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

************************

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.   

*****

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.

*****

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. 

***

  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.

***

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.

***

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.

***

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.

***

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.

*****

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.

 

 

KSU Weekly Grain Market Update – The position of grain markets just prior to the USDA Reports on 5/10/209

Grain market summary notes, charts and comments supporting the Weekly Grain Market Review from KSU Ag Economics presented in the KSU Agriculture Today radio program to be played on Friday, May 10, 2019 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

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

The recorded radio program will be aired at 10:03 a.m. central time, Friday, May 10, 2019 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the May 10th recording is be available at the KSU Agriculture Today website at this time.

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

KSU Weekly Grain Market Update (5/3/2019) – 2019 Corn Planting Problems, Kansas Wheat Tour Results, and Positive Feedgrain Export Trends

Corn Market Decision Time re: Planting Prospects

and

Examining 2019 Kansas Wheat Tour Results

Daniel M. O’Brien, Extension Agricultural Economist-Kansas State University

May 3, 2019

Point #1) Delayed U.S. Corn Plantings in May 2019

The situation with 2019 U.S. corn plantings as of May 3, 2019 is the following.  First, as of April 28th the USDA reports that corn plantings are delayed in several key corn producing states in the U.S. Corn Belt – most notably in Illinois (9% vs 43% 5-yr avg), Minnesota (2% vs 24% 5-yr avg), Indiana (2% vs 17% 5-yr avg), and Ohio (2% vs 13% 5-yr avg).  Plantings in Iowa, Kansas, Missouri, Nebraska, North Carolina, North Dakota, and Tennessee are also trailing the most recent 5 year average pace, but not a seriously as in IL, MN, IN, and OH.  With credible weather service forecasts for significant rainfall over many of these central and eastern U.S. Corn Belt states over the next week, prospects for timely plantings of 2019 U.S. corn acres are declining in a quantifiable manner.

Corn futures markets have not responded to this decline in 2019 U.S. corn planting and associated production prospects.  Within the next 1-2 weeks it seems these issues of 2019 U.S. corn planting prospects, how plantings could affect 2019 U.S. corn production, supply-demand balances, and expected corn prices for what remains of the “current crop” 2018/19 marketing year (MY) through August 31, 2019, and for “new crop” MY 2019/20 will all likely have to be dealt with by the corn futures and cash markets.

If the 2019 U.S. corn crop is planted in a timely manner, then it will have fully adequate soil moisture to begin development with – and which could provide for growth from May through June and into July.

However, if instead of the 92.792 million acres (ma) projected for year 2019 by the USDA in the Prospective Plantings report on March 29th, actual 2019 U.S. corn plantings are reduced by 5% down to 88.152 ma, or by 10% down to 83.513 ma, it would likely have significant, tangible, negative impacts on 2019 U.S. corn production.

At its current projection of 92.792 ma planted, 84.723 ma harvested (91.30% harvested to planted acres), and 176.4 bu/ac yields, the USDA is implicitly forecasting U.S. corn production in year 2019 would be 14.945 billion bushels

However, IF 2019 U.S. corn plantings decline 5% to 88.152 ma, then with 91.30% harvested-to-planted acres, there would be 80.486 ma harvested.  And with the same 176.4 bu/ac yield, U.S. corn production would be 14.198 bbdown 747 mb from the initial USDA implicit forecast of 14.945 bb.

In addition, IF U.S. corn plantings are down 10% from the USDA projection to 83.513 ma, then using the same harvested-to-planted acres factor of 91.30% to figure 2019 U.S. corn harvested acres at 76.247 ma, and using 176.4 bu/ac again, then 2019 U.S. corn production would fall to 13.450 bb down 1.495 bb from the USDA’s initial levels of 14.945 bb 2019 U.S. corn production.

Therefore, either a 5% or especially a 10% reduction in U.S. 2019 Corn planted acres would have significant negative impacts on U.S. corn production in 2019, leading to much tighter U.S. corn ending stocks, and higher cash prices as usage would be rationed on smaller supplies.

Point #2) Examining the Results of the 2019 Kansas Wheat Tour

This week’s 2019 Kansas Wheat Tour projected the 2019 Kansas wheat yield to be 47.2 bu/ac, with an implicit harvested acreage estimate of 6.494 million acres (92.8% harvested-to-planted acres off of 7.000 ma planted), and 2019 Kansas wheat production of 306,500,000 bushels (i.e., 306.5 million bushels or mb).   According to KSU Extension Agronomist Romulo Lulato ( lollato@ksu.edu), the Kansas wheat crop is 3 to 4 weeks behind normal in maturity, with the next month being crucial to crop development and possible disease threats.

Since year 2014, the annual Kansas Wheat Tour has UNDER-forecast Kansas wheat production by 10.4% (in 2015), 18.2% (in 2016), 15..6% (in 2017), and 12.3% (in 2018).  The reason for this under estimate of Kansas production in recent years has been a combination of underestimated yields, and especially low projections of harvested acreage.   During the years 2011-2018 period the Kansas Wheat Tour underestimated final Kansas wheat harvested acres each year, ranging from 4% too low in 2016 to 13.7% in 2011.  For instance, in 2018 Kansas harvested acres of wheat were implicitly forecast to be 6.576 ma, but ended up being 7.300 ma as estimated by USDA.  Following the same trend, it is possible the implicit harvested acreage of 6.494 ma for wheat in Kansas for 2019 could end up being too low.

Finally, total Hard Red Winter (HRW) wheat production in the central and southern plains states of Nebraska, Colorado, Kansas, Oklahoma and Texas is forecast to be 638 million bushels (mb) in 2019, up from 523 mb for these states in 2018, but comparable to 635 mb in 2017, 870 mb in 2016, and 655 mb in 2015.  The 2019 forecast for Texas came from KSU Calculations, while those for Kansas, Nebraska, Colorado, and Oklahoma came from the 2019 Kansas Wheat Tour.

An additional factor to watch as the 2019 Kansas wheat crop develops will be the levels of protein and/or other quality factors.  It is likely that significant amounts of the high protein / good quality 2018 Kansas wheat crop likely still in storage in Kansas grain elevators.  As a result, IF the 2019 Kansas wheat crop were of lower protein / quality, THEN it is likely that carryover supplies from the higher protein/higher quality 2018 crop would be blended with the 2019 crop to enhance marketability.

******

Grain market summary notes, charts and comments supporting the Weekly Grain Market Review from KSU Ag Economics presented in the KSU Agriculture Today radio program to be played on Friday, May 3, 2019 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

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

The recorded radio program will be aired at 10:03 a.m. central time, Friday, May 3, 2019 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the April 26th recording is be available at the KSU Agriculture Today website at this time.

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

KSU Weekly Grain Market Analysis Through 4/26/2019 – Watching Weather for Corn Planting plus Positive Sorghum and HRW Wheat Exports Weeks

Grain market summary notes, charts and comments supporting the Weekly Grain Market Review from KSU Ag Economics presented in the KSU Agriculture Today radio program to be played on Friday, April 26, 2019 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

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

The recorded radio program was aired at 10:03 a.m. central time, Friday, April 26, 2019 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the April 26th recording is be available at the KSU Agriculture Today website at this time.

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

Corn Market Review – DEC 2019 Corn Trends, CFTC Position Data, Carry Issues, and a 1st Week in May Reckoning for Planting Concerns

This Corn Market Review from the Kansas State University Agricultural Economics Department (Daniel O’Brien – Author) will be placed on on the www.AgManager.info website at on April 22nd at the following web address:

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

Following is the text of the article, with selected figures included at the end.

************************

Corn Market Review KSU Ag Economics

Daniel O’Brien, Extension Agricultural Economist, Kansas State University

Friday, April 19, 2019

With wet soils persisting in much of the U.S. Corn Belt, spring fieldwork and planting operations have begun to be been delayed.  As of April 19th U.S. corn markets have shown only limited signs of concern about potential 2019 U.S. corn crop planting delays or impacts upon U.S. corn production prospects.

 

1) “New Crop” DEC 2019 Corn Futures Trending Lower

Corn futures have been moderately “bearish” during the month April 2019 to date.  Since April 1st, “new crop” DEC 2019 Corn futures have traded in the range of a low of $3.84 ½ (on 4/1) to a high of $3.93 ½ (on 4/4) – closing at $3.86 ¼ on Thursday, April 18th.  In comparison, during the December 2018 – March 2019 period “new crop” DEC 2019 corn had traded in a range of $4.06 (on 1/18) to $3.84 ¼ (on 3/29). 

 

2) Placing a Market Value on “New Crop” 2019 Corn Price Uncertainty

On April 18th MAY 2019 Corn futures closed at $3.58 ¼ compared to $3.86 ¼ for DEC 2019 Corn.  The $0.28 /bu increase from MAY 2019 to DEC 2019 Corn futures provides some indication of the amount of uncertainty that exists in corn futures traders minds about seasonal production risks they are willing to account for in their “new crop” 2019 corn bids (relative to the present).  

 

3) Long Term Corn Price Expectations in Years 2020-2022

Whereas on April 18th MAY 2019 Corn futures closed at $3.58 ¼ compared to $3.86 ¼ for DEC 2019 Corn, these prices compare to longer term prices of $4.14 ¼ for DEC 2020 Corn, and $4.19 ¼ – $4.19 ½ for DEC 2021 & DEC 2022 Corn futures

As of today, looking two-to-four years ahead, when the corn market has little to go on other than current “old crop” and early “new crop’ supply-demand and prices, corn market price expectations for harvest in years 2020, 2021 and 2022 are in the $4.14-$4.19 per bushel range.  These price levels are up an additional $0.28-$0.32 per bushel from harvest 2019 corn futures as expressed by DEC 2019 Corn futures at $3.86 ¼ /bu, and up 15%-17% from current MAY 2019 Corn futures prices at $3.58 ¼ /bu.   

From an economic viewpoint, these deferred years’ DEC Corn futures prices in years 2020, 2021, & 2022 reflect market expectations that corn prices will eventually be higher than current bids for DEC 2019 Corn futures.  As part of these expectations, they also reflect market uncertainty about and the eventual likelihood of a short U.S. corn crop or crops sometime in the coming years – it is just not known when!

 

4) “Open Interest” – Indicating the Focus of Corn Futures

Corn futures contract open interest can be used as an indicator of the attention and/or focus in the corn trade on particular futures contracts and the time periods they represent.  “Open interest” in corn futures is the total number of outstanding “long” (i.e. buy position) or “short (sell position) contracts that remain open and have not been exited at any one time.  

As of April 18th, MAY 2019 Corn futures had 381,269 contracts (or 1.906 bb) in open interest, compared to 739,574 contracts (3.698 bb) for JULY 2019 Corn futures, 207,894 contracts (1.039 bb) in open interest for SEPT 2019 Corn futures, and 291,847 contracts (1.459 bb) for DEC 2019 Corn futures.  For selected deferred harvest-time corn futures contracts, DEC 2020 Corn had open interest of 31,435 contracts (157 million bushels or ‘mb’), while DEC 2021 Corn had open interest of 931 contracts (4.655 mb), and DEC 2021 Corn had open interest of 16 contracts (80,000 bushels).

These numbers indicate that most of the attention of the U.S. Corn futures market is on the MAY 2019 and especially the JULY 2019 Corn futures contracts, with lesser attention on SEPT 2019 and DEC 2019 Corn

 

5) Focus on Futures Carrying Charges & How MAY 2019 Affects DEC 2019 Corn

While most of the open interest in corn futures is concentrated in the two lead contracts (i.e., MAY 2019 and JULY 2019 Corn), the consistency of carrying charges from the MAY 2019 through DEC 2019 Corn futures causes movements in the upfront MAY 2019 Corn futures to influence or lead to changes in DEC 2019 Corn futures.  At this time, “price transmission” or at least a strong correlation is occurring between movements in the lead “current” marketing year contract (MAY 2019 Corn) and the 1st “new crop” contract (DEC 2019 Corn futures).

For example, on April 18th the following carrying charges existed in Corn futures contract prices.  The MAY 2019 to JULY 2019 corn futures carrying charge, “carry, or “spread” was $0.0875 /bu or $0.04375 /bu/mo.  Then, from the JULY 2019 to the SEPT 2019 contract, the carry was $0.0775 /bu or $0.03875 /bu/mo.  Further, the SEPT 2019 to DEC 2019 carrying charge was $0.1125 /bu or $0.0375 /bu/mo. 

As an indicator of possible grain market dynamics or changes, if and/or when the SEPT 2019 to DEC 2019 Corn futures carrying charge begins to weaken appreciably from its current level of $0.1125 /bu or $0.0375 /bu/mo, it may indicate that the Corn market is beginning to anticipate a large 2019 U.S. corn crop as it begins to discount harvest 2019 Corn futures prospects.  This would lead to a weakening trend in DEC 2019 corn futures into late summer and the 2019 fall harvest.

 

6) Managed Money (Spec) & Commercial Trader Positions in Corn Futures (CFTC Data)

The “bearish” position of the corn futures market is shown in futures trade positions within the last few weeks.  As reported by Commodity Futures Trading Commission (CFTC) trader position data, for the week ending April 16, 2019 Managed Money (Spec) traders indicate that a record “short” or “sell” position of 2.549 billion bushels (bb), based on 509,846 contracts @ 5,000 bu/contract.  The 2nd largest short position for Management Money (Spec) traders since at least June 2006 occurred a month ago for the week ending March 12, 2019 at 483,417 contracts (2.417 bb).  

There were also “long” or “buy” positions of 915 million bushels (mb) from 182,959 contacts for Managed Money (Specs) for the week ending 4/16/2019.  When combined, there was a record “net short” managed money position of 1.634 bb in corn futures for the week ending April 16, 2019 – the most recent available public record of trading data.  The previous record “net short” managed money position occurred for the week ending April 9, 2019 with 1.449 bb in corn futures “net short”.

Also of note, as of the week ending April 16th, Commercial Traders in Corn futures had a record large long or “buy” position in Corn futures of 575,164 contracts (2.876 bb), combined with a short or “sell” position of 608,567 contracts (3.043 bb).  The record high short or “sell” position for Corn futures since mid-year 2006 1,001,517 contracts (5.008 bb) for the week ending May 29, 2018.   It appears that commercial buyers of corn are taking advantage of the current low prices in Corn futures to hedge against the possibility of rising prices later in 2019.

 

7) The Beginning of 2019 Field Work & U.S. Corn Planting Issues to Come 

As of April 14th the USDA reported in it’s NASS Crop Progress Report that U.S. corn plantings were 3% complete compared to an average of 5% for the same time period during the 2014-2018 period.   Corn planting had progressed to 57% complete in Texas (vs 54% 5-year avg.), 16% in Tennessee (vs 14% 5-yr avg.), and 8% in Kentucky (vs 8% 5-yr avg.). 

But in the key “Three ‘I’ States” in the central U.S. Corn Belt, planting had not started in Illinois (vs a 4% 5-year average), had 1% planted in Indiana (vs 1% 5-year avg.), and had not started in Iowa (vs a 2% 5-year avg.).   In other key Corn Belt states affected by recent excess moisture, corn planting was 6% complete in Kansas (vs 14% 5-year avg.), had not started in Nebraska (vs 2% 5-year avg.), had not started in Minnesota (vs 2% 5-year avg.), and was 18% completed in North Carolina (vs 28% 5-year avg.). 

Consistent with the corn futures market bearish perspective, it seems too early for corn futures to express worries about wet soil conditions, delayed corn planting, and reduced corn acreage in 2019 (which could lead to reduced 2019 U.S. corn production and a tightening of the U.S. Corn Supply-Demand Balance sheet and higher corn prices in “new crop” MY 2019/20. 

The University of Illinois’ Farmdoc recent analysis titled “Here We Go Again: How Many Days Does It Take to Plant the U.S. Corn Crop” by Scott Irwin and Todd Hubbs on April 17th addressed this issue: https://farmdocdaily.illinois.edu/2019/04/here-we-go-again-how-many-days-does-it-take-to-plant-the-u-s-corn-crop.html

Quoting from their analysis concerning the key “Three ‘I’ States”: “The results indicate that it takes about 14 days, or two weeks, to plant the corn crop in each of the three states assuming maximum daily rates of planting progress and this conclusion is not altered by the addition of observations for 2018.”

These results from Irwin and Hubbs in Illinois indicate that the U.S. corn market would likely grow more concerned about potential 2019 planting delays in the U.S. Corn Belt if appreciable progress was not being made and appeared unlikely to occur in the first week of May 2019.  Until then, the Corn market is likely to continue to monitor the situation, but not to act in a “worried manner” until then.

KSU Weekly Grain Market Analysis Through 3/17/2019 – Floods, Wet Fields and Prospects for Delayed Field Work / Corn Planting

Grain market summary notes, charts and comments supporting the Weekly Grain Market Review from KSU Ag Economics presented in the KSU Agriculture Today radio program to be played on Friday, March 15, 2019 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

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

The recorded radio program was aired at 10:03 a.m. central time, Friday, March 15, 2019 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the March 15th recording is be available at the KSU Agriculture Today website at this time.

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

KSU Weekly Grain Market Analysis: A “March 1st” Pre-Crop Risk Snapshot of U.S. Grain Markets

Grain market summary notes, charts and comments supporting the Weekly Grain Market Review from KSU Ag Economics presented in the KSU Agriculture Today radio program to be played on Friday, March 1, 2019 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

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

The recorded radio program will be aired at 10:03 a.m. central time, Friday, March 1, 2019 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the March 1st recording will be 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…