks/use) (Tables 1a-b, Figures 11a-b & 12).   

CommentaryKSU: This projection of 949 mb in U.S. wheat ending stocks in “current” MY 2018/19 is the lowest in five (5) years – since 752 mb (37.3% stocks/use) in MY 2014/15.  Still, until either a major wheat production shortfall or what could be an “anticipated” surge in U.S. wheat exports occurs, the U.S. will likely remain in the current “large supply – large ending stocks” situation.

United States’ wheat prices are projected to be $5.20 /bu in “next crop” MY 2019/20, up from the midpoint of $5.15 /bu in the range of $5.05-$5.25 /bu in “current” MY 2018/19.  This would be up from $4.72 /bu in “old crop” MY 2017/18, from $3.89 in MY 2016/17, and $4.89 /bu in MY 2015/16, but still down from $5.99 /bu in MY 2014/15 (Table 1, Figures 11a & 12).  

CommentaryKSU: It is estimated by KSU that these USDA projections for “current” MY 2018/19 have a 75% probability of occurring

 

F. “Alt” KSU Scenarios for U.S. Wheat S/D in “Current” MY 2018/19

To represent possible alternative outcomes from the USDA’s December 11th projection, two potential KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “current” MY 2018/19 (Table 1a & Figure 11b).    

KSU Scenario 1) “HIGHER Exports” Scenario (10% probability):   This scenario assumes that there will be 1.884 bb production, 3.123 bb total supplies, 1.100 bb exports (up 100 mb vs USDA), 110 mb feed & residual use, 2.249 bb total use (up 100 mb vs USDA), 874 mb ending stocks (down 100 mb vs USDA), 38.91% Stocks/Use (down vs 45.34% S/U by USDA), & $5.35 /bu U.S. wheat average price (up $0.20 /bu vs USDA).

KSU Scenario 2) “LOWER Exports” Scenario (15% probability):   This scenario assumes that there will be 1.884 bb production, 3.123 bb total supplies, 900 bb exports (down 100 mb vs USDA), 110 mb feed & residual use, 2.049 bb total use (down 100 mb vs USDA), 1,074 mb ending stocks (up 100 mb vs USDA), 52.42% Stocks/Use (up vs 45.34% S/U by USDA), & $4.80 /bu U.S. wheat average price (down $0.35 /bu vs USDA).

 

G. CFTC Position of Traders Info for CME KS HRW Wheat Futures

– through 12/18/2018

Figures 3a-c present the latest available Position of Traders data through December 18, 2018 on CME Kansas Hard Red Winter Wheat futures from the Commodity Futures Trading Commission (CFTC).   

Figure 3a shows Net Position of Traders for CME KS HRW Wheat with Futures Prices from June 2006 through December 18, 2018.  This chart shows the positions of Commercial Hedgers, Managed Money (Specs), and Swaps (Indexes) over time, along with changes in lead KS HRW Wheat futures. 

Commercial hedgers are designated as those traders who are involved with cash wheat positions and are primarily managing the risk from futures movements in their positions (i.e., they are “hedging” futures).  This chart shows the net position of commercial hedgers, showing the balance of both long and short futures positions.  In Figure 3a, commercial hedgers have been net short or in predominantly “sell” positions in CME KS HRW Wheat futures throughout most of 2018, and on 12/18/2018 were net short by 333,060 contracts, representing 1,665,300,000 bushels in “short” futures positions.  

Managed Money (Specs) generally are involved in speculative trading positions in an effort to profit from their trading activities.   Speculative trades add volume or liquidity to the market – allowing commercial hedgers to manage their cash market price risks.  Figure 3a shows that managed money (specs) traders have been net long or in predominantly “buy” positions in CME KS HRW Wheat futures throughout most of 2018.  However, for the first time since late January 2018, from 11/13/2018 through 12/4/2018 Managed Money (Spec) positions were net short by 22,245 to 53,740 contracts, representing 111,225,000 bushels to 268,7000.000 bushels in “short” futures positions.  However, on 12/18/2018, Managed Money Spec positions were net “long” by 19,540 contracts, representing 97,700,000 bushels.

Swaps (Index) traders include commodity index traders who involve agricultural commodity futures such as KS HRW Wheat in their investment portfolios typically as an “inflation hedge.”  Figure 3a shows that swaps (index) traders have been consistently net long or in predominantly “buy” positions in CME KS HRW Wheat futures throughout most of 2018 and actually since June 2006 – which is consistent with their portfolio-risk management oriented strategies.   On 12/18/2018 Swaps (Index) traders were net long by 211,715 contracts, representing 1,058,575,000 bushels in “long” futures positions.  

Figure 3b provides Commercial Traders (Hedgers) Long & Short Positions for CME KS HRW Wheat with Futures Prices from June 2006 through December 18, 2018.  This chart shows that the “short” or “sell” positions of commercial hedgers have been consistently larger than “long” or “buy” positions since July 2017.  On 12/18/2018, Commercial Traders (Hedgers) held “short” or “sell” positions in CME Kansas HRW futures of 599,100 contracts (2,995,500,000 bu.), and “long” or “buy” positions of 266,040 contracts (1,330,200,000 bu.).

Figure 3c illustrates Managed Money Traders (Specs) Long & Short Positions for CME KS HRW Wheat with Futures Prices for the June 2006 through December 18, 2018.  This chart shows a large amount of volatility and change in the positions of “short” or “sell” positions of managed money traders (specs), but relative consistency in their aggregate amount of “long” or “buy” positions over the same period of time.  On 12/18/2018, Managed Money Traders (Specs) held “short” or “sell” positions in CME Kansas HRW futures of 374,490 contracts (1,872,450,000 bu.), and “long” or “buy” positions of 354,950 contracts (1,774,750,000 bu.).

 

KSU Wheat Market Outlook in Late-November 2018 – World Wheat Supplies Weighing on the U.S. Wheat Market

This report provides an analysis of U.S. & World wheat supply-demand factors and 2019 wheat market price prospects following the USDA’s November 9, 2018 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” 2019/20 marketing year from the USDA’s preliminary Long Term Agricultural Projections also released in November 2018. 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-November 2018 to be found at this web location:

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

*****

Wheat Market Outlook in Late-November 2018

Daniel O’Brien – Extension Agricultural Economist, K-State Research and Extension

November 26, 2018 (to be placed on KSU AgManager Website on this date)

 

A. Wheat Market Overview – Emphasis on World Wheat Market Factors

The United States’ wheat market has been “struggling” in recent weeks and months due to strong competition from foreign exports.  Although available supplies from major foreign exporters are historically “tight”, wheat supplies held by non-exporting countries in the rest of the World are large.  

Lower production has been experienced in the “new crop” 2018/19 marketing year (which began June 1, 2018) in major exporting countries such as Australia, parts of the European Union, Russia, and Ukraine (Figures 14a-b-c).  But large carryover stocks from “old crop” MY 2017/18 have upheld World supplies and supply-demand balances, and along with stronger U.S. currency values and adequate non-exporter supplies, and have limited further rises in U.S. wheat prices.    

Seeding of U.S. Hard Red Winter (HRW) wheat has occurred in fall 2018 – with preliminary USDA estimates that U.S. wheat seeded acres in “next crop” MY 2019/18 being up 6.7% (Table 1a).  Harvested acreage for “next crop” MY 2019/18 are projected to be up 8.8%, while ending stocks are forecast to decline by approximately 20 million bushels, and ending stocks-to-use by 2%.  The U.S. average farm price for “next crop” MY 2019/20 are projected to be $0.10 per bushel higher, up to $5.20 per bushels.

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B. Wheat Futures & Cash Market Trends Following the November 9th USDA Reports

Since the USDA’s November 9th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, CME DECEMBER 2018 Kansas Hard Red Winter (HRW) Wheat futures have traded lower.  On the day of the reports DEC 2018 Kansas HRW wheat futures opened at $4.96 ½ /bu, and traded in the range of $4.87-$4.96 ¾ before closing $0.09 ¾ lower to $4.87 ½.  Since then, DEC 2018 HRW wheat futures have trended lower, trading as high as $4.96 ¼ on November 12th but then trending down to a low of $4.68 on November 21st, before closing at $4.69 /bu on that same day (Figure 1).   

On November 21st – the 8th trading day after the USDA reports – Kansas cash wheat price terminal quotes for ordinary U.S. no. 1 HRW in central Kansas ranged from $4.44 to $4.61 per bushel – with basis ranging from $0.25 under to $0.08 under DEC 2018 futures.  Cash wheat prices in eastern Kansas grain terminals ranged from $4.24 to $4.44 with basis ranging from $0.45 under to $0.25 under DEC 2018 futures.  These prices are still up 20%-24% from the range of $3.42 ¼ to $3.83 ¼ /bu in late December 2017 in eastern and central Kansas – with basis at that time being from $0.80 under to $0.39 under nearby MARCH 2018 futures.   

In western Kansas on November 21st bids for ordinary U.S. no. 1 HRW wheat at selected grain elevators ranged from $4.19 to $4.29 /bu, with basis being $0.50 under to $0.40 under DEC 2018 futures.  Recent wheat cash price bids in western Kansas are up 17.9% to 20.7% from $3.47 to $3.64 /bu in late December 2017 in this same area – when local basis varied from $0.85 under to $0.58 under MARCH 2018 futures.  

A Hard White Wheat (HWW) grain terminal bid was available in Wichita, Kansas on 11/21/2018 for $4.59 /bu, with a basis of $0.10 /bu under DEC 2018 Kansas HRW wheat futures.

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C. World Wheat Supply-Demand – “Large supplies & supply-demand balances”

The USDA in projects that the recent “large supply – large use” situation that has persisted for the global wheat market since the last “supply-demand” period in MY 2012/13 will continue (Figure 13).  Viewed in aggregate these World supply and use numbers do not bring light to periodic shortages of high protein wheat that is problematic in World markets, the sizable wheat stocks held by China that are isolated from the World wheat market and tend to distort World market perspectives, and declining stocks of wheat in major wheat exporting countries in the last 1-2 years.  For example, there are regular, annual concerns from the Black Sea Region about the amount of food versus feed quality wheat available for export on World markets this year.

World wheat production in “new crop” MY 2018/19 are projected to 733.51 million metric tons (mmt) is the fourth highest amount on record – being down 3.9% from the record high 763.06 mmt in “old crop” MY 2017/18, down 3.0% from 756.61 mmt in MY 2016/17, and down 1.0% from 738.42 mmt in MY 2015/16 (Figure 13)Total production of World wheat has increased on average from 612.23 mmt in MY 2007/08 to present levels at a rate of +11.0 mmt (+1.8% annually).

The supply-demand balance of the World wheat market is function of several major World wheat producing countries:  These countries and regions in order of size (i.e., largest to smallest) are as follows:

  • European Union wheat production is forecast to be 60 mmt in “new crop” MY 2018/19, down from 151.26 mmt in “old crop” MY 2017/18, and from 145.37 mmt in MY 2016/17.
  • China wheat production is forecast to be 50 mmt in “new crop” MY 2018/19, down from 134.33 mmt in “old crop” MY 2017/18, and from 133.27 mmt in MY 2016/17.
  • India wheat production is projected to be 70 mmt in “new crop” MY 2018/19, up from 98.51 mmt in “old crop” MY 2017/18, and 87.00 mmt in MY 2016/17.
  • Russian wheat production is projected to be 00 mmt in “new crop” MY 2018/19, down from 84.99 mmt in “old crop” MY 2017/18, and 72.53 mmt in MY 2016/17.
  • United States wheat production is forecast to be 29 mmt in “new crop” MY 2018/19, up from 47.35 mmt in “old crop” MY 2017/18, but down from 62.83 mmt in MY 2016/17.
  • Canadian wheat production is forecast to be 5 mmt in “new crop” MY 2018/19, up from 29.98 mmt in “old crop” MY 2017/18, but down from 32.14 mmt in MY 2016/17.
  • Pakistan wheat production is forecast to be 50 mmt in “new crop” MY 2018/19, down from 26.67 mmt in “old crop” MY 2017/18, and from 26.79 mmt in MY 2016/17.
  • Ukraine wheat production is forecast to be 00 mmt in “new crop” MY 2018/19, down from 26.98 mmt in “old crop” MY 2017/18, and from 25.63 mmt in MY 2016/17.
  • Australian wheat production is forecast to be 5 mmt in “new crop” MY 2018/19, down from 21.3 mmt in “old crop” MY 2017/18, and 31.82 mmt in MY 2016/17.
  • Argentina wheat production is forecast to be 5 mmt in “new crop” MY 2018/19, up from 18.50 mmt in “old crop” MY 2017/18, but up from 18.40 mmt in MY 2016/17.
  • Kazakhstan wheat production is forecast to be 0 mmt in “new crop” MY 2018/19, up from 14.50 mmt in “old crop” MY 2017/18, and from 14.99 mmt in MY 2016/17.

World wheat total supplies in “new crop” MY 2018/19 are projected to be a near record 1,012.51 million metric tons (mmt) – down 1.1% from 1,024.09 mmt in “old crop” 2017/18.  The “new crop” 2018/19 marketing year (MY) which began on June 1, 2018 and will last through May 31, 2019.  

World wheat exports are forecast to be 178.89 mmt in the “new crop” 2018/19 marketing year – down from a 181.25 mmt in “old crop” MY 2017/18, the record high of 183.35 mmt in MY 2016/17, but still up from 172.79 mmt in MY 2015/16 (Figure 13).  Although World wheat exports are forecast to increase by 7.8% since MY 2013/14 (i.e., 1 year after the short crop year of MY 2012/13), over the same period U.S. wheat exports are projected to decline by 12.8% from 1.176 billion bushels in MY 2013/14 to 1.025 bb in “new crop” MY 2018/19. 

World wheat exporting countries and regions are presented in order of size (i.e., largest to smallest): 

  • Russia wheat exports are projected to be 00 mmt in “new crop” MY 2018/19, down from 41.42 mmt in “old crop” MY 2017/18, but up from 27.81 mmt in MY 2016/17.
  • United States wheat exports are forecast to be 90 mmt in “new crop” MY 2018/19, up from 24.52 mmt in “old crop” MY 2017/18, but down from 28.60 mmt in MY 2016/17.
  • Canada wheat exports are forecast to be 00 mmt in “new crop” MY 2018/19, up from 21.95 mmt in “old crop” MY 2017/18, but down from 20.16 mmt in MY 2016/17.
  • European Union wheat exports are forecast to be 00 mmt in “new crop” MY 2018/19, down from 23.29 mmt in “old crop” MY 2017/18, and from 27.43 mmt in MY 2016/17.
  • Ukraine wheat exports are projected to be 50 mmt in “new crop” MY 2018/19, down from 17.78 mmt in “old crop” MY 2017/18, and 18.11 mmt in MY 2016/17.
  • Australia wheat exports are forecast to be 50 mmt in “new crop” MY 2018/19, down from 14.00 mmt in “old crop” MY 2017/18, and from 22.64 mmt in MY 2016/17.
  • Kazakhstan wheat exports are forecast to be 50 mmt in “new crop” MY 2018/19, down from 9.00 mmt in “old crop” MY 2017/18, but up from 7.40 mmt in MY 2016/17.

World total usage of wheat is projected to be a record high of 745.80 mmt in “new crop” MY 2018/19 – up marginally from 745.09 mmt in “old crop” MY 2017/18 (Figure 13).  Total use of World wheat has consistently increased from 614.35 mmt in MY 2007/08 to present levels at a rate of +12.0 mmt (+1.9% annually).

World wheat ending stocks are projected to be 266.71 mmt in “new crop” MY 2018/19 – the 2nd highest in history following the record high of 279.00 mmt in “old crop” MY 2017/18, and 261.04 mmt in MY 2016/17 (Figure 13).  Since MY 2007/08 World wheat ending stocks have been growing an average of 12.6 mmt per marketing year (by 9.8% annually) from the 10-year low of 177.02 mmt in MY 2012/13 – out-pacing the annual growth in total use of 12.0 mmt per year (+1.9% annually) (Figures 15a-b).   

The distorting effect perpetually large Chinese wheat ending stocks on World wheat ending stocks figures of will be examined in the following section.

World wheat percent ending stocks-to-use (% S/U) are forecast to be 35.76% in “new crop” MY 2018/19 – the 2nd highest on record (Figures 15a-b).  The record high is 37.45% in “old crop” MY 2017/18.  World wheat % stocks-to-use has consistently increased each year since MY 2012/13 to the present.  

Since a low of 26.0% stocks/use in ‘short crop’ MY 2012/13, World wheat percent ending stocks-to-use (% S/U) increased at an average rate of +12.6 mmt (+9.8% annually) up to 28.5% in MY 2013/14; 31.7% in MY 2014/15; 34.2% in MY 2015/16, 35.3% in MY 2016/17; and to the record high of 37.45% S/U in “old crop” MY 2017/18; before a projected moderate decline to 35.76% in “new crop” MY 2018/19.

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D. “World-Less-China” Wheat Supply-Demand – ““Tightening to an 11-Year Low”

The broader “large crop-over supply-low price” situation in the World wheat market continues to “obscure” or “mask” the effect of large but somewhat isolated Chinese wheat stocks on actually available World wheat supplies and stocks.  

From a World-Less-China perspective, forecast ending stocks-to-use of 19.8% for “new crop” MY 2018/19 would be the lowest level in 11 years – since 17.5% S/U in MY 2007/08 (Figures 16a-b)“World-Less-China” wheat ending stocks-to-use are forecast to be down sharply from 23.7% in “old crop” MY 2017/18, and from the range of 22.05% to 27.50% during the MY 2008/09 – MY 2017/18 period.   

This “World-Less-China” perspective compares to the aggregated World perspective, in which forecast World wheat ending stocks-to-use of 35.8% for “new crop” MY 2018/19 would be the 2nd highest level in 12 years – down only from 37.45% S/U in “old crop” MY 2017/18 (Figures 15a-b)

IF in coming months this China supply isolation factor eventually leads to noticeably tighter available global supplies of purchasable wheat for buyers to gain possession of to meet their domestic needs, it could yet have a significant positive impact on U.S. and World wheat market prices in “new crop” MY 2018/19.  However, unless there is such a noticeable “tightening” in accessible, available wheat supplies in the broader, World wheat market AWAY FROM large aggregate global supplies over TO tight available “World-Less-China supplies, the attention of this factor may not positively affect the pro-activeness of World wheat participants.  The information in the following section may be an impetus for that change.

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E. “Major Wheat Exporters” % Stocks/Use – “Also Tightening to an 11-Year Low”

Ending stocks among major global wheat exporters including Argentina, Australia, Canada, the European Union, Russia, Ukraine, and the United States are projected to decline to 51.99 mmt in “new crop” MY 2018/19.  This amount would be down from 69.02 mmt in “old crop” MY 2017/18, and from the recent high of 68.29 mmt in MY 2016/17 (Figure 14a-b-c)

Excluding the United States with its current large stocks situation, the ending stocks of the remaining six (6) major wheat exporters have declined to at least a 21-year low of 26.15 mmt in “new crop” MY 2018/19.  This amount would be down sharply from the recent high of 39.12 mmt in “old crop” MY 2017/18, and is comparable to 36.16 mmt in MY 2016/17, 34.30 mmt in MY 2015/16, and 41.24 mmt in MY 2014/15.

Top 7 Exporters Own % S/U:  The projected percent (%) ending stocks-to-use among global wheat exporters including Argentina, Australia, Canada, the European Union, Russia, Ukraine, and the United States are projected to decline to 13.0% in “new crop” MY 2018/19 – down from 16.8% in “old crop” MY 2017/18, from 17.4% in MY 2016/17 and the 21-year high of 22.2% in MY 2009/10 (Figure 14a-b-c).  This forecast of 13.0% S/U for the top 7 World wheat exporters is the second lowest in the last 21-years compared to 12.2% in the ‘short crop’ 2007/08 marketing year.  

Top 7 Exporters Own Stocks as a % of World Use:  Relative to total World wheat stocks, the ending stocks of the top 7 World wheat exporters is projected to decline to 13.65% in “new crop” MY 2018/19, down from 17.66% in “old crop” MY 2017/18 (2nd lowest), and the lowest proportion since 12.24% in MY 2007/18 (i.e., the last 12-years) (Figure 14a=b=c).

Rest of the World Less Major Exporters (ROW) Wheat ending stocks:  Excluding the major seven (7) global wheat exporters Argentina, Australia, Canada, the European Union, Russia, Ukraine, and the United States – wheat ending stocks for the Rest of the World (ROW) are projected to increase to a record high 214.725 mmt in “new crop” MY 2018/19 (Figure 14a-b-c).  This amount would be up from 209.98 mmt in “old crop” MY 2017/18, and up from 192.74 mmt in MY 2016/17, from 183.305 mmt in MY 2015/16, and from the range of 131.20 – 160.53 mmt during the MY 2011/12 through MY 2014/15 period. 

CommentaryKSU: These results show that while aggregate World wheat ending stocks have declined moderately, “under the surface” of those numbers, wheat stocks are projected to be “extremely tight” among World exporters – much tighter than for the rest of the World wheat market.   Tightening wheat stocks and % S/U among the top 7 wheat exporters is likely to eventually be a positive factor for U.S. wheat market price prospects – since it could lead to larger U.S. wheat exports in the last quarter of “new crop” MY 2018/19 (i.e., during March-May 2019).  

In other words, a significant increase in U.S. wheat export sales and shipments may be “back loaded” in “new crop” MY 2018/19 – after domestic supplies of wheat importing countries, and already tighter supplies from other major exporters with transportation cost and/or currency exchange rate advantages over the United States have “run short”.

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F. U.S. Wheat Supply/Demand “Tighter but still large stocks”

The USDA released their wheat production, supply-demand and price projections for the U.S. for “new crop” MY 2018/19 in the November 9th Crop Production & WASDE reports (Table 1a).   There is also a preliminary projection of the USDA supply-demand balance sheet for “next crop” MY 2019/20 which will begin on June 1, 2019.   These preliminary forecast indicate USDA’s expectations of 6%-8% higher acreage, and 2.060 billion bushels of production in 2019, but only marginal changes to usage, ending stocks, and prices.  

U.S. wheat plantings are forecast to be 47.800 million acres (ma) in 2018, up from the record low of 46.022 ma in 2017, but down from 50.119 ma in 2016 (Table 1, Figures 5-6)Harvested acres are forecast at 39.605 ma in 2018 (82.72% harvested-to-planted), up from the record low of 37.541 ma (81.69% harvested-to-planted) in 2017, but down from 43.850 ma in 2016 (87.49% harvested-to-planted) (Table 1, Figure 6).   The 2018 U.S. average wheat yield is estimated at 47.6 bu/ac, up from 46.3 bu/ac in 2017, but down from the 2016 record high of 52.7 bu/acre (Table 1, Figure 7)

Wheat production in the U.S. in 2018 is forecast to be 1.884 billion bushels (bb), up from 1.740 bb in 2017, but down from 2.309 bb in 2016.  Projected “new crop” MY 2018/19 total supplies are forecast at 3.123 bb, up from 3.078 bb in “old crop” MY 2017/18, and down from 3.402 bb in MY 2016/17 (Table 1, Figure 8)

U.S. Wheat total use of 2.174 bb is forecast for “new crop” MY 2018/19, up from 1.979 bb in “old crop” MY 2017/18, and from 2.222 bb in MY 2016/17 (Table 1, Figure 9a-b).  By usage category, in “new crop” MY 2018/19 U.S. wheat exports are projected to be 1.025 bb, which is up from 901 mb in “old crop” MY 2017/18, while being down from 1.051 bb in MY 2016/17 (Table 1, Figures 10 & 11)

CommentaryKSU: U.S. wheat exports fell to 47-year lows of 778 mb and 864 mb in MY 2015/16 and MY 2014/15, respectively, down to levels just marginally above those pre-“Russian Grain Deal” levels in 1972.  This is more evidence of the only marginally competitive position that U.S. wheat exports find themselves in among foreign export competitors in recent years.  However, tightening supplies of foreign wheat exporters may cause U.S. wheat exports to strengthen in the later part of “new crop” MY 2018/19 (i.e., likely fall 2018)

Food Use of U.S. wheat is projected to be 970 million bushels (mb) in “new crop” MY 2018/19, up marginally from 964 mb in “old crop” MY 2017/18, and trending higher from 949 mb in MY 2016/17 (Table 1, Figure 9).   Feed & Residual Use of U.S. wheat is projected to be 110 mb in “new crop” MY 2018/19, up from 50 mb in “old crop” MY 2017/18, but less than 161 mb in MY 2016/17 (Table 1, Figure 9a-b).  

CommentaryKSU: With the USDA’s forecast of moderately tighter U.S. corn and total feedgrain supplies along with moderate support for feedgrain prices, the USDA is anticipating that feeding wheat to livestock will become more economically viable compared to a year earlier. 

The USDA projected “new crop” MY 2018/19 ending stocks to be 949 mb (43.65% S/U), which are down substantially from 1.099 bb in “old crop” MY 2017/18 (55.53% S/U), and from 1.181 bb in MY 2016/17 (53.15% stocks/use) (Table 1, Figures 11a & 12)

CommentaryKSU: This projection of 949 mb in U.S. wheat ending stocks in “new crop” MY 2018/19 is the lowest in five (5) years – since 752 mb (37.3% stocks/use) in MY 2014/15.  Still, until either a major wheat production shortfall or what could be an “anticipated” surge in U.S. wheat exports occurs, the U.S. will likely remain in the current “large supply – large ending stocks” situation.

United States’ wheat prices are projected to be in the range of $4.90-$5.30 /bu – averaging $5.10 /bu in “new crop” MY 2018/19.  This would be up from $4.72 /bu in “old crop” MY 2017/18, from $3.89 in MY 2016/17, and $4.89 /bu in MY 2015/16, but still down from $5.99 /bu in MY 2014/15 (Table 1, Figures 11a & 12).  

CommentaryKSU: It is estimated by KSU that these USDA projections for “new crop” MY 2018/19 have a 70% probability of occurring.

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G. Three “Alt” KSU U.S. Wheat S/D Forecast Scenarios for “New Crop” MY 2018/19

To represent possible alternative outcomes from the USDA’s November 9th projection, three potential KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “new crop” MY 2018/19 (Table 1a & Figure 11b).    

KSU Scenario 1) “MODERATELY Higher Exports” Scenario (10% probability):   This scenario assumes that there will be 1.884 bb production, 3.123 bb total supplies, 1.075 bb exports (up 50 mb vs USDA), 120 mb feed & residual use, 2.224 bb total use (up 50 mb vs USDA), 899 mb ending stocks (down 50 mb vs USDA), 40.42% Stocks/Use (down vs 43.65% S/U by USDA), & $5.35 /bu U.S. wheat average price (up $0.25 /bu vs USDA).

KSU Scenario 2) “MUCH Higher Exports” Scenario (5% probability):   This scenario assumes that there will be 1.884 bb production, 3.123 bb total supplies, 1.200 bb exports (up 125 mb vs USDA), 120 mb feed & residual use, 2.299 bb total use (up 125 mb vs USDA), 824 mb ending stocks (down 125 mb vs USDA), 35.84% Stocks/Use (down vs 43.65% S/U by USDA), & $5.90 /bu U.S. wheat average price (up $0.80 /bu vs USDA).

KSU Scenario 3) “Lower Exports” Scenario (15% probability):   This scenario assumes that there will be 1.884 bb production, 3.123 bb total supplies, 925 bb exports (down 100 mb vs USDA), 120 mb feed & residual use, 2.074 bb total use (down 100 mb vs USDA), 1,049 mb ending stocks (up 100 mb vs USDA), 50.58% Stocks/Use (up vs 43.65% S/U by USDA), & $4.80 /bu U.S. wheat average price (down $0.30 /bu vs USDA).

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H. CFTC Position of Traders Info for CME KS HRW Wheat Futures through 11/13/2018

Figures 3a-c present the latest available Position of Traders data through November 13, 2018 on CME Kansas Hard Red Winter Wheat futures from the Commodity Futures Trading Commission (CFTC).   

Figure 3a shows Net Position of Traders for CME KS HRW Wheat with Futures Prices from June 2006 through November 13, 2018.  This chart shows the positions of Commercial Hedgers, Managed Money (Specs), and Swaps (Indexes) over time, along with changes in lead KS HRW Wheat futures. 

Commercial hedgers are designated as those traders who are involved with cash wheat positions and are primarily managing the risk from futures movements in their positions (i.e., they are “hedging” futures).  This chart shows the net position of commercial hedgers, showing the balance of both long and short futures positions.  In Figure 3a, commercial hedgers have been net short or in predominantly “sell” positions in CME KS HRW Wheat futures throughout most of 2018, and on 11/13/2018 were net short by 283,110 contracts, representing 1,415,550,000 bushels in “short” futures positions.  

Managed Money (Specs) generally are involved in speculative trading positions in an effort to profit from their trading activities.   Speculative trades add volume or liquidity to the market – allowing commercial hedgers to manage their cash market price risks.  Figure 3a shows that managed money (specs) traders have been net long or in predominantly “buy” positions in CME KS HRW Wheat futures throughout most of 2018.  However, for the first time since late January 2018, on 11/13/2018 Managed Money (Spec) positions became net short by 22,245 contracts, representing 111,225,000 bushels in “short” futures positions.  

Swaps (Index) traders include commodity index traders who involve agricultural commodity futures such as KS HRW Wheat in their investment portfolios typically as an “inflation hedge.”  Figure 3a shows that swaps (index) traders have been consistently net long or in predominantly “buy” positions in CME KS HRW Wheat futures throughout most of 2018 and actually since June 2006 – which is consistent with their portfolio-risk management oriented strategies.   On 11/13/2018 Swaps (Index) traders were net long by 184,610 contracts, representing 923,050,000 bushels in “long” futures positions.  

Figure 3b provides Commercial Traders (Hedgers) Long & Short Positions for CME KS HRW Wheat with Futures Prices from June 2006 through November 13, 2018.  This chart shows that the “short” or “sell” positions of commercial hedgers have been consistently larger than “long” or “buy” positions since July 2017.  On 11/13/2018, Commercial Traders (Hedgers) held “short” or “sell” positions in CME Kansas HRW futures of 706,410 contracts (3,532,050,000 bu.), and “long” or “buy” positions of 423,300 contracts (2,166,500,000 bu.).

Figure 3c illustrates Managed Money Traders (Specs) Long & Short Positions for CME KS HRW Wheat with Futures Prices for the June 2006 through November 13, 2018.  This chart shows a large amount of volatility and change in the positions of “short” or “sell” positions of managed money traders (specs), but relative consistency in their aggregate amount of “long” or “buy” positions over the same period of time.  On 11/13/2018, Managed Money Traders (Specs) held “short” or “sell” positions in CME Kansas HRW futures of 345,260 contracts (1,726,300,000 bu.), and “long” or “buy” positions of 323,015 contracts (1,615,075,000 bu.).

KSU “Quick Analysis of the Numbers” Calculations of USDA September 12th Reports – Examining Grain Supply-Demand by Category and Country

A KSU “quick analysis” worksheet of the key grain marketing-related information found in the September 12, 2018 th USDA World Agricultural Supply and Demand Estimates (WASDE) report can be found on the Kansas State University AgManager.info website (http://www.agmanager.info/).

The spreadsheet contains a comparison of USDA September 2018 U.S. and Foreign grain supply-demand and market price forecasts for the “new crop” 2018/19 marketing year, with comparisons to

a) pre-report trade estimates,

b) the August 2018 USDA grain production and supply-demand projections, and

c) “old crop” MY 2017/18 U.S. wheat, corn, grain sorghum and soybean production and ending stocks data, and World wheat, coarse grain, corn and soybean supply-demand numbers.

Key information is contained on the following:

A. Brazil and Argentina crop production and supply-demand forecasts for 2018 and 2019 corn and soybeans.

B. Updated U.S. ending stocks projections for the “new crop” 2018/19 marketing year for major crops (corn, sorghum, wheat, and soybeans).

C. Updated World ending stocks projections for the “new crop” 2018/19 marketing year for major crops (corn, coarse grains, wheat, and soybeans).

The worksheet also contains a more extensive analysis of the September 12, 2018 WASDE report results in regards to World wheat, coarse grain, corn and soybean supply-demand results, focusing on country-by-country (or region-by-region in many cases) projections of production, imports, exports, domestic feed use, and ending stocks.

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Kansas Wheat to begin in earnest in October, 2018 (Source: Mark Parker, Farmtalk: www.farmtalknewspaper.com/news/crops/leaving-volunteer-wheat-tempting-but/article_9307e38c-f403-5a19-907c-5112bf01f293.html)