KSU Corn Market Outlook in July 2018: The July WASDE Impact on 2018-2019 Corn Price Prospects

An analysis of Corn Market Situation & Outlook in July 2018 for the remainder of the “old crop”  2017/18 and “new crop” 2018/19 marketing years is provided in the following article from Kansas State University .  This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) report on July 12, 2018.

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

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

Following is a summary of the article on “Corn Market Situation & Outlook in July 2018″

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Corn Market Situation & Outlook in July 2018

In response to the July 12, 2018 USDA WASDE Report

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

July 13, 2018

Intro

The July 12, 2018 USDA reports contained positive news for corn market prospects on balance.  Corn markets generally responded in a moderately positive-to-neutral manner to the July 2018 USDA World Agricultural Supply and Demand Estimates (WASDE) report – with important changes occurring and trends emerging in both domestic U.S. and foreign corn grain supply-demand and price prospects.

Projections of: 1) changes in corn usage in the U.S. corn “old crop” 2017/18 marketing year (MY); 2) higher 2018 production and total use estimates for U.S. “new crop” MY 2018/19; and 3) a sharp tightening of foreign corn supply-demand balances forecast for “new crop” MY 2018/19, were each key elements found in the July 12th WASDE report.

1) Higher Usage of U.S. Corn in “Old Crop” MY 2017/18 (ending August 31st)

The USDA increased its projection of U.S. corn usage and tightened its forecast of ending stocks in the “old crop” MY 2017/18 supply-demand balance sheet for U.S. corn.  Total “old crop” use of U.S. corn was projected to be up 70 million bushels (mb) from a month earlier to a record high 14.910 billion bushels (bb).  This was due to a combination of a 100 mb increase in projected exports (2.400 bb), a 25 mb increase in corn ethanol use (5.600 bb), a 20 mb drop in non-ethanol food, seed and industrial use (1.460 bb), and a 50 mb drop in forecast feed & residual use (5.450 bb). 

Projected exports were raised in response to the level of forward purchases of U.S. corn exports – being affected by a reduction in the 2018 Brazilian corn crop and exportable supplies.  Forecast U.S. corn ethanol use was increased to match the pace of U.S. ethanol production that has been occurring.  Conversely, U.S. corn feed usage was lowered following the rate of corn use reported in the June 29th USDA Grain Stocks report.  Ending stocks of 2.027 bb were down 25 mb from a month earlier, with a drop in percent ending stocks-to-use from 14.2% in the June WASDE to 13.6% in July, and mid-range price estimates being unchanged at $3.40 per bushel.

2) Higher Production & Usage with Tighter Stocks of U.S. Corn in “New Crop” MY 2018/19

The USDA raised its projection of 2018 U.S. corn production by 190 mb to 14.230 bb due to the increase in 2018 U.S. corn planted acreage (89.128 million acres or ‘ma’) and harvested acres (81.770 ma) reported in the June 29th USDA Acreage report.  Projected total supplies in “new crop” MY 2018/19 were raised by 115 mb to 16.307 bb due to a combination of reduced beginning stocks and higher production.

Total use of U.S. corn in “new crop” MY 2018/19 is projected to be up 140 mb than a month earlier, up to 14.755 bb – 2nd highest on record.  This was due to a combination of a 140 mb increase in projected exports (2.225 bb), a 50 mb decrease in corn ethanol use (5.625 bb – still a record high), a 10 mb drop from a month earlier in non-ethanol food, seed and industrial use (1.480 bb), and a 75 mb increase in forecast feed and residual use (5.425 bb).  Forecast ending stocks of 1.552 bb were down 25 mb from a month earlier, with a drop in percent ending stocks-to-use from 10.8% in the June WASDE to 10.5% in July, and midrange price estimates being down $0.10 from a month earlier at $3.80 per bushel.

3) South American Corn Trends Affecting World Stocks & U.S. Export Prospects

For “old crop” MY 2017/18 the USDA lowered its projections for Brazil of both production (down 1.5 million metric tons or ‘mmt’ to 83.5 mmt) and exports (down 3 mmt to 26.0 mmt) from a month earlier.  Forecast Argentina corn exports for “old crop” MY 2017/18 were also lowered from a month earlier, down 1 mmt to 24.0 mmt.  These reductions in South American exports were partially offset by a 2.54 mmt (100 mb) increase in forecast U.S. corn exports for “old crop” MY 2017/18. 

Sizable increases in World corn production are forecast from 1,033.74 mmt in “old crop” MY 2017/18 to 1,054.30 mmt in “new crop” MY 2018/19 (up 2.0%) – beginning on September 1, 2018.  These year-to-year production increases are more than matched by expected increases in total use, from 1,069.67 mmt in “old crop” MY 2017/18 to 1,094.08 mmt in “new crop” MY 2018/19 (up 2.3%).   As a result, ending stocks and % stocks-to-use of World corn are forecast to decline significantly, from 191.73 mmt in (17.9% Stks/Use) “old crop” MY 2017/18 to 151.96 mmt in (13.9% Stks/Use) in “new crop” MY 2018/19 (down 22.5%).   

Implications of the July 12, 2018 WASDE Report for U.S. Corn Market Outlook

The July 12th WASDE report spoke more to the demand and usage potential for U.S. corn in 2018-2019 than to supply prospects.  The first USDA survey-based information on the size of the 2018 U.S. corn crop will be provided in the August 10th USDA Crop Production report provided by the USDA National Agricultural Statistical Service (NASS).  These NASS results will be used in the August World Agricultural Supply and Demand Estimates (WASDE) report that same day for the purpose of estimating corn market supply-demand and prices going forward into “new crop” MY 2018/19 (to begin on September 1st).

The possibility still exists of 2018 U.S. corn production ending up being markedly lower than the 14.230 bb forecast in the July WASDE report.  Dry conditions in various areas – particularly Missouri and eastern Kansas, along with excessive moisture in the northern Iowa – southern Minnesota – eastern South Dakota area could cause lower yields, as could such issues as warmer than normal night time temperatures, etc. throughout the U.S. Corn Belt.  So, it is too soon to indicate without reasonable caution that 2018 U.S. corn crop prospects are reliably proceeding toward a 14.0-14.2 bb or more U.S. corn crop.  However, it IS likely at this time that the 2018 U.S. corn crop will not be “short”, and that total supplies of 16.25 to 16.75 bb will occur in “new crop” MY 2018/19 – being the 2nd highest on record after 16.937 bb which is now projected in “old crop” MY 2017/18. 

Key Issue – U.S. Corn Use Supported by Large Supplies & Low Corn Input Prices

A key issue driving in the U.S. corn market is the ongoing positive impact of low corn prices on U.S. corn usage.  Low prices due to abundant supplies nationally have provided support for U.S. corn domestic ethanol and wet corn milling use, and feed usage, as well as U.S. corn exports.  It is of no small significance that U.S. corn ending stocks are projected to drop from 2.027 bb (13.59% Stks/Use) in “old crop” MY 2017/18 down to 1.552 bb (10.52% Stks/Use) in “new crop” MY 2018/19. 

Following these changes in ending stocks, U.S. corn prices are projected to rise from a range midpoint estimate of $3.40 in the “old crop” period up to the range of $3.30-$4.30 /bu (midpoint = $3.80 /bu) in “new crop” MY 2018/19.  There is support for the idea that after harvest occurs there may be enough domestic and foreign demand for U.S. corn that the U.S. corn price could end up being closer to the higher end of the USDA forecast range (i.e., closer to $4.30 /bu) by summer 2019.   

Whether that occurs or not may depend on the development of production prospects for the 2019 South American corn crop during the January-June 2019 period.   It is widely thought that high soybean prices in South America that are occurring now in response to the U.S. – China trade dispute may cause larger than normal planted areas of soybeans to be planted in Argentina and Brazil in 2019 – essentially “crowding out” or “limiting” corn production in these same areas.  IF that occurs, then lower 2019 South American corn exportable supplies will provide support for U.S. corn exports in spring 2019.   And if any weather or production threats were to impact prospects for 2019 South American corn production, well, it would provide strong support for U.S. corn exports and prices in the first half of year 2019.

Final Thoughts re: U.S. Corn Market Outlook

It seems prudent to plan to manage both “old crop” and “new crop” corn marketings in years 2018-2019 with the idea that there will be adequate U.S. corn supplies and no major short crop event occurring.  This leads to adoption of the attitude that a somewhat “normal” seasonal price pattern for corn is likely for the remainder of “old crop” MY 2017/18 and especially for “new crop” MY 2018/19.  This would result is some price volatility being likely for the remainder of July-August 2018, but then as harvest approaches the probability of a seasonal harvest price low in September-November 2018. 

However, this year, from November 2018 through January 2019, the “narrative consensus” of the corn market will likely have a greater focus on corn planting progress and early season development in Argentina and Brazil – particularly in tandem with a focus on similar reports about the acreage and progress of their soybean crops.  It is possible if not likely that news about the pace of usage of U.S. domestic corn and other feedgrains will have the attention of the U.S. corn markets.  The impact of this news will be exacerbated IF U.S. corn exports are spurred on to higher levels by worries about potentially lower South American corn supplies for export in spring 2019.  Then from late winter into spring 2019 U.S. corn markets will be simultaneously paying attention to the pace of U.S. corn domestic and export usage and to 2019 U.S. corn planting prospects.  The corn market will likely then be driven by 2019 U.S. corn production prospects from what remains of spring through Summer and early fall 2019. 

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

The key point is that the likelihood exists of there being greater than normal price strength in U.S. corn markets through the winter and spring 2019 months – given the likelihood of more South American crop area being planted into soybeans to the exclusion of corn and the strong domestic demand base for the crop.

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Corn Market Prospects in Late-June 2018: Lower Prices – But Still Weighing “Likely vs Possible” S-D Outcomes

An analysis of U.S. & World Corn supply-demand factors and price prospects through the “new crop” 2018/19 marketing year from Kansas State University is provided in the following article summary.  This information follows the USDA World Agricultural Supply and Demand Estimates (WASDE) reports on June 12, 2018 with adjustments for alternative outcomes as identified by Kansas State University Extension Agricultural Economist Daniel O’Brien.

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

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

Following is a summary of the article on “Corn Market Outlook in Late-June 2018″

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Corn Market Outlook in Late-June 2018

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

June 23, 2018

1. CME Corn Futures & Kansas Cash Corn Prices & Basis Bids

Since the release of the USDA’s June 12th World Agricultural Supply and Demand (WASDE) report, “old crop JULY 2018 CME corn futures prices have traded sharply lower.  On June 12th, the day of the report, JULY 2018 corn actually closed higher – up $0.10 ¼ to $3.77 ½ per bushel.  However, since then JULY 2018 corn futures have traded as low as $3.38 ¾ on June 19th before closing at $3.57 ¼ /bu on June 22nd (Figure 1).   “New crop DECEMBER 2018 CME corn futures prices also closed higher on June 12th – up $0.10 to $3.98 ¼ per bushel.  Then – just as for the JULY 2018 contract, DEC 2018 corn futures declined as low as $3.75 ½ on June 19th before closing at $3.78 /bu on June 22nd.   

The key point is that on May 24th prices for both of these contracts had traded approximately $0.50 /bu higher than their lows on January 12th of $3.62 /bu for JULY 2018 and $3.79 ¾ for DEC 2018 corn futures following the January 2018 USDA Annual Crop Production Summary, WASDE, and Grain Stocks reports.  But since then prices for both of these futures contracts have since fallen below those January 12th levels, effectively negating any “old crop” and “new crop” corn futures price gains that had occurred.        

In Western Kansas on Friday, June 22nd cash corn bids at major grain elevators ranged from $3.17 ($0.40 per bushel under JULY 2018 futures) to $3.52 ($0.05 under), and ranged from $3.22 ¼ ($0.35 under) to $3.40 ¼ ($0.17 under) in Central Kansas.  These prices are still higher than when corn bids statewide had fallen to $2.66-$2.96 /bu on December 23, 2016, and above marketing loan rates near $2.05 in Central Kansas and $2.19 per bushel in Western Kansas

Cash corn price bids in East Central and Northeast Kansas at major terminal locations were $3.52 – $3.57 /bu on June 22nd, with basis bids being $0.05 under to even with JULY 2018 corn futures.  These cash corn prices are still up from the range of $3.26-$3.28 per bushel on 12/23/2016.  Cash corn bids at Kansas ethanol plants on June 22nd ranged from $3.52 /bu ($0.05 under JULY) to $3.87 ($0.30 over JULY) – continuing to indicate strength in ethanol demand for corn in Kansas and nationwide.

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2. Overview of U.S. Corn Supply-Demand Prospects in Late-June 2018

The outlook and prospects for U.S. corn market prices through Summer-Fall 2018 of this year has declined from the end of May through June 22nd.   The outlook for U.S. corn prices is a “mixed bag” of factors that will likely have a combination of negative, positive, and as yet unknown impacts on corn prices in the “new crop” 2018/19 marketing year beginning on September 1, 2018.  The corn market is weighing the following factors in assessing current and future supply-demand and price prospects (Table 1).

First, U.S. corn planted acres are projected to be 88.026 million acres (ma) in 2018, down 2.141 ma from year 2017, and down 5.978 ma from year 2016 – with similar reductions in harvest acres (Table 1, Figure 4).  This reduction in acres continues to be a positive factor in support of corn price prospects for “new crop” MY 2018/19.  Lower U.S. corn acreage in 2018 has decreased the potential for total 2018 corn production, and provided support for “new crop” 2018/19 marketing year (MY) U.S. corn price prospects.   

Second, working contrary to the decrease in 2018 U.S. corn acres, strong U.S. corn planting progress in May and as of yet limited threats to 2018 U.S. corn yields in the U.S. have decreased risk and moderately increased 2018 U.S. corn production prospects from just a month ago in the view of the corn market – although the USDA has not changed its 2018 production forecast over that time period (Table 1, Figures 5-6).  In its June 12th WASDE report, the USDA projected 2018 U.S. corn yields to be 174.0 bu/ac, and 2018 U.S. corn production to be 14.040 billion bushels (bb) – both unchanged from a month earlier. 

Still, near record 2018 corn yields of 176.0 bu/ac would raise 2018 U.S. corn production to 14.229 bb – still down from both 14.604 bb in 2017 and the record high of 15.148 bb in 2016.  With beginning stocks of 2.102 bb and imports of 50 million bushels (mb), total supplies of U.S. corn in “new crop” MY 2018/19 are forecast to be 16.192 bb, down from record highs of 16.942 bb both of the previous two marketing years, but still the 3rd highest on record (Table 1, Figure 6)

Third, recent historic strength in U.S. total corn usage is expected to continue without interruption into “new crop” MY 2018/19.  Projections are for U.S. corn total use to be 14.615 bb in “new crop” MY 2018/19, down from the record high of 14.840 bb in “old crop” MY 2017/18, and from 14.649 bb in MY 2016/17 (Table 1, Figure 7 & 9)

By category, U.S. ethanol production and corn-ethanol usage continues to grow with support from a strong U.S. economy, associated gasoline demand, and the ongoing ethanol fuel usage requirements of the U.S. Renewable Fuels Standard (Table 1, Figures 8a-b-c).  United States’ corn usage for ethanol production is projected at arecord high 5.675 bb in “new crop” MY 2018/19, up from 5.575 bb a year ago, and 5.432 bb two years ago.  Non-ethanol Food, Seed and Industrial usage is projected to be record high 1.490 bb – up from 1.465 bb and 1.451 bb the previous two (2) marketing years (Table 1, Figure 7).  

Exports of U.S. corn are projected to be 2.100 bb in “new crop” MY 2018/19 – down from the 11-year high (Table 1, Figures 7 & 10) of 2.300 bb in “old crop” MY 2017/18, and 2.293 bb in MY 2016/17 .  During the eight (8) previous years, U.S. corn exports averaged 1.702 bb – ranging from 730 mb to 1.979 bb.  This “new plateau” in the exports for My 2016/17 through projected “new crop” MY 2018/19 illustrates the recent strength of U.S. corn exports and their contribution to U.S. corn usage.  Improved U.S. corn export prospects are expected partly as a result of 2018 corn production problems for export competitors Argentina and Brazil. 

United States’ corn feed and residual use is projected to be 5.350 bb in “new crop” MY 2018/19 as a result of anticipated high levels of overall U.S. livestock production in the remainder of 2018 and 2019, as well as expectations on only moderate strength in U.S. corn prices (Table 1, Figures 7 & 9).  This feed use amount of 5.350 bb in “new crop” MY 2018/19 would be down from the 11-year high of 5.500 bb in “old crop” MY 2017/18, and down from 5.472 bb in MY 2016/17, but up from an average of 4.902 bb the previous 8 marketing years.

Fourth, expectations are that U.S. corn ending stocks in “new crop” MY 2018/19 will decline considerably from a year earlier – down to 1.577 bb, and that percent (%) ending stocks-to-use will drop to 10.79% as a result of moderately tighter total U.S. corn supplies and continued strong total U.S. corn use (Table 1, Figures 11-12).  These figures compare to 2.102 bb ending stocks and 14.16% stocks/use in “old crop” MY 2017/18, and to 2.293 bb ending stocks and 15.65% stocks/use in MY 2016/17. 

Fifth, from late June through Fall 2018 the path of U.S. corn prices will be largely driven by the prospects for the 2018 U.S. corn crop – particularly as crop size information becomes available in the August, September and November USDA National Agricultural Statistics Service (NASS) reports on U.S. Crop Production.   The USDA projects that in “new crop” MY 2018/19 U.S. corn prices will range from $3.40-$4.40 per bushel – with a midpoint forecast of $3.90 per bushel (/bu) (Table 1a).  If U.S. corn prices were to average $3.90 in “new crop” MY 2018/19, it would be the highest price in five (5) years since $4.46 /bu in MY 2013/14 – the year of recovery following the catastrophic U.S. Corn Belt drought of MY 2012/13 when U.S. corn prices averaged a record high $6.89 /bu.  Expected higher U.S. corn prices in “new crop” MY 2018/19 is evidence of the impact of lower 2018 U.S. corn acreage and prospects for strong usage. 

The U.S. corn supply-demand and price scenario presented by the USDA in the June 12, 2018 World Agricultural Supply and Demand Estimates (WASDE) report is given a 50% likelihood of occurring by KSU Extension Agricultural Economist Kansas State University (Table 1a).

Sixth, when considering alternative outcome scenarios from the USDA’s June 12th forecast, IF for whatever reason during July-August 2018 there were a 200-500+ mb reduction in 2018 U.S. corn production prospects down to 13.500-13.900 bb, THEN projected U.S. corn ending stocks in “new crop” MY 2018/10 would likely decline to 1.250-1.400 bb with some price rationing of usage (Table 1a).   In this situation, percent (%) ending stocks-to-use likely fall below 10% stocks/use, with U.S. corn prices moving above $4.00 toward $4.35-$4.50 per bushel.  This point is further discussed in Section 3 that follows, where alternative scenarios and outcomes for U.S. corn supply-demand and prices are presented for “new crop” MY 2018/19.

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3. Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2018/19

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

A – KSU “Higher 2018 U.S. Corn Production” Scenario for “new crop” MY 2018/19: (25% probability): Assumptions are as follows: 88.026 ma planted, 80.846 ma harvested, 176.0 bu/ac record yield (near the 2017 record high), 14.229 bb production, 16.381 bb total supplies, 14.666 bb total use, 1.715 bb ending stocks, 11.69% S/U, & $3.75 /bu U.S. corn average price; 

B – KSU “Lower 2018 U.S. Corn Production” Scenario for “new crop” MY 2018/19: (15% probability): Assumptions are as follows: 88.026 ma planted, 80.846 ma harvested, 165.0 bu/ac yield (near the 2009 low yield), 13.340 bb production, 15.492 bb total supplies, 14.205 bb total use, 1.287 bb ending stocks, 9.06% S/U, & $4.35 /bu U.S. corn average price.

C – KSU “Higher 2018 U.S. Corn Exports” Scenario for “new crop” MY 2018/19: (15% probability): Assumptions are as follows: 88.026 ma planted, 80.846 ma harvested, 174.0 bu/ac yield (equal to USDA forecast yield), 14.040 bb production, 16.192 bb total supplies, 2.250 bb exports (up 250 mb from USDA), 14.865 bb total use, 1.327 bb ending stocks, 8.93% S/U, & $4.65 /bu U.S. corn average price.

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4. World Corn Supply-Demand – Both With & Without China

World Production:  World corn production of 1,052.4 million metric tons (mmt) is projected for “new crop” MY 2018/19, up 1.7% from 1,034.8 mmt in “old crop” MY 2017/18, but down 2.4% from the record high of 1,078.4 mmt in MY 2016/17 (Figures 13-14a, Table 2).  The “new crop” 2018/19 marketing year begins September 1, 2018 and continues through August 31, 2019.  Production in Argentina of 41.0 mmt in 2019 would be a “rebound” from the short crop of 33.0 mmt projected in 2018, and equal again to 41.0 mmt produced in 2017.  Similarly, production in Brazil of 96.0 mmt in 2019 would also be a “rebound” from the short crop of 85.0 mmt projected in 2018, but down from 98.5 mmt in 2017.  The 2018 corn harvests for Argentina and Brazil occur in the later half of “old crop” MY 2017/18, i.e., February through August 2018.

World Total Supplies: World corn total supplies of 1,245.1 mmt in “new crop” MY 2018/19 are forecast to be down moderately from 1,262.7 mmt in “old crop” MY 2017/18, but up from the record high of 1,288.4 mmt in MY 2016/17. 

World Exports: World corn exports of a 158.0 mmt are projected for “new crop” MY 2018/19, up 4.6% from 151.1 mmt in “old crop” MY 2017/18, but down 1% from the record high of 159.7 mmt in MY 2016/17 (Table 3).

World Ending Stocks (% Stocks/Use): Projected World corn ending stocks of 154.7 mmt (14.2% S/U) in “new crop” MY 2018/19 are down 19.7% from 192.7 mmt (18.0% S/U) in “old crop” MY 2017/18, down 32.1% from the record high 227.9 mmt (21.5% S/U) in MY 2016/17, and 210.0 mmt (21.2% S/U) in MY 2015/16 (Figure 13-14a, Tables 8-9).  Projected Foreign (Non-U.S.) corn ending stocks of 114.6 mmt (13.1% S/U) in “new crop” MY 2018/19, is down 16.5% from 139.3 mmt (16.5% S/U) in “old crop” MY 2017/18, and is down from 17.7% from 169.3 mmt (20.0% S/U) in MY 2016/17.  

World-Less-China Ending Stocks (% Stocks/Use): An alternative view of the World corn supply-demand is presented if Chinese corn usage and ending stocks are isolated from the World market (Figures 14b-c, Tables 7-9).  “World-Less-China” corn ending stocks are projected to be 94.19 mmt (11.2% S/U) in “new crop” MY 2018/19, down from 113.1 mmt (13.6% S/U) in “old crop” MY 2017/18, and down from 127.2 mmt (15.4% S/U) in MY 2016/17.  These figures show that World stocks-to-use of corn less China’s direct influence are projected to be 21% lower (i.e., 11.2% S/U for the “World-Less-China” versus 14.2% S/U for the “World” overall in “new crop” MY 2018/19). 

World versus China Ending Stocks: At the same time, these figures also show that Chinese ending stocks of corn as proportion of the World total are declining – down from 52.8% in MY 2015/16, to 44.2% in MY 2016/17, to 41.3% in “old crop” MY 2017/18, and now are projected to be 39.1% in “new crop” MY 2018/19 (Tables 2-9).  The deliberate actions in recent years taken by the Chinese government to reduce feedgrain stockpiles is impacting the relative amount of World total corn stocks they hold.  These actions may eventually increase Chinese import demand for U.S. feedgrains if and when China has a severe short crop situation and limited stockpiles available to meet domestic demand.

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KSU Soybean Market Outlook in Late-May 2018 – A Convergence of Volatility-Factors Upon the Soybean Markets

An analysis of U.S. and World soybean supply-demand factors and 2018 price prospects following the USDA’s May 10th Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports will be available on the KSU AgManager website (http://www.agmanager.info/)

Following an article on “Soybean Market Outlook in Late-May 2018” – with the full article and accompanying analysis to be available on the KSU AgManager website at the following web address:

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

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1. Overview of the Soybean Market Situation in Late-May 2018

Since February 1, 2018 the outlook for U.S. soybean market prices through Summer-Fall of this year has been extremely uncertain.  Prospects for soybean production and trade competition from South America has had both positive and negative impacts on U.S. soybean export market and price prospects. However, the largest source of uncertainty has stemmed from trade disputes between the U.S. and China – which has at different times both diminished and improved U.S. soybean export market prospects.   With soybean planting progressing in the U.S., during July-August 2018 the attention of the soybean market will likely turn toward the development of the 2018 U.S. soybean crop and associated supply and demand prospects.

What can be described as “neutral-to-cautiously optimistic” forecasts for U.S. soybean prices in the “new crop” 2018/19 marketing year that now predominate in the soybean market are based on a combination of market factors.  These include: 1) as yet un-dealt with 2018 U.S. soybean production risk in Summer 2018; 2) expectations of continued strength in U.S. soybean domestic crush and exports in coming months; and 3) the possibility of tighter U.S. soybean supplies in terms of reduced ending stocks and percent ending stocks-to-use if a short crop develops in the U.S. this summer.  Improved U.S. soybean export prospects are expected resulting from 2018 soybean production problems for export competitor Argentina on the one hand, and hopes for a resolution to the China-U.S. trade dispute on the other. 

Even with the relative strength of U.S. soybean prices over the past four (4) months, the path of U.S. soybean prices through Fall 2018 will be largely driven by the development of and prospects for the 2018 U.S. soybean crop.   Kansas State University projections are that if prospects for 2018 U.S. corn production decline markedly below the 4.280 billion bushel (bb) forecast by the USDA – down to say 3.800-4.000 bb or less, then U.S. soybean ending stocks for “new crop” MY 2018/19 would likely fall to 250-300 mb or less (compared to the USDA’s forecast of 415 mb).  If this occurs, then U.S. soybean ending stocks-to-use in “new crop” MY 2018/19 would likely decline to 7.0%-8.0% or less – compared to the current USDA forecast of 9.39% ending stocks-to-use. 

Consequently, if a short crop were to occur in the U.S. in summer 2018, then in Fall 2018 NOV 2018 soybean futures would likely move higher to the range of $11.50-$12.00 /bu. or more.  Projected U.S. average cash prices for “new crop” MY 2018/19 would also likely rise – up to the range of $11.00-$11.50 /bu (midpoint = $11.25).  This compares to the current USDA forecast of $8.75-$11.25 (midpoint = $10.00 /bu) on 9.39% stocks/use for “new crop” MY 2018/19 – beginning September 1, 2018.

2. CME Soybean Futures & Kansas Cash Corn Prices & Basis Bids

Soybean futures have reflected the “disconcerting uncertainty” that these market factors have had on market sentiments.  Chicago Mercantile Exchange (CME) JULY 2018 Soybean futures can be described as “volatile” during the February 1st – March 30th period.  After closing at $10.06 per bushel on February 1st, JULY 2018 Soybean futures moved to a high of $10.90 ¼ on March 2nd; to a low of $9.94 ½ on April 4th; to a high of $10.78 on April 13th; to a low of $9.92 ½ on May 17th; to a high of $10.50 ¾ on May 24th; and finally down to a close of $10.18 ½ on Thursday, May 31st

Since the release of the USDA’s May 10th World Agricultural Supply and Demand (WASDE) report, “old crop JULY 2018 CME Soybean futures prices have traded in a range of $9.98 ½ to $10.35 ¾ per bushel before closing at $10.18 ½ /bu on May 31st (Figure 1).   Over the same time period “new crop NOVEMBER 2018 CME Soybean futures prices have traded in a range of $10.02 to $10.42 ½ /bu before closing at $10.34 ¼ on May 31st.   Prices for the JULY 2018 and NOV 2018 futures contracts are up $0.53 ¼ (up 5.5%) and $0.66 ¾ /bu (up 6.9%) from their lows on January 12th following the January 2018 USDA Annual Crop Production Summary, WASDE, and Grain Stocks reports.         

In Western Kansas on Wednesday, May 30th cash soybean bids at major grain elevators ranged from $8.88 ($1.35 under JULY 2018 futures) to $9.23 ($1.00 under), and ranged from $9.29 ($0.94 under) to $9.43 ($0.80 under) in Central Kansas.  These prices are at least moderately higher than when bids in western and central Kansas had fallen to $8.21-$9.05 ½ ($1.40 to $0.55 /bu under MAR 2018 Soybean futures) on January 12, and greatly above marketing loan rates for soybeans across the state, with loan rates near $5.00 in Central Kansas and $4.80 per bushel in Western Kansas

Cash soybean price bids in East Central and Northeast Kansas at major terminal elevator locations were $9.88 – $9.93 ($0.35 to $0.30 under JULY) on May 30th, up substantially from the range of $9.00 ½ – $9.05 ½ per bushel ($0.60-$0.55 under MAR 2018) on 1/12/2018.  Cash soybean bids at Kansas soybean processing plants in Emporia and Wichita on May 30th ranged from $9.86 ($0.37 under JULY) to $9.93 ($0.30 under).

3. South American Export Competition in “Old Crop” MY 2017/18

Soybean market signals from South American export competitors Argentina, Brazil and Paraguay have been “mixed” so far in year 2018 (Figure 14).  Serious drought has caused Argentina soybean production to decline by 32.5% from a USDA estimate of 57.8 million metric tons (mmt) in 2017 down to 39.0 mmt in 2018, and cut projected Argentine soybean exports by 40.3% to 4.2 mmt in the “old crop” 2017/18 marketing year (MY) ending August 31st (Tables 2 & 3).   Argentina soybean meal exports are projected to be 7.4% lower (29.0 mmt) in MY 2017/18, down from 31.3 mmt in MY 2016/17.

However, Brazilian soybean production is projected to be higher – offsetting Argentina’s declines to a degree.  Brazil is projected by the USDA to produce a record high 117.0 mmt of soybeans in year 2018, up 2.5% from the previous record of 114.5 mmt in year 2017.  Brazilian soybean exports are forecast to be 73.3 mmt in MY 2017/18 (ending August 31st), up 16.1% from 63.1 mmt in MY 2016/17 (Tables 2 & 3).  Brazil soybean meal exports are projected to be 13.3% higher (15.6 mmt) in MY 2017/18, up from 13.8 mmt in MY 2016/17.  

Paraguay soybean production is projected to be down marginally – providing a neutral influence to the market.  Paraguay is projected by the USDA to produce 10.2 mmt of soybeans in year 2018, up marginally from 10.0 mmt in year 2017.  Paraguay soybean exports are forecast to be 6.25 mmt in MY 2017/18 (ending August 31st), up 2.0% from 6.13 mmt in MY 2016/17 (Tables 2 & 3). 

These three South American countries are the main competition in global soybean export markets for the United StatesArgentina, Brazil and Paraguay are forecast to comprise 55.4% (83.75 mmt) of forecast World soybean exports (151.3 mmt) in the “old crop” 2017/18 marketing year (MY). The U.S. is projected to make up 37.2% (56.2 mmt) of World soybean exports for MY 2017/18, with other countries making up the remaining 7.4% (11.3 mmt) (Table 3). 

The trade dispute between the U.S. and China has “pushed” Chinese soybean export purchases toward Brazil and away from the U.S. at least temporarily until the matter is either settled OR exportable South American supplies are no longer available in fall 2018.  There has been both negative and positive news coming from these negotiations to date, with final agreements or lack there of still to come.

4. U.S. Soybean Supply-Demand Projections for “Old Crop” MY 2017/18

In the May 10th USDA WASDE report the USDA projected “old crop” MY 2017/18 soybean Total Supplies to be unchanged from earlier WASDE reports at 4.718 billion bushels (bb) (Table 1 and Figure 6). 

Continued strength in U.S. soybean crush resulting from demand for soybean meal for domestic and foreign livestock feeding has supported domestic U.S. soybean demand (Table 1, Figures 7 & 9ab).  Projected exports of U.S. soybean meal of 12.700 million short tons (mst) in “old crop” MY 2017/18 ending on September 30th are up from 11.601 mst last year – trailing only 13.107 mst in MY 2014/15.  Strong U.S. soybean meal exports in “old crop” MY 2017/18 are a direct result of shortfalls in Argentina soybean production and soybean meal exports due to drought conditions in early 2018.    

The USDA’s World Agricultural Supply and Demand Estimates (WASDE) report monthly projections of U.S. soybeans exports for “old crop” MY 2017/18 have declined by nearly 100 mb since January 2018 – down to a projection of 2.065 bb (Table 1, Figures 7 & 9ab).  This forecast of 2.065 bb for the current marketing year ending on August 31st is still the 2nd highest on record, but down from the record high of 2.174 bb a year earlier.  This moderate reduction in U.S. soybean export prospects in recent months is due to a combination of larger Brazilian soybean production, and trade tensions between the U.S. and China pushing business to Brazil. 

Through May 17th – the 37th week of “old crop” MY 2017/18 – 1.670 bb of U.S. soybeans had been shipped from U.S. ports for exports (Figure 8).  This amounts to 80.9% of the USDA’s projection of 2.065 bb in U.S. exports with 71.2% of the marketing year complete (i.e., 37/52 weeks).  However, total shipments and forward sales of U.S. soybeans in “old crop” MY 2017/18 through May 17th amounted to 2.028 bb, or 98.2% of the USDA’s projection with 71.2% of MY 2017/18 complete – indicating a positive outlook for “old crop” U.S. soybean exports for the remainder of the marketing year through August 31st.

Seed usage of U.S. soybeans is projected to be 103 million bushels (mb) in “old crop” MY 2017/18, with Residual use forecast at 32 mb – both down marginally from MY 2016/17.  Total Use was projected to be a record high of 4.188 bb in “old crop” MY 2017/18 – down moderately from the past record of 4.213 bb in MY 2016/17 (Table 1, Figures 7 & 9ab).

As a result of these supply and use projections for “old crop” MY 2017/18, ending stocks are projected to be the 2nd highest on record at 530 mb with percent ending stocks-to-use of 12.66% – both up from 415 mb (7.17% S/U) in MY 2016/17 (Table 1, Figures 9ab & 10-11).  The record high U.S. soybean ending stocks amount occurred in MY 2006/07, with 574 mb ending stocks and 18.62% ending stocks-to-use. 

United States’ soybean prices for “old crop” MY 2017/18 are projected to average $9.35 /bu – down from $9.47 in MY 2016/17, and comparable to $8.95 /bu in MY 2015/16 (Table 1, Figures 10-11).  

5. U.S. Soybean Supply-Demand Projections for “New Crop” MY 2018/19

The USDA provided a forecast of U.S. soybean supply, demand, and prices for “new crop” MY 2018/19 In the May 10th USDA WASDE report.  Based on 2018 U.S. soybean production projections 88.982 million acres (ma) planted, 88.247 ma harvested, and 2018 U.S. soybean average yields of 48.5 bu/ac., the USDA forecast 2018 U.S. soybean production to be 4.280 bb.  This 2018 forecast of 4.280 bb would be down from the record high of 4.392 bb in 2017, and the 2nd highest amount of 4.296 bb in 2016 (Tables 1a-b, Figures 4-5-6). 

Total Supplies of U.S. soybeans in “new crop” MY 2018/19 are forecast to be a record high 4.835 bb based on 530 mb in beginning stocks, 4.280 bb in production, and 25 mb in imports.  This amount is up from the previous record highs of 4.718 bb and 4.515 bb in U.S. soybean Total Supplies in “old crop” MY 2017/18 and MY 2016/17, respectively (Tables 1a-b, Figure 6). 

Soybean crush in “new crop” MY 2018/19 is forecast to be a new record high of 1.995 bb – to be driven by expected ongoing domestic usage for livestock feed as well as moderately lower soybean meal exports (Table 1a-b, Figures 7 & 9ab).  This would be up 5 mb in U.S. soybean crush from “old crop” MY 2017/18.  

Exports of U.S. soybeans in “new crop” MY 2018/19 are forecast to increase 225 mb to 2.290 bb – likely on short supplies on the part of export competitor Argentina in early 2019 (Figures 7-9).  As of May 17th, a total of 204.2 mb of U.S. soybean sales have been made for delivery in “new crop” MY 2018/19 – beginning on September 1, 2018 – equal to 8.9% of the USDA projection of 2.290 bb for the marketing year.

Seed usage of U.S. soybeans is projected to be 103 million bushels (mb) in “new crop” MY 2018/19, with Residual use forecast at 30 mb – both essentially unchanged from “old crop” MY 2017/18 (Table 1a-b, Figures 9ab). 

Total Use is projected to be a record high of 4.420 bb – up from the previous record highs of 4.188-4.213 bb the last two years (Table 1a-b, Figure 9b). 

As a result of these supply and use projections for “new crop” MY 2018/19, ending stocks are projected to be 415 mb with percent ending stocks-to-use of 9.39% – both down from 530 mb (12.66% S/U) in “old crop” MY 2017/18 (Tables 1a-b, Figures 9ab & 10-11).  United States’ soybean prices for “new crop” MY 2018/19 are projected in the range of $8.75-$11.25 (midpoint = $10.00 /bu) – up $0.65 /bu from the midpoint projection of $9.35 /bu in “old crop” MY 2017/18.   This scenario is given a 50% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.

6. Alternative KSU Soybean Forecast Scenarios for “New Crop” MY 2018/19

Three alternative KSU-Scenarios to the USDA’s forecast for U.S. soybean supply-demand and prices are presented for “new crop” MY 2018/19 (Table 1b, Figure 10).  These projections show how varying 2018 U.S. soybean production and use scenarios could affect U.S. soybean supply-demand and price outcomes in “new crop” MY 2018/19.  Probability-weights are added to reflect judgements about how likely each scenario is to occur in “new crop” MY 2018/19, i.e., during the September 1, 2018 through August 31, 2019 time period.

A – KSU “Lower 2018 U.S. Soybean Exports” Scenario for “new crop” MY 2018/19: (15% probability): Assumptions: 88.982 ma planted, 88.053 ma harvested, 48.5 bu/ac yield, 4.271 bb production, 4.826 bb total supplies, 1.995 bb domestic crush, 2.065 bb exports (equal to MY 2017/18 and less than USDA’s forecast), 4.197 bb total use, 629 mb ending stocks, 14.99% S/U, & $8.50 /bu U.S. soybean average price; 

B – KSU “Large 2018 U.S. Soybean Production” Scenario for “new crop” MY 2018/19: (15% probability): Assumptions: 88.982 ma planted, 88.053 ma harvested, 52.0 bu/ac yield (equal to record high in year 2016), 4.579 bb production, 5.134 bb total supplies, 2.000 bb domestic crush, 2.300 bb exports, 4.435 bb total use, 699 mb ending stocks, 15.76% S/U, & $8.25 /bu U.S. soybean average price; 

C – KSU “Small 2018 U.S. Soybean Production” Scenario for “new crop” MY 2018/19: (20% probability): Assumptions are: 88.982 ma planted, 88.053 ma harvested, 42.0 bu/ac yield (near recent lows of 40-44 bu /ac in years 2011-2013), 3.698 bb production, 4.253 bb total supplies, 1.950 bb domestic crush, 2.000 bb exports, 4.085 bb total use, 168 mb ending stocks, 4.11% S/U, & $12.50 /bu U.S. soybean average price;

7. World Soybean Supply-Demand Prospects

World soybean production of a record high 354.5 million metric tons (mmt) is projected for “new crop” MY 2018/19, up 5.3% from 336.7 mmt in “old crop” MY 2017/18, and up 1.2% from the current record high of 350.3 mmt in MY 2016/17 (Figure 13, Table 2).  The “new crop” 2018/19 marketing year begins September 1, 2018 and continues through August 31, 2019.   World soybean total supplies of 446.7 mmt in “new crop” MY 2018/19 are forecast to be up 3.1% from 433.1 mmt in “old crop” MY 2017/18, and up 4.2% from 428.7 mmt in MY 2016/17. 

World soybean exports of a 161.8 mmt are projected for “new crop” MY 2018/19, up 7.0% from 151.3 mmt in “old crop” MY 2017/18, and up 9.7% from 147.5 mmt in MY 2016/17 (Table 3).  China would be the key World soybean importer in the coming marketing year, and show little sign of abating yet in their annual soybean import increases (Table 4, Figure 15).

Projected World soybean ending stocks of 86.7 mmt (24.2% S/U) in “new crop” MY 2018/19 are down 5.9% from 92.2 mmt (26.9% S/U) in “old crop” MY 2017/18, 11.1% from the record high 96.4 mmt (29.3% S/U) in MY 2016/17, and 78.4 mmt (25.0% S/U) in MY 2015/16 (Figures 13 & 16, Tables 8-9).  

Projected Foreign (Non-U.S.) soybean ending stocks of 75.4 mmt (18.9% S/U) in “new crop” MY 2018/19, is down 3.0% from 77.7 mmt (20.5% S/U) in “old crop” MY 2017/18, and is down from 88.2 mmt (24.4% S/U) in MY 2016/17 (Tables 8-9).  

KSU Corn Market Outlook in Late-May 2018: A Less Overwhelming Supply-Demand Situation in the Corn Market

An analysis of U.S. and World Corn supply-demand factors and “New Crop” 2018/19 Marketing Year supply-demand and price prospects is provided in the following article summary.  This information follows the USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports on May 10, 2018.

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

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

Following is the article with supporting Tables and Charts for “Corn Market Outlook in Late-May 2018″

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

Overview of the Corn Market Situation in Late-May 2018

Since early February 2018 the outlook for U.S. corn market prices through Summer-Fall of this year has improved significantly.  Increasingly optimistic forecasts for U.S. corn prices in the “new crop” 2018/19 marketing year are based on a combination of 1) expected reductions in 2018 U.S. corn planted acres and production, 2) forecasts of continued strength in U.S. corn usage, and 3) prospects for tighter supplies in terms of reduced ending stocks and percent ending stocks-to-use.  Improved U.S. corn export prospects are expected as a result of 2018 corn production problems for export competitors Argentina and Brazil.  Strong U.S. ethanol demand is also expected to continue due to growing U.S. gasoline demand in a robust economy.

Even with the strength of U.S. corn prices over the past four (4) months, the path of U.S. corn prices through Fall 2018 will be largely driven by the development of and prospects for the 2018 U.S. corn crop.   Kansas State University projections are that if prospects for 2018 U.S. corn production decline markedly below the 14.040 billion bushel (bb) forecast by the USDA – down to say 13.50-13.75 bb or less, then U.S. corn ending stocks would likely fall to 1.450-1.575 bb or less (compared to the USDA’s forecast of 1.682 bb).  If this occurs, then U.S. corn ending stocks-to-use in “new crop” MY 2018/19 would likely decline to 10% or less – compared to the current USDA forecast of 11.53% ending stocks-to-use. 

If these circumstances were to occur, then in Fall 2018 DEC 2018 corn futures would likely move higher to the range of $4.50-$5.00 /bu. or more.  Projected U.S. average cash prices for “new crop” MY 2018/19 would also likely rise – up to the range of $4.00-$4.50 /bu (midpoint = $4.25).  This compares to the current USDA forecast of $3.30-$4.30 (midpoint = $3.80 /bu) on 11.53% stocks/use for “new crop” MY 2018/19 – beginning September 1, 2018.

CME Corn Futures & Kansas Cash Corn Prices & Basis Bids

Since the release of the USDA’s May 10th World Agricultural Supply and Demand (WASDE) report, “old crop JULY 2018 CME corn futures prices have traded in a range of $3.94 ¼ to $4.09 per bushel before closing at $4.08 ½ /bu on May 23rd (Figure 1).   Over the same time period “new crop DECEMBER 2018 CME corn futures prices have traded in a range of $4.12 ¼ to $4.26 ¾ /bu before closing at $4.26 ½ on May 23rd.   Prices for both of these contracts are up $0.45 ¾ /bu or 12.8% from their lows on January 12th following the January 2018 USDA Annual Crop Production Summary, WASDE, and Grain Stocks reports, and the USDA Prospective Plantings and Grain Stocks reports on March 29th.        

In Western Kansas on Wednesday, May 23rd cash corn bids at major grain elevators ranged from $3.54 ($0.55 under JULY 2018 futures) to $3.98 ($0.11 under), and ranged from $3.68 ½ ($0.40 under) to $3.913 ½ ($0.17 under) in Central Kansas.  These prices are much higher than when bids statewide had fallen to $2.66-$2.96 on December 23, 2016, and above marketing loan rates for corn across the state, with corn loans near $2.05 in Central Kansas and $2.19 per bushel in Western Kansas

Cash corn price bids in East Central and Northeast Kansas at major terminal locations were $3.98 ½ – $4.03 ½ on May 23rd, up substantially from the range of $3.26-$3.28 per bushel on 12/23/2016.  Cash corn bids at Kansas ethanol plants on May 23rd ranged from $3.91 ¾ ($0.13 under JULY) to $4.39 ¾ ($0.35 over JULY) – continuing to indicate strength in ethanol demand for corn in Kansas and nationwide.

USDA U.S. Corn Supply-Demand Projections for “Old Crop” MY 2017/18

In the May 10th USDA WASDE report the USDA projected “old crop” MY 2017/18 corn Total Supplies to be unchanged from earlier WASDE reports at 16.947 bb (Table 1 and Figure 6).  Total Use was projected to be the highest on record at 14.765 bb – up from the past record of 14.649 bb a year earlier (Table 1, Figures 7 & 9).  

Continued strength in U.S. gasoline demand resulting from a healthy U.S. economy has supported U.S. ethanol demand – and spurred corn use in ethanol production (Figure 8a).  In spite of a build-up in U.S. ethanol stocks and a moderation in ethanol prices, production has remained at or near record high levels (Figure 8b).  Exports of U.S. ethanol increased sharply in March 2018 to 14.3% of U.S. ethanol production – up from that previous high of 13.2% in December 2011 (Figure 8c).  Most U.S. ethanol exports in 2017 went to Brazil and Canada, and this trend continues in 2018.  

Exports of U.S. corn have increased in volume since early 2018 as the damage to corn crops in export competitors Argentina and Brazil has emerged (Figure 10).  Through May 17th – the 37th week of “old crop” MY 2017/18 – 1.404 bb of U.S. corn had been shipped.  This amounts to 63.1% of the USDA’s projection of 2.225 bb in U.S. exports with 71.2% of the marketing year complete (i.e., 37/52 weeks).  However, total shipments and forward sales of U.S. corn in “old crop” MY 2017/18 through May 17th amounted to 2.105 bb, or 94.6% of the USDA’s projection with 71.2% of MY 2017/18 complete – indicating a positive outlook for “old crop” U.S. corn exports for the remainder of the marketing year through August 31st.

Non-ethanol Food, Seed, and Industrial (FSI) usage has continued to grow to a record high 1.465 bb in “old crop” MY 2017/18.  Feed and Residual use of U.S. corn in “old crop” MY 2017/18 increased to a 10 year high of 5.500 bb – following strong feed demand from year-over-year increases from year 2017 to 2018 in U.S. total red meat and poultry production (Figures 7 & 9).  Production and use of Distillers Dried Grains and Solubles (DDGS) have been robust, with DDGS use for livestock feed and exports remaining strong (Figure 9).

As a result of these supply and use projections for “old crop” MY 2017/18, ending stocks are projected to be 2.182 bb with percent ending stocks-to-use of 14.78% – down from 2.293 bb (15.65% S/U) in MY 2016/17 (Table 1, Figures 11-12).  United States’ corn prices for “old crop” MY 2017/18 are projected in the range of $3.25-$3.55 (midpoint = $3.40 /bu).   

USDA Supply-Demand Projections for “New Crop” MY 2018/19

The USDA provided a forecast of U.S. corn supply, demand, and prices for “new crop” MY 2018/19 In the May 10th USDA WASDE report.  Based on 2018 U.S. corn production projections 88.026 million acres (ma) planted, 80.690 ma harvested, and 2018 U.S. corn average yields of 174.0 bu/ac., the USDA forecast 2018 U.S. corn production to be 14.040 bb – down from 14.604 bb in 2017 (2nd highest on record), and the record high of 15.148 bb in 2018 (Tables 1a-b, Figures 4-5). 

Total Supplies of U.S. corn in “new crop” MY 2018/19 are forecast to be 16.272 bb based on 2.182 bb in beginning stocks, 14.040 bb in production, and 50 mb in imports.  This is down from record highs of 16.942-16.947 bb in U.S. corn Total Supplies the last two marketing years (Tables 1a-b, Figure 6). 

Corn-based ethanol production in the U.S. in “new crop” MY 2018/19 is forecast to be a new record high of 5.625 bb – to be driven by expected ongoing growth in U.S. gasoline demand (Table 1a-b, Figures 7-9).  This would be up 50 mb in U.S. corn use for ethanol than in “old crop” MY 2017/18.   

Exports of U.S. corn in “new crop” MY 2018/19 are forecast to decline 125 mb to 2.100 bb – likely on a return to normal corn production on the part of export competitors Argentina and Brazil in 2019 (Figures 7-9).  As of May 17th, a total of 98.6 mb of U.S. corn sales have been made for delivery in “new crop” MY 2018/19 – beginning on September 1, 2018 – equal to 4.7% of the USDA projection of 2.100 bb for the marketing year.

Non-ethanol Food, Seed, and Industrial (FSI) usage is forecast to be up 35 mb to a record high 1.490 bb in “new crop” MY 2018/19.  Feed and Residual use of U.S. corn in “new crop” MY 2018/19 is forecast to be 5.375 bb – down from the 10 year high of 5.500 bb in “old crop” MY 2017/19 – following the impact of higher corn prices on livestock feed usage (Figures 7 and 9).  The USDA made a partially offsetting increase in its projections of increased wheat feeding (up 50 mb) to offset this reduction.  Increased availability of Distillers Dried Grains and Solubles (DDGS) from increased ethanol production will also help offset this forecast direct reduction in corn use for livestock feeding (Figure 9).

Total Use is projected to be the 3rd highest on record at 14.590 bb – down from the record highs of 14.649-14.765 bb the last two years (Table 1 and Figures 7 & 9). 

As a result of these supply and use projections for “new crop” MY 2018/19, ending stocks are projected to be 1.682 bb with percent ending stocks-to-use of 11.53% – down from 2.182 bb (14.78% S/U) in “old crop” MY 2017/18 (Tables 1a-b and Figures 11-12).  United States’ corn prices for “new crop” MY 2018/19 are projected in the range of $3.30-$4.30 (midpoint = $3.80 /bu) – up $0.40 /bu from the midpoint projection of $3.40 /bu in “old crop” MY 2017/18.   This scenario is given a 45% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.

Alternative KSU Supply-Demand & Price Forecast for “New Crop” MY 2018/19

Three alternative KSU-Scenarios to the USDA’s forecast for U.S. corn supply-demand and prices are presented in what follows for “new crop” MY 2018/19 (Table 1b).  These projections show how varying 2018 U.S. corn production and use scenarios could affect U.S. corn supply-demand and price outcomes in “new crop” MY 2018/19.  Probability-weights are added to reflect judgements about how likely each scenario is to occur in “new crop” MY 2018/19, i.e., during the September 1, 2018 through August 31, 2019 time period.

A – KSU “Higher 2018 U.S. Corn Production” Scenario for “new crop” MY 2018/19: (25% probability): Assumptions are as follows: 88.026 ma planted, 80.690 ma harvested, 176.6 bu/ac record yield (equal to 2017 record high), 14.277 bb production, 16.509 bb total supplies, 14.645 bb total use, 1.845 bb ending stocks, 12.73% S/U, & $3.60 /bu U.S. corn average price; 

B – KSU “Lower 2018 U.S. Corn Production” Scenario for “new crop” MY 2018/19: (15% probability): Assumptions are as follows: 88.026 ma planted, 80.846 ma harvested, 164.4 bu/ac yield (equal to 2009 yield), 13.291 bb production, 15.523 bb total supplies, 14.204 bb total use, 1.319 bb ending stocks, 9.23% S/U, & $4.50 /bu U.S. corn average price.

C – KSU “Higher 2018 U.S. Corn Exports” Scenario for “new crop” MY 2018/19: (15% probability): Assumptions are as follows: 88.026 ma planted, 80.846 ma harvested, 174.0 bu/ac yield (equal to USDA forecast yield), 14.040 bb production, 16.272 bb total supplies, 2.400 bb exports (up 300 mb from USDA), 14.590 bb total use, 1.208 bb ending stocks, 8.44% S/U, & $5.25 /bu U.S. corn average price.

World Corn Supply-Demand – With & Without China

World corn production of 1,056.1 million metric tons (mmt) is projected for “new crop” MY 2018/19, up 1.9% from 1,036.7 mmt in “old crop” MY 2017/18, but down 2.1% from the record high of 1,078.3 mmt in MY 2016/17 (Figures 13-14a, Table 2).  The “new crop” 2018/19 marketing year begins September 1, 2018 and continues through August 31, 2019.  Production in Argentina of 41.0 mmt in 2019 would be a “rebound” from the short crop of 33.0 mmt projected in 2018.  Similarly, production in Brazil of 96.0 mmt in 2019 would also be a “rebound” from the short crop of 87.0 mmt projected in 2018.  The 2018 corn harvests for Argentina and Brazil occur in the later half of “old crop” MY 2017/18, i.e., February through August 2018.

World corn total supplies of 1,250.9 mmt in “new crop” MY 2018/19 are forecast to be down moderately from 1,264.2 mmt in “old crop” MY 2017/18, but up from the record high of 1,288.3 mmt in MY 2016/17. 

World corn exports of a 158.0 mmt are projected for “new crop” MY 2018/19, up 4.6% from 151.1 mmt in “old crop” MY 2017/18, but down 1% from the record high of 159.7 mmt in MY 2016/17 (Table 3).

Projected World corn ending stocks of 159.2 mmt (14.6% S/U) in “new crop” MY 2018/19 are down 18.3% from 194.85 mmt (18.2% S/U) in “old crop” MY 2017/18, 30.1% from the record high 227.5 mmt (21.4% S/U) in MY 2016/17, and 210.0 mmt (21.2% S/U) in MY 2015/16  (Figure 13-14a, Tables 8-9).  Projected Foreign (Non-U.S.) corn ending stocks of 116.4 mmt (13.2% S/U) in “new crop” MY 2018/19, is down 16.5% from 139.4 mmt (16.5% S/U) in “old crop” MY 2017/18, and is down from 169.3 mmt (20.0% S/U) in MY 2016/17.  

An alternative view of the World corn supply-demand is presented if Chinese corn usage and ending stocks are isolated from the World market (Figures 14b-c, Tables 7-9).  “World-Less-China” corn ending stocks are projected to be 98.65 mmt (11.7% S/U) in “new crop” MY 2018/19, down from 115.3 mmt (13.9% S/U) in “old crop” MY 2017/18, and down from 126.8 mmt (15.3% S/U) in MY 2016/17.  These figures show that World stocks-to-use of corn less China’s direct influence are projected to be approximately 20% lower (i.e., 11.7% S/U for the “World-Less-China” versus 14.6% S/U for the “World” overall in “new crop” MY 2018/19). 

At the same time, these figures also show that Chinese ending stocks of corn as proportion of the World total are declining – down from 51.5% in MY 2015/16, to 44.3% in MY 2016/17, to 40.8% in “old crop” MY 2017/18, and now projected to be 38.0% in “new crop” MY 2018/19 (Tables 2-9).  The deliberate actions in recent years – taken by the Chinese government to reduce feedgrain stockpiles  is impacting the relative amount of World total corn stocks they hold.  These actions may eventually increase Chinese import demand for U.S. feedgrains if and when China has a severe short crop situation that they are not able to anticipate ahead of time.

KSU Weekly Grain Market Analysis: “Kicking off” 2018 Grain Trends with the May 10th USDA 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, May 11th are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_05-11-18.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, May 11th on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the May 11th 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…

Key USDA WASDE & Crop Production Results in May 2018

Daniel O’Brien, Extension Agricultural Economist, Kansas State UniversityMay 11, 2018

The May 10th USDA Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports presented some positive news for corn and actually even grain sorghum markets, a question on harvested acreage in U.S. HRW wheat markets, and an optimistic view of soybean markets for “new crop” MY 2018/19.

A. Corn

A projection of 14.040 billion bushels (bb) corn production in the U.S. in 2018 with ending stocks of 1.682 bb (11.53 % Stocks/Use) are positive signs for market direction in the coming year. Ending stocks would be down sharply from 2.182 bb (14.8% Stks/Use) in “old crop” MY 2017/18 (ending August 31st). U.S. corn prices are forecast to be up from a range of $3.25-$3.55 ($3.40 midpoint) in “old crop” MY 2017/18 to $3.30-$4.30 $3.80 midpoint) per bushel in “new crop” MY 2018/19.

The largest surprise for feedgrains was the World corn projection of 159.2 mmt ending stocks (14.6% stocks/use) for “new crop” MY 2018/19, down from 194.9 mmt (18.2% stocks/use) in “old crop” MY 2017/18, and from 227.5 mmt (21.5% stocks/use) in MY 2016/17. So, the U.S. and World corn markets are forecast to “tighten up” appreciably, providing support for U.S. and World corn market prices.

Therefore, IF any shortfall occurs in 2018 U.S. corn production (i.e., something less than 174.0 bu/ac with production closer to 13.5 bb), then U.S. corn markets have the potential to move sharply higher in Summer 2018.

B. Grain Sorghum

The USDA left unchanged its forecast for U.S. grain sorghum supply-demand and prices for “old crop” MY 2017/18 which was surprising given the trade issues with China that are occurring.  However, for “new crop” MY 2018/19, the USDA did lower its projections of 2018 Sorghum production (343 mb – down 21 mb), and exports (165 mb – down 80 mb), but raised Food, Seed and Industrial Use (100 mb – up 55 mb), while leaving Feed and Residual Use unchanged (80 mb).

Grain sorghum ending stocks-to-use of 7.8% were unchanged, while prices were projected to be in the range of $3.10-$4.10 (midpoint = $3.60 per bushel) – up $0.40 from $3.20 midpoint in “old crop” 2017/18. So, even with the negative impact of the Chinese-U.S. trade dispute on U.S. grain sorghum exports, prospects for Sorghum prices are improved in the coming marketing year.

C. Wheat

The USDA projected Kansas hard red winter (HRW) harvested area of 7.3 million acres, up 724,324 acres from the implicit estimate of the 2018 Kansas Wheat Tour completed a week ago (i.e., 6,575,676 acres harvested in Kansas). So, the question of the percent harvested acreage for the Kansas wheat crop in 2018 remains to be answered. Using USDA and Kansas Wheat Tour projections of 37.0 bu/ac yields for Kansas, this difference in harvested acres amounts to about 27 million bushels, which would lower the 2018 U.S. wheat production forecast to near 1.790 bb.

The U.S. wheat supply-demand balance sheet may be in for other adjustments in the upcoming June 12th WASDE report, as U.S. wheat exports may fall as much as 25-45 mb short of the USDA forecast of 910 mb in “old crop” MY 2017/18 – leading to larger “old crop” ending stocks and “new crop” beginning stocks, and keeping U.S. wheat ending stocks in “new crop” MY 2018/19 at at least 950 mb, with ending stocks-to-use above 45%.

World wheat ending stocks are still projected to be historically large, although weather concerns may negatively impact Black Sea region, Australia, and elsewhere in the World.

D. Soybeans

A projection of 4.280 billion bushels (bb) soybean production in the U.S. in 2018 with ending stocks of 415 mb (9.4% Stocks/Use) are positive signs for market direction in the coming year. This ending stocks number is forecast to be down from 530 mb (12.7% Stks/Use) in “old crop” MY 2017/18 (ending August 31st).  U.S. soybean prices are forecast to be up from $9.35 in “old crop” MY 2017/18 to $8.75-$11.25 ($10.00 midpoint) per bushel in “new crop” MY 2018/19.

A point to consider is that the USDA has projected U.S. soybean exports to be 2.290 bb in “new crop” MY 2018/19, up sharply from 2.065 bb in “old crop” MY 2017/18. This seems like a questionable forecast given the odds of a large soybean crop in South American in 2019 and improved competitive export prospects. So, the U.S. soybean ending stocks forecast for “new crop” MY 2018/19 seems low, which if ultimately raised later could result in a lower U.S. price than the $10.00 projected by the USDA.

World soybean projection of 86.7 mmt ending stocks (24.2% stocks/use) for “new crop” MY 2018/19 is down from 92.2 mmt (26.9% stocks/use) in “old crop” MY 2017/18, and from 96.4 mmt (29.3% stocks/use) in MY 2016/17. So, just as for corn, the U.S. and World soybean markets are forecast to “tighten up” appreciably by the USDA.

And, IF any shortfall occurs in 2018 U.S. soybean production (i.e., something less than 48.5 bu/ac with 2018 production closer to 3.8-4.0 bb), then U.S. soybean markets have the potential to also move sharply higher (just as for the feedgrains).

 

KSU Weekly Grain Market Analysis: Reviewing the Kansas Wheat Tour

Grain market summary notes, charts and comments supporting the Grain Market Update presented in the KSU Agriculture Today radio program to be played on Friday, May 4, 2018 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

http://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_05-04-18.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, May 4, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the May 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…

KSU Weekly Grain Market Analysis: Cash Grain Basis narrows for Wheat-Corn, wider for Sorghum in KS, but positive for Soybeans in eastern KS)

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, April 27, 2018 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_04-27-18.pdf

The recorded radio program was aired at 10:03 a.m. central time, Friday, April 27, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – online program link available. A copy of the April 27th recording is available at the KSU Agriculture Today website.

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