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

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

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

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

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

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

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

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

 

 

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

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

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

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

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Summary

Wheat Market Response Following the August 10th USDA Reports

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

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

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

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

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

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

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

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

Perspectives on Current World Wheat Stock Levels

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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No Change in VSR Storage Rates for CHI SRW Wheat (“Gearing Up” for VSR in HRW Wheat Futures)

Beginning on March 18, 2018 the Chicago Mercantile Exchange (CME) will institute a Variable Storage Rate (VSR) mechanism for the CME Kansas Hard Red Winter Wheat futures contract.  The HRW wheat futures VSR mechanism will operate identically to that now used in the Chicago Wheat futures contract – except that CME Kansas HRW wheat futures prices will be used.

To “gear up” in preparation for VSR adoption in the CME HRW wheat futures contract in spring 2018, we are following the Chicago Wheat futures VSR calculations.  Today – Monday, August 28th – the CME announced its latest actions on the storage premium rates for the Chicago Wheat futures contract.

With this announcement, the CME has determined that “…the maximum premium charge that a wheat regular delivery facility may charge holders of its outstanding shipping certificates will not change from the current maximum charge of 36.5/100’s of one cent per bushel per day (approximately 11 cents per bushel per month).

Following is the text of the CME notice published today, Monday, August 28, 2017:

 

 

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

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

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

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

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

 

 

KSU Wheat Market Outlook in Mid-July 2017 – MY 2017/18 Wheat S-D and Price Scenarios with World Less China Estimates

An analysis of U.S. and World wheat supply-demand factors and 2016-2017 price prospects following the USDA’s July 12th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports, and the market actions that have followed those reports are available on the KSU AgManager website (http://www.agmanager.info/default.asp).

Following is a summary – with the full analysis-article for Wheat to be found at this web location: http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter

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Summary

Wheat Market Response to the July 12th USDA Reports

Since the USDA’s July 12th World Agricultural Supply and Demand Estimates (WASDE) report, CME SEPT 2017 Kansas HRW Wheat futures have traded lower.  SEPT Kansas HRW wheat futures opened at $5.52 ¾ on 7/12/2017 – the day of the report – but closed lower to $5.38 ¾ that day.  Since then, SEPT 2017 HRW wheat futures have moved lower to a close of $5.02 ¾ on Tuesday, July 18th.

That same day Kansas cash wheat price terminal quotes in central and eastern Kansas ranged from $3.98 ¾ to $4.47 ¾ per bushel – with basis ranging from $1.04 under to $0.55 under SEPT 2017 futures.  In western Kansas, representative wheat elevator bids ranged from $4.05 to $4.34 per bushel – with basis ranging from $0.98 under to $0.69 under SEPT 2017 futures.  Although cash prices have improved considerably from fall 2016 when many wheat bids had fallen to marketing loan rates or lower, basis levels are still “wide and weak” compared to historic Kansas wheat basis historic patterns.

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

For the “new crop” 2017/18 marketing year (MY) beginning on June 1, 2017 the USDA projected the following. First, that World wheat total supplies would be 995.9 million metric tons (mmt) with total use of 735.3 mmt – both marginally lower than the record high levels of “old crop” MY 2016/17.

Second, that World wheat exports will also trend marginally lower to 178.4 mmt in the “new crop” 2017/18 marketing year – down from a record high of 181.6 mmt last year, but up from 172.9 mmt two years ago.

Third, that World wheat ending stocks would be a record high 260.6 mmt in “new crop” MY 2017/18 – up from the previous record of 258.05 mmt last year, and from a previous record high of 242.8 mmt two years ago.

Fourth, that World wheat percent ending stocks-to-use (S/U) would be 35.4% – up from 34.9% last year, and from 34.1% two years ago – rising to the highest level of World wheat supply-demand balances since 36.2% in MY 1999/00 and 36.5% in MY 1998/99.

Perspectives on Current World Wheat Stock Levels

For a perspective on how historically large World total wheat stocks and World wheat percent stocks-to-use now are, consider that in MY 2007/08 the 34-year low in World wheat ending stocks of 128.2 mmt and at least a 57-year low in percent ending stocks-to-use of 20.9% stocks/use both occurred.  The 2007/08 marketing year was the last significant World wheat “short crop” marketing year to have occurred.  The “tight supply-demand” situation in MY 2007/08 compares to the most recent USDA projections of 260.6 mmt ending stocks and 35.4% ending stocks-to-use projected for “new crop” MY 2017/18.  The present “large crop-over supply” situation in World and U.S. wheat markets continues to have a prevailing limiting influence on U.S. and World wheat prices – even with recent drought-fueled moves higher in the market.

Wheat Protein Supply Concerns & the “World Less China” Market Situation

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 typically less so.  This factor helps exports of U.S. Hard Red Spring (HRS) wheat (higher protein – good quality) relative to World wheat export competitors.  The drought conditions now occurring in the U.S. and Canadian hard red spring wheat producing regions has raised the demand and price premiums offered for high protein wheat supplies – whether they are from hard red winter wheat supplies or elsewhere.

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

However, unless there is this change in the broader, overriding focus of the World wheat market away from aggregate global supplies to available “World Less China supplies – it is likely that significant World wheat production problems and/or trade disruptions would need to occur in year 2017 in order to have wheat prices recover significantly in later 2017.   Such disruptions elsewhere would likely cause the market to then focus on the limited availability of food quality wheat outside of China in the World market.   Also, ongoing strength in the U.S. dollar exchange rate continues to be a negative factor limiting the competitive affordability of U.S. wheat exports in World markets.

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

The USDA released their wheat production, supply-demand and price projections for “new crop” MY 2017/18 in the July 12th Crop Production & World Agricultural Supply and Demand Estimates (WASDE) reports.

United States’ wheat plantings are projected to be 46.567 million acres (ma) – down from 50.154 ma in “old crop” MY 2016/17 to the lowest level since the early 1900s.  Harvested acres are forecast to be 38.115 ma (83.72% harvested-to-planted) – down from 43.890 ma a year ago.  The 2017 U.S. average wheat yield is projected at 46.2 bu/ac, down from the 2016 record of 52.6 bu/acre.

Wheat production in the U.S. in 2017 is forecast to be 1.760 billion bushels (bb), down from 2.310 bb in 2015.  Projected “new crop” MY 2017/18 total supplies are 3.084 bb (down from 3.403 bb in “old crop” MY 2016/17), with total use of 2.146 bb (down from 2.219 bb in “old crop” MY 2016/17).

The USDA projected “new crop” MY 2017/18 ending stocks to be 938 million bushels (mb) (vs 1.184 bb a year ago), with percent ending stocks-to-use of 43.7% S/U (vs 53.4% last year and 50.0% the previous year).  United States’ wheat prices are projected to average $4.80 /bu – up from $3.89 in “old crop” MY 2016/17, but down from $4.89 /bu in MY 2015/16, and $5.99 /bu in MY 2014/15.   It is estimated by Kansas State University that these USDA projections for “new crop” MY 2016/17 have a 50% probability of occurring.

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

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

KSU Scenario 1) “5 Year Avg Yield” Scenario (20% probability) assumes for “new crop” MY 2017/18 that the following occurs.  This scenario assumes that there will be 46.657 ma planted, 83.72% harvested-to-planted, 38.115 ma harvested, 45.8 bu/ac 5-year average yield, 1.746 bb production, 3.030 bb total supplies, 975 mb exports, 150 mb feed & residual use, 2.146 bb total use, 884 mb ending stocks, 41.19% S/U, & $5.05 /bu U.S. wheat average price.

KSU Scenario 2) “Higher U.S. Wheat Exports” Scenario (20% probability) assumes the following for “new crop” MY 2017/18.  Planted acres of 46.657 ma are associated with 38.115 ma harvested, 45.8 bu/ac 5-year average yield, 1.746 bb production, 3.030 bb total supplies, 1.200 bb exports (due to foreign crop problems), 125 mb feed & residual use, 2.346 bb total use, 684 mb ending stocks, 29.16% S/U, & $6.00 /bu U.S. wheat average price;

KSU Scenario 3) “Short U.S. Wheat Crop” Scenario (10% probability) assumes the following for “new crop” MY 2017/18.  Planted acres of 46.657 ma, 83.72% harvested-to-planted, 38.115 ma harvested, 40.2 bu/ac low “crop stress” yield, 1.633 bb production, 2.917 bb total supplies, 975 mb exports, 125 mb feed & residual use, 2.121 bb total use, 796 mb ending stocks, 37.53% S/U, & $5.35 /bu U.S. wheat average price.

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

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

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

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

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

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

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

 

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

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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.

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