KSU Weekly Grain Market Analysis: Falling Grain Markets on U.S.-China Trade Issues and U.S. Crop Prospects

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, June 15, 2018 are available on the Kansas State University www.AgManager.info website at the following KSU web address:

www.agmanager.info/sites/default/files/pdf/KSRN_GrainOutlook_06-15-18.pdf

The recorded radio program was aired at 10:03 a.m. central time, Friday, June 15, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the June 15th 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…

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KSU Wheat Market Outlook in Mid-June 2018: HRW Wheat Harvest Markets with Protein in Demand

An analysis of U.S. and World wheat supply-demand factors and 2018-2019 price prospects following the June 12 USDA Crop Production and World Agricultural Supply Demand Estimates (WASDE) reports, and the market actions that have followed those reports are available on the KSU AgManager website (http://www.agmanager.info/).

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

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

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Wheat Market Outlook in Mid-June 2018

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

June 14, 2018

A. Wheat Futures & Cash Market Trends Following the June 12th USDA Reports

Since the USDA’s June 12th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, CME JULY 2018 Kansas Hard Red Winter (HRW) Wheat futures have traded first higher and then lower again.  These reports were released during a time of harvest price pressure, when 2018 hard red winter wheat harvest was over half done in Oklahoma and Texas, and beginning in Kansas.  On the day of the report (June 12, 2018), JULY 2018 Kansas HRW wheat futures opened at $5.34 ½ and traded as high as $5.55 ½ before closing higher to $5.53 ½ that day.  The following two days JULY 2018 HRW wheat futures trended lower, closing at $5.39 /bu on Wednesday, June 13th and $5.22 ¼ /bu on Thursday, June 14th (Figure 1).   

On June 14th – the 2nd day after the USDA reports – Kansas cash wheat price terminal quotes in central and eastern Kansas ranged from $5.02 ¼ to $5.42 ¼ per bushel – with basis ranging from $0.20 under to $0.20 over JULY 2018 futures (Figure 2).  These prices are up 41%-47% from the range of $3.42 ¼ to $3.83 ¼ /bu in late December 2017 in eastern and central Kansas – with basis at that time ranging from $0.80 under to $0.39 under nearby MARCH 2018 futures.   A terminal Hard White Wheat (HWW) bid was available in Wichita, Kansas for $5.37 ¼ /bu, with a basis of $0.15 /bu over JULY 2018 Kansas HRW wheat futures.

In western Kansas on June 14th with harvest well underway to the south, representative wheat elevator bids ranged from $4.72 to $5.07 /bu, with basis being from $0.50 under to $0.15 under JULY 2018 futures.  These recent wheat cash price levels are up 36%-39% from $3.47 to $3.64 /bu in late December 2018 in western Kansas – when local basis varied from $0.85 under to $0.58 under MARCH 2018 futures.  

Lower 2018 production, higher protein levels in drought-damaged parts of the central and southern plains states of Texas, Oklahoma and Kansas, and to some degree foreign wheat crop concerns in competitive export countries such as Ukraine, Russia, and Australia, are the key market influencing factors credited for the increase in Kansas HRW wheat futures and cash prices since December 2017.  With this prices strength, local wheat basis levels in Kansas that were “wide and weak” in December 2017 have strengthened by $0.59-$0.60 /bu in central Kansas, and by $0.35-$0.43 /bu in western Kansas as of June 14. 

 

B. Early Harvest HRW Wheat Yield & Protein Results

Harvest results to date have shown low yields but higher protein in Oklahoma and parts of southern Kansas.  The June 8th Harvest Report of the U.S. Wheat Associates (http://www.uswheat.org/harvest) stated:

“Yields continue to be variable with a current average estimated at under 25 bu/ac (1.7 tons/ha). Hot temperatures forecast for next week (i.e., June 11-15) should push maturity. The first 60 samples are in for analysis with averages from 17 samples originating in Oklahoma reported. Test weights with a few exceptions ran above 60 lb/bu (78.9 kg/hl), which is a bit of a surprise given the environmental conditions in the area. Protein averaged between 11% and 12% (12% moisture basis).”

A report via Reuters indicates the following (“U.S. Grain Buyers Grab for High-Protein Wheat, Boosting Cash Prices.”, Reuters – Julie Ingwerson, June 14, 2018): 

“Cash prices for hard red winter (HRW) wheat in the southern U.S. Plains are surging as buyers scramble to lock up supplies of high-protein wheat from what could be the second-smallest crop in decades, traders said. Amid a global shortage of high-protein wheat, commercial grain handlers need the new-crop grain to blend into their stocks to salvage the lower-quality wheat left in their bins from last year. …….”

“The firm cash market reflects buyers’ hunger for high-protein wheat after two consecutive low-protein harvests that averaged 11.5 percent or less. Flour millers and exporters largely spurned the 2016 and 2017 HRW wheat harvests, seeking alternate supplies from outside of Texas, Oklahoma and Kansas. ……. Early returns from the 2018 harvest have been encouraging. Protein levels in HRW wheat samples from Oklahoma and southern Kansas have averaged 13 percent, according to weekly data from Plains Grains Inc., a trade group that conducts a wheat quality survey, and the Kansas Wheat Commission.”

Consequently, the lower yields occurring during early harvest 2018 in these central and southern plains states are being partially offset income-wise by higher protein wheat.  On a net income per acre basis, farmers are still likely to be worse off financially, as the higher price received for higher protein content HRW wheat does not compensate enough for the lower yield to sell on a per acre basis.

 

C. Key World Wheat Supply-Demand Results in the June 12th USDA WASDE Report

For the “new crop” 2018/19 marketing year (MY) beginning on June 1, 2018, the USDA projected the following (Figures 13 through 15b, Tables 2 through 9):

World wheat total supplies in “new crop” MY 2018/19 would be a record high 1,017.1 million metric tons (mmt) accompanied by record high total use of 750.9 mmt – up 0.1% and 1.0%, respectively, from “old crop” MY 2017/18.  The USDA in essence projects that the recent “large supply – large use” situation that has persisted since the last “supply-demand” period in MY 2012/13 will continue (Figure 13).  Concerns about 2018-2019 wheat crop production prospects in the Black Sea Region, Australia, and the U.S. could bring lower production and supplies – possibly causing World wheat supply-demand balances to decline in upcoming WASDE reports.  However, if these World wheat production reductions do NOT occur, then the current World wheat oversupply and associated low price situation is likely to persist.  

CommentaryKSU: These aggregate World supply and use numbers do NOT bring light to the shortage of high protein wheat that exists in World markets, OR the sizable wheat stocks held by China that are isolated from the World wheat market.

World wheat exports will also be a new record high 187.3 mmt in the “new crop” 2018/19 marketing year – up from a 182.8 mmt in “old crop” MY 2017/18, the previous record high of 183.3 mmt in MY 2016/17, and from 172.8 mmt in MY 2015/16 (Figure 13, Table 3).  While World wheat exports are forecast to increase by 12.9% since MY 2013/14 (i.e., 1 year after the short crop year of MY 2012/13), United States’ wheat exports are projected to decline by 19.2% from 1.176 billion bushels to 950 million bushels (mb) in “new crop” MY 2018/19. 

CommentaryKSU: This lack of growth in U.S. exports relative to foreign export competitors raises questions about whether the U.S. should focus more on HRW wheat protein and quality characteristics to differentiate it’s exportable wheat product. Also, a strengthening in the U.S. dollar exchange rate relative to export competitors with weak currency exchange rates continues to be a negative factor limiting the competitive affordability of U.S. wheat exports in World markets.  

World wheat ending stocks are projected to be 266.2 mmt in “new crop” MY 2018/19 – the 2nd highest on record following the high of 272.4 mmt in “old crop” MY 2017/18 (Figure 13, Table 8).  World wheat ending stocks have been growing an average of 14.7 mmt per marketing year from the low of 177.9 mmt in MY 2012/13, out-pacing the annual growth in total use of 10.6 mmt per marketing year – leading to growth in ending stocks. 

World wheat percent ending stocks-to-use (S/U) are forecast to be 35.45% in “new crop” MY 2018/19 – the 2nd highest on record (Figures 14a-b, Table 9).  The record was 36.65% in “old crop” MY 2017/18.  World wheat % stocks-to-use consistently increased each year from 25.89% in the short crop MY 2012/13 to current levels of 36.65% S/U in “old crop” MY 2017/18, and the USDA projection of 35.45% in “new crop” MY 2018/19.

CommentaryKSU: These results provide evidence that pace of growth in World wheat supplies has been faster than growth in total use since MY 2012/13 – leading to the current World oversupply situation and lack of sales opportunities and weaker prices for wheat of average protein and quality characteristics.

D. World-Less-China” Wheat Supply-Demand & the “China Supply Isolation” Factor

The broader “large crop-over supply-low price” situation in the World wheat market may be “obscuring” some important underlying market issues – particularly in regards to the “masking” effect of Chinese wheat stocks on available World wheat supplies and stocks.  

Total supplies and % ending stocks-to-use of wheat in World markets is projected to grow to record levels – with World wheat ending stocks-to-use of 35.45% in “new crop” MY 2018/19 (Figures 13 thru 14b, Table 8).  However, from a World-Less-China perspective, forecast ending stocks-to-use of 20.2% would be the lowest level in 11 years (Table 9, Figures 15a-b)“World-Less-China” wheat ending stocks-to-use would be down sharply from 23.2% in “old crop” MY 2017/18, and from the range of 22.05% to 27.5% during the MY 2008/09 – MY 2017/18 period. 

IF this China supply isolation factor eventually leads to noticeably tighter available global supplies of purchasable wheat for buyers to gain access to in coming months, it could have a significant positive impact on U.S. and World wheat market prices in “new crop” MY 2018/19.  However, unless there is this change in the broader, overriding focus of the World wheat market AWAY FROM aggregate global supplies over TO available “World-Less-China supplies the attention of the World wheat market may not change in this direction.

 

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

The USDA released their wheat production, supply-demand and price projections for the U.S. for “new crop” MY 2017/18 in the June 12th Crop Production & WASDE reports (Tables 1a-b).   

U.S. wheat plantings are forecast to be 47.339 million acres (ma) in 2018, up from the record low of 46.012 ma in 2017, but down from 50.119 ma in 2016 (Table 1, Figure 5)Harvested acres are forecast at 38.9 ma in 2018 (82.3% harvested-to-planted), up from the record low of 37.586 ma (81.7% harvested-to-planted) in 2017, but down from 43.850 ma in 2016 (87.5% harvested-to-planted) (Table 1, Figure 5).   The 2018 U.S. average wheat yield is estimated at 46.9 bu/ac, up from 46.3 bu/ac in 2017, but down from the 2016 record high of 52.7 bu/acre (Table 1, Figure 6)

Wheat production in the U.S. in 2018 is forecast to be 1.827 billion bushels (bb), up from 1.741 bb in 2017, but down from 2.309 bb in 2016.  Projected “new crop” MY 2018/19 total supplies are forecast at 3.043 bb, down from 3.076 bb in “old crop” MY 2017/18, and down from 3.402 bb in MY 2016/17 (Table 1, Figure 7)

U.S. Wheat total use of 2.097 bb is forecast for “new crop” MY 2018/19, up from 1.996 bb in “old crop” MY 2017/18, and from 2.222 bb in MY 2016/17 (Table 1, Figure 8).  By usage category, U.S. wheat exports are projected to be 950 mb in “new crop” MY 2018/19, up from 900 mb in “old crop” MY 2017/18, while being down from 1.055 bb in MY 2016/17 (Table 1, Figures 9 & 10)

CommentaryKSU: U.S. wheat exports fell to 47 year lows of 778 mb and 864 mb in MY 2015/16 and MY 2014/15, respectively, to levels just marginally above those pre-“Russian Grain Deal” in 1972.  This is more evidence of the only marginally competitive position that U.S. wheat exports find themselves in among foreign export competitors I recent years. 

Food Use of U.S. wheat is projected to be 965 million bushels (mb) in “new crop” MY 2018/19, up marginally from 963 mb in “old crop” MY 2017/18, and trending higher from 943 mb in MY 2016/17 (Table 1, Figure 8).   Feed & Residual Use of U.S. wheat is projected to be 120 mb in “new crop” MY 2018/19, up from 70 mb in “old crop” MY 2017/18, and from 156 mb in MY 2016/17 (Table 1, Figure 8).  

CommentaryKSU: With the USDA’s forecast of tighter U.S. corn and total feedgrain supplies along with higher feedgrain prices, the USDA is anticipating that feeding wheat to livestock will become more economically viable. 

The USDA projected “new crop” MY 2018/19 ending stocks to be 946 mb (45.1% Stocks/Use), down from 1.080 bb in “old crop” MY 2017/18 (54.1% stocks/use), and 1.181 bb in MY 2016/17 (53.15% stocks/use) (Table 1, Figures 11 & 12).   

CommentaryKSU: The anticipation of markedly lower U.S. 2018 HRW wheat production is having the end effect on U.S. wheat supply-demand balances of dropping ending stocks below 1.00 bb and ending stocks-to-use below 50%. To move ending stocks and % stocks-to-use much lower, it may be necessary to sharply increase U.S. wheat exports and total usage.   

United States’ wheat prices are projected to average $5.10 /bu in “new crop” MY 2018/19, up from $4.75 /bu in “old crop” MY 2017/18, from $3.89 in MY 2016/17, and $4.89 /bu in MY 2015/16, but still down from $5.99 /bu in MY 2014/15 (Table 1, Figures 11 & 12)  It is estimated by KSU that these USDA projections for “new crop” MY 2018/19 have a 60% probability of occurring.

 

F. Three Alternative KSU U.S. Wheat S/D Forecast for “New Crop” MY 2018/19

To represent possible alternative outcomes from the USDA’s June 12th projection, three potential KSU-Scenarios for U.S. wheat supply-demand and prices are presented for “new crop” MY 2018/19 (Table 1a, Figure 11).    

KSU Scenario 1) “Lower Production” Scenario (25% probability):   This scenario assumes that there will be 47.339 ma planted, 80.6% harvested-to-planted, 38.155 ma harvested, 45.0 bu/ac average yield, 1.717 bb production, 2.932 bb total supplies, 950 mb exports, 120 mb feed & residual use, 2.097 bb total use, 835 mb ending stocks, 39.82% Stocks/Use, & $5.75 /bu U.S. wheat average price.

KSU Scenario 2) “Higher Exports” Scenario (15% probability):   This scenario assumes that there will be 47.339 ma planted, 80.6% harvested-to-planted, 38.155 ma harvested, 46.9 bu/ac average yield, 1.827 bb production, 3.043 bb total supplies, 1.125 bb exports, 120 mb feed & residual use, 2.272 bb total use, 771 mb ending stocks, 33.93% Stocks/Use, & $6.20 /bu U.S. wheat average price.

KSU Scenario 3) “Lower Production & Higher Exports” Scenario (5% probability):   This scenario assumes that there will be 47.339 ma planted, 80.6% harvested-to-planted, 38.155 ma harvested, 45.0 bu/ac average yield, 1.717 bb production, 2.932 bb total supplies, 1.125 bb exports, 120 mb feed & residual use, 2.272 bb total use, 660 mb ending stocks, 29.05% Stocks/Use, & $6.55 /bu U.S. wheat average price.

KSU U.S. Sorghum and World Coarse Grain Market Outlook in Early-June 2018

An analysis of U.S. and World Grain Sorghum & World Coarse Grain Market Outlook following the USDA’s May 10th USDA World Agricultural Supply Demand Estimates (WASDE) reports is available on the KSU AgManager website  (http://www.agmanager.info/).

Following is a summary of the article on “U.S. Grain Sorghum and World Coarse Grain Market Outlook” with the full article and accompanying analysis on the KSU AgManager website available at the following web address:

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

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U.S. Grain Sorghum & World Coarse Grain Market Outlook

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

June 6, 2018

 

1. The “Boom, Bust & Recovery” of the U.S. Grain Sorghum Market

Since September 2017 Kansas grain sorghum prices have been on a “boom – bust – recovery” process.  During this period U.S. grain sorghum markets have responded to changes foreign sorghum export demand, and to increases in domestic use made more affordable by lower grain sorghum prices.   

The “BOOM”: From August 30, 2017 through February 1, 2018 there was an export-driven “boom” in U.S. grain sorghum prices – primarily in response to aggressive Chinese purchases.  Cash grain sorghum bids at one of the major grain terminal elevators in Salina, Kansas increased from $2.86 to $3.87 per bushel during this period, while corn futures increased $0.32 ¼ per bushel from $3.29 ½ on 8/30/2017 (SEPTEMBER 2017 Corn) to $3.61 ¾ (MARCH 2018 Corn).  Strong U.S. exports of grain sorghum caused selected terminal elevator basis bids at Salina, Kansas to strengthen from $0.43 ½ /bu under on 8/30/2017 to $0.25 ¼ /bu over on 2/1/2018. 

The “BUST”: Beginning in January 2018, trade tensions rapidly developed between China and the U.S., eventually leading to actions by the Chinese to limit U.S. grain sorghum imports.  This caused an immediate “bust” in U.S. sorghum cash prices resulting from a collapse in local sorghum basis levels.   Leading terminal elevator cash bids in Salina, Kansas dropped sharply from $3.87 /bu ($0.25 ¼ over) on February 1st down to $3.04 /bu ($0.54 ¾ under) on February 5th.  However, following this “bust” in grain sorghum prices, users of feedgrains found profitable opportunities for using grain sorghum in livestock feeding, bioenergy production, and in a few cases sorghum export purchase opportunities by countries other than China.  Then in late May 2018 China announced that it was dropping its export actions against U.S. grain sorghum. 

The “RECOVERY”: From those early February 2018 market lows, grain sorghum cash bids at key Salina, KS terminal locations began to trend back higher – with both increasing futures AND narrowing basis bids occurring.  Specifically, from the low of $3.04 /bu ($0.54 ¾ under) on 2/5/2018, sorghum prices at one key Salina terminal location trended upward to a high of $3.59 /bu ($0.49 ½ under) on 5/23/2018.  From there, cash bids have declined moderately – down to a close of $3.39 /bu ($0.45 under) on 6/5/2018. 

Note that grain sorghum basis bids at this Salina, KS location have improved moderately since the price collapse on 2/5/2018, narrowing from $0.54 ¾ /bu under to $0.45 /bu under on 6/5/2018.   This is a sign of generally improving grain sorghum demand across a variety of uses.

 

2. Kansas Cash Grain Sorghum Market Prices on June 5, 2018

On June 5th cash grain sorghum price bids at major grain elevators in Western Kansas ranged from $3.24 to $3.44 /bu – with basis levels $0.60 to $0.40 /bu under CME JULY 2018 corn futures.  The high bid of $3.44 /bu was in Syracuse in southwest Kansas, where the corn price that same day was $3.69 /bu ($0.15 under JULY).   Central Kansas cash grain sorghum price bids on June 5th ranged from $3.24 to $3.39 /bu with basis $0.60 to $0.45 / bu under.  The high bid of $3.39 /bu was in Salina, where the highest corn price that day was $3.48 ¾ /bu ($0.35 under JULY).

In East Central Kansas at Topeka, the highest reported grain sorghum cash price /bu bid was $3.29 /bu (basis = $0.55 under JULY 2018 corn) – compared to the highest corn bid of $3.76 ¾ /bu ($0.07 under JULY).  Note that  in late-January 2018 at the height of Chinese export demand for U.S. grain sorghum, the Topeka, Kansas grain sorghum public bid was the highest in the state, with basis bids of $0.55-$0.60 /bu over MARCH 2018 corn futures.  As indicated above, on June 5th Topeka basis bids for grain sorghum were $0.55 /bu under.

Kansas ethanol plant cash bids for grain sorghum on June 5th ranged from $3.55 ¾ to $3.95 ¾ /bu, with local grain basis being $0.25 under to $0.15 over JULY 2018 corn futures.  Ethanol plant corn bids in Kansas the same day were $3.75 ¾ to $4.10 ¾, with basis bids of $0.05 /bu under to $0.30 over JULY 2018 corn futures.

3. Market Factors for U.S. Grain Sorghum & Other Feedgrains in 2018

Possible 2018 Feedgrain Crop Problems: From the perspective of Kansas grain sorghum producers, there is the possibility of “hoped-for” strength in U.S. grain sorghum prices through the end of “old crop” MY 2017/18 on August 31st.   Whether grain sorghum prices surge higher or not in coming months largely depends on summer 2018 growing conditions for U.S. feedgrains (corn and  grain sorghum mainly, along with barley and oats).   Any serious weather threats to 2018 U.S. feedgrain supplies would support both “old crop” MY 2017/18 and “new crop” MY 2018/19 feedgrain prices in coming months (Table 1a).

U.S. Grain Sorghum Exports in “Old Crop” MY 2017/18: Export shipments of U.S. grain sorghum have averaged 5.0 mb per week since the beginning of the “old crop” 2017/18 marketing year on September 1, 2017 – totaling 190.1 mb through May 24, 2018 – the 38th week of the marketing year.  To reach the USDA’s projection of 245 mb in shipments for “old crop” MY 2017/18 by the end of the marketing year on August 31, 2018, U.S. grain sorghum export shipments have to average at least 3.9 mb per week for the remaining 14 weeks of the period (Table 1a-b, Figures 5, 6 & 7)

  1. Weekly Pace of Recent U.S. Sorghum Exports: For the last 5 weeks ending April 26 through May 24th, the USDA Foreign Agricultural Service (FAS) reported that export shipments have averaged 3.4 mb/week (Figure 7). In addition, as of May 24th, there were only 10.4 mb of advance sales of U.S. grain sorghum for export through August 31st – which does not bode well for U.S. exports to reach the 245 mb target for “old crop” MY 2017/18.  However, recent Chinese actions to remove barriers to purchasing sorghum from the U.S. provides hope that the goal of 245 mb in U.S. grain sorghum exports may be achieved in the current marketing year.
  2. A hypothetical question: “What IF the trade dispute between China and the U.S. had NOT occurred?” In hindsight, IF the earlier pre-trade conflict pace of U.S. grain sorghum exports were to have continued at the levels of November 2017 – January 2018 through the end of August 2018, then total U.S. grain sorghum exports could have ended up being over 300 million bushels in “old crop” MY 2017/18. This assumes that the U.S. would not have just “run out” of exportable grain sorghum supplies before that occurred.

U.S. Sorghum Ethanol & Livestock Feed Use: At the height of U.S. grain sorghum export demand from September 2017 through January 2018, usage and the securing of exportable supplies of U.S. grain sorghum was “crowding out” other sorghum use in ethanol production and livestock feeding in “old crop” MY 2017/18. Prices being paid for grain sorghum to go into export channels were too high for bioenergy and livestock uses to competitively bid for them.  This has been particularly true with abundant supplies of U.S. corn available as a substitute at lower cost (Table 1a-b, Fig. 5 & 6)

  1. However, when S. grain sorghum export trade was disrupted in early February 2018, the rapid and significant decline in sorghum cash prices made sorghum an attractive competitor with U.S. corn as an input for these other domestic user industries. As a result, the USDA raised its projection of U.S. grain sorghum use in domestic livestock feeding from the February (65 mb) to the March (80 mb) WASDE report – and has maintained that projection through the May WASDE.
  2. The USDA has projected that 45 mb of U.S. sorghum would be used in Food, Seed & Industrial (FSI) use in “old crop” MY 2017/18, with most of this amount likely going to ethanol production.

2018 Planted Acres of U.S. Grain Sorghum: The sharply wider U.S. grain sorghum basis levels and lower cash prices during the February – April 2018 period may affect U.S. crop producer’s price and profitability expectations for 2018 grain sorghum acres. As a result, it may also ultimately have a negative effect on U.S. farmers decisions regarding 2018 U.S. grain sorghum planted acres.   The USDA projected that 5.932 million acres (ma) of grain sorghum would be planted in the U.S. in 2018, up from 5.626 ma in 2017, but down from 6.690 ma in 2016 and the 15-year high of 8.459 ma in 2015 (Table 1a-b, Figure 2).

  1. However, an offsetting factor may have been the extreme dry conditions that have existed from southwest Kansas south in to Oklahoma and Texas. This may cause more acres to be planted to grain sorghum as a means of managing drought conditions in spring 2018.

 

4. USDA Forecasts for “New Crop” MY 2018/19 & “Old Crop” MY 2017/18

In the May 10th World Agricultural Supply and Demand Estimates (WASDE) report, the USDA projected 2018 U.S. Grain Sorghum plantings of 5.932 million acres (ma), up 5.4% or 306 ma from 5.626 ma in 2017, but down from 6.690 ma in year 2016.  Harvested acres of U.S. grain sorghum in 2018 are projected to be 5.098 ma, up from 5.045 ma in 2017, but still down significantly from 6.163 ma in year 2016.   U.S. yields in 2018 are forecast at 67.3 bu/ac, down from 72.1 bu/ac in 2017, and 77.9 bu/ac in 2016 (Tables 1a-b, Figures 2 & 3)

As a result, the USDA forecast that the 2018 U.S. grain sorghum production would be 343 million bushel (mb) – the smallest U.S. crop in 6 years (Table 1a-b, Figure 4).   Production of 343 mb in 2018 would be down from 364 mb in 2017, 480 mb in 2016, and the 21-year high of 597 mb in 2015.  Total U.S. feedgrain production (corn, grain sorghum, barley and oats) in the “new crop” 2018/19 marketing year (MY) is projected to be 430.8 million metric tons (mmt) – the 3rd highest on record behind 449.2 mmt in “old crop” MY 2017/18 and the record high of 453.6 mmt in MY 2016/17. 

U.S. Grain Sorghum exports are projected to be 165 mb in “new crop” 2018/19 – down from 245 mb in “old crop” MY 2017/18, and also less than 241 mb in MY 2016/17.  Livestock feed & residual use is projected to be 80 mb in “new crop” 2018/19 – unchanged from 80 mb in “old crop” MY 2017/18, but less than 130 mb in MY 2016/17.  Food, Seed & Industrial (FSI) use (including for bioenergy production) is projected to be 100 mb in “new crop” 2018/19 – up sharply from a 4-year low of 45 mb in “old crop” MY 2017/18, but less than 115 mb in MY 2016/17 and the record high of 137 mb in MY 2015/16.  Total use of U.S. Grain Sorghum in “new crop” MY 2018/19 of 345 mb is down from 370 mb in “old crop” MY 2017/18, and from 485-583 mb in MY 2016/17 and MY 2015/16 (Tables 1a-b, Figures 5, 6, & 7).

Ending stocks of U.S. Grain Sorghum in “new crop” MY 2018/19 are projected to be 27 mb (7.83% Stocks/Use) – down from 29 mb (7.84% Stocks/Use) in “old crop” MY 2017/18, and from 33 mb (6.80% Stocks/Use) in MY 2016/17.  The season average price for U.S. Grain Sorghum in “next crop” MY 2018/19 is projected to range from $3.10-$4.10 (midpoint = $3.60), up from $3.10-$3.30 (midpoint = $3.20) in “old crop” MY 2017/18, and from $2.79 /bu in MY 2016/17 (Tables 1a-b, Figures 5 through 9) This scenario for “new crop” MY 2017/18 is given a 50% likelihood of occurring by KSU Extension Agricultural Economist D. O’Brien.

 

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

Three (e) alternative KSU projection scenarios for “new crop” MY 2018/19 U.S. Grain Sorghum supply-demand and prices include the following forecasts (Table 1b):

1) “Higher 2018 Production & Other Uses” for “New Crop” MY 2018/19 (20% probability):

2018 Planted / harvested acres of 5.932/5.098 ma, 2018 production of 387 mb, total supplies of 416 mb, exports of 180 mb, food- industrial-seed (FSI) use of 115 mb, feed & residual use of 80 mb, total use of 375 mb, ending stocks of 41 mbb, 11.00% ending stocks-to-use, and $3.25 /bu U.S. average price.

2) “Higher Exports” for “new crop” MY 2018/19 (15% probability):

2018 Planted / harvested acres of 5.932/5.098 ma, 2018 production of 343 mb, total supplies of 372 mb, exports of 245 mb, food-seed-industrial (FSI) use of 45 mb, feed & residual use of 67 mb, total use of 357 mb, ending stocks of 15 mb, 4.20% ending stocks-to-use, and $4.00 /bu U.S. average price.

3) “Lower Exports” (15% probability) for “new crop” MY 2018/19:

2018 Planted / harvested acres of 5.932/5.098 ma, 2018 production of 343 mb, total supplies of 372 mb, exports of 140 mb, food-seed-industrial (FSI) use of 115 mb, feed & residual use of 77 mb, total use of 331 mb, ending stocks of 41 mb, 12.39% ending stocks-to-use, and $3.10 /bu U.S. avg. price.

 

6. World Coarse Grain Supply-Demand

The USDA projected that “new crop” 2018/19 marketing year World Coarse Grain total supplies of 1,563.8 mmt will be down 3.2% from 1,577.8 mmt in “old crop” MY 2017/18, and down 3.3% over 1,616.9 mmt in MY 2016/17.   Projected World Coarse Grain total use of 1,378.3 mmt in “new crop” MY 2018/19 is up 1.7% from both 1,355.1 mmt “old crop” MY 2017/18, and 1,355.8 mmt in MY 2016/17.   World “Coarse Grains” include World grain sorghum, corn, barley, oats, rye, millet, and mixed grains (Figure 10, Table 7).

World Coarse Grain ending stocks are forecast to decline, with the USDA projecting ending stocks of 185.45 mmt in “new crop” MY 2018/19, down 16.7% from 222.7 mmt in “old crop” MY 2017/18, and down 29.0% from 261.1 mmt in MY 2016/17 (Figure 10, Table 8).  

World Coarse Grain percent ending stocks-to-use in “new crop” MY 2018/19 are forecast to actually decline to a record low of 13.5% S/U, from 16.4% in “old crop” MY 2017/18, and from 19.3% in MY 2016/17, being the lowest since 13.9% in MY 2011/12 (Figure 10, 11 & 12, Table 9).  This indicates that strong World use of coarse grains are expected to continue, and that more strength in U.S. and World coarse grain prices may occur than the market now anticipates.  

KSU Weekly Grain Market Analysis: Possible Soybean Market Scenarios for “New Crop” MY 2018/19

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, June 1 will be 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_06-01-18.pdf

The recorded radio program will be aired at 10:03 a.m. central time, Friday, June 1, 2018 on the K-State Radio Network (KSU Agriculture Today Radio) – web player available. A copy of the June 1st 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 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″

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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).