KSU Corn Market Outlook in Mid July 2017: “Next Crop” MY 2017/18 Probability Scenarios

An analysis of U.S. and World Corn supply-demand factors and “Next Crop” 2017/18 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 July 12, 2017.

A full version of this article is 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 Outlook in Mid July 2017″

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Summary

Overview

Since the USDA’s July 12th World Agricultural Supply and Demand Estimates (WASDE) report, SEPT 2017 CME corn futures have fallen sharply.  CME SEPT 2017 corn futures opened at $4.00 on July 12th – the day of the report – then traded as low as $3.68 ½ on July 13th before closing at $3.76 ¼ on July 14th.  To date SEPT 2017 has remained above the recent contract low of $3.64 ½ on June 23, 2017, and the longer term contract lows of $3.48 ¼ on August 30-31, 2016.

Thus far in year 2017 U.S. corn prices have found moderate support due to spring corn planting and summer corn production uncertainties, and strong U.S. corn use in terms of ethanol production, wet corn milling, exports and – to a moderate degree – livestock feeding.   Although the USDA forecast in the June 30th Acreage report of 90.886 million acres (ma) of U.S. corn plantings in 2017 was above trade expectations, this projection is still down from 94.004 ma planted in 2016.  The USDA used a crop modeling approach to forecast 2017 U.S. corn yields to be 170.7 bu/acre in the July WASDE report.

However, in the upcoming survey-based August 10th Crop Production report, it is possible that various production problems resulting from dry conditions in the U.S. northern plains and late plantings elsewhere in the U.S. Corn Belt may result in U.S. corn yield projections closer to long term trend estimates of 165-168 bu/acre.  If this occurs, then 2017 U.S. corn production estimates could be in the range of 13.6 to 13.8 billion bushels (bb) in the August 10th USDA reports instead of the USDA projection of 14.255 bb in the July WASDE.

So far, any significant corn futures or cash market price rallies in Spring 2017 have been limited by expectations that ending stocks of U.S. corn will stay above 2.0 bb in “next crop” MY 2017/18, coupled with ending stocks-to-use above 15.0%-16.0% in both “current” MY 2016/17 and “next crop” MY 2017/18.   Drought conditions in the northern plains states of North Dakota, South Dakota, and Montana as well as parts of Nebraska and Iowa may have a negative impact on 2017 U.S. corn production.  Also, corn production in 2017 may be negatively affected by carryover impacts from delayed plantings in the central Corn Belt earlier in Spring 2017, and periods of high temperatures that may have affected corn pollination in the first half of July.

Kansas Cash Corn Prices & Basis Bids

Cash corn bids at major grain elevators ranged from $3.36 ($0.40 under SEPT futures) to $3.76 ($0.00 under or par with futures) in Western Kansas and $3.21 ¼ ($0.55 under) to $3.41 ¼ ($0.35 under) in Central Kansas on Friday, July 14th.  This represents a marked increase since October-December 2016 when corn price bids statewide had fallen below $3.00 per bushel – down to $2.66-$2.96 on December 23rd – although not as low as marketing loan rates near $2.05 (central KS) to $2.19 (western KS) per bushel.  Cash corn price bids in east central and northeast Kansas – near river terminal locations – were near $3.44 – $3.46 on July 14th, up from the range of $3.26-$3.28 per bushel on 12/23/2016.  Cash corn bids at Kansas ethanol plants on July 17th ranged from $3.52 ¼ ($0.24 under) to $4.18 ¼ ($0.42 over) – indicating continuing strength in ethanol demand for corn in Kansas and nationwide.  While the “large supply and tight storage availability” situation still predominates in local Kansas grain markets, it is a positive market signal that Kansas cash corn prices have enough support to have avoided falling down to USDA loan rate levels.

Major Corn Market Considerations

First, large beginning stocks of U.S. corn coming into “next crop” MY 2017/18 have been a “mitigating” or “limiting” factor affecting the response of the corn market to 2017 production risk.  The corn market is less anxious about having adequate corn supplies in the face of 2017 U.S. corn production risk when beginning stocks are 2.370 bb rather than 1.000 bb. 

Second, it is anticipated that moderately low prices of U.S. corn will help maintain strong usage for domestic U.S. ethanol and wet milling production, as well as livestock feeding through at least summer-fall 2017. 

Third, at least moderate continued strength is expected in U.S. corn exports due to moderately low U.S. corn prices. Exports of U.S. corn are expected to continue at a “decent” pace” even though South American corn production will continue to be a competitive factor in World trade through at least the end of 2017.  

Fourth, the possibility exists of broader U.S. and Foreign economic and/or financial system disruptions that could impact grain, energy, and other commodity markets in 2017-2018.  World geo-political events have the potential to provide “shocks” to U.S. and World energy and grain markets.  However, the impact on the direction of U.S. and World corn markets of such disruptive events are difficult to anticipate – depending on which countries may be involved and their role in global corn export trade. 

USDA Supply-Demand & Price Forecast for “Next Crop” MY 2017/18

The USDA has projected 2017 U.S. corn plantings to be 90.886 million acres or ‘ma’ (down 3.118 ma from 2016).   Harvested acres in 2017 are forecast at 83.496 ma (down 3.252 ma), with projected yields of 170.7 bu/ac (vs the record high of 174.6 in 2016). This leads to a USDA 2017 U.S. corn production forecast of 14.255 bb – down from the record high of 15.148 bb in 2016.  

The USDA forecast “next crop” MY 2017/18 total supplies to be 16.675 bb – down 265 mb from last year’s record high.  Total use is forecast at 14.350 bb – down 220 mb from last year’s record high.  Ending stocks are projected to be 2.325 bb (16.20% S/U) – down from 2.370 bb (16.27% S/U) in “current” MY 2016/17.  United States’ corn prices are projected to average $3.30 /bu (range of $2.90-$3.70).  This is down $0.05 /bu from the midpoint estimate of $3.30 /bu from “current” MY 2016/17. This scenario is given a 45% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.

Alternative KSU Supply-Demand & Price Forecast for “Next Crop” MY 2017/18

Four alternative KSU-Scenarios for U.S. corn supply-demand and prices are presented for “next crop” MY 2017/18.  Each forecast scenario presents the likelihood of lower U.S. corn acreage, yields and production than projected by the USDA in the July 12, 2017 WASDE report for “next crop” MY 2017/18. 

A – KSU “Next Crop” MY 2017/18 Scenario #1) “167.3 bu/ac – 13.815 bb” Scenario (25% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 167.3 bu/ac trend yield, 13.815 bb production, 16.235 bb total supplies, 14.245 bb total use, 1.990 bb ending stocks, 13.97% S/U, & $3.55 /bu U.S. corn average price for “next crop” MY 2017/18; 

B – KSU “Next Crop” MY 2017/18 Scenario #2) “165.0 bu/ac – 13.652 bb” Scenario (20% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 165.0 bu/ac yield, 13.625 bb production, 16.045 bb total supplies, 14.120 bb total use, 1.925 bb ending stocks, 16.63% S/U, & $3.60 /bu U.S. corn average price for “next crop” MY 2017/18;

C – KSU “Next Crop” MY 2017/18 Scenario #3) “160.0 bu/ac – 13.212 bb” Scenario (5% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 160.0 bu/ac yield, 13.212 bb production, 15.632 bb total supplies, 13.920 bb total use, 1.712 bb ending stocks, 12.30% S/U, & $3.80 /bu U.S. corn average price for “next crop” MY 2017/18;

D – KSU “Next Crop” MY 2017/18 Scenario #4) “150.0 bu/ac – 12.387 bb” Scenario (5% probability) assumes: 89.886 ma planted, 82.577 ma harvested, 150.0 bu/ac yield, 12.387 bb production, 14.807 bb total supplies, 13.400 bb total use, 1.407 bb ending stocks, 10.50% S/U, & $4.20 /bu U.S. corn average price for “next crop” MY 2017/18;

Note: even with significant reductions in 2017 U.S. corn production as represented in KSU Scenarios C and D above, the presence of large beginning stocks of 2.370 bb in “next crop” MY 2017/18 limit the “tightness” of corn supplies, and lowers price prospects.

World Corn Supply-Demand – With & Without China

World corn production of 1,036.9 million metric tons (mmt) is projected for “next crop” MY 2017/18, down 3.0% from the record high of 1,068.8 mmt in “current” MY 2016/17, but still up 7.0% from 968.8 mmt in MY 2015/16.  Near record World corn total supplies of 1,264.4 mmt are projected for “next crop” MY 2017/18, down marginally from the record high of 1,281.6 mmt in “current” MY 2016/17, but up from 1,178.4 mmt in MY 2015/16. 

World corn exports of a near record 152.5 mmt are projected for “next crop” MY 2017/18, down 4.6% from the record high of 159.7 mmt in MY 2015/16, and up 27.5% from 119.6 mmt in MY 2015/16.  Projected World corn ending stocks of 200.8 mmt (18.9% S/U) in “next crop” MY 2017/18 are down from the record high 227.5 mmt (21.6% S/U) in “current” MY 2016/17, and from 212.8 mmt (22.0% S/U) in MY 2015/16.  

An alternative view of the World corn supply-demand is presented if Chinese corn usage and ending stocks are isolated from the World market.  “World Less China” corn ending stocks are projected to be 119.5 mmt (14.5% S/U and 40.5% of World corn stocks) in “next crop” MY 2017/18, down from 126.2 mmt (15.4% S/U and 44.5% of World stocks) in “current” MY 2016/17, but up from 102.0 mmt (13.6% S/U and 52.1% of World Stocks).  These figures show that World stocks of corn less China’s direct influence are projected to be down approximately 23% (i.e., 14.5% S/U for the “World Less China” versus 18.9% S/U for the “World” overall in “next crop” MY 2017/18).  

These figures also show that Chinese ending stocks of corn as proportion of the World overall is declining – down from 52.1% in MY 2015/16 to 44.5% in “current” MY 2016/17, and down to 40.5% in “next crop” MY 2017/18.  The deliberate actions taken by the Chinese government in recent years to reduce feedgrain stockpiles is impacting the relative amount of corn stocks they hold in the World corn market.

USDA Acreage and Grain Stocks Reports – Graphics of June 1 U.S. Stocks, March-May Use, Planted-Harvested Acres since 2010-2011

The USDA has released its June 30, 2017 Acreage and Grain Stocks reports – providing more direction to U.S. grain markets regarding 1) the strength of livestock feed usage of U.S. corn, grain sorghum and wheat, 2) the accuracy of the 2016 U.S. soybean production estimate by USDA, and 3) the planted and harvested acreage of major U.S. crops in 2017.

This article showing in graphics and table form the results of these two USDA reports is available on the Kansas State University AgManager.info website at the following web address:

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

Following in graphic form are the charts and tables of the article:

 

 

Trends in Kansas Crop Planted Acres, Production, & Crop Revenues (2000-2016)

Kansas State University will be publishing an article titled “Trends in Kansas Crop Planted Acres, Production, & Crop Revenues” on Tuesday, July 26, 2016.   The full article will be  located on the KSU Agmanager.info website at the following address:

http://www.agmanager.info/marketing/outlook/newletters/archives/

Following are the summary and supporting graphics of the article, dealing with longer term trends in Kansas crop planted acreage, production, and crop production revenues among major crops over the year 2000 through projected 2016 period.  It is notable that even though grain price projections are low, large crops help offset the low price impacts for 2016 Kansas crop revenue projections of wheat, corn, soybeans, cotton, and all hay.

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Summary

Overview

Over the year 2000-2016 time-period there has been a wide variability and in some cases significant expansion in planted acres, crop production, and crop production-related revenues of major Kansas crops.  Major changes have occurred over the 2000-2016 period in the production of Kansas corn, grain sorghum, wheat and soybean production and crop-related revenues.  Key grain market factors such as 1) expansion in U.S. ethanol production, 2) growth in Chinese soybean import demand, 3) seeming distortions and changes in Chinese feedgrain stockpile policies, and 4) a string of successive record or near record large World and U.S. crops has impacted grain supply-demand and ending stocks balances – and especially in 2016 – the market price and production revenue prospects for these major Kansas crops.

When converted to a common per unit of weigh, it is noteworthy that Kansas production of corn on a crop-weight basis is predominant in terms of quantity produced among crops in the state, followed in order of magnitude production-wise by wheat, all hay produced and/or grain sorghum, soybeans, cotton, oats, and sunflower.

Kansas Corn

After achieving high production revenue amounts for Kansas corn in the 2010/11 through 2012/13 marketing years in the range of $2.642 – $2.844 billion dollars, corn revenues have declined as Kansas corn supplies have increased and prices have subsequently declined over the 2013/14 through projected 2016/17 marketing year period.  Projected Kansas corn production revenue of approximately $2.181 billion from KSU estimates is down 23.6% from the MY 2010/11 high of $2.854 billion.

Kansas Soybeans

After achieving high production revenue amounts in the 2010/11 and 2013/14 marketing years of $1.613 and $1.677 billion dollars, respectively, soybean revenues have declined as Kansas soybean prices have fallen over the 2014/15 through projected 2016/17 marketing year period.  The projected Kansas MY 2016/17 soybean production revenue of approximately $1.445 billion is down nearly 14% from the MY 2013/14 high of $1.677 billion.

Kansas Wheat

While planted acres of Kansas wheat have declined over the 2000-2016 period, Kansas wheat production has been unchanged-to-increasing slightly over the period due to increased wheat yields.  With inflation in wheat prices, actual Kansas wheat revenues have trended higher over the 2000-2016 period.  However, since year 2010 Kansas wheat production revenues will have trended lower if the KSU projection of $1.72 billion for MY 2016/17 holds true.  Weakening U.S. (including Kansas) wheat exports in recent years following from several consecutive large World wheat crops are a primary cause of the current “large supply / low price / low revenue” situation that exists in the U.S. and Kansas wheat farm sector today.

Kansas Grain Sorghum

While planted acres of Kansas grain sorghum have generally declined over the 2000-2016 period, they sharply increased over the 2013-2015 time-frame.  Helped by strong trade demand from China during the MY 2014/15 through MY 2016/17 period, Kansas and other states’ producers responded by increasing their grain sorghum acreage and production in response to higher prices and profits.  However, with a recent change in China’s domestic feedgrain stocks management policies is designed to make it easier for domestic Chinese feedgrain users to gain access to domestic carryover feedgrain stocks in their country.  As a result it seems likely that there will be a reduction in U.S. export sales demand for Kansas grain sorghum exports to that China, and that 2016/17 Kansas grain sorghum prices and projected revenues will decline absent other unforeseen market factors that may occur.  Production revenues are forecast by KSU to be $673.2 million for MY 2016/17, which is down 21.7% from the $859.4 million in MY 2015/16.

Kansas Cotton

Planted acres and production of Kansas cotton have generally declined over the 2000-2016 period.  Production revenues for Kansas cotton have been highly variable over time – with $10.4 million in MY 2015/16 being a seven (7) year low, and the KSU forecast of $14.8 million for MY 2016/17 by the KSU still being below the 2010-2016 KANSAS average of $21 million.

Kansas Sunflowers

Planted acres and production of Kansas sunflowers have also generally declined over the 2000-2016 period.  However, due to increases in sunflower prices over time, Kansas sunflower production revenues have trended generally sideways.  The KSU projection of Kansas sunflower revenue for MY 2016/17 of $13.2 million is less than the 2010-2016 average of $28 million annually.

Kansas All Hay

While harvested acres of all hay in the Kansas have trended lower over the 2000-2016 period, production has begun to trend higher over the 2010-2016 period.  Production revenues for Kansas hay of all types have trended sideways to marginally higher over the 2000-2016 period, although the KSU estimate of $562.6 million for MY 2016/17 is less than the 2010-2016 average of $645 million.

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Image result for anderson hall, kansas state university

Anderson Hall, Kansas State University, Manhattan, Kansas

Trends in U.S. Crop Planted Acres, Production, & Crop Revenues (2000-2016)

Kansas State University published an article titled “Trends in U.S. Crop Planted Acres, Production, & Crop Revenues” on Friday, July 22, 2016.   The full article is located on the KSU Agmanager.info website at the following address:

http://www.agmanager.info/marketing/outlook/newletters/AcreageTrends.asp

Following are the summary and supporting graphics of the article, dealing with longer term trends in U.S. crop planted acreage, production, and crop production revenues among major crops over the year 2000 through projected 2016 period.  It is notable that 2016 U.S. crop revenue projections were down in 2015, and are projected to be even lower in most cases for 2016.

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Summary

Overview

Over the year 2000-2016 time period there has been a significant expansion in both planted acres and production of corn and soybeans in the United States.  Primary factors causing these changes have been the growth that has occurred in corn-based ethanol production in the United States and in Chinese soybean export demand in the World soybean market since year 2000.   When converted to a common per unit of weigh, it is noteworthy that U.S. production of corn on a crop-weight basis is predominant, followed in order by all hay produced, soybeans, wheat, grain sorghum, cotton, barley, oats, and sunflower.

Projected revenues for the MY 2016/17 marketing years for each of the major U.S. crop crops considered here – corn, soybeans, wheat, grain sorghum, cotton, barley, oats, and sunflowers – are down from average revenues for those same crops since and including 2010.  These findings reinforce concerns about weakening U.S. crop enterprise-related financial conditions in the United States in the near term.

U.S. Corn Trends

After achieving high production revenue amounts for U.S. corn in the 2011/12 and 2012/13 marketing years in the range of $74.155 – $76.651 billion dollars, corn revenues have declined as U.S. corn supplies have increased and prices have subsequently declined over the 2013/14 through projected 2016/17 marketing year period.  Projected U.S. corn production revenue of approximately $49.436 billion from the July 12th WASDE report is down nearly 36% from the MY 2011/12 high of $76.651 billion.

U.S. Soybean Trends

After achieving high production revenue amounts in the 2012/13 and 2013/14 marketing years in the range of $43.583 – $43.723 billion dollars, soybean revenues have declined as U.S. soybean prices have fallen over the 2013/14 through projected 2016/17 marketing year period.  Projected U.S. soybean production revenue of approximately $36.680 billion from the July 12th WASDE report is down nearly 16% from the MY 2012/13 high of $45.583 billion.

U.S. Wheat Trends

While planted acres of U.S. wheat have declined over the 2000-2016 period, U.S. wheat production has been unchanged-to-increasing slightly over the period due to increased wheat yields.  With inflation in wheat prices, actual wheat revenues have trended higher over the 2000-2016 period.  However, since year 2000 U.S. wheat production revenues have fallen sharply with the implicit USDA projection of $8.592 billion for MY 2016/17 being down from the range of $10.203 – 17.383 billion over the 2010-2015.  Weakening U.S. wheat exports in recent years following from several consecutive large World wheat crops are a primary cause of the current “large supply / low price / low revenue” situation that exists in the U.S. wheat farm sector.

U.S. Grain Sorghum Trends

While planted acres of U.S. grain sorghum have generally declined over the 2000-2016 period, they sharply increased over the 2013-2016 period.  Helped by strong trade demand from China during 2013-2015, U.S. producers responded by increasing U.S. grain sorghum acreage and production of.  However, with a change in Chinese domestic feedgrain stocks management policies and decreased for U.S. grain sorghum imports, U.S. grain sorghum prices and projected revenues have declined.  Production revenues are projected to be $1.323 billion for MY 2016/17, which is down 36% from the record high of $2.081 billion in MY 2015/16, and at the lowest level since $1.260 billion in MY 2011/12.

U.S. Cotton Trends

Planted acres of U.S. cotton have generally declined over the 2000-2016 period, but U.S. cotton production has on-average trended sideways – owing to increasing U.S. cotton yields.  Production revenues for U.S. cotton have been highly variable over time – with $3.862 billion in MY 2015/16 being a seven (7) year low, and the implicit forecast of $4.475 billion for MY 2016/17 by the USDA still being below the 2010-2016 U.S. average of $5.614 billion.

U.S. Sunflower Trends

Planted acres of U.S. sunflowers have also generally declined over the 2000-2016 period.  However, U.S. sunflower production – while being quite variable over time – has trended higher since the 2010, especially in 2015 and 2016.  Production revenues for U.S. sunflowers have trended moderately lower since MY 2010/11, with the July 12th implicit USDA estimate of $493 million being less than the 2010-2016 average of $559 million.

U.S. All Hay Trends

While harvested acres of all hay in the U.S. have trended lower over the 2000-2016 period, production has generally been unchanged – again owing to increasing yields for U.S. hay over time.  Production revenues for U.S. hay of all types have trended higher over the 2000-2016 period, although the July 12th implicit USDA estimate of $17.362 billion is moderately less than the 2010-2016 average of $17.774 billion.

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