“Start Up” Status of the Variable Storage Rate (VSR) for Kansas City HRW Wheat Futures

Variable Storage Rate or “VSR” calculations for the CME Kansas City Hard Red Winter Wheat futures contract have begun.  The Chicago Mercantile Exchange (CME) provides an ongoing daily record of how VSR calculations are progressing for the MARCH 2018 to MAY 2018 futures contract spread in comparison to what the CME calculates to be “Financial Full Carry” for wheat in storage.

Following is a statement from the CME regarding the Variable Storage Rate mechanism and its application:

“The Exchange will implement the VSR mechanism with an initial observation period beginning on December 19, 2017 and ending on February 23, 2018, evaluating the 2018 March – May KC HRW Wheat calendar spread relative to financial full carry with any changes to the storage rate effective on March 18, 2018. The storage rate will remain at 19.7/100s of one cent per bushel per day until the VSR mechanism triggers a change to the storage rate, at which point the storage rate will become either 16.5/100s of one cent per bushel per day if the storage rate is triggered down or 26.5/100s of one cent per bushel per day if the storage rate is triggered up. The seasonal storage rate currently in place for the Contracts will be suspended in lieu of the VSR mechanism, meaning the rate of 19.7/100s of one cent per bushel per day will remain in place until triggered up or down by the VSR mechanism.”

These VSR Calculations for both Kansas City HRW Wheat futures and Chicago Wheat futures are available a the following web address:

http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/variable-storage-rate.html

These preliminary VSR calculations with the MARCH-MAY 2018 KC HRW Wheat futures spread running at an average of 90.40% of Financial Full Carry for the December 19, 2017 through January 4, 2018 period would indicate that the CME will be increasing its storage rate used in the VSR calculation. Of course, the long term average through February 23, 2018 will provide the final determination of whether such changes are made.

This potential storage rate increase would be from the starting value of $0.00197 /bu/day ($0.0591 /bu/30 days) up to $0.00265 /bu/day ($0.0795 /bu/30 days) for the March-May 2018 period on wheat delivered against the MARCH 2018 CME KC HRW Wheat futures contract.

Note that the CME Chicago Wheat futures carrying charge is currently at $0.00365 /bu/day ($0.1095 /bu/30 days), and that the running average percent of full carry for Chicago wheat is only 51.42% for the same period.

Following are the KC HRW Wheat futures VSR calculations for through Thursday, January 4, 2018 with added formatting from Kansas State University Extension Agricultural Economics:

 

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KSU Wheat Market Outlook in Late-December 2017 – U.S., World, and “World-Less-China” Market Scenarios for 2018

This report provides an analysis of U.S. and World wheat supply-demand factors and 2018 marketing year price prospects following the USDA’s December 12, 2017 Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports.  It also incorporates U.S. wheat market supply-demand and price projections for the “next crop” 2018/19 marketing year from the USDA’s Long Term Agricultural Projections released on November 28, 2017. This article will be available in full on the KSU AgManager website in coming days (http://www.agmanager.info/).

Following is a summary – with the full analysis-article for Wheat Market Outlook in Late-December 2018 to be found at this web location:

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

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Summary

A. Wheat Market Response to the December 12th USDA Reports

Since the USDA’s December 12th World Agricultural Supply and Demand Estimates (WASDE) report, CME MARCH 2018 Kansas HRW Wheat futures have traded higher.  MARCH 2018 Kansas HRW wheat futures opened at $4.13 on 12/12/2017 – the day of the report – but closed lower to $4.11 ¼ that day.  Since then, MARCH 2018 HRW wheat futures have trended higher to a close of $4.22 ¾ on Friday, December 22nd.   

That same day Kansas cash wheat price terminal quotes in central and eastern Kansas ranged from $3.42 ¼ to $3.83 ¼ per bushel – with basis ranging from $0.80 under to $0.39 under MARCH 2018 futures.  In western Kansas, representative wheat elevator bids ranged from $3.47 to $3.64 per bushel – with basis ranging from $0.85 under to $0.58 under MARCH 2018 futures.  Although cash prices are markedly above marketing loan rates, basis levels are still “wide and weak” compared to historic Kansas wheat basis patterns.

B. Key World Wheat Supply-Demand Findings in the December 12th USDA 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 1,010.5 million metric tons (mmt) with total use of 742.1 mmt – both being record high levels for “new crop” MY 2017/18. 

Second, that World wheat exports will also trend marginally lower to 182.15 mmt in the “new crop” 2017/18 marketing year – down from a record high of 183.2 mmt last year, but still up from 172.8 mmt two years ago. 

Third, that World wheat ending stocks would be a record high 268.4 mmt in “new crop” MY 2017/18 – up from the previous record of 255.3 mmt in MY 2016/17, and from 241.4 mmt in MY 2015/16. 

Fourth, that World wheat percent ending stocks-to-use (S/U) would be 36.24% – up from 34.5% last year, and from 33.9% two years ago – rising to the highest level since 36.25% in MY 1998/99.

C. 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 268.4 mmt ending stocks and 36.2% 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 prevalent limiting influence on U.S. and World wheat prices – even with recent drought-fueled moves higher in the market. 

D. “World Less China” Wheat Market Situation

The broader “large crop-over supply-low price” situation in the World wheat market may be “obscuring” at some important underlying market issues.  

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 2012/13 when U.S. wheat cash prices averaged a record high $7.77 /bu.  If this “China supply isolation factor” eventually leads to noticeably tighter available global supplies of openly exportable wheat in the next 12 months, it could have a significant positive impact on U.S. and World wheat market prices.

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 2018 in order to have wheat prices recover significantly in 2018.   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.    

E. U.S. Wheat Supply/Demand for “New Crop” MY 2017/18 & “Next Crop” MY 2018/19  

The USDA released their wheat production, supply-demand and price projections for the U.S. for “new crop” MY 2017/18 in the December 12th WASDE report, and for “next crop” MY 2018/19 in its November 28th Long Term Agricultural Projections.   

U.S. wheat plantings are forecast to be 45.000 million acres (ma) in 2018, down from 46.012 ma in 2017, and 50.119 ma in 2016, to the lowest level since the early 1900s.  Harvested acres are forecast at 38.3 ma in 2018 (85.11% harvested-to-planted), up from 37.586 ma (81.69% harvested-to-planted) in 2017, but down from 43.850 ma in 2016.  

The 2018 U.S. average wheat yield is estimated at 47.4 bu/ac, up from 46.3 bu/ac in 2017, but down from the 2016 record of 52.7 bu/acre. 

Wheat production in the U.S. in 2018 is forecast to be 1.815 billion bushels (bb), up from 1.741 bb in 2017, but down from 2.309 bb in 2016.  After adjustments by Kansas State University from the December 12th WASDE report, projected “next crop” MY 2018/19 total supplies are forecast at 2.910 bb, down from 3.071 bb in “new crop” MY 2017/18, and down from 3.402 bb in MY 2016/17.  U.S. Wheat total use of 2.072 bb is forecast for “next crop” MY 2018/19, down from 2.111 bb in “new crop” MY 2017/18, and from 2.222 bb in MY 2016/17. 

With previously mentioned KSU adjustments from the December 12th WASDE report, the USDA projected “next crop” MY 2018/19 ending stocks to be 838 million bushels (mb) (40.44% stocks/use), down from 960 mb in “new crop” MY 2017/18 (45.48% stocks/use), and 976 mb in MY 2016/17 (50.03% stocks/use).   

United States’ wheat prices are projected to average $4.60 /bu in “next crop” MY 2018/19, unchanged from “new crop” MY 2017/18, but up from $3.89 in MY 2016/17, and comparable to $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 2017/18 have a 75% probability of occurring.

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

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

KSU Scenario 1) “Lower Export” Scenario (15% probability) assumes for “new crop” MY 2017/18 that the following outcome occurs.  This scenario assumes that there will be 46.012 ma planted, 81.69% harvested-to-planted, 37.586 ma harvested, 46.3 bu/ac average yield, 1.741 bb production, 3.071 bb total supplies, 775 mb exports, 120 mb feed & residual use, 1.911 bb total use, 1.160 bb ending stocks, 60.70% Stocks/Use, & $4.10 /bu U.S. wheat average price.

KSU Scenario 2) “Higher U.S. Wheat Exports” Scenario (10% probability) assumes for “new crop” MY 2017/18 that the following outcome happens.  This scenario assumes that there will be 46.012 ma planted, 81.69% harvested-to-planted, 37.586 ma harvested, 46.3 bu/ac average yield, 1.741 bb production, 3.071 bb total supplies, 1.150 bb exports, 120 mb feed & residual use, 2.286 bb total use, 785 mb ending stocks, 34.34% Stocks/Use, & $5.10 /bu U.S. wheat average price.

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KSU Ag Econ “Wheat Market Outlook for 2018” Presentation

Following is a presentation on “Wheat Market Outlook for 2018”.  This information was given as part of a larger “Grain Market Outlook for 2018” presentation given by Kansas State University Extension Agricultural Economist Daniel O’Brien at a Farming for the Future meeting in Pratt, Kansas on December 14, 2017.

Additional Farming for the Future conferences in Kansas are planned for December 19th in Salina, January 10th in Scott City, and January 11th in Emporia.  Registration information can be found at the following web address:

http://www.agmanager.info/events/farming-future

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The full “Grain Market Outlook for 2018” presentation is available online at the KSU AgManager website at the following web address:

http://www.agmanager.info/sites/default/files/pdf/AGEC520_GrainOutlook_10-19-17.pdf

Information on Corn, Grain Sorghum, Soybean & Cotton supply-demand and market outlook is be provided in companion posts.

Following is information on “Wheat Market Outlook for 2018”:

USDA Sept. 29th Small Grains 2017 Summary and Grain Stocks Reports “By the Numbers”

The September 29, 2017 USDA Small Grains Summary and Grain Stocks reports provided the following results:

A. U.S. Corn Results

  • U.S. Corn stocks on September 1, 2017 were projected to be 2.295 billion bushels – down from pre-report expectations of 2.353 bb.  Compared to recent years: U.S. corn stocks on September 1st (2.295 bb) were 32%-33% larger than on the same dates in 2015 & 2016, up 86% from 2014, and up 180% from 2013.
  • U.S. Corn Use in June-August 2017 of 2.930 billion bu. was up from implicit pre-report expectations of approximately 2.876 bb.   Compared to recent years: June-August 2017 U.S. corn use was down marginally from the same period in 2016 (2.970 bb – down 1%), but up 6%-16% from 2014-2015, up 35%-48% from 2012-2013, and up 12%-15% from 2010-2011.
  • Summary Thoughts: Relative to pre-report trade expectations, these results are at least marginally positive for U.S. corn supply-demand prospects, indicating that usage of U.S. corn for feed and possibly fuel ethanol were larger than the trade had expected.  Still, these are historically large levels of U.S. corn stocks for September 1st.  The existing “large supply – low price” scenario for U.S. corn heading into the 2017 harvest was not appreciably changed by these results.

B. U.S. Soybean Results

  • U.S. Soybean stocks on September 1, 2017 were projected to be 301 million bushels – down from pre-report expectations of 338 mb.   Compared to recent years: U.S. soybean stocks on September 1st (301 mb) were 53%-58% larger than on the same dates in 2015 & 2016, up 227% from 2014, and up 113% from 2013.
  • U.S. Soybean Use in June-August 2017 of 665 million bu. was up from implicit pre-report expectations of approximately 628 mb.  Compared to recent years: June-August 2017 U.S. soybean use was down marginally from the same period in 2016 (681 mb – down 2%), but up 49%-94% from 2014-2015, up 109% from 2013, and up 32%-63% from 2010-2012.
  • Summary Thoughts: Similar to U.S. corn, relative to pre-report trade expectations, these results are at least marginally positive for U.S. soybean supply-demand prospects, indicating that usage of U.S. soybeans for domestic crush and residual uses were larger than the trade had expected.  Still, these are also historically large levels of U.S. soybean stocks for September 1st.  The existing “large supply – low price” scenario for U.S. soybeans heading into the 2017 harvest was not appreciably changed by these results either.

C. U.S. Wheat Results

  • U.S. Wheat stocks on September 1, 2017 were projected to be 2.253 billion bushels – up from pre-report expectations of 2.205 bb.   Compared to recent years: U.S. wheat stocks on September 1st (2.253 bb) were down 11% from 2016, but were 7%-19% larger than on the same dates in 2013, 2014, & 2015.
  • U.S. Wheat Use in June-August 2017 of 668 million bu. was down 10%-11% from 2014-2016, down 26%-34% from 2012-2013, and down 7%-8% from 2010-2011.
  • Summary Thoughts: Relative to pre-report trade expectations, these results are negative for for U.S. wheat supply-demand prospects, indicating at a minimum that usage of U.S. wheat for domestic feed and residual uses were less than the trade had expected.  Also, these are also historically large levels of U.S. wheat stocks for September 1st.  The existing “large supply – low price” scenario for U.S. wheat heading into Fall-Winter 2017-2018 was supported by these results.

D. U.S. Grain Sorghum Results

  • U.S. Grain Sorghum stocks on September 1, 2017 were projected to be 34 million bushels – up from pre-report expectations of 28 mb.   Compared to recent years: U.S. grain sorghum stocks on September 1st (34 mb) were down 8% from 2016, were 89% larger than on the same date in 2015, and were 100%-107% of September 1st stocks in 2013-2014.
  • U.S. Grain Sorghum Use in June-August 2017 of 51 million bu. was down 6% from 2016, up 219% from 2015, down 12% from 2014, but up 42%-76% from 2012-2013.
  • Summary Thoughts: Relative to pre-report trade expectations, these results are negative for for U.S. grain sorghum supply-demand prospects, indicating at a minimum that usage of U.S. grain sorghum for domestic feed and residual uses were less than the trade had expected.  The existing “large supply – low price” scenario for U.S. grain sorghum and other feedgrains as a whole heading into Fall-Winter 2017-2018 was supported by these results.

E. U.S. Wheat Annual Small Grains Summary Results

  • U.S. All Wheat Production is projected to be 1.741 billion bushels – up  from pre-report expectations of 1.718 bb.   Compared to recent years: U.S. All Wheat Production is down 25% from 2016, and 14%-18% from 2013-2015.
  • U.S. Winter Wheat Production is projected to be 1.269 billion bushels – down from pre-report expectations of 1.287 bb.   Compared to recent years: U.S. Winter Wheat Production is down 24% from 2016, and 8%-18% from 2013-2015.
  • U.S. Hard Red Winter (HRW) Wheat Production is projected to be 750 million bushels – down from pre-report expectations of 758 mb.   Compared to recent years: U.S. HRW Wheat Production is down 31% from 2016, and down 10% to up 1% from 2013-2015.
  • U.S. Soft Red Winter (SRW) Wheat Production is projected to be 292 million bushels – down from pre-report expectations of 306 mb.   Compared to recent years: U.S. SRW Wheat Production is down 15% from 2016, and 19%-49% from 2013-2015.
  • U.S. White Winter Wheat Production is projected to be 230 million bushels – up from pre-report expectations of 230 mb.   Compared to recent years: U.S. White Winter Wheat Production is down 6% from 2016, and up 24%-25% from 2014-2015.
  • U.S. Other Spring Wheat Production is projected to be 416 million bushels – up from pre-report expectations of 402 mb.   Compared to recent years: U.S. Other Spring Wheat Production is down 22% from 2016, and 22%-31% from 2013-2015.
  • U.S. Durum Wheat Production is projected to be 55 million bushels – up from pre-report expectations of 51 mb.   Compared to recent years: U.S. Durum Wheat Production is down 47% from 2016, and down 35% from 2015.

KSU Weekly Grain Market Analysis: Focus on Grain Sorghum and USDA Stocks/Small Grains Reports

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, September 29, 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_09-29-17.pdf

The recorded radio program was aired at 10:03 a.m. central time, Friday, September 29, 2017 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the August 4th 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…

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

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

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

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

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

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

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

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

 

 

KSU 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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