KSU Wheat Market Outlook in Mid-June 2018: HRW Wheat Harvest Markets with Protein in Demand

An analysis of U.S. and World wheat supply-demand factors and 2018-2019 price prospects following the June 12 USDA Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports, and the market actions that have followed those reports are available on the KSU AgManager website (http://www.agmanager.info/).

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

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

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Wheat Market Outlook in Mid-June 2018

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

June 14, 2018

A. Wheat Futures & Cash Market Trends Following the June 12th USDA Reports

Since the USDA’s June 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, CME JULY 2018 Kansas Hard Red Winter (HRW) Wheat futures have traded first higher and then lower again.  These reports were released during a time of harvest price pressure, when 2018 hard red winter wheat harvest was over half done in Oklahoma and Texas, and beginning in Kansas.  On the day of the report (June 12, 2018), JULY 2018 Kansas HRW wheat futures opened at $5.34 ½ and traded as high as $5.55 ½ before closing higher to $5.53 ½ that day.  The following two days JULY 2018 HRW wheat futures trended lower, closing at $5.39 /bu on Wednesday, June 13th and $5.22 ¼ /bu on Thursday, June 14th (Figure 1).   

On June 14th – the 2nd day after the USDA reports – Kansas cash wheat price terminal quotes in central and eastern Kansas ranged from $5.02 ¼ to $5.42 ¼ per bushel – with basis ranging from $0.20 under to $0.20 over JULY 2018 futures (Figure 2).  These prices are up 41%-47% 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 ranging from $0.80 under to $0.39 under nearby MARCH 2018 futures.   A terminal Hard White Wheat (HWW) bid was available in Wichita, Kansas for $5.37 ¼ /bu, with a basis of $0.15 /bu over JULY 2018 Kansas HRW wheat futures.

In western Kansas on June 14th with harvest well underway to the south, representative wheat elevator bids ranged from $4.72 to $5.07 /bu, with basis being from $0.50 under to $0.15 under JULY 2018 futures.  These recent wheat cash price levels are up 36%-39% from $3.47 to $3.64 /bu in late December 2018 in western Kansas – when local basis varied from $0.85 under to $0.58 under MARCH 2018 futures.  

Lower 2018 production, higher protein levels in drought-damaged parts of the central and southern plains states of Texas, Oklahoma and Kansas, and to some degree foreign wheat crop concerns in competitive export countries such as Ukraine, Russia, and Australia, are the key market influencing factors credited for the increase in Kansas HRW wheat futures and cash prices since December 2017.  With this prices strength, local wheat basis levels in Kansas that were “wide and weak” in December 2017 have strengthened by $0.59-$0.60 /bu in central Kansas, and by $0.35-$0.43 /bu in western Kansas as of June 14. 

 

B. Early Harvest HRW Wheat Yield & Protein Results

Harvest results to date have shown low yields but higher protein in Oklahoma and parts of southern Kansas.  The June 8th Harvest Report of the U.S. Wheat Associates (http://www.uswheat.org/harvest) stated:

“Yields continue to be variable with a current average estimated at under 25 bu/ac (1.7 tons/ha). Hot temperatures forecast for next week (i.e., June 11-15) should push maturity. The first 60 samples are in for analysis with averages from 17 samples originating in Oklahoma reported. Test weights with a few exceptions ran above 60 lb/bu (78.9 kg/hl), which is a bit of a surprise given the environmental conditions in the area. Protein averaged between 11% and 12% (12% moisture basis).”

A report via Reuters indicates the following (“U.S. Grain Buyers Grab for High-Protein Wheat, Boosting Cash Prices.”, Reuters – Julie Ingwerson, June 14, 2018): 

“Cash prices for hard red winter (HRW) wheat in the southern U.S. Plains are surging as buyers scramble to lock up supplies of high-protein wheat from what could be the second-smallest crop in decades, traders said. Amid a global shortage of high-protein wheat, commercial grain handlers need the new-crop grain to blend into their stocks to salvage the lower-quality wheat left in their bins from last year. …….”

“The firm cash market reflects buyers’ hunger for high-protein wheat after two consecutive low-protein harvests that averaged 11.5 percent or less. Flour millers and exporters largely spurned the 2016 and 2017 HRW wheat harvests, seeking alternate supplies from outside of Texas, Oklahoma and Kansas. ……. Early returns from the 2018 harvest have been encouraging. Protein levels in HRW wheat samples from Oklahoma and southern Kansas have averaged 13 percent, according to weekly data from Plains Grains Inc., a trade group that conducts a wheat quality survey, and the Kansas Wheat Commission.”

Consequently, the lower yields occurring during early harvest 2018 in these central and southern plains states are being partially offset income-wise by higher protein wheat.  On a net income per acre basis, farmers are still likely to be worse off financially, as the higher price received for higher protein content HRW wheat does not compensate enough for the lower yield to sell on a per acre basis.

 

C. Key World Wheat Supply-Demand Results in the June 12th USDA WASDE Report

For the “new crop” 2018/19 marketing year (MY) beginning on June 1, 2018, the USDA projected the following (Figures 13 through 15b, Tables 2 through 9):

World wheat total supplies in “new crop” MY 2018/19 would be a record high 1,017.1 million metric tons (mmt) accompanied by record high total use of 750.9 mmt – up 0.1% and 1.0%, respectively, from “old crop” MY 2017/18.  The USDA in essence projects that the recent “large supply – large use” situation that has persisted since the last “supply-demand” period in MY 2012/13 will continue (Figure 13).  Concerns about 2018-2019 wheat crop production prospects in the Black Sea Region, Australia, and the U.S. could bring lower production and supplies – possibly causing World wheat supply-demand balances to decline in upcoming WASDE reports.  However, if these World wheat production reductions do NOT occur, then the current World wheat oversupply and associated low price situation is likely to persist.  

CommentaryKSU: These aggregate World supply and use numbers do NOT bring light to the shortage of high protein wheat that exists in World markets, OR the sizable wheat stocks held by China that are isolated from the World wheat market.

World wheat exports will also be a new record high 187.3 mmt in the “new crop” 2018/19 marketing year – up from a 182.8 mmt in “old crop” MY 2017/18, the previous record high of 183.3 mmt in MY 2016/17, and from 172.8 mmt in MY 2015/16 (Figure 13, Table 3).  While World wheat exports are forecast to increase by 12.9% since MY 2013/14 (i.e., 1 year after the short crop year of MY 2012/13), United States’ wheat exports are projected to decline by 19.2% from 1.176 billion bushels to 950 million bushels (mb) in “new crop” MY 2018/19. 

CommentaryKSU: This lack of growth in U.S. exports relative to foreign export competitors raises questions about whether the U.S. should focus more on HRW wheat protein and quality characteristics to differentiate it’s exportable wheat product. Also, a strengthening in the U.S. dollar exchange rate relative to export competitors with weak currency exchange rates continues to be a negative factor limiting the competitive affordability of U.S. wheat exports in World markets.  

World wheat ending stocks are projected to be 266.2 mmt in “new crop” MY 2018/19 – the 2nd highest on record following the high of 272.4 mmt in “old crop” MY 2017/18 (Figure 13, Table 8).  World wheat ending stocks have been growing an average of 14.7 mmt per marketing year from the low of 177.9 mmt in MY 2012/13, out-pacing the annual growth in total use of 10.6 mmt per marketing year – leading to growth in ending stocks. 

World wheat percent ending stocks-to-use (S/U) are forecast to be 35.45% in “new crop” MY 2018/19 – the 2nd highest on record (Figures 14a-b, Table 9).  The record was 36.65% in “old crop” MY 2017/18.  World wheat % stocks-to-use consistently increased each year from 25.89% in the short crop MY 2012/13 to current levels of 36.65% S/U in “old crop” MY 2017/18, and the USDA projection of 35.45% in “new crop” MY 2018/19.

CommentaryKSU: These results provide evidence that pace of growth in World wheat supplies has been faster than growth in total use since MY 2012/13 – leading to the current World oversupply situation and lack of sales opportunities and weaker prices for wheat of average protein and quality characteristics.

D. World-Less-China” Wheat Supply-Demand & the “China Supply Isolation” Factor

The broader “large crop-over supply-low price” situation in the World wheat market may be “obscuring” some important underlying market issues – particularly in regards to the “masking” effect of Chinese wheat stocks on available World wheat supplies and stocks.  

Total supplies and % ending stocks-to-use of wheat in World markets is projected to grow to record levels – with World wheat ending stocks-to-use of 35.45% in “new crop” MY 2018/19 (Figures 13 thru 14b, Table 8).  However, from a World-Less-China perspective, forecast ending stocks-to-use of 20.2% would be the lowest level in 11 years (Table 9, Figures 15a-b)“World-Less-China” wheat ending stocks-to-use would be down sharply from 23.2% in “old crop” MY 2017/18, and from the range of 22.05% to 27.5% during the MY 2008/09 – MY 2017/18 period. 

IF this China supply isolation factor eventually leads to noticeably tighter available global supplies of purchasable wheat for buyers to gain access to in coming months, it could have a significant positive impact on U.S. and World wheat market prices in “new crop” MY 2018/19.  However, unless there is this change in the broader, overriding focus of the World wheat market AWAY FROM aggregate global supplies over TO available “World-Less-China supplies the attention of the World wheat market may not change in this direction.

 

E. U.S. Wheat Supply/Demand for “New Crop” MY 2018/19

The USDA released their wheat production, supply-demand and price projections for the U.S. for “new crop” MY 2017/18 in the June 12th Crop Production & WASDE reports (Tables 1a-b).   

U.S. wheat plantings are forecast to be 47.339 million acres (ma) in 2018, up from the record low of 46.012 ma in 2017, but down from 50.119 ma in 2016 (Table 1, Figure 5)Harvested acres are forecast at 38.9 ma in 2018 (82.3% harvested-to-planted), up from the record low of 37.586 ma (81.7% harvested-to-planted) in 2017, but down from 43.850 ma in 2016 (87.5% harvested-to-planted) (Table 1, Figure 5).   The 2018 U.S. average wheat yield is estimated at 46.9 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 6)

Wheat production in the U.S. in 2018 is forecast to be 1.827 billion bushels (bb), up from 1.741 bb in 2017, but down from 2.309 bb in 2016.  Projected “new crop” MY 2018/19 total supplies are forecast at 3.043 bb, down from 3.076 bb in “old crop” MY 2017/18, and down from 3.402 bb in MY 2016/17 (Table 1, Figure 7)

U.S. Wheat total use of 2.097 bb is forecast for “new crop” MY 2018/19, up from 1.996 bb in “old crop” MY 2017/18, and from 2.222 bb in MY 2016/17 (Table 1, Figure 8).  By usage category, U.S. wheat exports are projected to be 950 mb in “new crop” MY 2018/19, up from 900 mb in “old crop” MY 2017/18, while being down from 1.055 bb in MY 2016/17 (Table 1, Figures 9 & 10)

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, to levels just marginally above those pre-“Russian Grain Deal” in 1972.  This is more evidence of the only marginally competitive position that U.S. wheat exports find themselves in among foreign export competitors I recent years. 

Food Use of U.S. wheat is projected to be 965 million bushels (mb) in “new crop” MY 2018/19, up marginally from 963 mb in “old crop” MY 2017/18, and trending higher from 943 mb in MY 2016/17 (Table 1, Figure 8).   Feed & Residual Use of U.S. wheat is projected to be 120 mb in “new crop” MY 2018/19, up from 70 mb in “old crop” MY 2017/18, and from 156 mb in MY 2016/17 (Table 1, Figure 8).  

CommentaryKSU: With the USDA’s forecast of tighter U.S. corn and total feedgrain supplies along with higher feedgrain prices, the USDA is anticipating that feeding wheat to livestock will become more economically viable. 

The USDA projected “new crop” MY 2018/19 ending stocks to be 946 mb (45.1% Stocks/Use), down from 1.080 bb in “old crop” MY 2017/18 (54.1% stocks/use), and 1.181 bb in MY 2016/17 (53.15% stocks/use) (Table 1, Figures 11 & 12).   

CommentaryKSU: The anticipation of markedly lower U.S. 2018 HRW wheat production is having the end effect on U.S. wheat supply-demand balances of dropping ending stocks below 1.00 bb and ending stocks-to-use below 50%. To move ending stocks and % stocks-to-use much lower, it may be necessary to sharply increase U.S. wheat exports and total usage.   

United States’ wheat prices are projected to average $5.10 /bu in “new crop” MY 2018/19, up from $4.75 /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 11 & 12)  It is estimated by KSU that these USDA projections for “new crop” MY 2018/19 have a 60% probability of occurring.

 

F. Three Alternative KSU U.S. Wheat S/D Forecast for “New Crop” MY 2018/19

To represent possible alternative outcomes from the USDA’s June 12th projection, three potential KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “new crop” MY 2018/19 (Table 1a, Figure 11).    

KSU Scenario 1) “Lower Production” Scenario (25% probability):   This scenario assumes that there will be 47.339 ma planted, 80.6% harvested-to-planted, 38.155 ma harvested, 45.0 bu/ac average yield, 1.717 bb production, 2.932 bb total supplies, 950 mb exports, 120 mb feed & residual use, 2.097 bb total use, 835 mb ending stocks, 39.82% Stocks/Use, & $5.75 /bu U.S. wheat average price.

KSU Scenario 2) “Higher Exports” Scenario (15% probability):   This scenario assumes that there will be 47.339 ma planted, 80.6% harvested-to-planted, 38.155 ma harvested, 46.9 bu/ac average yield, 1.827 bb production, 3.043 bb total supplies, 1.125 bb exports, 120 mb feed & residual use, 2.272 bb total use, 771 mb ending stocks, 33.93% Stocks/Use, & $6.20 /bu U.S. wheat average price.

KSU Scenario 3) “Lower Production & Higher Exports” Scenario (5% probability):   This scenario assumes that there will be 47.339 ma planted, 80.6% harvested-to-planted, 38.155 ma harvested, 45.0 bu/ac average yield, 1.717 bb production, 2.932 bb total supplies, 1.125 bb exports, 120 mb feed & residual use, 2.272 bb total use, 660 mb ending stocks, 29.05% Stocks/Use, & $6.55 /bu U.S. wheat average price.

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KSU Weekly Grain Market Analysis: A “360 View” of Grain Markets on USDA Grain Stocks and Prospective Plantings Day

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program to be played on Friday, March 30, 2018 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_03-30-18.pdf

The recorded radio program was aired at 10:03 a.m. central time, Friday, March 30, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the March 30th recording is available at the KSU Agriculture Today website.

Following are sections of the Working notes for this week’s radio program up on the KSU AgManager.info website…

KSU Wheat Market Outlook in Late-December 2017 – U.S., World, and “World-Less-China” Market Scenarios for 2018

This report provides an analysis of U.S. and World wheat supply-demand factors and 2018 marketing year price prospects following the USDA’s December 12, 2017 Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports.  It also incorporates U.S. wheat market supply-demand and price projections for the “next crop” 2018/19 marketing year from the USDA’s Long Term Agricultural Projections released on November 28, 2017. This article will be available in full on the KSU AgManager website in coming days (http://www.agmanager.info/).

Following is a summary – with the full analysis-article for Wheat Market Outlook in Late-December 2018 to be found at this web location:

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

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Summary

A. Wheat Market Response to the December 12th USDA Reports

Since the USDA’s December 12th World Agricultural Supply and Demand Estimates (WASDE) report, CME MARCH 2018 Kansas HRW Wheat futures have traded higher.  MARCH 2018 Kansas HRW wheat futures opened at $4.13 on 12/12/2017 – the day of the report – but closed lower to $4.11 ¼ that day.  Since then, MARCH 2018 HRW wheat futures have trended higher to a close of $4.22 ¾ on Friday, December 22nd.   

That same day Kansas cash wheat price terminal quotes in central and eastern Kansas ranged from $3.42 ¼ to $3.83 ¼ per bushel – with basis ranging from $0.80 under to $0.39 under MARCH 2018 futures.  In western Kansas, representative wheat elevator bids ranged from $3.47 to $3.64 per bushel – with basis ranging from $0.85 under to $0.58 under MARCH 2018 futures.  Although cash prices are markedly above marketing loan rates, basis levels are still “wide and weak” compared to historic Kansas wheat basis patterns.

B. Key World Wheat Supply-Demand Findings in the December 12th USDA WASDE Report

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

First, that World wheat total supplies would be 1,010.5 million metric tons (mmt) with total use of 742.1 mmt – both being record high levels for “new crop” MY 2017/18. 

Second, that World wheat exports will also trend marginally lower to 182.15 mmt in the “new crop” 2017/18 marketing year – down from a record high of 183.2 mmt last year, but still up from 172.8 mmt two years ago. 

Third, that World wheat ending stocks would be a record high 268.4 mmt in “new crop” MY 2017/18 – up from the previous record of 255.3 mmt in MY 2016/17, and from 241.4 mmt in MY 2015/16. 

Fourth, that World wheat percent ending stocks-to-use (S/U) would be 36.24% – up from 34.5% last year, and from 33.9% two years ago – rising to the highest level since 36.25% in MY 1998/99.

C. Perspectives on Current World Wheat Stock Levels

For a perspective on how historically large World total wheat stocks and World wheat percent stocks-to-use now are, consider that in MY 2007/08 the 34-year low in World wheat ending stocks of 128.2 mmt and at least a 57-year low in percent ending stocks-to-use of 20.9% stocks/use both occurred.  The 2007/08 marketing year was the last significant World wheat “short crop” marketing year to have occurred. 

The “tight supply-demand” situation in MY 2007/08 compares to the most recent USDA projections of 268.4 mmt ending stocks and 36.2% ending stocks-to-use projected for “new crop” MY 2017/18.  The present “large crop-over supply” situation in World and U.S. wheat markets continues to have a prevalent limiting influence on U.S. and World wheat prices – even with recent drought-fueled moves higher in the market. 

D. “World Less China” Wheat Market Situation

The broader “large crop-over supply-low price” situation in the World wheat market may be “obscuring” at some important underlying market issues.  

While the aggregate supply of wheat in World markets has grown, the supply of wheat from a “World Less China” perspective is projected to have actually “contracted” or “diminished” further in “new crop” MY 2017/18.   “World-Less-China” wheat percent (%) stocks-to-use have declined to the tightest level since at least MY 2012/13 when U.S. wheat cash prices averaged a record high $7.77 /bu.  If this “China supply isolation factor” eventually leads to noticeably tighter available global supplies of openly exportable wheat in the next 12 months, it could have a significant positive impact on U.S. and World wheat market prices.

However, unless there is this change in the broader, overriding focus of the World wheat market away from aggregate global supplies to available “World-Less-China supplies – it is likely that significant World wheat production problems and/or trade disruptions would need to occur in year 2018 in order to have wheat prices recover significantly in 2018.   Such disruptions elsewhere would likely cause the market to then focus on the limited availability of food quality wheat outside of China in the World market.   Also, ongoing strength in the U.S. dollar exchange rate continues to be a negative factor limiting the competitive affordability of U.S. wheat exports in World markets.    

E. U.S. Wheat Supply/Demand for “New Crop” MY 2017/18 & “Next Crop” MY 2018/19  

The USDA released their wheat production, supply-demand and price projections for the U.S. for “new crop” MY 2017/18 in the December 12th WASDE report, and for “next crop” MY 2018/19 in its November 28th Long Term Agricultural Projections.   

U.S. wheat plantings are forecast to be 45.000 million acres (ma) in 2018, down from 46.012 ma in 2017, and 50.119 ma in 2016, to the lowest level since the early 1900s.  Harvested acres are forecast at 38.3 ma in 2018 (85.11% harvested-to-planted), up from 37.586 ma (81.69% harvested-to-planted) in 2017, but down from 43.850 ma in 2016.  

The 2018 U.S. average wheat yield is estimated at 47.4 bu/ac, up from 46.3 bu/ac in 2017, but down from the 2016 record of 52.7 bu/acre. 

Wheat production in the U.S. in 2018 is forecast to be 1.815 billion bushels (bb), up from 1.741 bb in 2017, but down from 2.309 bb in 2016.  After adjustments by Kansas State University from the December 12th WASDE report, projected “next crop” MY 2018/19 total supplies are forecast at 2.910 bb, down from 3.071 bb in “new crop” MY 2017/18, and down from 3.402 bb in MY 2016/17.  U.S. Wheat total use of 2.072 bb is forecast for “next crop” MY 2018/19, down from 2.111 bb in “new crop” MY 2017/18, and from 2.222 bb in MY 2016/17. 

With previously mentioned KSU adjustments from the December 12th WASDE report, the USDA projected “next crop” MY 2018/19 ending stocks to be 838 million bushels (mb) (40.44% stocks/use), down from 960 mb in “new crop” MY 2017/18 (45.48% stocks/use), and 976 mb in MY 2016/17 (50.03% stocks/use).   

United States’ wheat prices are projected to average $4.60 /bu in “next crop” MY 2018/19, unchanged from “new crop” MY 2017/18, but up from $3.89 in MY 2016/17, and comparable to $4.89 /bu in MY 2015/16, and $5.99 /bu in MY 2014/15.   It is estimated by Kansas State University that these USDA projections for “new crop” MY 2017/18 have a 75% probability of occurring.

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

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

KSU Scenario 1) “Lower Export” Scenario (15% probability) assumes for “new crop” MY 2017/18 that the following outcome occurs.  This scenario assumes that there will be 46.012 ma planted, 81.69% harvested-to-planted, 37.586 ma harvested, 46.3 bu/ac average yield, 1.741 bb production, 3.071 bb total supplies, 775 mb exports, 120 mb feed & residual use, 1.911 bb total use, 1.160 bb ending stocks, 60.70% Stocks/Use, & $4.10 /bu U.S. wheat average price.

KSU Scenario 2) “Higher U.S. Wheat Exports” Scenario (10% probability) assumes for “new crop” MY 2017/18 that the following outcome happens.  This scenario assumes that there will be 46.012 ma planted, 81.69% harvested-to-planted, 37.586 ma harvested, 46.3 bu/ac average yield, 1.741 bb production, 3.071 bb total supplies, 1.150 bb exports, 120 mb feed & residual use, 2.286 bb total use, 785 mb ending stocks, 34.34% Stocks/Use, & $5.10 /bu U.S. wheat average price.

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KSU Ag Econ “Wheat Market Outlook for 2018” Presentation

Following is a presentation on “Wheat Market Outlook for 2018”.  This information was given as part of a larger “Grain Market Outlook for 2018” presentation given by Kansas State University Extension Agricultural Economist Daniel O’Brien at a Farming for the Future meeting in Pratt, Kansas on December 14, 2017.

Additional Farming for the Future conferences in Kansas are planned for December 19th in Salina, January 10th in Scott City, and January 11th in Emporia.  Registration information can be found at the following web address:

http://www.agmanager.info/events/farming-future

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The full “Grain Market Outlook for 2018” presentation is available online at the KSU AgManager website at the following web address:

http://www.agmanager.info/sites/default/files/pdf/AGEC520_GrainOutlook_10-19-17.pdf

Information on Corn, Grain Sorghum, Soybean & Cotton supply-demand and market outlook is be provided in companion posts.

Following is information on “Wheat Market Outlook for 2018”:

“Deep Numbers” Analysis of the September 12, 2017 USDA Crop Production and WASDE Reports

A “deep numbers” analysis of the results of the September 12, 2017 USDA Crop Production and WASDE (World Agricultural Supply and Demand Estimates) reports are provided by Kansas State University.  This numbers analysis is available at the KSU AgManager.info website at the following web address:

http://www.agmanager.info/wasde-deep-numbers-analysis-spreadsheet

The September 2017 USDA Crop Production report considered and reported the conditions of major U.S. crops in early September, giving projections of final acreage, yields, and production of U.S. corn, grain sorghum, soybeans, and other crops.

The September 2017 USDA WASDE report considered projected supply-demand and price projections for U.S. crops, and supply-demand prospects for global and country-by-country analysis for the period covering the New Crop” 2017/18 Marketing Years, Old Crop” MY 2016/17, and MY 2015/16 supply-demand and price prospects.

This “deep numbers” analysis considers how the September 12th USDA Crop Production and WASDE report results compare to pre-report trade expectations, last month’s report estimates, and previous years.

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

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

 

 

KSU Wheat Market Outlook in Early-September 2017 – Possible Alternative Wheat Market Outcomes

An analysis of U.S. and World wheat supply-demand factors and 2017-2018 price prospects following the August 10, 2017 USDA Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports, and the market actions that have followed those reports are available on the KSU AgManager website (http://www.agmanager.info/).

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

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter/wheat-market-outlook-early-september-2017

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Summary

Wheat Market Response Following the August 10th USDA Reports

Since the USDA’s August 10th World Agricultural Supply and Demand Estimates (WASDE) report, CME DEC 2017 Kansas HRW Wheat futures initially traded lower through late August, then higher into early September.  DEC Kansas HRW wheat futures opened at $4.92 on 7/12/2017 – the day of the report – but closed lower to $4.75 ¾ that day.  Since then, DEC 2017 HRW wheat futures traded as low as $4.20 on August 29th, but have since moved higher to close at $4.55 on September 5, 2017.

The low end of wheat cash prices on 9/5/2017 in southwest Kansas are $0.20 higher than in central Kansas, and $0.40-$0.45 higher above marketing loan rates than in western Kansas.On September 5th Kansas cash wheat price terminal quotes in central and eastern Kansas ranged from $3.15 ($1.30 under DEC) to $3.65 ($0.80 under DEC) per bushel.  The Farm Service Agency (FSA) marketing loan rate in Saline County (Salina) in central Kansas for hard red winter (HRW) wheat is $3.07 per bushel – within $0.08 per bushel of the low end of the central Kansas cash wheat price range on 9/5/2017.   The high end of Kansas City, Missouri truck bids for Ordinary wheat were $3.69 ($0.50 under DEC).

In western Kansas, wheat elevator bids ranged from $3.35 ($1.10 under DEC) to $3.55 ($0.90 under DEC) per bushel.  The FSA marketing loan rate in Finney County (Garden City) in southwest Kansas for HRW wheat is $2.84 per bushel – $0.51 above the low end of the western cash wheat price range on 9/5/2017.

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

For the “new crop” 2017/18 marketing year (MY) beginning on June 1, 2017 the USDA forecast that World wheat total supplies would be a record high 1,001.7 million metric tons (mmt) in “new crop” MY 2017/18 with total use of 737.05 mmt (2nd highest behind 739.3 mmt in “old crop” MY 2016/17).

World wheat exports are also projected to trend marginally lower to 179.9 mmt in the “new crop” MY 2017/18 – down from a record high of 182.3 mmt last year, but up from 172.9 mmt two years ago.

World wheat ending stocks are forecast to be a record high 264.7 mmt in “new crop” MY 2017/18 – up from the previous record of 258.6 mmt last year, and from 242.9 mmt two years ago.

Global wheat percent ending stocks-to-use (S/U) are projected to be 35.9% – up from 35.0% last year, and from 34.1% two years ago – rising to the highest level of World wheat supply-demand balances since 36.2% in MY 1999/00 and 36.5% in MY 1998/99.

Perspectives on Current World Wheat Stock Levels

For a perspective on how historically large World total wheat stocks and World wheat percent stocks-to-use now are, consider that in MY 2007/08 the 34-year low in World wheat ending stocks of 128.2 mmt and at least a 57-year low in percent ending stocks-to-use of 20.9% stocks/use both occurred.  The 2007/08 marketing year was the last significant World wheat “short crop” marketing year to have occurred.  The “tight supply-demand” situation in MY 2007/08 compares to the most recent USDA projections of 264.7 mmt ending stocks and 35.9% ending stocks-to-use projected for “new crop” MY 2017/18.  The present “large crop-over supply” situation in World and U.S. wheat markets continues to have a prevailing limiting influence on U.S. and World wheat prices – even with recent drought-fueled moves higher in the market.

Large Black Sea Crops, Drought in HRS Wheat, & the “World-Less-China” Market Situation

There are at least three (3) key factors affecting World wheat markets at this time.

First, Increased production among major Black Sea Region exporters in “new crop” MY 2017/18 is at least temporarily “crowding out” export trade for other major exporters – including the United States.  Combined wheat production in Russia, Ukraine and Kazakhstan of 118.0 mmt in “new crop” MY 2017/18 is up 3.2% from 114.3 mmt in “old crop” MY 2016/17, and up 15.6% from 102.1 mmt in MY 2015/16.

Wheat production from these three countries amounts to 15.9% of World production in “new crop” MY 2017/18, and 15.1% one year and 13.9% two years ago.  In comparison, combined exports from these same three countries is projected to be 55.0 mmt in “new crop” MY 2017/18 (30.6% of World exports), up from 52.6 mmt a year ago (28.9% of World exports), and 50.3 mmt two years ago (29.3% of World exports).

Second, while there are plentiful aggregate supplies of wheat available in the World market, the available supply of high protein milling wheat is typically less so.  This situation had been exacerbated earlier this year by drought conditions occurring in U.S. and Canadian Hard Red Spring (HRS) wheat production areas.  These drought conditions had raised the demand and price premiums offered for high protein wheat supplies – whether they are from hard red winter wheat supplies or elsewhere.   However, with recent reports show less impact of dry conditions on 2017 North American Hard Red Spring Wheat production than expected, wheat protein premiums declining sharply in recent weeks.

Third, while the aggregate supply of wheat in World markets has grown, the supply of wheat from a “World-Less-China” perspective is projected to have actually “contracted” or “diminished” further in “new crop” MY 2017/18.   “World-Less-China” wheat percent stocks-to-use have declined to the tightest level since at least MY 2008/09 when U.S. wheat cash prices averaged $5.70 /bu.  It seems likely that this “China supply isolation factor” eventually will lead to noticeably tighter global supplies of available-exportable wheat sometime in the next 1-2 marketing years – brought on by the inability of buyers to secure needed supplies without having to bid prices at least moderately higher in export markets.

USDA U.S. Wheat S/D Forecast for “New Crop” MY 2017/18

The USDA released their wheat production, supply-demand and price projections for “new crop” MY 2017/18 in the August 10th USDA Crop Production & WASDE reports.

United States’ wheat plantings continue to be projected to be 46.657 million acres (ma) – down from 50.154 ma in “old crop” MY 2016/17 to the lowest level since the early 1900s.  Harvested acres are forecast to be 38.115 ma (83.72% harvested-to-planted) – down from 43.890 ma a year ago.  The 2017 U.S. average wheat yield is projected at 45.6 bu/ac (down from 0.6 bu/ac from July), down from the 2016 record of 52.6 bu/acre.

Wheat production in the U.S. in 2017 is forecast to be 1.739 billion bushels (bb), down from 2.310 bb in 2016.  Projected “new crop” MY 2017/18 total supplies are 3.074 bb (down from 3.403 bb in “old crop” MY 2016/17), with total use of 2.141 bb (down 5 mb from July, and from 2.219 bb in “old crop” MY 2016/17).

The USDA projected “new crop” MY 2017/18 ending stocks to be 933 million bushels (mb) (vs 1.184 bb a year ago), with percent ending stocks-to-use of 43.6% S/U (vs 53.4% last year and 50.0% the previous year).  United States’ wheat prices are projected to average $4.80 /bu ($4.40-$5.20 /bu) – up from $3.89 in “old crop” MY 2016/17, but down from $4.89 /bu in MY 2015/16, and $5.99 /bu in MY 2014/15.   It is estimated by Kansas State University that these USDA projections for “new crop” MY 2016/17 have a 55% probability of occurring.

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

To represent possible alternative outcomes from the USDA’s August 10th projection, four potential KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “new crop” MY 2017/18.

KSU Scenario 1) “Lower U.S. Production” Scenario (25% probability) assumes for “new crop” MY 2017/18 that the following occurs.  This scenario assumes that there will be 46.657 ma planted, 83.72% harvested-to-planted, 37.500 ma harvested, 44.0 bu/ac yield, 1.650 bb production, 2.984 bb total supplies, 975 mb exports, 150 mb feed & residual use, 2.141 bb total use, 843 mb ending stocks, 39.37% stocks/use, & $5.20 /bu U.S. wheat average price.

KSU Scenario 2) “Lower U.S. Wheat Exports” Scenario (10% probability) assumes the following for “new crop” MY 2017/18:  Production of 1.739 bb (same as the USDA), 3.074 bb total supplies, 800 mb exports, 150 mb feed & residual use, 1.966 bb total use, 1.108 bb ending stocks, 56.36% stocks/use, & $3.75 /bu U.S. wheat average price;

KSU Scenario 3) “Higher U.S. Wheat Exports” Scenario (5% probability) assumes the following for “new crop” MY 2017/18:  Production of 1.739 bb (same as the USDA), 3.074 bb total supplies, 1.200 bb exports, 150 mb feed & residual use, 2.366 bb total use, 708 mb ending stocks, 29.92% stocks/use, & $6.00 /bu U.S. wheat average price;

KSU Scenario 4) “Wildcard Foreign Events” Scenario (5% probability) assumes the following for “new crop” MY 2017/18:  Production of 1.739 bb (same as the USDA), 3.074 bb total supplies, less than 700 mb exports, 150 mb feed & residual use, less than 1.800 bb total use, more than 1.300 bb ending stocks, greater than 65% stocks/use, & less than $3.00 /bu U.S. wheat average price;

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Wheat Market Outlook for 2017-2018 @ the 2017 KSU Risk and Profit Conference, August 18, 2017

The following information on the “Wheat Sorghum Market Outlook for 2017-2018” was presented at the 2017 K-State Risk and Profit Conference in Manhattan, Kansas on Friday, August 18, 2017.

The full version of this presentation – with additional information not presented to the conference because of time constraints – is available online at the following web address:

http://www.agmanager.info/events/risk-and-profit-conference/previous-conference-proceedings/2017-risk-and-profit-conference

Following is the full “Wheat Market Outlook for 2017-2018” available at the 2017 K-State Risk and Profit Conference on Friday, August 18, 2017.