Grain Market Outlook for 2017 - 2018

2017 KSU Ag Lenders Conferences

Garden City & Manhattan, Kansas

DANIEL O’BRIEN

EXTENSION AGRICULTURAL ECONOMIST

Topics to be discussed…..

1) Grain Market Analysis & Outlook

• Corn & Grain Sorghum

• Wheat

• Soybeans & Cotton

2) Economic “forces at work” in the grain markets& where they are taking us…

U.S. Dollar Index (ICE Futures)

Monthly Chart: January 1973 through September 29, 2017

87.11Avg. Index #

September 2017

Corn & Sorghum Markets

U.S. Corn & Sorghum Supply-Use

• Prospects for a “large” 14 billion bu+ 2017 U.S. Corn Crop

• Large Supplies & Stocks are limiting Feedgrain Price$’s

• Low Price$’s are supporting Corn Use

o Livestock Feed 2017/18 = 5.475 bln bu (10 year high – vs 5.858 bb in 2007/08)

o Ethanol 2017/18 = 5.475 bln bu (Record high – vs 5.435 bb last year)

o Other FSI 2017/18 = 1.450 bln bu (4 year high – vs 1.435 bb in 2016/17)

o Exports 2017/18 = 1.850 bln bu (vs 2.295 bb in ‘16/17 & 1.901 in ‘15/16)

U.S. Corn & Grain Sorghum Stocks…..

• Corn: “Large” Stocks & % S/U

o End Stocks 2017/18 2.335 bln bu (2nd highest since 1987/88)

o % Stocks/Use 2017/18 16.4% S/U (Highest since 2005/06)

• Grain Sorghum: “Tighter” S/D & Stocks than for Corn

o End Stocks 2017/18 29 Mln bu (15 - 55 mb since 2008/09)

o % Stocks/Use 2017/18 7.8% S/U (Highest since 2005/06)

CME Corn FuturesWeekly Chart: August 2008 – September 2018 + 10/6/2017 a.m.

$3.01$3.18 ¼ $2.90

$3.50

DEC 2017$3.50 ¼ 10/6/2017

Corn Cash & Futures $’sSalina & Garden City, KS Local Elevators – October 6, 2017

$3.50 $3.63 $3.72 $3.80 $3.87

$3.00

$3.36 $3.40

$2.04 $2.04

$0

$1

$2

$3

$4

$5

$6

Pric

e $

/bu

Futures Salina $ Garden City $ Mktg Loan-Salina

$0.0425 /mo $0.0450 /mo $0.0388 /mo$0.0363 /mo

Kansas Corn Seasonal Cash $ IndexMonthly: 17 yr Avg thru 2015/16 + MY 2016/17 & MY2017/18

2017/18

2016/17

Grain Sorghum Cash & Futures $’sSalina & Garden City, KS Local Elevators – October 6, 2017

$3.50 $3.63 $3.72 $3.80 $3.87

$3.16

$2.97 $2.93 $2.91

$1.91 $1.91

$0

$1

$2

$3

$4

$5

Pric

e $

/bu

Futures Salina $ Garden City $ Mktg Loan-Salina

Crop

BUT still

Large Supply

Domestic Use&

Exports

Stocks/Use&

Prices

U.S. Corn Acreage

For 2018???U.S. Corn Planted Acres

Up ≈ 3 million ac.

U.S. Corn YieldsUSDA 2017 USDA Forecast = 169.9 bu/ac

Final 2017???Likely Impact of Drought

Q? Is 167-168 bu/ac possible?

U.S. Corn Yields: 2000-2017Accuracy of September 1st USDA Forecasts

(4.9)

4.7 3.9 3.7 10.9

4.7

(5.6) (5.1)

1.0 2.5

(9.9)(1.3)

0.3 2.8

(0.7)

0.9 0.2

(20)

0

20

40

60

80

100

120

140

100

110

120

130

140

150

160

170

180

Fore

ca

st E

rro

r (Bu

/ac

)

U.S

. Co

rn Y

ield

–Bu

/Ac

re

Year

Difference (bu/ac) September 1 USDA Forecast Final Yield

U.S. Corn Production & Supplies

Final 2017???U.S. Corn Production of

13.8-14.3 bln buseems possible

U.S. Corn Use – By Category

U.S. Corn Exports – Weekly thru Sept. 28, 2017

U.S. Corn Ending Stocks & % Stx/Use

1,967

821

1,232

1,731 1,737

2,350 2,335

17.0

7.4

9.2

12.6 12.7

16.1 16.4

0

1,000

2,000

3,000

4,000

5,000

0

5

10

15

20M

illio

n Bu

she

ls

% E

nd

Sto

cks-

to-U

se

Marketing Year

U.S. Corn % Stocks/Use vs Price$

U.S. Corn % Stocks/Use vs Price$

Corn $Prices responding

either strongly or weakly

to % Stocks/Use Changes

due to flexibility differences

MORE Flexible $ responses

LESS

Fle

xib

le $

resp

ons

es

World Corn (Maize) Production Regions

World Corn Supply, Use & Stocks

World Crop

BUT still

Large Supply

China & EU

BUT

Argentina

Russia

U.S. Corn Price$ vs World % Stocks-to-UseMY 1973/74 through “New Crop” MY 2016/17

U.S. Sorghum Acreage

U.S. Sorghum YieldsUSDA 2016 USDA Forecast = 69.8

Wheat Markets

U.S. Wheat Market Overview• U.S. Wheat Production trending lower (to a 15 year low in 2017)

• Large U.S. & World Stocks continue to limit Wheat Price$’s **

• “Moderate” Exports limiting 2017/18 Wheat Disappearance

o Exports 2017/18 = 975 mln bu (778 mb – 1.291 bb range since 2008/09)

o Food Use 2017/18 = 950 mln bu (Level Food Use since MY 2012/13)

o Feed Use+ 2017/18 = 150 mln bu (Down from 228-365 mb in 2012 - 2013)

o HRW Exports 2017/18 = 400 mln bu (Down from 455 mb in MY 2016/17)

U.S. Wheat Stocks…..

• All U.S. Wheat: “Large” Stocks (but declining)

o End Stocks 2017/18 933 mln bu (1.184 bb last year)

o % Stocks/Use 2017/18 43.6% S/U (53.4% S/U last year)

• U.S. HRW Wheat: “Large” Carryovers (but also declining)

o End Stocks 2017/18 463 mln bu (593 mb last year)

o % Stocks/Use 2017/18 51.7% S/U (63.2% S/U last year)

U.S. Wheat Quality & Grade

• U.S. HRW Wheat 2017 11.4% protein, 60.8 lb test, 1.1% defects

o Versus 11.2% protein, 60.7 lb test wt, 1.2% defects in 2016

• U.S. SRW Wheat 2017 9.5% protein, 58.8 lb test, 1.7% defects

o Versus 9.4% protein, 58.6 lb test wt, 1.4% defects in 2016

• U.S. Soft White 2017 9.6% protein, 60.9 lb test, 0.6% defects

o Versus 10.1% protein, 60.8 lb test wt, 0.6% defects in 2016

• U.S. HRS Spring Wheat 2017 14.6% protein, 61.2 lb test, 1.0% defects

o Versus 14.2% protein, 61.3 lb test wt, 0.9% defects in 2016

World Wheat Market Prospects:Large Supplies A “Buyer’s Market”

• Record Supplies & Large Usage Forecast for 2017/18

o 4 consecutive record high World wheat crops

• Varying 2017/18 Crop Prospects by Country

• Still a “buyer’s market” for World Wheat Trade….but….

o Uncertainty about U.S. & World Crops in 2017-2018?

o BUT a TIGHT “World-Less-China” supply situation has emerged***

CME Kansas Hard Red Winter WheatMonthly Chart: August 2008 – September 2017 + 10/6/2017

$4.59

$6.01

$4.33 $3.67

DEC 2017$4.37 ¼ 10/6/2017

Wheat Cash & HRW Wheat FuturesSalina & Garden City, KS Local Elevators - October 6, 2017

$4.37 $4.55 $4.69 $4.87 $5.06

$3.16 $3.10$2.91 $2.90

$2.84 $2.84

$0$1$2$3$4$5$6$7$8$9

Pric

e $

/bu

Futures Salina $'s Garden City $'s Mktg Loan (Finney Co.)

$0.06 /mo$0.07 /mo $0.09 /mo

$0.09375 /mo

Anticipated VSR Affect!!!

Crop

BUT still

Large Supply

Same Domestic Use&

Exports

Stocks/Use&

Prices

U.S. Wheat Seeded Acreage

2018 U.S. Winter Wheat Acres 5%+- Low Profits

- Disease pressure

- Wet Seeding Time (vs Fall Harvest)

U.S. Wheat Acreage

U.S. Wheat YieldsRecord High

U.S. Wheat Production & Supplies

U.S. Wheat Use by Category

U.S. All Wheat Exports – Weekly thru Sept. 28, 2017

U.S. Hard Red Winter Wheat Exports - Weekly

U.S. Wheat Ending Stocks & % Stx/Use

876

456306

657976

590 752976

1,184933

37

22

13

29

49

24

37

5053

44

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0

10

20

30

40

50

60M

illio

n Bu

she

ls

% E

nd

Sto

cks-

to-U

se

Marketing Year

U.S. Wheat Ending Stocks & Prices

U.S. Wheat Price vs U.S. Stocks-to-Use

World Wheat Production Regions

World Wheat Supply, Use & Stocks

World Crop

BUT still

Large Supply

China & EU

BUT

Argentina

Russia

World & U.S. Crops

BUT

Foreign Wheat

Russia, Turkey,

EU, India, China

BUT

Canada, Australia

Kazakhstan

Beg. Stocks

Production

Supplies

Total Use

&

Ending Stocks

World Wheat Ending Stocks & % Stx/Use

210 203

136 128

204178

195218

241 256 263

3635

2321

31

26

28

3134 35 36

0

100

200

300

400

500

600

0

10

20

30

40M

illio

n M

etr

ic T

ons

% E

nd

ing

Sto

cks-

to-U

se

Marketing Year

U.S. Wheat Price ($) vs World % Stx/UseMY 1973/74 – “New Crop” MY 2017/18

In total aggregate -

World Wheat % S/U

are “dismally” large

U.S. Wheat $ vs Non-China % Stx/UseMY 1973/74 – “New Crop” MY 2017/18

BUT “World-Less-China”

% Stocks/Use

are 2nd TIGHTEST

since 2007/08

(≈ MY 2012/13)

Soybean & Cotton Markets

U.S. Soybean Market Prospects

• Strong Use & Exports, Large Stocks, & Weaker Prices

U.S. soybean exports in 2017/18 to remain historically

large in spite of large 2017 South American Production

Depends on continued growth in import demand from

China, EU, Southeast Asia, Mexico, elsewhere

Questions & concerns to emerge in fall-winter 2017-2018

re: 2018 South American soybean crop size

U.S. Soybean Supply-Use• 2017 U.S. Soybean Production & Supplies @ a record high

• Large Soybean Stocks in U.S. & So. America limit Price$’s

• Low Price$’s supporting “New Crop” MY 2017/18 Usage ***

o Soy Crush 2017/18 = 1.940 bln bu (Record – vs 1.895 bb 1 year ago)

o Exports 2017/18 = 2.250 bln bu (Record – vs 2.170 bb 1 year ago)

o Total Use 2017/18 = 4.326 bln bu (Record – vs 4.183 bb 1 year ago)

o SBM Use 2017/18 = 46.4 mln tons (vs 44.9 in MY 2016/17 & 45.1 in MY 2015/16)

U.S. Soybean & Cotton Stocks…..

• Soybean: “Large” Stocks & % S/U

o End Stocks 2017/18 475 mln bu (High vs 574 mb in 2006/07)

o % Stocks/Use 2017/18 11.0% S/U (High vs 18.6% in 2006/07)

• Cotton: “Large” 2017 Crop & “Growing” Stocks

o Production 2017/18 21.8 mln bales (17.2 & 12.9 mb last 2 years)

o End Stocks 2017/18 6.0 mln bales (2.8 & 3.8 mb last 2 years)

o % Stocks/Use 2017/18 32.9% S/U (14.9% & 30.2% last 2 years)

CME Soybean Futures Monthly Chart: August 2008 – September 2017 + 10/6/2017

$7.76 ¼ $8.53 $9.00 ¼

$9.72

NOV 2017$9.72 ¼ 10/6/2017

Soybean Cash & Futures Price$’sSalina & Garden City, KS Local Elevators - October 6, 2017

$9.72 $9.83 $9.92 $10.01 $10.09$8.82

$8.62 $8.62

$5.01 $5.01

$0

$3

$6

$9

$12

$15

$18

Pric

e $

/bu

Futures Salina $'s Garden City $'s Mktg Loan (Saline Co.)

$0.0538/mo $0.0463 /mo $0.0450 /mo $0.0388 /mo

Kansas Soybean Seasonal Cash $ IndexMonthly Prices: 1999/00 – 2014/15 + “New Crop” MY 2016/27

2016/17

2017/18

Record Crop

and

Large Supply

Record Use&

Exports

Stocks/Use&

Prices

U.S. Soybean Acreage

For 2018???U.S. Soybean Planted Acres

down ≈ 2 to 3 million ac.

U.S. Soybean YieldsUSDA 2017 = 49.4 bu/ac; 2017 Trend1973-2016 = 46.85

Final 2017???Impact of Dry Regions???

47-48 bu/ac is still possible

U.S. Soybean Yields: 2000-2017Accuracy of September 1st USDA Forecasts

(1.4)

1.4 1.0

(2.5)

3.7 3.5 1.1 0.3

(0.3)

1.7

(1.2)

0.2 4.7 2.8 0.9 0.9 1.5

(10)

0

10

20

30

40

50

60

20

25

30

35

40

45

50

55

Fore

ca

st E

rro

r (Bu

)

U.S

. So

ybe

an

Yie

ld –

Bu/A

cre

Year

Difference (bu/ac) August 1 USDA Forecast Final Yield

U.S. Soybean Production & Supplies

U.S. Soybean Use & End Stocks

U.S. Soybean Exports - Weekly

U.S. Soybean Ending Stocks & % Stx/Use

138 151 169 141 92 191 197345 475

4.5% 4.5%5.4%

4.5%

2.6%

5.0% 5.0%

8.3%

11.0%

0

500

1,000

1,500

2,000

2,500

3,000

0%

4%

8%

12%

Mill

ion

Bu.

% E

nd

Sto

cks-

to-U

se

Marketing Year

U.S. Soybean % Stocks/Use vs Price$

U.S. Soybean $ vs U.S. Stx-to-UseMY 1973/74 through “Next Crop” MY 2017/18

World Soybean Supply, Use & Stocks

U.S. Soybean$ vs World %Stx/Use MY 1973/74 through “New Crop” MY 2017/18

Soybean Importer Purchases

52

126 3

16

95

159

4

26

0

50

100

China EU-28 SE Asia Mexico Rest of World

Mil

lio

n M

etri

c T

on

s

2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

+12% /yr

+1.4% /yr+7.8% /yr +3.3% /yr

+9.5% /yr

Chinese increase of 39.7 mmtin soybean imports over 7 years

Up 9.0 mmtover 7 years

Questions?

Daniel O’Brien – Extension Ag Economist

Blog: www.ksugrains.wordpress.com

KSUGrains on Twitter & Facebook

www.AgManager.info