KSU Weekly Grain Market Analysis: Positive Corn, Sorghum and Wheat Basis Trends in Kansas

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program to be played on Friday, May 26, 2017 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_05-26-17.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, May 26, 2017 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the May 26th recording is available at the KSU Agriculture Today website.

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

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

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

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

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

***

Summary

Overview

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

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

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

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

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

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

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

Comparisons to “Short Crop” MY 2012/13

For a perspective on how historically large World total wheat stocks and World wheat percent stocks-to-use now are, in MY 2007/08 the 34-year low in World wheat ending stocks of 128.2 mmt and at least a 57-year low in percent ending stocks-to-use of 20.9% stocks/use both occurred – the last significant World wheat “short crop” marketing year.  The “tight supply-demand” situation in MY 2007/08 compares to projections of 258.3 mmt ending stocks and 35.1% ending stocks-to-use projected for “next crop” MY 2017/18.  The present “large crop-over supply” situation in World and U.S. wheat markets have a prevailing negative influence on U.S. and World wheat prices.

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

However, the broader “large crop-over supply-low price” situation in the World wheat market may be “obscuring” at least a couple of other important market issues.

First, while the quantity of wheat available in the World is plentiful, the available supply of high protein milling wheat is less so.  This factor helps exports of U.S. Hard Red Spring (HRS) wheat (higher protein – good quality) relative to World wheat export competitors.

Second, while the aggregate supply of wheat in World markets has grown, the supply of wheat in the “World Less China” is projected to have actually “contracted” or “diminished” in “next crop” MY 2017/18. “World Less China” wheat percent stocks-to-use have declined to the tightest level since at least MY 2008/09 when average U.S. wheat cash prices averaged $5.70 /bu.  If this “China supply isolation factor” eventually leads to noticeably tighter global supplies of available exportable wheat occurring in coming months, it would likely have a positive impact U.S. wheat market prices in “next crop” MY 2017/18.

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

However, unless there is a change in the broader, overriding focus of the World wheat market away from aggregate global supplies to available “World Less China supplies – it is likely that significant World wheat production problems and/or trade disruptions would need to occur in year 2017 in order to have wheat prices recover significantly in later 2017.  Also, ongoing strength in the U.S. dollar exchange rate continues to be a negative factor limiting the competitive affordability of U.S. wheat exports in World markets.  These factors together have resulted in higher U.S. wheat ending stocks and % ending stocks-to-use, and have caused U.S. and Kansas wheat cash prices to still be only $0.30 /bu above the marketing loan rate in many Kansas locations in mid-May 2017 (after earlier having to fallen below loan rates in Fall 2016).

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

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

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

The USDA projected “next crop” MY 2017/18 ending stocks to be 914 million bushels (mb) (vs 1.159 bb a year ago), with percent ending stocks-to-use of 41.7% S/U (vs 51.7% last year and 50.0% the previous year).  United States’ wheat prices are projected to average $4.25 /bu – up from $3.90 in “current” MY 2016/17, but down from $4.89 /bu in MY 2015/16, and $5.99 /bu in MY 2014/15.   It is assumed by Kansas State University that these adjusted USDA projections for “next crop” MY 2016/17 have a 50% probability of occurring.

Three Alternative KSU U.S. Wheat S/D Forecast for “Next Crop” MY 2017/18:

As an alternative to the USDA’s projection, three potential KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “next crop” MY 2017/18.

  1. KSU Scenario 1) “Trend Yield” Scenario (25% probability) assumes for “next crop” MY 2017/18 that the following occurs.  It is assumed that there will be 46.059 ma planted, 82.50% harvested-to-planted, 37.999 ma harvested, 47.0 bu/ac trend yield, 1.786 bb production, 3.070 bb total supplies, 1.000 bb exports, 180 mb feed & residual use, 2.200 bb total use, 870 mb ending stocks, 39.6% S/U, & $4.45 /bu U.S. wheat average price.
  2. KSU Scenario 2) “Higher U.S. Wheat Exports” Scenario (15% probability) assumes the following for “next crop” MY 2017/18.  Planted acres of 46.059 ma are associated with 39.334 ma harvested (82.50% harvested-to-planted), 47.0 bu/ac trend yield, 1.786 bb production, 3.070 bb total supplies, 1.150 bb exports, 180 mb feed & residual use, 2.350 bb total use, 720 mb ending stocks, 30.6% S/U, & $5.10 /bu U.S. wheat average price;
  3. KSU Scenario 3) “Short U.S. Wheat Crop” Scenario (10% probability) assumes the following for “next crop” MY 2017/18.  Planted acres of 46.059 ma, 80.60% harvested-to-planted, 37.124 ma harvested, 40.0 bu/ac low yield, 1.485 bb production, 2.769 bb total supplies, 950 mb exports, 125 mb feed & residual use, 2.095 bb total use, 674 mb ending stocks, 32.17% S/U, & $5.00 /bu U.S. wheat average price.

******

 

KSU Weekly Grain Market Analysis: Alternative Scenarios for “Next Crop” 2017/18 Corn and Wheat

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program to be played on Friday, May 12, 2017 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_05-12-17.pdf

The recorded radio program was aired at 10:03 a.m. central time, Friday, May 12, 2017 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the May 12th recording will be available at the KSU Agriculture Today website after the recording.

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

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

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

Results are available at the following web address:

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

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

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

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

 

Crop Insurance Alternatives for Winter-Damaged HRW Wheat in KS (Vandeveer-KSU 5/10/2017)

A decision worksheet assessing “Insurance Alternatives for Winter-Damaged Wheat” has been developed by Monte Vandeveer, Extension Agricultural Economist for Kansas State University.  This decision making tool was developed to assist producers in analyzing the options available for wheat damaged by the late winter storm in Kansas in late April, 2017.

This farmer decision making worksheet is available on the KSU AgManager.info website at the following web address:

http://www.agmanager.info/ksu-insurance-alternatives-winter-damaged-wheat

Following are snap shots of the decision making worksheet for review.

 

Grower Options For Insured Wheat Damaged By Late Winter Storm (Monte Vandeveer – KSU Ag Economist)

Following is an article by Monte Vandeveer, Extension Agricultural Economist with Kansas State University, concerning grower options for insured wheat damaged by the recent late winter storm in Kansas. A full version of the article is available on the KSU AgManager Website at the following web address:

http://www.agmanager.info/grower-options-insured-wheat-damaged-late-winter-storm

*****

Grower Options For Insured Wheat Damaged By Late Winter Storm

Monte Vandeveer (montev@ksu.edu), Kansas State Univ., Dept.  of Ag Economics, May 2017

The late winter storm which struck western and central Kansas, along with areas in neighboring states, caused cold-weather damage to the crop which was progressing into its later developmental stages.  A publication from K-State’s Department of Agronomy, Spring Freeze Injury to Kansas Wheat,” shows how wheat’s resistance to freeze injury varies with different stages of development, along with the types of injury due to low temperature and their effects on yield at later stages of plant development.

Another risk faced by growers is the problem of bent or broken stalks, pressed down by a foot or more of heavy wet snow from the storm.  K-State’s Department of Agronomy issued an e-Update on May 1 about the severe conditions across the state and the likelihood of wheat damage.   Agronomists advise that it may be several days before the extent of damage is known in some cases.

Fortunately, most wheat acres in Kansas are insured; in fact, the state typically has over 90 percent of its planted wheat acres covered by crop insurance.  Step 1 after potential damage to the crop is always prompt notification of one’s insurance agent.

With damage across such a wide area, the next challenge will be to schedule a loss adjustment.  Once the adjuster provides an appraisal, the acres will be released for other use.  If a grower disagrees with the appraisal of the damaged crop, he/she will need to leave intact strips in the field for later harvest and final resolution of the wheat claim.

What would a complete loss be worth? 

Assume a producer has a 40-bushel Actual Production History yield for insurance, along with the $4.59 Projected Price (determined prior to planting) to get an expected revenue of $183.60 per acre.  Combine this with an insurance guarantee level of 75% to get coverage worth $137.70 per acre for a complete wipe-out.

In general, insurance rules do permit the planting of a second crop when an insured first crop fails.  The Risk Management Agency indicates the following options are permitted for an insured wheat crop that has failed, provided it had not already headed out:

  • The acreage may be left idle (black dirt), or planted to a second crop and not insured, and receive a full indemnity for the first insured crop;
  • Plant and insure a second crop and receive a 65-percent reduction in indemnity for the first insured crop – you pay 35 percent of the premium for the first insured crop;
  1. If there is not a loss on the second crop, you will receive the remaining 65 percent of indemnity on the first insured crop and pay the full premium on the first insured crop; or
  2. If the second crop receives an indemnity, the first crop indemnity remains at 35 percent and the second crop indemnity is fully paid (no reduction). You may choose to not accept the second crop indemnity and receive a full indemnity on the first insured crop.

For most non-irrigated western Kansas growers, the likely second crop is grain sorghum.  Optimal seeding dates still lie in the future, farmers are already quite experienced with it, it is well-adapted to hot, dry western Kansas summers, and it is easily marketed.

For the example above, the producer could take 35 percent of the wheat indemnity, or $48.20 per acre, then plant grain sorghum as a second crop, and insure it.  If the grain sorghum has no loss, the producer would receive the remaining 65 percent of the wheat indemnity, $89.50 per acre, once the grain sorghum crop was harvested.  A second option would be to take the entire wheat indemnity of $135.70 per acre, still plant the grain sorghum, but leave it uninsured.

What should producers do with the damaged wheat crop in the meantime?

Again, producers need to wait until an adjuster inspects their fields and releases the acres before taking other steps.  Once an adjuster has made an appraisal and the acres are released, a producer may handle the damaged crop in any manner he/she desires.  This includes making hay or silage from the damaged crop, if conditions permit.

These rules apply for wheat that HAD NOT already headed out.  Of course, plant maturities vary widely across the storm area due to different varieties, planting dates, etc., and some wheat had already headed out.  Wheat which had in fact headed out prior to this storm is of course eligible for a full indemnity, but no second crop may be insured. 

If the damaged wheat was a summer-fallow crop and it is destroyed by June 1, producers can go back and plant wheat on those same acres this fall and have them considered as grown under summer-fallow practice.  If the damaged wheat is not destroyed by June 1 and wheat is planted there again this fall, it would be considered continuous cropping wheat.

Producers are reminded to consult with their crop insurance agent to ensure compliance with insurance program rules and maintain their eligibility for insurance coverage.

KSU Weekly Grain Market Analysis: Kansas Wheat Tour Graphics, Corn and Soybean “Next Crop” MY 2017/18 Scenarios

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program to be played on Friday, May 5, 2017 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_05-05-17.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, May 5, 2017 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the May 5th recording will available at the KSU Agriculture Today website.

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