KSU Weekly Grain Market Analysis: “Grinding” Thru February in the U.S. on the way to Spring Planting

Grain market summary notes, charts and comments ahead of the KSU Agriculture Today Grain Outlook to played on Friday, February 17, 2017 are available on the Kansas State University www.AgManager.info website at the following web address:

https://www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_02-17-17.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, February 17 on the K-State Radio Network (here) – with the program available to listen to online.  After the program airs, a recording can also be listened to from the KSU AgManager.info website via a link  in the “Radio Interviews” section: http://www.agmanager.info/news/default.asp

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Grain Market Update (5th of 5 parts) – Graphics of U.S. Soybean Market Outlook

In the following charts is the fifth of five (5) blog posts illustrating parts of the “Grain Market Outlook for 2017” presentation given by Kansas State University Extension Agricultural Economist Daniel O’Brien.  The complete presentation will be available on the www.AgManager.info website provided by the Department of Agricultural Economics at Kansas State University .

This fifth of five (5) related blog posts provides information on Soybean Market Situation and Outlook.

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Grain Market Update (2nd of 5 parts) – Graphics of U.S. Corn Market Outlook

In the following charts is the second of five (5) blog posts illustrating parts of the “Grain Market Outlook for 2017” presentation given by Kansas State University Extension Agricultural Economist Daniel O’Brien.  The complete presentation will be available on the www.AgManager.info website provided by the Department of Agricultural Economics at Kansas State University .

This second of five (5) related blog posts provides information on Corn Market Situation and Outlook.

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Corn Market Analysis for the 2017 Kansas Corn Schools in Wichita (Jan. 9th), Oakley (Jan. 11th) and Olathe (Jan. 13th)

Following is a summary of corn market analysis and outlook information from Kansas State University to be presented at a series of Kansas Corn Schools in January 2017.  Locations are Wichita (South Central KS) on Monday, January 9th, Oakley (Northwest KS) on Wednesday, January 11th, and Olathe (East Central KS) on Friday, January 13th.  More information on how to register for these meetings please visist the following web location:

http://kscorn.com/2016/11/cornschool/

Corn Market Risk Management in 2017

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

A. U.S. and World Corn Supply-Demand & Price Situation.

After producing the four largest U.S. corn crops on record over the 2013-2016 period following the drought of 2012, U.S. corn ending stocks of 2.403 billion bushels in the “new crop” 2016/17 marketing year have risen to a 29-year high, while percent ending stocks-to-use of 16.56 percent have risen to an 11-year high. In this “large supply – low price,” “buyer’s market,” the USDA has projected U.S. average corn prices in market year 2016/17 in the $3.05 to $3.65 range — down for four consecutive years from a record high of $6.89 per bushel in drought-stricken market year 2012/13 to the lowest level since $3.04 per bushel in market year 2006/07. Foreign coarse grain supplies and ending stocks also have reached record high levels in marketing year 2016/17 — up to 1,118 million metric tons — further exacerbating the “large crop – low price” scenario that currently exists in the U.S. and world corn market.

B. 2017 Corn Market Expectations and Contingencies.

Lower U.S. corn prices are likely to prevail through the winter months until at least mid-spring to early summer 2017 unless unexpected and substantial crop production problems occur in other major coarse grain production regions of the world, such as Argentina, Brazil, China, or the Ukraine. It is also possible that the anticipated change in world weather patterns to a La Nina condition could have a negative impact on 2016 South American (particularly in Argentina and southern Brazil) and U.S. corn production in the western Corn Belt. However, tangible evidence of such a crop production impacts will not be available until February-April 2017 in Argentina and Brazil, and later in the summer months in the United States. Also, financial market volatility, trends in the value of the U.S. dollar relative to other world currencies, and other economic factors may affect the U.S. corn market and other agricultural and energy commodity prices in coming months. However, absent any of these surprises to the U.S. and Kansas corn market, in-state corn prices will likely follow the average normal seasonal price pattern of the last 15 years, with harvest lows followed by seasonal increases through spring-early summer 2017, with weather-based market volatility likely to influence U.S. corn prices through the mid-to-later summer months.

C. Kansas Irrigated & Non-Irrigated Corn Cost of Production

Kansas cash corn prices of $2.87 to $3.36 per bushel in mid-December 2016 at major grain markets throughout the state are substantially below Kansas State University estimates of average cost of production from Kansas Farm Management Association enterprise records for the 2009-2015 period. Kansas State University estimates of statewide average irrigated corn cost of production were $4.00 per bushel in 2015, and $4.47 per bushel on average over the 2010-2014 period. For non-irrigated corn, Kansas State University estimates of statewide average cost of production were $4.36 per bushel in 2015 (with much larger than normal yields) and $5.70 per bushel on average over the 2010-2014 period.

D. What signals about 2017 are the CME corn futures markets providing?

As of December 16, 2016, the structure of futures contract prices over the remainder of the 2016/17 marketing year (i.e., through August 31, 2017) provides little or no incentive for commercial storage of grain and is near neutral at best for on-farm storage. On December 16, 2016 CME MARCH 2016 corn futures closed trade at $3.56 ½ per bushel, followed by MAY 2017 CME corn at $3.63 ¼, JULY 2017 CME corn at $3.70 ¾, and SEPTEMBER 2017 CME corn at 3.77 ½ per bushel.  Per month futures carrying charges for MARCH-MAY were $0.03375 per bushel, $0.0375 per bushel per month for MAY-JULY, and $0.03375 per bushel for JULY-SEPTEMBER.

If commercial storage costs before interest are commonly $0.04 per bushel per month, then mid- December 2016 CME corn futures carrying charges offer no incentive for storing grain — other than the possibility that local cash basis levels may narrow or strengthen enough to make storage possible. If on-farm storage cost is approximately $0.02-$0.02 ½ per bushel, then on-farm storage (before cost of interest) appears to be a “break-even” to slightly profitable marketing strategy absent any rally in corn futures or narrowing of basis in spring-early summer 2017.

E. Signals from New Crop 2017 DEC Corn & NOW Soybean futures

Concerning new crop 2016 acreage prospects for corn and other major competitive crops, on December 18, 2016 CME NOV 2017 soybean futures closed at $10.16 ¼ and CME DEC 2017 corn futures at $3.86 with a ratio of 2.63.   Over time this ratio of soybean to corn prices would be considered to be “favoring soybeans” (i.e., being markedly larger than the customary 2.2 to 2.3 break-even level) —favoring soybeans over corn from an expected profitability standpoint. That said, it is likely that prospects for the South American soybean crop during March-April 2017 will affect both old crop and new crop soybean and corn futures prices in the United States at that time, and could lead to significant changes in relative 2017 prices and expected profits between U.S. corn and soybeans, and ultimately affect U.S. farmers’ 2017 planted acreage decisions.

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Soybean Market Analysis – Graphics Focusing on Russell, Kansas (via KSU)

Following are a set of graphics showing key trends and relationships in U.S. and World Soybean markets.  These selected U.S. and World supply-demand relationships are among those most likely to impact U.S. agricultural imports and therefore U.S. grain prices.

These slides are part of a larger “Grain Market Outlook for 2017” presentation which is located on the KSU AgManager website (www.AgManager.info) in the “Grain Marketing” section (http://www.agmanager.info/grain-marketing).

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Corn and Grain Sorghum Market Analysis – Graphics Focusing on Russell, Kansas (via KSU)

Following are a set of graphics showing key trends and relationships in U.S. and World Corn and Grain Sorghum markets.  These selected corn and grain sorghum supply-demand relationships are among those most likely to impact U.S. agricultural imports and therefore U.S. grain prices.

These slides are part of a larger “Grain Market Outlook for 2017” presentation which is located on the KSU AgManager website (www.AgManager.info) in the “Grain Marketing” section (http://www.agmanager.info/grain-marketing).

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KSU Corn Market Outlook in October 2016: Strong Demand holds Kansas Corn Prices Above Marketing Loan at Harvest

This article provides an analysis of U.S. and World corn supply-demand factors and price prospects for both the “new crop” 2016/17 marketing year following the USDA’s October 12, 2016 USDA Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports.

Following is a summary of the article on “Corn Market Outlook in October 2016″ with the full article and accompanying analysis soon to be available on the KSU AgManager website (www.AgManager.info) at the following web address:

http://www.agmanager.info/grain-marketing/grain-market-outlook-newsletter/corn-market-outlook-october-2016

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Summary

Overview

Since the USDA’s October 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports, DEC 2016 CME corn futures has trended higher from a close of $3.37 per bushel on the day of the report, to a high of $3.58 ¾ on October 14th, before closing at $3.53 ¾ on October 18th with nearly 50% of the U.S. corn harvest complete.  The USDA’s forecast of a record large 2016 U.S. corn crop over 15 billion bushels (bb) and ending stocks of near 2.3 bb have continued to be the primary focus of the U.S. corn market.

Cash Corn Markets in Kansas vs Marketing Loan Rates

Cash corn prices in Kansas have declined to near or below $3.00 per bushel, but have not fallen as low as marketing loan rates.  For example, on October 19th, cash corn prices near Salina, Kansas in the central part of the state ranged from $2.81 to $2.95 per bushel –above the Saline County marketing loan rate of $2.05 per bushel.  Similarly, cash corn prices near Garden City in southwest Kansas ranged from $3.02 to $3.05 per bushel – above the Finney County marketing loan rate of $2.19 per bushel.  Although fall harvest is approximately 75%+ completed in Kansas with the situation of large supplies and tight storage availability to deal with in local grain markets, it is an encouraging signal for corn demand that cash corn prices have not fallen down to loan rate – price support levels.

Other Corn Market Factors in 2017

Other market factors to consider that could affect the U.S. corn market in what remains of 2016 through mid-2017 include: 1) the pace and timing of U.S. farmer marketing of the 2016 corn crop – much of which will be placed in storage after fall harvest, 2) anticipation of continued strong use of “new crop” 2016 U.S. corn in domestic U.S. ethanol production and livestock feeding, 3) at least moderate strength in U.S. corn exports – driven partly by a poor harvest and lack of exportable supplies in Brazil in 2016 as well as other World corn market factors, and 4) the always present possibility of broader U.S. and Foreign economic and/or financial system disruptions impacting grain, energy, and other commodity markets in later 2016 and 2017.

For example, unanticipated U.S. financial policy announcements by the U.S. Federal Reserve could affect U.S. interest rates which could affect U.S. corn exports.  Also, World geo-political events could provide an unanticipated “shock” to U.S. and World energy and grain markets – with the impact on the direction of U.S. and World corn markets being difficult to anticipate.

USDA Supply-Demand Forecast for “New Crop” MY 2016/17

With USDA projections of 2016 U.S. corn plantings of 94.490 ma (up 6.491 ma from 2015), harvested acres of 86.836 ma (up 6.087 ma from 2015), record high projected yields of 173.4 bu/ac (vs 168.4 bu/ac in 2015 and the previous record high of 171.0 bu/ac in 2014), 2016 U.S. corn production is forecast to be a record high 15.057 bb – up from 13.601 bb in 2015, the current record of 14.216 bb in 2014, and 13.829 bb in 2013.

With forecast “new crop” MY 2016/17 total supplies of 16.845 bb (record high), total use of 14.525 bb (record high), and projected ending stocks of 2.320 bb (15.97% S/U) – up from 1.738 bb (12.72% S/U) in “old crop” MY 2015/16 and the highest since 4.259 bb (54.90% S/U) in MY 2004/05 – U.S. corn prices are projected by the USDA to be in the range of $2.95-$3.55 (midpoint = $3.25 /bu) – being down from $3.61 /bu for “old crop” MY 2015/16. This scenario is given a 70% likelihood of occurring by KSU Extension Ag Economist D. O’Brien.

Alternative KSU Forecasts for “New Crop” MY 2016/17

Two alternative KSU-Scenarios for U.S. corn supply-demand and prices are presented for “new crop” MY 2016/17, each gauging the likelihood of lower U.S. corn yields and production than projected by the USDA in the October 12th USDA WASDE report.

KSU Scenario A) “172.5 bu/ac – 14.979 bb” Scenario (25% probability) assumes: 94.490 ma planted, 86.836 ma harvested, 172.5 bu/ac yield, 14.979 bb production, 16.717 bb total supplies, 14.525 bb total use, 2.192 bb ending stocks, 15.09% S/U, & $3.35 /bu U.S. corn average price for “new crop” MY 2016/17;

KSU Scenario B) “171.0 bu/ac – 14.849 bb” Scenario (5% probability) assumes: 94.490 ma planted, 86.836 ma harvested, 171.0 bu/ac yield, 14.849 bb production, 16.637 bb total supplies, 14.525 bb total use, 2.112 bb ending stocks, 14.54% S/U, & $3.45 /bu U.S. corn average price for “new crop” MY 2016/17;

World Corn Supply-Demand

Record high World corn production of 1,025.7 million metric tons (mmt) is projected for “new crop” MY 2016/17, up from 959.1 mmt in “old crop” MY 2015/16, and up from 1,014.4 mmt in MY 2014/15.

Record high World corn total supplies of 1,235.7 mmt are projected for “new crop” MY 2016/17, up from 1,168.1 mmt in “old crop” MY 2015/16, and from 1,189.7 mmt in MY 2014/15.  World corn exports of 143.8 mmt are projected for “new crop” MY 2016/17, up from 119.5 mmt in “old crop” MY 2015/16, and from 141.7 mmt in MY 2014/15.  Projected World corn ending stocks of 216.8 mmt (21.3% S/U) in “new crop” MY 2016/17 are up from 210.9 mmt (21.9% S/U) in “old crop” MY 2015/16, and from 208.9 mmt (21.3% S/U) in MY 2014/15.  Although World corn ending stocks are projected to be a record high in “new crop” MY 2016/17 at 216.8 mmt, World corn percent ending stocks-to-use in “new crop” MY 2016/17 are forecast to actually decline to 21.3% – indicative of expected continued strong World demand for corn at low prices – especially in Europe where grain production has been hampered by extreme weather conditions.

Brazil Corn Supply-Demand

Brazil corn production in “old crop” MY 2015/16 (1st crop harvested in January-May 2016, 2nd crop harvested in May-August) is estimated to be 67.0 mmt, down 18.0 mmt (down 21.2%) from 85.0 mmt in MY 2014/15.  This shortfall in Brazilian corn production in 2016 has provided support for U.S. corn exports and even ethanol production (via exports). However, expectations of a record large 2016 U.S. corn crop have had a predominant negative impact on U.S. corn market prices through late summer and early fall.  Brazilian corn production is forecast by the USDA to rebound back to 83.5 mmt in MY 2016/17 (2017 production).  Uncertainty about Brazilian corn production prospects in 2017 could be a major factor impacting U.S. and World corn prices in the coming spring and summer months of 2017.

China Corn Supply-Demand

China corn production in “new crop” MY 2016/17 (harvested in September-October 2016) is estimated to be 216.0 mmt, down 8.6 mmt (down 3.8%) from 224.6 mmt in MY 2015/16, but marginally higher than 215.65 mmt in MY 2014/15.  A major focus in World corn markets is on the size of Chinese ending stocks and on recent changes in China’s domestic corn stock management policies.  Ending stocks of corn in China are projected to be 103.7 mmt (45.9% SU) in “new crop” MY 2016/17, down from 110.7 mmt (50.9% S/U) in “old crop” MY 2015/16, but up from 100.5 mmt (49.7% S/U) in MY 2014/15.  Over the last three marketing years, percent ending stocks-to-use of corn for China ranging from 49.7% to 50.9% are the highest since MY 2002/03 (51.6%).  During the interim MY 2003/04 to MY 2013/14 period, Chinese corn percent ending stocks-to-use averaged 30.5%, ranging from 25.2% to 39.1%.

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