KSU Soybean Market Outlook in Mid-September 2017 – Likelihood of Lower Production and Higher Price Outcomes

An analysis of U.S. and World soybean supply-demand factors and 2016-2017 price prospects following the USDA’s September 12th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports either is available on the KSU AgManager website (http://www.agmanager.info/default.asp).

Following is a summary of the article on Soybean Market Outlook – with the full article and accompanying analysis available on the KSU AgManager website at the following web address:

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

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Summary

Recent Soybean Futures Price Trends

Since the USDA’s September 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, soybean futures have increased.  CME NOV 2017 soybean futures opened at $9.60 ¾ on Tuesday, September 12th – the day of the report – then traded as low as $9.37 ½ that same day before closing $0.09 ½ lower that day at $9.50 ½.  Since then, NOV 2017 soybeans have trended “irregularly” higher to close at $9.70 ¾ on Thursday, September 21st.  

World Soybean Market Perspectives

Since 2014, World soybean market prices have been limited by a developing “large crop – low price” supply-demand regime, caused by consecutive record or near record World soybean production years for 2014 through projections for 2017.

Longer term, from MY 2008/09 to projected “new crop” MY 2017/18, a strong upward trend in World soybean production (up 7.1% annually) has “out-paced” annual increases in World soybean use (up 6.1% per year).  “Old crop” MY 2016/17 World production is estimated to have been a record high of 351.4 mmt, followed by a projection of near record World production of 348.4 mmt in “new crop” MY 2017/18.  In what is exceedingly good news for the World soybean market, total use has also increased along with production, to 329.8 mmt in “old crop” MY 2016/17, and to a projected record high of 344.3 mmt in “new crop” MY 2017/18.

The degree of “abundance” or “large quantities” in World soybean ending stocks have been a key issue leading to current “moderate-to-low” soybean prices in World markets relative to recent years.   Since World soybean ending stocks of 61.5 mmt (22.3% ending stocks-to-use or ‘S/U’) in MY 2013/14, soybean stocks grew sharply to 77.5 mmt (25.6% S/U) in MY 2014/15 and 77.7 mmt (24.7% S/U).  Then in “old crop” MY 2016/17 World ending stocks are estimated to have increased to a record level of 96.0 mmt (29.1% S/U), followed by a further increase to 97.5 mmt (28.3% S/U) in “new crop” MY 2017/18. 

A key World soybean market strategy will be to wait to figure out whether dry conditions or some other crop production malady will occur in late 2017 or early 2018 in South America that could limit 2018 soybean production in the southern hemisphere.  Although World soybean demand growth has been as strong as can be expected, it seems that a “supply shock” or “crop shortfall” in 2018 or following years would be the most likely factor to drive World soybean production and supply-demand balances low enough to alter the existing “large supply – buyer’s market” situation.  With prospects now pointing toward a near record 2017 U.S. soybean crop, World markets will turn their attention toward 2018 South American production prospects as the next major source of soybean market risk – providing the possibility of a change in paradigm and higher soybean prices in the next 12-18 months.

USDA Corn Supply-Demand & Price Forecast for “New Crop” MY 2017/18

The USDA made no adjustments in its projection of 2017 U.S. soybean plantings of a record high 89.513 million acres (ma) – up from 83.433 ma in 2016.  Forecast 2016 harvested acres of a record 88.731 ma is also up from 82.736 ma in 2016.  With near record high projected yields of 49.9 bu/ac (up 0.5 bu from August), 2017 U.S. soybean production is projected to be a record high 4.431 bb – up from 4.307 bb in 2016 (2nd highest) and from 3.926 bb in 2014.   With forecast “new crop” MY 2017/18 domestic crush at a record 1.940 bb and exports forecast to be a record 2.250 bb (up 25 mb), projected U.S. total soybean use is a record 4.326 bb – up from 4.183 bb in “old crop” MY 2016/17 and from 3.944 bb in the previous marketing year. 

Given these results, “new crop” MY 2017/18 U.S. soybean ending stocks are forecast to be an 11 year high of 475 mb (10.98% S/U), while U.S. soybean prices are forecast to be in the range of $8.35-$10.05 (midpoint = $9.20 /bu).  This U.S. soybean price forecast is down from $9.50 in “old crop” MY 2016/17, but up from $8.95 the year before.  This USDA projection scenario is thought to have a 60% probability of occurring in the judgment of Kansas State University Extension.

Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2017/18

Three alternative KSU-Scenarios for U.S. soybean supply-demand and prices to the USDA projection are presented for “new crop” MY 2017/18.  Each forecast scenario presents the likelihood that exists of higher U.S. soybean acreage, lower yields and lower production, and higher prices than projected by the USDA in the September 12, 2017 WASDE report. 

A – KSU “New Crop” MY 2017/18 “Lower Yield” Scenario #1) “48.0 bu/ac – 4.278 bb” Scenario (30% probability) assumes: 89.901 ma planted, 89.116 ma harvested, 48.0 bu/ac yield, 4.278 bb production, 4.648 bb total supplies, 4.226 bb total use, 422 mb ending stocks, 9.99% S/U, & $9.70 /bu U.S. average soybean price; 

B – KSU “New Crop” MY 2017/18 “Very Low Yield” Scenario #2) “45.85 bu/ac – 4.085 bb” Scenario (5% probability) assumes: 89.901 ma planted, 89.116 ma harvested, 45.85 bu/ac yield, 4.085 bb production, 4.455 bb total supplies, 4.106 bb total use, 349 mb ending stocks, 8.50% S/U, & $10.20 /bu U.S. average soybean price; 

C – KSU “New Crop” MY 2017/18 “Wildcard World Event” Scenario #3) “48.0 bu/ac – 4.278 bb” Scenario (5% probability) assumes: 89.901 ma planted, 89.116 ma harvested, 48.0 bu/ac yield, 4.278 bb production, 4.648 bb total supplies, 3.861 bb total use, 787 mb ending stocks, 20.38% S/U, & $7.00 /bu U.S. average soybean price; 

Note: The presence of large beginning stocks of 345 mb in “new crop” MY 2017/18 limit the “tightness” of supply-demand balances along with prospects for a record large 2017 U.S. soybean crop of 4.431 bb (USDA). Prospects for such large supplies of soybeans hinders any upward price responses in the KSU Scenarios A, B and C above.

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“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 Weekly Grain Market Analysis: Weighing Uncertain 2017 Weather, Crop Production, S-D, and Grain Prices

Grain market summary notes, charts and comments ahead of the KSU Agriculture Today Grain Outlook that was played on Friday, June 23rd will be placed up 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_06-23-17.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, June 23rd on the K-State Radio Network (KSU Agriculture Today Radio) – web player available.

Later today the program can also be listened to via a link from the following website in the “Radio Interviews” section:  http://www.agmanager.info/sites/default/files/media/OBrien_06-16-17.mp3

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

“Deep Numbers” Analysis of the June 9, 2017 USDA WASDE and Crop Production Reports (KSU Ag Economics))

A “deep numbers” analysis of the results of the June 9, 2017 USDA World Agricultural Supply and Demand Estimates (WASDE) report is available on the Agmanager.info website from Kansas State University. The USDA June WASDE and Crop Production reports considered “next crop” 2017/18 marketing year, “current” MY 2016/17, and MY 2015/16 supply-demand and price prospects for U.S. crops, and supply-demand prospects for global and country-by-country analysis.

Results are available on the KSU AgManager.info website at the following web address:

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

This “deep numbers” analysis considers how the June 9th USDA WASDE and other National Agricultural Statistics Service (NASS) numbers compare to pre-report trade expectations, last month’s report estimates, and previous years.

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

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

 

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

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

Results are available at the following web address:

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

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

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

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

 

Crop Production and Grain Stocks Trends in the U.S. and Kansas – Following from Abundant U.S. Grain Harvests

One of the factors causing U.S. grain prices to stay at their current moderate-to-low levels is the total quantity of U.S. corn, grain sorghum, wheat and soybeans available relative to commercial off-farm storage capacity.  This “strain” on storage capacity can be described as a “high demand for grain storage space.”  The net result of strong demand for limited U.S. grain storage capacity is a high real cost of storage – a factor that is influencing the U.S. hard red winter wheat market located in the central and southern plains states (Kansas, Oklahoma, Texas, Colorado, etc.).

The following slides are meant to illustrate this “oversupply relative to grain storage” situation as it exists in the U.S. and in the state of Kansas in the 2016/17 marketing year.  In summary, large crop supplies relative to available storage capacity characterize the U.S. grain storage and handling industry at this point in time.  Looking into the future the remedy for this current situation will come from either reduced grain supplies or increased grain usage.  The quickest remedy would seem be some sort of short crop/short supply situation in the U.S. in the coming months of year 2017.  Although it would be a surprise to the market, some combination of foreign crop production problems and increased U.S. grain export demand would also help to alleviate the current oversupply situation.

So, the grain market waits to see whether some combination of these supply – demand factors may reduce supplies relative available to grain storage capacity.  It is not too much of a “stretch” to say that we should know the answer to that question by August-September 2017!

 

 

Key Supply-Demand Factors “Driving” Grain Markets (KSU Extension Ag Economics)

The following presentation on “Key Supply-Demand Factors ‘Driving” Grain Markets” was given on Tuesday, March 14, 2017 to the AgEcon 605 class on “Price Analysis and Forecasting” as a guest lecture.  The class is regularly taught by Dr. Richard Llewelyn of the Kansas State University Department of Agricultural Economics.

This presentation focuses on the key factors that have been “driving” or influencing grain markets over the last 15-25 years.   The full presentation will be available on the KSU Agricultural Economics website at the following web location:

http://www.agmanager.info/sites/default/files/pdf/OBrien_GrainMarketDrivers_03-15-17.pdf