KSU U.S. Sorghum Acres-Yield Scenarios and World Coarse Grain Markets in Mid-June 2019

An analysis of U.S. and World Grain Sorghum & World Coarse Grain Market Outlook following the USDA’s June 11th USDA World Agricultural Supply Demand Estimates (WASDE) reports will be available on the KSU AgManager website  (http://www.agmanager.info/).

Following is a summary of the article on “U.S. Grain Sorghum and World Coarse Grain Market Outlook” with the full article and accompanying analysis on the KSU AgManager website available at the following web address:

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

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U.S. Grain Sorghum & World Coarse Grain Market Outlook

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

June 14, 2019

 

A. The Current U.S. Grain Sorghum Market Situation

Prospects for U.S. grain sorghum market prices have been greatly effected by U.S. corn planting problems and prospective production concerned that developed in May and early-June, 2019.  As evidence of this change, the USDA raised the projected price of U.S. grain sorghum in the “new crop” 2019/20 marketing year by $0.50 to $3.50 per bushel in the June 11th WASDE report.  It is notable that this projected price increase occurred with no changes to the U.S. grain sorghum supply-demand balance sheet for the “new crop” 2019/20 marketing year.  This indicates that major market cross-over impacts on U.S. grain sorghum supply-demand and price prospects are expected to happen as a result of dramatically declining 2019 U.S. corn production prospects. 

Planting delays and prevented planting choices, as well as figuring out the procedures and qualifiers for future Market Facilitation Payments (MFPs) have been some of the challenges in the U.S. feedgrain market in recent weeks.   Delayed plantings of U.S. corn until early-mid June have been severe and prevalent enough that crop insurance coverage has been sharply reduced for these late corn acres.  Also, the understanding from USDA public statements to date that crop acres must be planted to qualify for further USDA Market Facilitation Payments (MFP) have also factored into farmers crop production decisions.  These factors taken together seem likely to motivated U.S. farmers to plant more U.S. grain sorghum acres this year.

From a mid-June 2019 perspective, grain sorghum seems to have physiological production advantages over late-planted corn – including a shorter growing season and a later final planting date to qualify for full crop insurance coverage.  Individual ethanol plants and livestock feeders may be motivated to encourage grain sorghum production in their local areas in year 2019.  Increased year 2019 grain sorghum production in these areas could at least temporarily help compensate for significant anticipated shortfalls in their local 2019 corn supplies – to keep their ethanol plants and livestock feeding operations running with less disruption form limited supplies and/or extremely high feedgrain prices. 

 As a result of these factors, it seems likely that the USDA’s initial projection of 5.135 million acres planted in the U.S. in year 2019 will be raised in coming months.  This would lead to increased estimates of 2019 U.S. grain sorghum production, and increased usage of sorghum for bioenergy and livestock feed uses to compensate for short corn supplies.  The impact on U.S. grain sorghum exports is less certain, at least until U.S.-China trade conflicts find a resolution.   

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B. U.S. Grain Sorghum Supply-Demand for “New Crop” MY 2019/20

In the June 11th WASDE report, the USDA left unchanged its projection of 2019 U.S. Grain Sorghum plantings of 5,134,000 acres, down from 5.690 million acres (ma) in 2018, 5.629 ma in 2017, and 6.690 ma in year 2016 (Table 2, Figure 2a-b).  The pace of planting U.S. grain sorghum acres is moderately behind the average of the last five years (2014-2018), with 47% planted on June 9th relative to the 5-year average of 63% planted by that date (Table 1).  However, it is generally considered that there is adequate time before USDA Final Planting dates in late June – such as June 25th in Kansas for grain sorghum to be planted in time without declines in expected yields in year 2019.    

Harvested acres of U.S. grain sorghum in 2019 are projected to be 4,600,000 acres, down from 5.061 ma in 2018, 5.045 ma in 2017, and 6.163 ma in year 2016.   To date, U.S. grain sorghum plantings are moderately behind pace, the final planting date in Kansas for full crop insurance coverage is June 25th

U.S. yields in 2019 are forecast at 67.4 bu/ac, down from 72.1 bu/ac in 2018, 71.7 bu/ac in 2017, and the record high of 77.9 bu/ac in 2016 (Table 2, Figure 3a-b).  The USDA’s 2019 forecast would be the smallest U.S. grain sorghum yield since 59.6 bu/ac in year 2013, and 49.6 bu/ac in the drought ravaged year of 2012.

The USDA forecast that the 2019 U.S. Grain Sorghum production would be 310 million bushels (mb) – the smallest U.S. crop since 248 mb in drought year 2012, and 213 mb in year 2011 when percent harvested acres were well below average at 72.4% (Table 2, Figures 4a-b).   This amount is down from 365 mb in year 2018, 362 mb in 2017, 480 mb in 2016, and the 21-year high of 597 mb in 2015. 

KSU Commentary: There is a strong possibility that in future USDA reports U.S. grain sorghum planted and harvested acreage estimates for year 2019 will increase from this initial estimate of 5.134 ma.  The USDA 2019 yield forecast also appears conservative.  Taken together, these alternative scenarios point toward expectations of higher 2019 U.S. grain sorghum production than the USDA has projected.  These possible alternative scenarios will be discussed in below, and are presented in Table 3.

Total supplies of U.S. Grain Sorghum (i.e., beginning stocks + production + imports) are forecast to be 370 mb in “new crop” MY 2019/20, down from 400 mb in “old crop” MY 2018/19, 397 mb in MY 2017/18, 519 mb in MY 2016/17, and the 20-year high of 620 mb in MY 2015/16. 

KSU Commentary: With the possibility of higher 2019 U.S. grain sorghum production in the coming July, August, September, and November USDA WASDE and Crop Production reports, total supplies of U.S. sorghum are expected to increase (see Table 3).

Exports of U.S. grain sorghum are projected to be 100 mb in “new crop” 2019/20 (Tables 2-3, Figures 4a-b, 5a-b, & 6a-b).  Projected U.S. grain sorghum exports of 100 mb in “new crop” MY 2019/20 would be up from the USDA’s forecast of 85 mb in “old crop” MY 2018/19, but down from 205 mb in MY 2017/18, 342 mb in MY 2015/16 (2nd highest on record) and the record high of 352 mb in MY 2014/16. 

Trade disagreements between the United States and China have severely damaged U.S. grain sorghum exports since late-summer / fall of year 2018 (see Figures 7a-b).  At its current weekly pace through June 6, 2019, U.S. grain sorghum exports would end up at approximately 60 mb in the “old crop” MY 2018/19 – down 25 mb from the USDA projection of 85 mb.  A weekly pace of shipments of 3.1 mb would be needed over the last 13 weeks of “old crop” MY 2018/19 to reach the 85 mb forecast by the USDA in U.S. grain sorghum exports.  For the weeks ending May 30th and June 6th, there have been 2.36 mb and 1.96 mb actually shipped, respectively. 

KSU Commentary: It is likely that the USDA will need to reduce its forecast of “old crop” MY 2018/19 U.S. grain sorghum exports unless the export pace increases sharply – adding to projected ending stocks.   However, the set of broader U.S. grain market issues having to do with anticipated reductions in U.S. feedgrain supplies and rationing of feedgrain usage throughout the end of “old crop” MY 2018/19 on August 31, 2019 and on into “new crop” MY 2019/20 will be the  dominating factors in the U.S. grain sorghum market.

Food, Seed & Industrial (FSI) use (including for bioenergy production) is projected to be 100 mb in “new crop” 2019/20.  This amount of projected FSI use in “new crop” MY 2019/20 is equal to 100 mb in “new crop” MY 2018/19, but up sharply from a 5-year low of 60 mb in MY 2017/18, and less than 115 mb in MY 2016/17 and the record high of 137 mb in MY 2015/16.  The 33-year low of 15 mb in FSI use came during the record high export year of MY 2014/15. 

KSU Commentary: With anticipated short supplies of U.S. feedgrains in “new crop” MY 2019/20, it is likely that there will be strong “demand pull” from ethanol plants in western Corn Belt areas for U.S. grain sorghum use. To the degree that U.S. grain sorghum production increases from current projected levels, all that much more U.S. grain sorghum may be used in domestic ethanol production.

Livestock feed & residual use is projected to be 125 mb in “new crop” 2019/20 – down from 155 mb in “old crop” MY 2018/19, up from 97 mb in MY 2017/18, and less than 133 mb in MY 2016/17 (Table 2, Figures 5a-b & 6a-b).

KSU Commentary: Just as for ethanol use of grain sorghum, with anticipated short supplies of U.S. feedgrains in “new crop” MY 2019/20, it is likely that there will be strong “demand pull” from livestock feeders in western Corn Belt areas for U.S. grain sorghum use.   And, also to the degree that U.S. grain sorghum production increases from current projected levels, all that much more U.S. grain sorghum may be used in domestic livestock feeding.

Total use of U.S. Grain Sorghum in “new crop” MY 2019/20 of 325 mb is forecast to be down from 340 mb in “old crop” MY 2018/19, from 362 mb in MY 2017/18, 485 in MY 2016/17, and from the 20-year high of 583 mb in MY 2015/16 (Table 2, Figures 5a-b & 6a-b).  Overall, the USDA projects that there will be a) no change in ethanol / FSI use, b) increased exports, and c) lower feed and residual use in “new crop” MY 2019/20 than in “old crop” MY 2018/19.  

Ending stocks of U.S. Grain Sorghum in “new crop” MY 2019/20 are projected to be 45 mb (13.85% Stocks/Use or ‘S/U’) – down from 60 mb (17.65% S/U) in “old crop” MY 2018/19, but up from 35 mb (9.67% S/U) in MY 2017/18 (Table 2, Figures 5a-b, 6a-b & 8a-b)

KSU Commentary: This projection in total use and ending stocks of U.S. grain sorghum in “new crop” MY 2019/20 is “subject to change” based on the final size of the 2019 U.S. sorghum crop, and the spillover effects on to domestic demand of sorghum are due to sharp reductions in 2019 U.S. feedgrain supplies. 

The season average price for U.S. Grain Sorghum in “new crop” MY 2019/20 is projected to be $3.50 – raised $0.50 /bu by the USDA in the June 11th WASDE from May 10th WASDE projections  (Table 2, Figures 8a-b & 9a-b)This USDA scenario for “new crop” MY 2017/18 is given a 20% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.

KSU Commentary: The USDA raised the price of U.S. grain sorghum by $0.50 per bushel for “new crop” MY 2019/20 in the June 11th WASDE report while making no changes in the associated U.S. grain sorghum supply-demand balance sheet.  This is an indication that broader U.S. and World feedgrain market factors and coming adjustments are likely to impact U.S. grain sorghum prices to a significant degree.  It is likely that volatile feedgrain and grain sorghum prices will occur in what remains of “old crop” MY 2018/19 through August 31st, and on into “new crop” MY 2019/20.

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C. Alternative S-D & Price Forecasts for “New Crop” MY 2019/20

Given the reductions that have occurred in year 2019 U.S. corn planted and harvested acres through May-June – with associated reductions in 2019 U.S. corn production prospects, strong positive “demand-pull” market forces have been and are occurring in U.S. grain sorghum markets.  For the “new crop” 2019/20 marketing year beginning on September 1, 2019, these feedgrain market forces may lead to significant increases in U.S. grain sorghum planted acreage and production.  With reductions occurring in U.S. corn supplies in “new crop” MY 2019/20, high feedgrain prices are likely to force any additional U.S. grain sorghum supplies that are produced to be quickly used. 

The following alternative supply-demand scenarios for U.S. grain sorghum in “new crop” MY 2019 illustrate how a progression of higher U.S. grain sorghum acreage and production may work out in terms of supply-demand balances and prices. 

The first scenario represents the USDA projection for “new crop” MY 2019/20 from the May 10, 2019 WASDE report.  Alternative scenarios for 2019 U.S. grain sorghum acreage, yields, production, usage and prices are presented in Table 3. 

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  1. USDA June 2019 WASDE Forecast for “New Crop” MY 2019/20 – 20% Probability:

Planted Acres                                                       5.135 million acres (ma)

Harvested Acres                                                   4.600 ma

% Harvested-to-Planted                                      89.6%

U.S. Average Sorghum Yield                               67.4 bu/ac

Beginning Stocks                                                   60 million bushels (mb)

2019 U.S. Sorghum Production                         310 mb

Imports                                                                      0 mb

Total U.S. Sorghum Supply                                370 mb

Food, Alcohol & Industrial Use                             99 mb

Seed Use                                                                   0.63 mb

Exports                                                                  100 mb

Feed & Residual Use                                            125 mb

Total U.S. Sorghum Use                                      325 mb

Ending Stocks                                                          45 mb

% Ending Stocks-to-Use                                      13.81%

U.S. Sorghum Season Avg. Farm Price                $3.50 /bu

Note: With the feedgrain planting problems that have occurred in the U.S. in April-May-June 2019, the June 11th WASDE market scenario for “new crop” MY 2019/20 has a low likelihood of occurring (20%KSU Est.).  See Table 3.

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Alt. Scenario #1MY 2019/20-KSU: Same Planted Ac., 73 bu/ac Yield, 336 mb Crop – 20% Probability:

Planted Acres                                                       5.135 million acres (ma)

Harvested Acres                                                   4.600 ma

% Harvested-to-Planted                                      89.6%

U.S. Average Sorghum Yield                               73.0 bu/ac  (= 5-year Average U.S. grain sorghum yield)

Beginning Stocks                                                    60 million bushels (mb)

2019 U.S. Sorghum Production                         336 mb

Imports                                                                      0 mb

Total U.S. Sorghum Supply                                 396 mb

Food, Alcohol & Industrial Use                           129 mb

Seed Use                                                                   0.63 mb

Exports                                                                    70 mb

Feed & Residual Use                                            150 mb

Total U.S. Sorghum Use                                      350 mb

Ending Stocks                                                          46 mb

% Ending Stocks-to-Use                                      13.14%

U.S. Sorghum Season Avg. Farm Price                $3.60 /bu

Note: This scenario is based on no changes in U.S. grain sorghum acres, but a more representative 5 year average U.S. grain sorghum yield (73.0 bu/ac), limited U.S grain sorghum exports (without a U.S.-China trade agreement), and increased ethanol and feed usage to cover for short domestic supplies of U.S. corn.   This alternative KSU scenario for “new crop” MY 2019/20 also has a limited likelihood of occurring (20%KSU Est.).  See Table 3.

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Alt. Scenario #2MY 2019/20-KSU: +250K Planted Ac., 73 bu/ac Yield, 352 mb Crop – 30% Probability:

Planted Acres                                                       5.385 million acres (ma)

Harvested Acres                                                   4.825 ma

% Harvested-to-Planted                                      89.6%

U.S. Average Sorghum Yield                               73.0 bu/ac  (= 5-year average U.S. grain sorghum yield)

Beginning Stocks                                                    60 million bushels (mb)

2019 U.S. Sorghum Production                         352 mb

Imports                                                                      0 mb

Total U.S. Sorghum Supply                                 412 mb

Food, Alcohol & Industrial Use                           134 mb

Seed Use                                                                   0.63 mb

Exports                                                                    75 mb

Feed & Residual Use                                            165 mb

Total U.S. Sorghum Use                                      375 mb

Ending Stocks                                                          37 mb

% Ending Stocks-to-Use                                       9.87%

U.S. Sorghum Season Avg. Farm Price                $4.00 /bu (i.e., the lower end of a $4.00 to $5.50 /bu range)

Note: This scenario is based on an additional 250,000 U.S. grain sorghum acres, a 5-year average U.S. grain sorghum yield (73.0 bu/ac), limited U.S grain sorghum exports (w/o a U.S.-China trade agreement), and increased ethanol and feed usage to cover for short domestic supplies of U.S. corn.  This KSU scenario for “new crop” MY 2019/20 is estimated to have a 30% likelihood of occurring (30%KSU Est.).  See Table 3.

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Alt. Scenario #3MY 2019/20-KSU: +500K Planted Ac., 73 bu/ac Yield, 369 mb Crop – 20% Probability:

Planted Acres                                                       5.635 million acres (ma)

Harvested Acres                                                   5.049 ma

% Harvested-to-Planted                                      89.6%

U.S. Average Sorghum Yield                               73.0 bu/ac  (= 5-year average U.S. grain sorghum yield)

Beginning Stocks                                                    60 million bushels (mb)

2019 U.S. Sorghum Production                         369 mb

Imports                                                                      0 mb

Total U.S. Sorghum Supply                                 429 mb

Food, Alcohol & Industrial Use                           139 mb

Seed Use                                                                   0.63 mb

Exports                                                                    80 mb

Feed & Residual Use                                            185 mb

Total U.S. Sorghum Use                                      405 mb

Ending Stocks                                                          24 mb

% Ending Stocks-to-Use                                       5.93%

U.S. Sorghum Season Avg. Farm Price                $4.75 /bu (i.e., the mid-point of a $4.00 to $5.50 /bu range)

Note: This scenario is based on an additional 500,000 U.S. grain sorghum acres, a 5-year average U.S. grain sorghum yield (73.0 bu/ac), limited U.S grain sorghum exports (without a U.S.-China trade agreement), and further increases in ethanol and feed usage to cover for short domestic supplies of U.S. corn.  This alternative KSU scenario for “new crop” MY 2019/20 is estimated to have a 20% likelihood of occurring (20%KSU Est.).  See Table 3.

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Alt. Scenario #4MY 2019/20-KSU: +1 million Planted Ac., 73 bu/ac Yield, 401 mb Crop – 10% Probability:

Planted Acres                                                       6.135 million acres (ma)

Harvested Acres                                                   5.497 ma

% Harvested-to-Planted                                      89.6%

U.S. Average Sorghum Yield                               73.0 bu/ac  (= 5-year average U.S. grain sorghum yield)

Beginning Stocks                                                    60 million bushels (mb)

2019 U.S. Sorghum Production                         401 mb

Imports                                                                      0 mb

Total U.S. Sorghum Supply                                 461 mb

Food, Alcohol & Industrial Use                           151 mb

Seed Use                                                                   0.63 mb

Exports                                                                    90 mb

Feed & Residual Use                                            195 mb

Total U.S. Sorghum Use                                      437 mb

Ending Stocks                                                          24 mb

% Ending Stocks-to-Use                                       5.49%

U.S. Sorghum Season Avg. Farm Price                $5.50 /bu (i.e., the top end of a $4.00 to $5.50 /bu range)

Note: This scenario is based on an additional 1,000,000 U.S. grain sorghum acres, a 5-year average U.S. grain sorghum yield (73.0 bu/ac), less limited U.S grain sorghum exports (without a U.S.-China trade agreement), and further increases in ethanol and feed usage to cover for short domestic supplies of U.S. corn.  This alternative KSU scenario for “new crop” MY 2019/20 is estimated to have a 10% likelihood of occurring (10%KSU Est.).  See Table 3.

KSU Commentary: In this 4th alternative KSU scenario, a 1 million acre increase in U.S. grain sorghum plantings will indicate just that much greater of a reduction in 2019 U.S. corn plantings and likely production in key areas of the U.S. Corn Belt.  The shortfall in U.S. corn acres and production potential is likely to support the high price for U.S. grain sorghum of $5.50 / bushel in “new crop” MY 2019/20.

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D. World Coarse Grain Supply-Demand – All Countries

WORLD Coarse Grain Percent (%) Grain Ending Stocks-to-Use is tightening to the most constrained level in five (5) years – since MY 2014/15.  This tightening of available World Coarse Grain supplies relative to use signals that stronger World use of coarse grains is expected to continue, and that more strength in U.S. and World coarse grain prices may occur in the coming year than the World Coarse Grain market now anticipates.

Total Supplies of WORLD Coarse Grains in the “new crop” 2019/20 marketing year (MY) are projected to be 1,741.14 million metric tons (mmt) – down from 1,763.53 mmt in “old crop” MY 2018/19, from 1,745.77 mmt in MY 2017/18, and the record high of 1,769.06 in MY 2016/17.  World “Coarse Grains” include grain sorghum, corn, barley, oats, rye, millet, and mixed grains (Figure 10).

Forecast Total Use of WORLD Coarse Grains in “new crop” MY 2019/20 of 1,421.40 mmt is the highest on record.  This forecast compares to the previous record high of 1,411.87 mmt in “old crop” MY 2018/19, to 1,376.92 mmt in MY 2017/18, and to 1,382.36 mmt in MY 2016/17 (Figure 10).

Ending Stocks of WORLD Coarse Grains in “new crop” MY 2019/20 are projected to be 5-year low of 319.74 mmt – down 10.0% from 351.66 mmt in “old crop” MY 2018/19, down 15.4% from 368.85 mmt in MY 2017/18, and down 20.9% from 386.53 mmt in MY 2016/17 (Figure 10).  

Percent (%) Ending Stocks-to-Use of WORLD Coarse Grains in “new crop” MY 2019/20 are projected to be a 6-year low (the lowest since MY 2013/14) of 22.5% Stocks/Use (S/U).  This would be down vs 24.9% S/U in “old crop” MY 2018/19; and down from the range of 24.7% – 28.0% S/U over the MY 2014/15 – MY 2017/18 period (Figure 11)

KSU Commentary: IF there were to be a further reduction of 1 billion bushels (39.36 mmt) in U.S. feedgrain production in year 2019, then all else being equal, World coarse grain ending stocks would decline to near 280 mmt, with World coarse grain stocks-to-use falling to a 7-year low of 19.7% S/U. And this would be before any price-rationing of World coarse grain usage occurs. 

For comparison, in the record short crop year of MY 2012/13 World coarse grain supply-demand balances had fallen to 15.4% S/U, and had declined to 13.4% S/U for the two marketing years previous to that. 

The key point is that IF such a decline occurs in the U.S. in 2019 U.S. corn production – down from the current USDA projection of 13.68 billion bushels (bb) to 12.68 bb – THEN it is noteworthy to remember that historic minimums as occurred in the MY 2010/11 through MY 2012/13 period STILL would not likely have been matched.   High prices will have occurred, but the supply-demand conditions that led to record high U.S. grain sorghum prices of $6.33 per bushel will still not have been matched.

 

E. World Coarse Grain S-D – The “WORLD-Less-China” Perspective

Percent (%) Ending Stocks-to-Use of “WORLD-Less-China” Coarse Grains have also tightened appreciably, but less so than for the aggregate WORLD coarse grain market as a whole.

Ending Stocks of “WORLD-Less-China” Coarse Grains in “new crop” MY 2019/20 are projected to be 6-year low at 127.31 mmt – down 9.9% vs 141.25 mmt in “old crop” MY 2018/19.  This projection for “new crop” MY 2019/20 is also down from 145.47 mmt in MY 2017/18, and from 162.19 mmt in MY 2016/17 (Figure 12).   The record low of 62.60 mmt occurred in MY 1995/96, followed by 64.40 mmt in MY 1975/76, 77.51 mmt in MY 1983/84, and 83.91 mmt in 1996/97 – all years of relative price strength for U.S. feed grains in general and U.S. grain sorghum in particular.

Percent (%) Ending Stocks-to-Use of “WORLD-Less-China” Coarse Grains in “new crop” MY 2019/20 are also projected to be a 7-year low of 11.3% S/U.  This would be down vs 12.6% S/U in “old crop” MY 2018/19; and down from the range of 12.5% – 14.7% for the MY 2013/14 through MY 2017/18 time period (Figure 12)

Historically, “WORLD-Less-China” Coarse Grain percent (%) S/U has declined as low as 10.2% in MY 2012/13; 10.4% in MY 2011/12; 11.55% in MY 2010/11; 11.8% in MY 2006/07; 11.2% in MY 1996/97; and 8.7% in MY 1995/96.  These marketing years were generally high priced time-periods for U.S. feedgrains such as grain sorghum and corn.

 

 

FAO Projection for 2019 U.S. Corn Crop at 12.99 billion bu (330 mmt) + World Wheat S-D

Here is an article from the Foreign Agricultural Service regard their projections for the size of the 2019 U.S. corn crop.  They project a crop of 330 mmt or 12.99 billion bushels.

http://www.fao.org/worldfoodsituation/csdb/en/?utm_source=Ag+Insider+Subscribers&utm_campaign=a412282389-EMAIL_CAMPAIGN_2019_06_06_08_45_COPY_01&utm_medium=email&utm_term=0_b0e8c666dd-a412282389-120343085

Diminishing maize production prospects in the United States dampen the global cereal production outlook this year

Release date: 06/06/2019

FAO’s latest forecast for world cereal production in 2019 points to an increase of 1.2 percent from 2018, to 2 685 million tonnes.

However, the year-on-year expansion is now much less significant than earlier predicted, as global maize production is now seen to fall in 2019, largely because of sharp downward revisions since the previous report concerning maize production prospects in the United States.

Due to prolonged excessive wet conditions resulting in major delays in crop plantings, this year’s maize production in the United States is now pegged at 330 million tonnes, down 45 million tonnes from FAO’s first production forecast published in May and almost 10 percent (36 million tonnes) short of last year’s level.

The recent USDA crop progress report pointed to a sharply reduced planted area of only 58 percent of planting intentions as of 26 May, well below the 5-year average level of 90 percent and the slowest pace ever recorded.  (Note: this has been updated to 67% planted as of June 2, 2019 – down from the recent 5 year average of 96%.  Daniel O’Brien, Extension Agricultural Economist, Kansas State University)

Most of the expected rebound in global cereal production in 2019 is attributed to expected expansions in wheat and barley production, with year-on-year increases of 5.3 percent and 5.8 percent, respectively. Total rice production is likely to remain close to last year’s record level as expectations of area-driven expansions in Asia could offset foreseen contractions in most other regions, triggered by inclement weather and prospects of reduced profit margins.

World cereal utilization in 2019/20 is forecast to reach 2 707 million tonnes, down 15.5 million tonnes, or 0.6 percent, from the May forecast but still 1 percent (26 million tonnes) higher than in 2018/19. Most of this month’s downward adjustment again concerns the United States, where, because of deteriorating production prospects, total domestic utilization of maize is seen to fall below the 2018/19 level. Following the revision for the United States, world utilization of coarse grains in 2019/20 is now anticipated to reach 1 434 million tonnes, down 0.9 percent from the previous forecast but 0.7 percent higher than in 2018/19. Global wheat utilization is expected to grow by 1.2 percent, reaching 755 million tonnes, while that of rice is predicted to reach 518 million tonnes, 1.4 percent higher than in 2018/19.

Based on the latest production and utilization forecasts, world cereal stocks could decline by as much as 26 million tonnes, or 3 percent, in the new season to a four-year low of 830 million tonnes. This figure is around 18 million tonnes, or 2 percent, below the FAO’s May forecast. The sharp month-on-month downward revision is mostly associated with maize, whereas the forecasts for wheat and rice inventories have been raised slightly since the previous report. The projected fall in cereal stocks would result in a drop in the global cereal stock-to-use ratio to just below 30 percent, which still points to a relatively comfortable supply level.

Globally, coarse grain inventories are seen heading towards a second consecutive annual decline in 2019/20, falling by 9 percent to just over 369 million tonnes, the lowest level since 2014/15. By contrast, total wheat stocks could expand by 4.6 percent year-on-year and approach a near-record level of 281 million tonnes. The increase of 1 percent in wheat stocks since May reflects upward adjustments made for the EU and the United States, outweighing downward revisions in Australia and the Russian Federation.  World rice stocks at the close of 2019/20 are still envisaged to fall slightly (0.9 percent) from their record opening levels, to 179 million tonnes, despite some upward revisions to forecasts for the United States and Viet Nam.

World trade in cereals in 2019/20 is forecast at around 414 million tonnes, up 1.2 million tonnes, or 0.3 percent, from the previous forecast and nearly 6 million tonnes, or 1.4 percent, higher than the estimated total shipments of cereals in 2018/19. Most of the predicted expansion in world cereal trade is associated with greater wheat and rice trade, while trade in coarse grains, most notably maize, is expected to fall below the 2018/19 level, mainly on expectations of reduced imports by the EU and a sharp reduction in exports by the United States. By contrast, wheat trade is predicted to rebound by 3.3 percent from the 2018/19 reduced level, driven by stronger import demand by several countries, especially in Africa and Asia, and supported by the expectation of large export availabilities in the Black Sea region and the EU. World rice trade, on the other hand, is likely to contract by 3.5 percent in 2019 before a possible rebound in 2020 on expectation of greater purchases by several countries in Africa.

KSU Corn Market Outlook in Late-May 2019: ‘Tight Supply-Demand & Higher Corn Prices in “New Crop” MY 2019/20’

An analysis of Corn Market Outlook in Late-2019 for “new crop” 2019/20 marketing years is provided in the following article from Kansas State University Department of Agricultural Economics.  This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) and other USDA reports on May 10, 2019, with info from the USDA NASS Crop Progress reports on May 26, 2019

A full version of this article is available on the KSU AgManager website http://www.agmanager.info/ at the following web address:

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

Following is a summary of the article on “Corn Market Outlook in Late-May 2019″

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U.S. Corn Market Outlook in Late-May 2019

‘Tight Supply-Demand & Higher Corn Prices in “New Crop” MY 2019/20’

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

May 29, 2019

 

1) The U.S. Corn Market Situation in Spring 2019

The serious and prolonged spring planting season problems during April-May 2019 for U.S. corn producers are leading to a sharp reduction in 2019 U.S. corn production prospects.  The likelihood of a U.S. corn production shortfall in year 2019 is bring about a classic “short crop” marketing year for U.S. corn markets in “new crop” MY 2019/20. The last major “short crop” for U.S. corn production occurred seven (7) years ago in year 2012 due to excessive summer heat.    

Concerns about delayed plantings or even the potential inability to plant corn or other crops this year have driven corn futures sharply higher in recent weeks.   “Old crop” JULY 2019 Corn futures prices have increased from a low of $3.43 /bushel on May 13th to a high of $4.38 on May 29th before closing at $4.18 ¾ that same day.  Similarly, “new crop” DEC 2019 Corn futures prices have increased from a low of $3.63 ¾ /bushel on May 13th to a high of $4.54 on May 29th before closing at $4.35 ¾ that same day (Figures 1a-b-c, & 2a-b).   With this rally in corn futures, managed money (specs) who had been holding record short or bearish positions have begun to buy back their short futures positions and instead build up the long or buy side of trade portfolios (Figures 3a-b-c-d).

The U.S. government is also planning to provide a second round of Market Facilitation Payments (MFPs) to U.S. crop producers, with the stipulation that crops have to be actually planted in year 2019 to collect these MFP funds.  The longer into June 2019 these U.S. corn planting delays go, the more difficult it may be for U.S. corn producers to keep with their original plans to plant corn this year, and not switch to other shorter season cropping options such as soybeans and grain sorghum.   

It is an oversimplification to say that the direction of the U.S. corn market for the remainder of “current” MY 2018/19 (ending August 31st) and the start of “new crop” MY 2019/20 (starting September 1st) will depend largely on the amount of U.S. corn acres planted over the coming few weeks through June 2019.  During that period U.S. farmers will likely be “under duress” as they make what may be difficult late season planting decisions.

*****

2) Status of Delayed U.S. Corn Plantings Through May 26th

The U.S. Corn Belt states that have been hardest hit by wet weather, flooding and planting delays so far in 2019 are Illinois, Indiana, Michigan, Ohio, South Dakota and Wisconsin (Tables 2a-b).  Significant wet soil conditions and planting delays have also occurred in Iowa, Kansas, Minnesota, Missouri, Nebraska, and Pennsylvania.   In these are other states many U.S. farmers who have not yet been able to plant all or part of their 2019 corn acreage are considering either late plantings of corn, switching to alternative shorter season crops such as soybeans, or possibly using Prevented Planting options from the USDA Farm Service Agency.

The USDA reported that 58% of the 2019 corn crop in the 18 major states had been planted as of May 26th in its latest USDA NASS Weekly Crop Progress report (Table 2a).  In these top 18 states this amounts to 49,131,600 acres planted out of 85,350,00 acres forecast in the March 28th USDA NASS Prospective Plantings report

Extended to the entire U.S., 58% planted on 5/26/2019 would equal 53,819,360 acres planted out of the USDA Prospective Plantings forecast for the U.S. of 92,792,000 acres of corn in year 2019.   Average corn plantings in the 18 major states on May 26th over the 5-year 2014-2018 period are 90%, with 5/26/2019 corn plantings being 32% and 27,844,900 acres behind in the 18 states and an estimated 29,693,440 acres behind in the U.S. in total.

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3) 2019 U.S. Corn Production Based on the May 26thS. Planted Acres Estimate

With only 58% or an estimated 53.8 million acres of U.S. corn planted to date, production prospects for the 2019 U.S. corn crop based on what is actually planted so far are down considerably.  In the USDA May 10, 2019 World Agricultural Supply and Demand Estimates (WASDE) report, forecast 2019 corn production in the U.S. to be 15.030 billion bushels (Tables 1a, 1b, & 2b). 

 This is based on the May 26th estimate of 58% of U.S. corn planted – amounting to 53.8 million acres (ma) planted of the 92.792 ma originally intended.  Of these 53.8 ma now planted, it is estimated that 49.460 ma would be harvested (equaling latest 3-year average harvested-to-planted in the top 18 corn producing states), with a 2019 U.S. average corn yield of 175 bu/ac, and that estimated corn production would equal 8.655 billion bushels (bb) (Table 2b). 

This estimate of 2019 U.S. corn production prospects to date can be criticized for several reasons. 

First, it is likely based on too high of an estimate of % harvested-to-planted acres due to flooding and excessive moisture – having been set equal to the most recent 2016-2018 3-year average. 

Second, it can also be criticized for having 2019 U.S. corn average yields set too high at 175 bu/acre.  With delayed plantings and excessively we soils it may be more prudent to consider an 8 bu/acre lower U.S. corn yield market of 167 bu/acre.  At 167 bu/ac yields, 2019 U.S. corn production on 53.819 ma planted and 49.460 ma harvested would be 8.260 bb – down substantially from the USDA’s May 10th WASDE projection of 15.030 bb. 

Third, these early projections for 2019 of U.S. corn planted acres of 53.819 ma, and of 8.260 bb in 2019 U.S. corn production do not account for the progress that will continue to be made in U.S. corn plantings from May 26th through the month of June.  In the “new crop” MY 2019/20 U.S. corn supply-demand and price projections by Kansas State University that follow in Table 1b, it is assumed that final 2019 U.S. corn planted acreage is either 82.792 ma or 77.792 ma.

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4) Prospects for Final 2019 U.S. Corn Planted & Harvested Acres

It is assumed in the following projections by Kansas State University Extension Agricultural Economist Daniel O’Brien that substantial amounts of additional U.S. corn acreage will be planted from now through June 2019 (Table 1b).  In this analysis it is assumed that these additional plantings will leave final U.S. corn planted acreage down 10-15 ma below the USDA’s Prospective Plantings report forecast on 3/29/2019 of 92.792 ma, but still up 24-29 ma from levels represented in the May 26th planting progress estimates.

  • U.S. Corn Planted Acreage Scenarios #1 & #2: “Down 10 ma 2019 U.S. Corn Plantings”:

As shown in Table 1b, IF 82.792 ma of corn is eventually planted in the U.S. in 2019, total corn plantings would be down 10 ma from initial USDA projections of 92.792 ma in the March 29th USDA Prospective Plantings report.  However, they would also represent an additional 28.973 ma yet to be planted in year 2019 from May 26th levels. 

Due to wet soils and flooded fields in many areas, the national percent harvested-to-planted is forecast to be 88.0%, just above the recent low of 87.9% in year 2002. Harvested acreage estimated to be 72.857 ma – down from 84.500 ma in the USDA’s May 10th WASDE report.

  • S. Corn Planted Acreage Scenarios #3 & #4: “Down 15 ma 2019 U.S. Corn Plantings”:

Also shown in Table 1b, IF 77.792 ma of corn is eventually planted in the U.S. in 2019, total corn plantings would be down 15 ma from initial USDA projections of 92.792 ma in the March 29th Prospective Plantings report.  However, they would also represent an additional 23.973 ma yet to be planted in year 2019 from May 26th levels. 

Also due to the prevalent wet soils and flooded fields in many areas, the national percent harvested-to-planted is forecast at 88.0%, with harvested acreage estimated to be 68.457 ma – down from 84.500 ma in the USDA’s May 10th WASDE report.

*****

5) Prospects for U.S. Corn Supply-Demand & Prices in “New Crop” MY 2019/20

Given the KSU 2019 U.S. corn reduced planted and harvested acre projections in Table 1b, projected 2019 U.S. corn production is substantially lower than the USDA’s May 10th WASDE forecast of 15.030 bb.  For the “new crop” 2019/20 marketing year to begin on September 1, 2019, this leads to substantially reduced U.S. corn supplies, significant rationing of U.S. corn usage and tightening of ending stocks and stocks-to-use and much higher U.S. corn prices.  The first scenario represents the USDA projection for “new crop” MY 2019/20 from the May 10, 2019 WASDE report.

Alternative scenarios for 2019 U.S. corn acreage and yields are presented in Figures 5 & 6, with varying 2019 U.S. corn production scenarios in Figure 7.  Alternative U.S. corn ending stocks-to-use scenarios for “new crop” MY 2019/20 are presented in Figures 12-a-b, while the relationship that has existed between U.S. corn percent (%) ending stocks-to-use and U.S. Average Corn prices is shown in Figure 13

Scenario A. USDA May 2019 WASDE Forecast for “New Crop” MY 2019/20 – 0% Probability:

Planted Acres                                     92.792 million acres (ma)

Harvested Acres                                  85.400 ma

% Harvested-to-Planted                      92.0%

U.S. Average Corn Yield                       176 bu/ac

Beginning Stocks                                 2.095 billion bushels (bb)

2019 U.S. Corn Production                15.030 bb

Imports                                                  0.035 bb

Total U.S. Corn Supply                       17.160 bb

Ethanol for Fuel Use                            5.500 bb

Food & Industrial Use                            1.435 bb

Seed Use                                                0.030 bb

Exports                                                    2.275 bb

Feed & Residual Use                               5.450 bb

Total U.S. Corn Use                             14.675 bb

Ending Stocks                                          2.485 bb

% Ending Stocks-to-Use                       16.93%

U.S. Corn Season Avg. Farm Price           $3.30 /bu

Note: With the planting problems that have occurred in the U.S. in April-May 2019, the May 10th WASDE market scenario for “new crop” MY 2019/20 has virtually no likelihood of occurring.

 

Scenario #1MY 2019/20-KSU: Less 10 mln ac Planted, 172 bu/ac Yield, 12.531 bb Crop – 35% Probability:

Planted Acres                                     82.792 million acres (ma)                           (less 10 ma vs USDA)

Harvested Acres                                  72.857 ma                                                       (less 12.5 ma vs USDA)

% Harvested-to-Planted                    88.0%                                                                (less 4.0% vs USDA)

U.S. Average Corn Yield                    172 bu/ac                                                        (less 4.0 bu/ac vs USDA)

Beginning Stocks                                  2.095 billion bushels (bb)

2019 U.S. Corn Production              12.531 bb                                                        (less 2.499 bb vs USDA)

Imports                                                   0.035 bb

Total U.S. Corn Supply                     14.661 bb                                                       (less 2.499 bb vs USDA)  

Ethanol for Fuel Use                           5.250 bb                                                        (less    250 mb vs USDA)

Food & Industrial Use                         1.420 bb                                                          (less      15 mb vs USDA)

Seed Use                                                0.032 bb                                                        (up          2 mb vs USDA)

Exports                                                    1.709 bb                                                       (less    566 mb vs USDA)

Feed & Residual Use                            5.000 bb                                                          (less    450 mb vs USDA)

Total U.S. Corn Use                           13.411 bb                                                        (less  1.235 bb vs USDA)

Ending Stocks                                         1.250 bb                                                        (less  1.235 bb vs USDA)

% Ending Stocks-to-Use                         9.32%                                                        (less      7.61% vs USDA)

U.S. Corn Season Avg. Farm Price        $4.35 /bu                                                    (up  $1.05 /bu vs USDA)

Note: In this scenario, significant rationing of grain use occurs, with prices increasing to make that occur.   

******

 

Scenario #2MY 2019/20-KSU: Less 10 mln ac Planted, 167 bu/ac Yield, 12.167 bb Crop – 35% Probability:

Planted Acres                                     82.792 million acres (ma)                           (less 10 ma vs USDA)

Harvested Acres                                   72.857 ma                                                      (less 12.5 ma vs USDA)

% Harvested-to-Planted                       88.0%                                                            (less 4.0% vs USDA)

U.S. Average Corn Yield                    167 bu/ac                                                        (less 9.0 bu/ac vs USDA)

Beginning Stocks                                  2.095 billion bushels (bb)

2019 U.S. Corn Production              12.167 bb                                                       (less 2.863 bb vs USDA)

Imports                                                 0.035 bb

Total U.S. Corn Supply                    14.297 bb                                                       (less 2.863 bb vs USDA)  

Ethanol for Fuel Use                          5.225 bb                                                        (less    275 mb vs USDA)

Food & Industrial Use                         1.420 bb                                                         (less      15 mb vs USDA)

Seed Use                                             0.032 bb                                                         (up          2 mb vs USDA)

Exports                                                1.570 bb                                                         (less    705 mb vs USDA)

Feed & Residual Use                          4.950 bb                                                         (less    500 mb vs USDA)

Total U.S. Corn Use                        13.197 bb                                                        (less  1.478 bb vs USDA)

Ending Stocks                                         1.100 bb                                                      (less  1.385 bb vs USDA)

% Ending Stocks-to-Use                         8.34%                                                      (less      8.59% vs USDA)

U.S. Corn Season Avg. Farm Price    $5.45 /bu                                                     (up  $2.15 /bu vs USDA)

Note: In this scenario, further significant rationing of grain use occurs, with prices increasing to over $5.00 to make that occur on very limited supplies.  The implicit assumption in these supply-demand scenarios is that U.S. corn markets are likely to be reticent to allow U.S. corn ending stocks to move much below 1.0 bb.    

*****

 

Scenario #3MY 2019/20-KSU: Less 15 mln ac Planted, 172 bu/ac Yield, 11.775 bb Crop – 15% Probability:

Planted Acres                                     77.792 million acres (ma)                           (less 15 ma vs USDA)

Harvested Acres                                   68.457 ma                                                       (less 16.9 ma vs USDA)

% Harvested-to-Planted                       88.0%                                                                (less 4.0% vs USDA)

U.S. Average Corn Yield                      172 bu/ac                                                        (less 4.0 bu/ac vs USDA)

Beginning Stocks                                 2.095 billion bushels (bb)

2019 U.S. Corn Production             11.775 bb                                                        (less 3.255 bb vs USDA)

Imports                                                0.035 bb

Total U.S. Corn Supply                    13.905 bb                                                        (less 3.255 bb vs USDA)  

Ethanol for Fuel Use                          5.150 bb                                                        (less    350 mb vs USDA)

Food & Industrial Use                          1.400 bb                                                         (less      35 mb vs USDA)

Seed Use                                              0.033 bb                                                         (up          3 mb vs USDA)

Exports                                                 1.472 bb                                                         (less    803 mb vs USDA)

Feed & Residual Use                            4.850 bb                                                         (less    600 mb vs USDA)

Total U.S. Corn Use                          12.905 bb                                                        (less  1.770 bb vs USDA)

Ending Stocks                                       1.000 bb                                                         (less  1.485 bb vs USDA)

% Ending Stocks-to-Use                    7.75%                                                            (less      9.18% vs USDA)

U.S. Corn Season Avg. Farm Price      $5.70 /bu                                                     (up  $2.40 /bu vs USDA)

Note: In this scenario, with only 77.792 ma planted and production of 11.775 bb, ending stocks fall to 1.000 bb and prices increase to $5.70 /bu to ration usage.    

*****

 

Scenario #4MY 2019/20-KSU: Less 15 mln ac Planted, 167 bu/ac Yield, 11.432 bb Crop – 15% Probability:

Planted Acres                                    77.792 million acres (ma)                           (less 15 ma vs USDA)

Harvested Acres                                  68.457 ma                                                       (less 16.9 ma vs USDA)

% Harvested-to-Planted                    88.0%                                                                (less 4.0% vs USDA)

U.S. Average Corn Yield                    167 bu/ac                                                        (less 9.0 bu/ac vs USDA)

Beginning Stocks                                  2.095 billion bushels (bb)

2019 U.S. Corn Production              11.432 bb                                                        (less 3.598 bb vs USDA)

Imports                                                   0.035 bb

Total U.S. Corn Supply                     13.562 bb                                                        (less 3.598 bb vs USDA)  

Ethanol for Fuel Use                           5.100 bb                                                        (less    400 mb vs USDA)

Food & Industrial Use                         1.400 bb                                                         (less      35 mb vs USDA)

Seed Use                                                0.033 bb                                                       (up          3 mb vs USDA)

Exports                                                    1.379 bb                                                         (less    896 mb vs USDA)

Feed & Residual Use                            4.750 bb                                                         (less    700 mb vs USDA)

Total U.S. Corn Use                           12.662 bb                                                        (less  2.013 bb vs USDA)

Ending Stocks                                         0.900 bb                                                        (less  1.585 bb vs USDA)

% Ending Stocks-to-Use                         7.11%                                                          (less      9.18% vs USDA)

U.S. Corn Season Avg. Farm Price    $6.00 /bu                                                      (up  $2.70 /bu vs USDA)

Note: In this scenario, with only 77.792 ma planted and production of 11.432 bb, ending stocks fall below 1.000 bb down to 900 mb, with U.S. corn prices increasing to near $6.00 /bu to further ration usage.    

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

*****

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

KSU Corn Market Outlook in Mid-February 2019: U.S. Corn Supply-Demand and Prices for 2019

An analysis of Corn Market Situation & Outlook in mid-February 2019 for the remainder of the “current”  2018/19 and “next crop” 2019/20 marketing years is provided in the following article from Kansas State University Department of Agricultural Economics.  This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) and other USDA reports on February 8, 2019.

A full version of this article is available on the KSU AgManager website http://www.agmanager.info/ at the following web address:

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

Following is a summary of the article on “Corn Market Outlook in Mid-February 2019″

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Corn Market Outlook in Mid-February 2019

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

February 13, 2019

1) Introduction – An Overview of the U.S. Corn Market & USDA Reports

1A – Corn Market Overview

While the U.S. and World corn market has adequate supplies at this time, ending stocks have been trending lower since the 2016/17 marketing year (MY).  Market projections from the USDA are for this “tightening up” to continue through “next crop” MY 2019/20 which begins on September 1, 2019 and will last through August 31, 2020.   By its’ behavior, it is evident that the U.S. corn market continues to have a group “narrative view” that supplies of U.S. corn will remain plentiful through at least mid-summer 2019. 

Unless a short crop develops in South America in coming months, or there are serious corn planting delays in April-May 2019 in the United States – this predominant market narrative that there are“more than adequate U.S. corn supplies” will continue to limit any major upward movement in U.S. corn prices throughout Spring, Summer and Fall 2019.

Corn market price expectations in year 2019 are heavily influenced by seasonal grain futures price patterns over the most recent years and decades.  Over the last 20 years the frequency of economically important price increases in DEC Corn futures from February to November is 25%.  This occurred in years 2002 (up $0.20 /bu), 2006 (up $0.44 /bu), 2010 (up $1.47 /bu), 2011 (up $0.31 /bu), and 2012 (up $1.82 /bu).   No such increase in DEC Corn futures from the preceding February to the following November has occurred in the last six (6) years – since the major U.S. drought and resulting short crop of year 2012.  Since year 2012, February averages of DEC Corn futures have been greater than average prices for the following month of November by $1.26 /bu in 2013, $1.13 in 2014, $0.32 in 2015, $0.37 in 2016, $0.47 in 2017, and $0.28 in 2018.           

Consequently (and conversely), 75% of the time over the last two decades the monthly average of DEC Corn futures during the previous February have been greater than during the following November just ahead of the DEC Corn futures closing month.  Taking all these things together, the “consensus narrative opinion” of the corn market at this time seems to be that there will NOT be significant corn production problems in either South America or the United States this year.  As a result, DEC 2019 corn futures prices are most likely to end up equal to or lower than current mid-February levels near $4.00 per bushel once we get to Fall 2019.

1B – U.S. Corn Market Factors “Taken Together”

Considering all these factors together, the outlook for U.S. corn markets in 2019 will continue to be conservative due to large domestic corn supplies, but with upward potential based on prospects for moderate strength in domestic use and exports due to tighter foreign corn supply-demand balances”.  

1C – The USDA’s Reports on February 8, 2019

On February 8, 2019 the United States Department of Agriculture (USDA) released a set of reports providing market information that had been “back-logged” since December 11, 2018 – the last USDA agricultural market information released before the recent U.S. Federal government shutdown. 

The World Agricultural Outlook Board (WAOB) released its World Agricultural Supply and Demand (WASDE) estimates (https://www.usda.gov/oce/commodity/wasde/) after cancelling the scheduled January 11th report due to the U.S. government shutdown.

Similarly, the National Agricultural Statistical Service (NASS) released the latest Grain Stocks report for December 1, 2018 U.S. grain stocks levels, the 2019 Winter Wheat & Canola Seedings report, the February 2019 Crop Production report, and the 2018 Annual Crop Production Summary report (https://www.nass.usda.gov/Publications/Calendar/reports_by_date.php

The USDA Foreign Agricultural Service (FAS) also released it’s February 2019 reports on World Agricultural Production, and separate reports on World Markets and Trade for Grain and Oilseeds (https://www.fas.usda.gov/data-analysis/scheduled-reports-2019).  

 

2) “Limiting” 2019 Corn Market Factors as of February 13, 2019

There are several corn market supply-demand factors that are major determinants in corn market price direction, and that at this time provide resistance to corn prices moving higher.  These include historically large 2018 U.S. corn production and total U.S. corn supplies in “current crop” MY 2018/19, and “moderating” but demand for U.S. corn ethanol use.

2A – U.S. Corn Production in Year 2018 & Expectations for Year 2019:

  • The most important “negative” or at least “limiting” corn market factor continues to be the projected size of the 2018 U.S. corn crop at 420 billion bushels (bb) – forecast to be the third highest on record behind 15.148 bb in 2016, and 14.601 bb in 2017 (Table 1 & Figures 5-7).
  • In the February 8, 2019 USDA Annual 2018 Crop Production Summary report the USDA lowered its’ projection of 2018 U.S. corn production by 206 million bushels (mb) down to 14.420 bb due to late harvest and other production limiting influences in parts of the United States. If this decline in 2019 U.S. corn crop size occurred by itself with no other supply-demand adjustments, it would be at least a moderately positive factor for U.S. corn market prices. 
  • However, in the February 8th WASDE report the USDA also made offsetting reductions in projected U.S. corn ethanol use, non-ethanol food-seed-industrial (FSI) use, and feed and residual use in its’ “current crop” MY 2018/19 supply-demand balance sheet. These projected reductions in U.S. corn usage in “current crop” MY 2018/19 offset nearly ¾ (i.e., 146 mb) of the reduction in year 2018 projected U.S. corn production and supplies.  As a result of hese offsetting changes, the  netted a 46 mb reduction in projected ending stocks in “current crop” MY 2018/19. 
  • The USDA’s updated preliminary forecast from its Long Term Agricultural Projections released in fall 2018 are for 2019 U.S. corn production to be 14.930 bb. This amount of U.S. corn production in 2019 would very likely cause a continuation of the “large supplies – moderate-to-large stocks” situation in the U.S. corn market that has existed since the drought that occurred in the 2012/13 marketing year.

2B – Total U.S. Corn Supplies in “Current” MY 2018/19 & “Next Crop” MY 2019/20

  • In addition to a 14.420 bb U.S. corn crop in 2019, the USDA projects total supplies of U.S. corn in the “current crop” 2018/19 marketing year (MY) to be 600 bb. Although this figure was reduced 211 mb in the February 8th WASDE report, it is still the third highest on record – continuing to provide downward pressure on U.S. corn prices.  Total supplies of U.S. corn in MY 2016/17 were a record high of 16.942 bb, and were only marginally lower at 16.939 bb in “old crop” MY 2017/18 which ended on August 31, 2018 (Table 1 & Figure 7).
  • The USDA’s preliminary forecast of S. total corn supplies for “next crop” MY 2019/20 are approximately 16.715 bb after accounting for recent changes in implied USDA beginning stocks projections. “Next crop” MY 2019/20 will begin on September 1, 2019.  These figures are available from the USDA’s updated Long Term Agricultural Projections released in fall 2018.

2C – U.S. Ethanol Use of Corn

  • According to Energy Information Administration (EIA) data, for the period of September 1, 2018 through February 7, 2019, S. ethanol production has averaged 1.034 million barrels per day (range of 0.967 to 1.069 mb/d). Assuming 42 gallons of ethanol per barrel, and 2.8 gallons of ethanol per bushel of either corn or grain sorghum used in the production process, this rate of U.S. ethanol production would result in 5.529 bb of U.S. feedgrain use for ethanol in “current” MY 2018/19. 
  • It is assumed here that approximately 80-100 mb of S. grain sorghum will be used for ethanol production in “current crop” MY 2018/19 (i.e., versus 110 mb in total food, seed & industrial use of U.S. grain sorghum in the February 8, 2019 WASDE report). As a result, at the current pace of usage there would be 5.430-5.450 bb of U.S. corn used for ethanol production over the same period. 
  • Projected S. ethanol use of 5.430-5.450 bb of corn would be down 125-145 mb from the USDA’s projection of a near record 5.575 bb use for ethanol for “current” MY 2018/19 (Table 1, Figures 9abc-10). The USDA lowered its February 8th WASDE projection of U.S. corn use in ethanol production in “current” MY 2018/19 by 25 mb to 5.575 bb due to operating losses in U.S. ethanol plants during the September 2018 through January 2019 period, and expectations by the USDA of lower ethanol production as a result.
  • The Environmental Protection Agency’s (EPA’s) recent action to approve the use of E-15 gasoline blends on a season-round basis in U.S. motor fuels may lead to increased feedgrain use for ethanol during the remainder of “current” MY 2018/19 and in coming years.

3) “Supporting” 2019 Corn Market Factors as of February 13, 2019

There are also neutral-to-positive factors providing positive support for U.S. corn supply-demand and price prospects – including “moderating” but still historically strong demand for U.S. corn ethanol use and exports, and the risk of lower 2019 South American corn acreage and production prospects.

3A – U.S. Corn Exports

  • United States’ corn exports have been strong to date in the “current crop” 2018/19 marketing year – with shipments at a seven (7) year high through early February 2019. The USDA forecast that U.S. corn imports would reach 450 bb in exports for “current” MY 2018/19.  For the weeks ending January 17th, 24th, 31st and February 7th, the U.S. had corn export shipments of 44.4 mb, 35.2 mb, 35.5 mb, and 29.3 mb, respectively.  These were behind the pace of 53.0 mb needed to meet the USDA forecast of 2.450 bb.  At the most recent 4-week average pace of 36.1 mb/week, U.S. corn exports would reach 1.961 bb by the end of the marketing year – down 489.4 mb or 20% from the February 8, 2019 USDA WASDE projection.
  • Accumulated U.S. corn export shipments of 732.3 mb as of December 27th (just prior to the recent U.S. government shutdown) were 29.9% of the 2.450 bb USDA projection for “current” MY 2018/19 with what at that time was 32.7% (i.e., 17 of 52 weeks) of the marketing year completed. Total shipments and forward sales as of 12/27/2018 were approximately 1.253 bb – equaling 51.1% of the USDA’s 2.450 bb projection with 32.7% (i.e., 17 of 52 weeks) of “current” MY 2018/19 completed (Table 1 & Figures 10-11)

3B – Uncertain 2019 Prospects for South American Corn & Soybean Production

  • 2019 Brazil Soybean Production: Dry conditions in key agricultural areas of Brazil have caused declines of 5% to 8% in projected 2019 soybean production in that country – from early season projections of 120-122 million metric tons (mmt) down to 112-115 mmt. With parts of the country farther north and closer to the Equator, the Brazilian soybean harvest typically begins in early January and lasts through the end of May.  So, the majority of the Brazil harvest remains, with more accurate information yet to come.  The 2019 soybean crops in Brazil and Argentina will be counted in the “current” MY 2018/19 marketing year which extends to August 31, 2019. 
  • 2019 Argentina Soybean Production: Growing conditions in Argentina are generally estimated to be “wet”, but with no major concerns about crop damage to date. Being farther south, the Argentina soybean harvest typically begins in early March and lasts through the end of May.  Just as for Brazil, the majority of the Argentina harvest remains, with more accurate information yet to come on actual 2019 production.
  • 2019 Brazil Corn Production: The same dry conditions that have affected Brazil soybean production MAY eventually impact 2019 Brazil corn production. However, the 2nd crop planting of corn in Brazil began which began in mid-January will continue through mid-March, with harvest beginning in early May and lasting through the end of August.  Therefore, it is still “too early” to make accurate forecasts of how 2019 crop conditions may affect the 2nd crop corn harvest in Brazil.  The first crop of corn in Brazil is typically planted from mid-August through the end of December, with harvest occurring from January through May.  Common practice has been to allocate the 1st crop of corn in Brazil for domestic uses, with the second crop being used more in the export market. 
    • To date, the USDA projects there to be a recovery in Brazil 2019 corn production up to 94.0 mmt – the 2nd highest on record. This would be up 15% from a drought affected low of 82.0 mmt in 2018, but still down 4.6% from the record high of 98.5 mmt in 2017.  But the final 2019 corn production amount for Brazil is “yet to be determined”
    • Just as for soybeans, 2019 Brazil corn production will be counted in “current” MY 2018/19 marketing year ending on August 31, 2019. However, a large portion of the Brazilian corn exports from this crop will occur and count within the “next crop” 2019/20 marketing year beginning on September 1, 2019 and extending through the following August.
  • 2019 Argentina Corn Production: The same wet conditions that have affected 2019 Argentina soybean production MAY eventually impact that countries’ corn production.  Being further south, Argentina corn plantings occur in during September-December for its one annual crop, while the associated harvest typically follows in early March and lasts through the end of May.  
    • As in Brazil, it is still too early” to make accurate forecasts of how 2019 crop conditions may affect the 2nd crop corn harvest in Argentina. To date, projections from the USDA are that Argentina will have record 2019 corn production of 46.0 mmt – but that outcome is “yet to be determined”.    

 

4) CME Corn Futures & Kansas Cash Corn Prices & Basis Bids

4A – Corn Futures Price Trends

Since the release of the USDA’s February 8th World Agricultural Supply and Demand (WASDE) report, “lead contract MARCH 2019 CME corn futures prices initially moved lower, but have since partially recovered.   On February 8th, the day of the report, MAR 2019 corn opened at $3.76 ½ – trading as low as $3.74 and as high as $3.81 ¾ during the day before closing down $0.02 ¼ to $3.74 ¼ /bu.  Since that day, MAR 2019 corn has trended first lower down to $3.71 ¾ and then back up to $3.78 ¾ before closing at $3.78 ¼ on Wednesday, February 13th (Figure 1).   Considering long term trends in monthly, continuous Chicago Mercantile Exchange (CME) corn futures, recent lows of $3.18 ¼ (on 10/1/2014), $3.01 (on 8/31/2016), $3.38 (on 9/1/2017), and $3.36 ¼ per bushel (on 9/13/2018) have occurred.  These are comparable to the close of $3.78 ¼ in MARCH 2019 corn futures on February 13, 2019 (Figure 1).  

4B – Corn Futures Positions of Traders (CFTC Data)

Position of traders data released by the Commodity Futures Trading Commission (CFTC) is available from the CFTC at the following web address:  https://www.cftc.gov/MarketReports/CommitmentsofTraders/index.htm .   The CFTC position of traders data on January 15th shows a “volatile” but at least temporarily “balanced” picture of corn futures trader sentiments, especially in regards to the offsetting quantities of “long” and “short” futures positions held by Management Money (Speculator or “Spec”) traders.

  • Net Positions of Commercial, Spec, & Index Traders: The net “long” or “buy” position of CME Corn futures speculative or “management money” traders was 78 million bushels (mb) on January 15, 2019 – following net “long” positions of 246 mb being held just one week earlier on January 8th (Figure 3a). The net short position of commercial hedgers on January 15th was 1.416 bb, down moderately from net short positions in the range of 1.497-1.855 bb during the December 4th – January 8th  The net position of index traders declined to 806 mb on January 15th, after having consistently been long during the 12/4/2018-1/8/2019 period, in the 909 mb-91 mb range. 
  • Commercial Hedgers Long & Short Positions: Both the “short / sell” and “long / buy” positions of CME Corn futures commercial hedgers have remained relatively consistent since early July 2018 (Figure 3b). Total commercial hedger “short / sell” positions have ranged from 3.727 bb to 4.024 bb during the 12/4/2018-1/8/2019 period, before declining to 3.638 bb in “short / sell” positions on 1/15/2019.  Typical risk management-related grain futures transactions and positions of commercial grain elevators and/or farmer hedgers would fall into this “short position” category.   Commercial hedger “long / buy” positions have ranged from 2.152 bb to 2.238 bb during the same period, with 2.222 bb in “long / buy” positions on 1/15/2019.  Typical risk management grain futures transactions and positions of commercial grain processors, ethanol plants, and livestock feeders would fall in this “long position” category.  
  • Managed Money (Specs) Long & Short Positions: The aggregate “short / sell” position of CME Corn futures management money (speculative) traders been increasing moderately since early December 2018 (Figure 3c).  Total speculator’s “short / sell” positions have ranged from 0.824 bb to 1.109 bb during the 12/4/2018 to 1/15/2019 period, with the largest amount of 1.109 bb in “short / sell” positions at the end of the period on 1/15/2019.   Speculator’s “long / buy” positions have also declined during this period, ranging from 1.187 bb to 1.446 bb during the same period, with the smallest amount of 1.187 bb in “long / buy” positions on 1/15/2019 at the end of the period.  

4C – Corn Cash Price & Basis Trends in Kansas

In Western Kansas on Wednesday, February 13th cash corn bids at major grain elevators ranged from $3.44 ($0.35 per bushel under MAR 2019 futures) to $3.81 ($0.02 basis over futures), and ranged from $3.35 ¾  ($0.43 under CME MAR 2019 corn) to $3.58 ¾ ($0.20 under) in Central Kansas.  These prices are much higher than when corn bids statewide had fallen to $2.66-$2.96 /bu on December 23, 2016. 

Cash corn price bids in East Central and Northeast Kansas at major terminal locations were $3.798 ¾ /bu on February 13th, with basis bids being $0.00 level with MAR 2019 corn futures.  These eastern Kansas cash corn prices are up from the range of $3.26-$3.28 per bushel on 12/23/2016.  Cash corn bids at Kansas ethanol plants on Wednesday, December 13th ranged from $3.77 ¼ /bu ($0.01 under MAR) to $3.98 ¼ ($0.20 over MAR 2019) – continuing to indicate strength in ethanol demand for corn in Kansas and nationwide. 

 

5) USDA & KSU S-D & Price Forecasts for “Current” MY 2018/19

The USDA’s projection and three alternative KSU-Scenarios to the USDA’s forecast for U.S. corn supply-demand and prices are presented in what follows for “current” MY 2018/19 (Tables 1-1a & Figures 12-12a).  These projections show how varying 2018 U.S. corn production and export / total use scenarios could affect U.S. corn supply-demand and price outcomes yet in “current” MY 2018/19.  Probability-weights are added to reflect judgements about how likely each scenario is to occur in “current” MY 2018/19, i.e., during the September 1, 2018 through August 31, 2019 time period.

Scenario AMY 2018/19USDA WASDE Corn S-D Scenario for “Current” MY 2018/19: (75% prob.): Assumptions: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.465 bb food, seed & industrial use; 2.450 bb exports; 5.375 bb feed & residual use; 14.865 bb total use; 1.735 bb ending stocks; 11.67% Stocks/Use; & $3.60 /bu U.S. corn average price

Scenario BKSU “Lower U.S. Corn Exports” Scenario for “Current” MY 2018/19 (10% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.451 bb food, seed & industrial use; 2.350 bb exports (down 100 mb vs USDA’s 2.450 bb); 5.375 bb feed & residual use; 14.765 bb total use (down 100 mb vs USDA’s 15.030 bb); 1.835 bb ending stocks (up 100 mb vs USDA’s 1.735 bb); 12.43% Stocks/Use (up vs USDA’s 11.67% S/U); & $3.40 /bu U.S. corn average price (down vs USDA’s $3.60 per bushel);   

Scenario CKSU “Higher U.S. Corn Exports” Scenario for “Current” MY 2018/19 (10% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.575 bb ethanol use; 1.465 bb food & industrial use; 2.550 bb exports (up 100 mb vs USDA’s 2.450 bb); 5.375 bb feed & residual use; 14.965 bb total use (up 100 mb vs USDA’s 14.865 bb); 1.635 bb ending stocks (down 100 mb vs USDA’s 1.735 bb); 10.93% Stocks/Use (down vs USDA’s 11.67% S/U); & $3.75 /bu U.S. corn average price (up vs USDA’s $3.60 per bushel).   

Scenario DKSU “Higher Ethanol Use of U.S. Corn” Scenario for “Current” MY 2018/19 (5% prob.): Assumptions are: 89.129 ma planted; 81.740 ma harvested; 176.4 bu/ac yield; 14.420 bb production; 16.600 bb total supplies; 5.675 bb ethanol use (up 100 mb vs USDA’s 5.575 bb); 1.450 bb food & industrial use; 2.450 bb exports; 5.500 bb feed & residual use; 14.965 bb total use (up 100 mb vs USDA’s 5.575 bb); 1.635 bb ending stocks (down 100 mb vs USDA’s 1.735 bb); 10.93% Stocks/Use (down vs USDA’s 11.67% S/U); & $3.75 /bu U.S. corn average price (up vs USDA’s $3.60 per bushel).   

 

6) USDA Preliminary Market Forecast for “Next Crop” MY 2019/20

An adjusted version of USDA’s projection for U.S. corn supply-demand and prices for “next crop” MY 2019/20 (Table 1a).  These projections show the USDA’s projections for U.S. corn in the “next” marketing year, based on the U.S. corn harvest in year 2019, with the marketing year beginning on September 1, 2019 and lasting through August 31, 2020.  Liberty has been taken to make minor adjustments to the USDA’s projections following from the results of the December 11, 2018 USDA WASDE report.

Scenario AUSDA December 11th WASDE Corn S-D Scenario for “Next Crop” MY 2019/19: (75% prob.): Assumptions are: 92.000 ma planted (up 2.860 ma vs MY 2018/19), 84.600 ma harvested (up 2.833 ma vs MY 2018/19), 176.5 bu/ac yield (up 0.1 bu/ac vs MY 2018/19), 14.930 bb production (up 510 mb vs MY 2018/19), 16.715 bb total supplies (up 115 mb vs MY 2018/19), 5.700 bb ethanol use (up 125 mb vs MY 2018/19), 1.459 bb food & industrial use (up 25 mb vs MY 2018/19), 2.425 bb exports (down 25 mb vs MY 2018/19), 5.575 bb feed & residual use (up 200 mb vs MY 2018/19), 15.190 bb total use (up 325 mb vs MY 2018/19), 1.529 bb ending stocks (down 206 mb vs MY 2018/19), 10.07% Stocks/Use (down vs 11.67% S/U in MY 2018/19), & $3.90USDA /bu U.S. corn average price (up $0.30 /bu vs MY 2018/19); 

 

7) World Corn Supply-Demand – Both With & Without China

World Production:  World corn production of 1,099.61 million metric tons (mmt) is projected for “current” MY 2018/19, up 2.2% from 1,075.61 mmt in “old crop” MY 2017/18, but down 2.0% from the record high of 1,122.41 mmt in MY 2016/17 (Figures 14).  The “current” 2018/19 marketing year began September 1, 2018 and continues through August 31, 2019. 

Forecast corn production in Argentina of 46.00 mmt in 2019 would be a “rebound” from the short crop of 32.00 mmt projected in 2018, and above 41.00 mmt produced in 2017.  Similarly, production in Brazil of 94.50 mmt in 2019 would also be a “rebound” from the short crop of 82.00 mmt projected in 2018, but down from 98.50 mmt in 2017.  A large portion of the corn harvests for Argentina and Brazil occur in the later half of September 1st – August 31st marketing years, i.e., February through August.  For “current” MY 2018/19, the Argentina and Brazil corn harvests will be during February-August, 2019.

World Total Supplies:  World corn total supplies of a record high 1,440.42 mmt in “current” MY 2018/19 are forecast to be up 1.0% from 1,425.85 mmt in “old crop” MY 2017/18, and up 0.5% from the previous record high of 1,433.79 mmt in MY 2016/17.   The estimates of World corn total supplies were adjusted approximately 14% higher in the November 8th WASDE report to changes in Chinese domestic corn supply-demand balance sheets – with these adjustments carrying through to the December 11th and February 8, 2019 reports.

World Exports: World corn exports of a record high 167.36 mmt are projected for “current” MY 2018/19, up 14.4% from 146.29 mmt in “old crop” MY 2017/18, and up 4.6% from the previous record high of 160.05 mmt in MY 2016/17 (Figure 14).

World Ending Stocks (% Stocks/Use):  Projected World corn ending stocks of 309.78 mmt (27.40% S/U) in “current” MY 2018/19 are down from 340.81 mmt (31.41% S/U) in “old crop” MY 2017/18, down from the record high 350.24 mmt (32.32% S/U) in MY 2016/17, and 311.38 mmt (31.12% S/U) in MY 2015/16 (Figures 14 & 15a).    Projected Foreign (Non-U.S.) corn ending stocks of 265.70 mmt (28.87% S/U) in “current” MY 2018/19, are down from 286.44 mmt (33.48% S/U) in “old crop” MY 2017/18, and is down from 291.99 mmt (33.50% S/U) in MY 2016/17. 

Just as for total supplies, changes in Chinese corn ending stocks increased World corn ending stocks estimates by 93.0% in the November 2018 USDA WASDE report, and increased World ending stocks-to-use estimates from 14.39% in October 2018 up to 27.16% and 27.30% in the November 8th and December 11th WASDE reports, respectively, and to 27.40% in the February 8, 2019 WASDE.

World-Less-China Ending Stocks (% Stocks/Use): An alternative view of the World corn supply-demand is presented IF Chinese corn usage and ending stocks are isolated from the World market (Figures 15b-c).  “World-Less-China” corn ending stocks are projected to be 101.97 mmt (11.95% S/U) in “current” MY 2018/19, down from 118.24 mmt (14.39% S/U) in “old crop” MY 2017/18, and down from 127.23 mmt (15.82% S/U) in MY 2016/17.  These figures show that World % stocks-to-use of corn less China’s direct influence are projected to be 56.4% lower or “tighter” (i.e., 11.95% S/U for the “World-Less-China” versus 27.40% S/U for the “World” overall in “current” MY 2018/19). 

World versus China Corn Ending Stocks: After the changes in World corn supply-demand reported in the November 8th WASDE report, which were carried forward into the December 11th and February 8, 2019 reports, the USDA showed that estimates of Chinese ending stocks of corn as proportion of the World total have increased significantly from the October 2018 WASDE report.   The updated figures show the percent of World corn stocks held by China to be 61.91% in MY 2014/15, 68.09% in MY 2015/16, 63.67% in MY 2016/17, 65.29% in “old crop” MY 2017/18, and now are projected to be 67.08% in “current” MY 2018/19. 

While China’s percent of World corn stocks is estimated to have increased with these new USDA figures,  “World-Less-China” percent corn ending stocks-to-use are estimated to be 11.95% in “current” MY 2018/19, the lowest percentage in 6 years (Figures 15a-b)“World-Less-China” corn stocks-to-use was 9.5%-9.9% during the years of MY 2011/12 – MY 2012/13, but increased to the range of 12.2% to 13.8% during the MY 2013/14 through MY 2015/16 period.  Then after a high of 15.82% in MY 2016/17, “World-Less-China” corn ending stocks-to-use declined to 14.39% in “old crop” MY 2017/18, and to a projected level of 11.95% in “current” MY 2018/19.   This decline supports the idea that corn stocks outside of China are “tightening up” – and that the overall World corn market has an increasing possibility of seeing higher prices in the future if these trends continue.

 

7) Final Thoughts re: Corn Market Focus in “Current” MY 2018/19

From mid-February 2019 through May 2019, the “narrative focus” of the corn market will likely be on corn the later part of the planting season in southern areas and early season development in Argentina and Brazil.   It is possible if not likely that news about the pace of usage of U.S. domestic corn and other feedgrains and the possibility of excessive moisture delaying U.S. corn planting progress will also have the attention of the U.S. corn markets during February-May 2019. 

The impact of this news will be exacerbated IF U.S. corn exports are spurred higher by worries about potentially lower South American corn supplies for export in spring 2019.  Then from late winter into spring 2019, U.S. corn markets will be simultaneously paying attention to the pace of U.S. corn domestic and export usage and to 2019 U.S. corn planting progress.  The corn market would likely then be driven by 2019 U.S. corn production prospects from what remains of Spring through Summer and early fall 2019. 

During this anticipated “normal seasonal” price pattern for corn in “current” MY 2018/19, U.S. producers will be making marketing decisions under conditions of “uncertainty” as what may be profitable seasonal pricing opportunities present themselves.  For those with a “risk averse” perspective on corn price risk management, there will likely be a tendency to price corn “earlier” and in “greater quantities” to avoid the possibility of being forced to sell at lower prices later on at harvest during fall 2019.  This early action” approach contrasts to those corn producers who are less worried (i.e., “less risk averse”) about being in what is essentially a “speculative post-harvest storage” position in the corn market – i.e., holding unpriced corn in storage longer while waiting for the possibility of a better price that may come later.   

The key point to consider is that the likelihood exists of there being greater price strength in U.S. corn markets through the Winter and Spring 2019 months than many may now be taking into account.  Any such optimism in the U.S. corn market depends on the likelihood of 1) crop production problems for South American corn in 2019, b) the strong domestic demand base that seems to exist for the U.S. corn crop in “current” MY 2018/19, and c) the growing possibility of delayed planting for U.S. corn – particularly in the central, northern, and eastern parts of the U.S. Corn Belt.