Crops Marketing and Management Update

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1 Crops Marketing and Management Update Vol (10) December 14, 2015 Topics in this Month s Update: 1. December 9 th WASDE Update: Very Minor Adjustments Before January s Report 2. How do USDA s Production Estimates Change Between November and January? 3. Corn and Soybean Storage Risk Management Alternatives for March Delivery 4. Projected Returns to On-Farm and Off-Farm Storage for Corn and Soybeans 5. USDA Releases Preliminary 2016 Agricultural Baseline Projections 6. How Do I Get on the Distribution List to Receive this Newsletter? Topic 1. December 9 th WASDE Update: Very Minor Adjustments Before January s Report USDA does not provide crop production and yield projections in December so the December WASDE usually does not provide surprises in the supply and demand projections. USDA lived up to expectations as the December WASDE did not adjust the soybean or wheat balance sheets and made minor adjustments to the corn balance sheet. Table 1. U.S. Corn Supply and Use Change from Estimated Projected Projected Planted Area (million) Harvested Area (million) Yield (bushels/acre) Beginning Stocks ,232 1, Production 10,755 13,829 14,216 13, Imports Total Supply 11,904 14,686 15,479 15, Feed and Residual 4,315 5,036 5,315 5, Food, Seed & Industrial 6,038 6,501 6,568 6, Ethanol and by-products 4,641 5,134 5,209 5, Exports 730 1,917 1,864 1, Total Use 11,083 13,454 13,748 13, Ending Stocks 821 1,232 1,731 1, Stocks/Use 7.4% 9.2% 12.6% 13.1% +0.5% Days of Stocks U.S. Marketing-Year Average Price ($/bu) $6.89 $4.46 $3.70 $3.65 $0.05 Source: December 2015 WASDE - USDA: WAOB. The December report made no adjustments to the supply side of the balance sheet. USDA increased the corn for ethanol use by 25 million bushels reflecting EPA s announcement of the blender s renewable volume obligations for 2015 and Still, corn for ethanol use is projected to be 9 million bushels less than in USDA also reduced exports by 50 million bushels from the November report. If realized, exports would be 114 million bushels less than last year. The adjustments in use increased projected ending-stocks to billion bushels. If realized, ending-stocks will be the largest since the marketing-year. The corn market has successfully rebuilt stocks from 821 million bushels in which was about a 27 day supply of corn at the end of the marketing-year. Projected ending-stocks of billion bushels can be thought of as about a 48 day supply of corn on hand on September 1, 2016, if realized. This increase in stocks will limit price potential with the projected U.S. MYA price at $3.65 which is a $0.05/bu. decrease from the previous marketing-year. As stated earlier, the December WASDE did not make any adjustments to the soybean and wheat balance sheets. 1

2 Table 2. U.S. Soybean Supply and Use Change from Estimated Projected Projected Planted Area (million) Harvested Area (million) Yield (bushels/acre) Beginning Stocks Production 3,042 3,358 3,927 3, Imports Total Supply 3,252 3,570 4,052 4, Crushings 1,689 1,734 1,873 1, Exports 1,317 1,647 1,843 1, Seed Residual Total Use 3,111 3,478 3,861 3, Ending Stocks Stocks/Use 4.5% 2.6% 4.9% 12.4% +7.5% Days of Stocks U.S. Marketing-Year Average Price ($/bu) $14.40 $13.00 $10.10 $8.90 -$1.20 Source: December 2015 WASDE - USDA: WAOB. The 2015 soybean crop at billion bushels will be a record, if realized. With an increase in carry-in, total soybean supply of 4.2 billion is a record and 151 million more bushels in the marketing pipeline over last year. Use is projected to decrease 123 million bushels from Exports are the wild-card and are currently projected at 128 million bushels less than last year. Production problems or logistical problems in South America could swing purchases back to the U.S. from South American countries. Ending-stocks are projected to increase by 274 million bushels to 465 million bushels. This is a 45 day supply of soybeans and will limit price potential. The U.S. MYA price is projected at $8.90/bushel down $1.20/bushel from Table 3. U.S. Wheat Supply and Use Change from Estimated Projected Projected Planted Acres (million) Harvested Acres (million) Yield (bushels/acre) Beginning Stocks Production 2,252 2,135 2,026 2, Imports Total Supply 3,118 3,021 2,766 2, Food Seed Feed and Residual Exports 1,012 1, Total Use 2,400 2,431 2,013 2, Ending Stocks Stocks/Use 29.9% 24.3% 37.4% 45.1% +7.7% Days of Stocks U.S. Marketing-Year Average Price ($/bu) $7.77 $6.87 $5.99 $5.00 -$0.99 Source: December 2015 WASDE - USDA: WAOB. The 2015 wheat crop at billion bushels is projected to be slightly larger than the 2014 crop. The total supply for is 164 million bushels larger than last year due to the larger carry-in. Use is expected to increase very little from Feed use is projected at 180 million bushels but that may be optimistic given the quantity of cheap corn available. Wheat exports, at 800 million bushels, will be the lowest since , if realized. Ending-stocks are projected to build to 911 million bushels which is an increase of 158 million bushels, if realized. The U.S. farm price is projected to be $5.00/bushel which would be $0.99/bushel lower than last year s price, if realized (Table 3). Besides having abundant stocks domestically, world stocks of corn, soybeans and wheat are projected to increase by3.7, 4.92 and 17.8 Million Metric Tons (MMT), respectively, from USDA projects that China s corn stocks will increase by 14 MMT and that China holds about 54% of the world s projected corn stocks which may temper their demand for corn. The issue with China is the age and quality of this corn and the Chinese government s willingness to allow importation of better quality corn to blend with the stored grain of lesser quality. For soybeans, Argentina and Brazil are projected to have 37% and 23% of the world s ending-stocks, respectively. Both countries are storing as a hedge against inflation and a way to preserve monetary value. Argentina s new President Macri is promising to eliminate export taxes on corn and wheat and to reduce the soybean export tax (currently at 35%) by 5% per year with potentially zero export tax applied to soybeans in seven years. Macri also wants to allow the Argentine Peso to devalue from the fixed exchange rate of 9 Argentine pesos/us dollar to something closer to 15 Argentine pesos / US dollar. The risk of a quick devaluation is stoking greater inflation in a country where inflation is unofficially estimated at over 20%. The out-going government in Argentina famously cooked-the-books to keep the official inflation rate below 10%. A more market-oriented philosophy in Argentina should increase corn and wheat production in Argentina and also allow soybean inventories to be released from farmer storage and enter the market. Argentina re-entering the world s market will place greater pressure in U.S. export competitiveness - especially for soybean and soy products. Topic 2. How do USDA s Production Estimates Change Between November and January? Clearly both the USDA and the market are focused on the final production estimates for the 2015 crops to be released on January 12, Market bulls hoping for this summer s wet weather to reduce the corn and soybean crop have been very 2

3 Table 4. Projected Change from November Forecast to January Forecast for U.S. Corn and Soybeans and Price Change Changes in Corn Production Estimates and Potential Price Impact Changes in Soybean Production Estimates and Potential Price Impact % Change Change in % Change Change in in Production 2015 Production U.S. MYA in Production 2015 Production U.S. MYA disappointed with the potential record soybean crop and the third largest corn crop. As farmers anticipate this report, a valid question is How much do the production projections change from November to January? December 2015 WASDE 13,654 $3.65 December 2015 WASDE 3,981 $8.90 Fortunately, USDA provides data that tracks how the production estimates (harvested area, yield, and production) change from the first projection in August through the January report and subsequent revisions. The data series starts with 1965 and is available for corn and soybeans. Table 4 reports the average percentage change in production from November to January for the entire fifty year period ( ) and for the last twenty years ( ) for both corn and soybeans. For corn, the average change in production from the November to January report was a 0.39% increase. This would suggest that an average increase in production would add 53 million additional corn bushels (Table 4) and would have a marginal impact on the U.S. MYA price. From , USDA increased the production estimate 58% of the time with an average increase of 1.3% which would translate into a 178 million bushel increase for the 2015 corn crop (Table 4). Similarly, the 42% of the years when USDA reduced production, the average reduction was 0.88% which translates to a 120 million bushel decrease in the 2015 corn crop (Table 4). The left-hand side of Table 4 suggests that past history suggests limited price movement potential from USDA refining the 2015 corn production estimate. Year from November - January Million Bushels Price Year from October - January Million Bushels Price Average +0.39% +53 -$ Average -0.05% -2 +$0.01 Average Increase +1.30% $0.07 Average Increase +1.26% +50 -$0.18 Average Decrease -0.88% $0.05 Average Decrease -1.25% -50 +$ Average -0.26% -35 +$ Average -0.04% -1 +$0.01 Average Increase +0.48% +65 -$0.03 Average Increase +1.06% +42 -$0.15 Average Decrease -0.99% $0.06 Average Decrease -0.77% -30 +$0.13 Source: USDA-NASS The last 50 years of history of USDA production suggests the potential for greater price movement in soybeans than in corn. The right-hand side of Table 4 shows that a 1.25% increase or decrease in production could equate to a 50 million bushel swing in the 2015 soybean crop. This might move the U.S. MYA price $0.18 to $0.20 per bushel in either direction. An increase in the size of the 2015 soybean crop could lower the MYA price by $0.18/bushel while a 50 million bushel reduction in production could raise the U.S. MYA price by $0.21/bushel (Table 4). While Table 4 provides an interesting exercise of how the January Crop Production projections and the related WASDE report might impact price, managers should pay close attention to the demand projections to gauge the impact on ending-stocks. The U.S. is facing strong head-winds in exports due to abundant stocks globally and strong competition in exports from foreign sources. The strength of the U.S. dollar will make U.S. grain and oilseeds more expensive to foreign customers which may also cap export potential. Topic 3. Corn and Soybean Storage Risk Management Alternatives for March Delivery Farmers storing unpriced grain should consider how risk management tools can protect margins that cover cash production costs plus rent and storage. The pricing objectives used in these examples should be a minimum pricing objective. Managers need to know the per bushel cost of production, rent, storage, principal and interest payments, and contribution to family living expense needed from each bushel sold. The black dashed line in Figure 1 is the per bushel total variable cash cost + cash rent + on-farm storage cost from October to March assuming a harvested yield of 175 bushels/acre. These costs are based on the 2015 crop enterprise budgets for Western Kentucky with an emphasis on covering cash costs. Ideally you would strive to cover total economic costs plus provide a return for family living, debt payments, management and future business growth. Consider the black line at $3.51/bushel a minimum price needed to cover the cash costs of farming and storing grain. Cash-forward contracts for March delivery are scarce on DTN but a few in the region were listed at an average of $3.91/bushel which would be a $0.40/bushel return over total cash variable costs, rent and storage. Similarly, a hedge with March futures would lock in a price at $3.80 and a return of $0.29/bushel over the pricing objective. An at-the-money put option with a $3.75 strike price would place a floor $0.16/bushel above the objective. A benefit of a put is that it provides flexibility to benefit from higher prices if March futures rally between now and the expiration on February 19, 2016 (Figure 1). 3

4 Cash Price Cash Price Cash CFC Futures Put TVC+Rent+Storage $5.25 $5.00 $4.75 $4.50 $4.25 A March cash-forward-contract (red line) at $3.91 would provide a $0.40/bushel return over total cash variable costs, rent and storage (black line at $3.51/bushel). Hedging with a March Futures contract (green line) at $3.75 will lock in a cash price of $3.80/bushel at an expected basis of +$0.05/bushel. This hedge would lock in a return of $0.29/bushel An at-the-money put (orange line) at a $3.75 strike price costs $0.124 and will lock in a floor at $3.68/bushel and a $0.16/bushel return. When March Futures are at $3.87, the put is better than the hedge. When March Futures are at $3.98, the put is better than the CFC. The March put expires on February 19, 2016, so risk coverage ends on that date. $4.00 $3.75 $3.50 $3.25 $3.00 $2.75 $2.50 $3.00 $3.20 $3.40 $3.60 $3.80 $4.00 $4.20 $4.40 $4.60 Futures Price Figure 1. Comparison of Price Risk Management Alternatives for Storing Corn from October 2015 to March Price risk management alternatives for soybeans are illustrated in Figure 2. The pricing objective of $8.36/bushel will cover the per bushel cash total variable production costs, cash rent and on-farm storage from October to March based on the state average yield of 52 bushels/acre. A few locations were offering a CFC for March 2016 at $8.89/bushel which would be a $0.53/bushel return (red line). Similarly, hedging with March soybean futures (green line) would lock in a price at $8.84 assuming a basis of +$0.10/bushel which would be a $0.48 return over the pricing objective. An in-the money put with a $8.80 strike price costs $0.29/bushel and would provide a floor that is $0.25 above the pricing objective. When March futures are at $8.93/bushel or higher, the put option is better than the hedge. Similarly, when March futures at $9.08/bushel or higher, a put is better than the CFC. Figures 1 and 2 illustrate that put options are always a second-best marketing tool. If you knew with certainty that prices will increase between now and mid-february, your best strategy would be to do nothing and sell in the cash market. If you knew with certainty that prices are going to be lower in mid-february, the CFC would provide a better return than the put option. A nice attribute of options is the flexibility and the potential to benefit from higher future prices. Cash CFC Futures Put TVC+Rent+Storage $12.00 $11.50 $11.00 $10.50 A March cash-forward-contract (red line) at $8.89 would provide a $0.53/bushel return over total cash variable costs, rent and storage (black line at $8.36/bushel). Hedging with a March Futures contract (green line) at $8.74 will lock in a cash price of $8.84/bushel at an expected basis of +$0.10/bushel. This hedge would lock in a return of $0.48/bushel. An in-the money put at a $8.80 strike price (orange line) costs $0.29 and will lock in a floor with a profit of $0.25/bushel. However, when March Futures are at $8.93, the put is better than the hedge. When March Futures are at $9.08, the put is better than the CFC. The March put expires on February 19, 2016 which will end the price protection. $10.00 $9.50 $9.00 $8.50 $8.00 $7.50 $7.00 $6.50 $7.00 $7.50 $8.00 $8.50 $9.00 $9.50 $10.00 $10.50 $11.00 Futures Price Figure 2. Comparison of Price Risk Management Alternatives for Storing Soybeans from October 2015 to March 2016 Topic 4. Projected Returns to On-Farm and Off-Farm Storage for Corn and Soybeans The projected returns over storage cost, shrink and opportunity costs for on-farm and off-farm storage for corn and soybeans are shown in Tables 5 8 to help guide the timing of marketing grain in storage. Historical basis for locations in Western 4

5 Kentucky from 2001 to 2014 are used with current futures market quotes to develop price expectations for each month from November 2015 to July The basis information is provided by the Kentucky Farm Bureau Federation. To provide some sensitivity analysis, the basis is assumed to be one standard deviation higher and lower which would cover perhaps 68% of the potential basis outcomes. For even more sensitivity analysis, the basis is assumed to be two standard deviations higher or lower which might capture 95% of the potential basis variability. Don t worry about the statistics just think of the sensitivity analysis as considering basis that appreciates more than expected (+ standard deviations) or basis appreciating less than expected (- standard deviations). The projected returns to on-farm storage for corn are shown in Table 5. Remember that the returns in Table 5 that have the most certainty are the returns for the cash-forward-contract price assumptions as those prices can be guaranteed with certainty by a contract. The rest of the returns in Table 5 are subject to futures market and basis volatility. Table 5. Projected Returns to On-Farm Storage for Corn from October 2015 to July / Nov Dec Jan Feb Mar Apr May Jun July Expected Basis +$ $ $ $ $ $ $ $ $0.067 CFC (DTN) +$ $ $ $ $ $ $ $ $ std dev +$ $ $ $ $ $ $ $ $ std dev +$ $ $ $ $ $ $ $ $ std dev +$ $ $ $ $ $ $ $ $ std dev +$ $ $ $ $ $ $ $ $ / Expected basis is average from 2001 to 2014 for Western Kentucky locations. CFC (DTN) is cash-forward-contract prices as reported on DTN for Western Kentucky locations. Plus 1 std. deviation is the expected basis plus 1 standard deviation which could be considered an optimistic expectation for an appreciating basis. Plus 2 standard deviations is the expected basis plus 2 standard deviations which could be considered an extremely optimistic basis appreciation. Minus 1 standard deviation is the expected basis minus 1 standard deviation which could be considered a pessimistic view of basis appreciation. Minus 2 standard deviations is the expected basis minus 2 standard deviations which could be considered an extremely pessimistic view of basis appreciation. The only forecast which is certain is the CFC (DTN) as those are contracted prices. The rest are subject to market and basis volatility. The returns to storage include the opportunity cost of not selling corn at harvest. This cost is calculated at a 5% annual interest rate. Farms highly leveraged with higher interest rates also have larger opportunity costs. At current futures prices and various basis assumptions, managers might consider February/March as a good time to think about selling corn from on-farm storage. Under an optimistic basis (+1 std. dev.), there could be potential returns of $0.216/bushel if stored until March. With pessimistic basis expectations (-1 std. dev.), February may not be a bad time to think about selling some corn. Currently basis is similar to +1 std. deviation. There is potential to lock in a return of $0.185/bushel with a February cashforward-contract (Table 5). Table 6 shows the projected returns to off-farm storage for corn from October 2015 to July The returns to off-farm storage are lower than on-farm storage due to the higher storage fee off-farm and a slightly larger shrink factor. If basis appreciates more than expected, (+1 std. dev.), then the return could be -$0.056/bushel in March Given that off-farm storage is more expensive than on-farm storage, managers need to pencil out the potential return from the market for storing grain an additional month to guide sales. The projected margins, using current futures market prices, will require significant basis appreciation for positive returns to off-farm storage Table 6. Projected Returns to Off-Farm Storage for Corn from October 2015 to July / Nov Dec Jan Feb Mar Apr May Jun July Expected Basis -$ $ $ $ $ $ $ $ $0.190 CFC (DTN) -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ / Expected basis is average from 2001 to 2014 for Western Kentucky locations. CFC (DTN) is cash-forward-contract prices as reported on DTN for Western Kentucky locations. Plus 1 std. deviation is the expected basis plus 1 standard deviation which could be considered an optimistic expectation for an appreciating basis. Plus 2 standard deviations is the expected basis plus 2 standard deviations which could be considered an extremely optimistic basis appreciation. Minus 1 standard deviation is the expected basis minus 1 standard deviation which could be considered a pessimistic view of basis appreciation. Minus 2 standard deviations is the expected basis minus 2 standard deviations which could be considered an extremely pessimistic view of basis appreciation. The only forecast which is certain is the CFC (DTN) as those are contracted prices. The rest are subject to market and basis volatility. There is a lot more red ink for the projected returns to off-farm storage. For most basis expectations, the February to March window seems to provide the best potential for the smallest loss from storing corn. The projected returns to on-farm storage for soybeans are shown in Table 7. The soybean futures market has even less carry than currently in the corn market. Projected returns to on-farm storage until March 2016 is a loss of $0.34/bushel (Table 10) 5

6 Table 7. Projected Returns to On-Farm Storage for Soybeans from October 2015 to July / Nov Dec Jan Feb Mar Apr May Jun July Expected Basis -$ $ $ $ $ $ $ $ $0.156 CFC (DTN) -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ / Expected basis is average from 2001 to 2014 for Western Kentucky locations. CFC (DTN) is cash-forward-contract prices as reported on DTN for Western Kentucky locations. Plus 1 std. deviation is the expected basis plus 1 standard deviation which could be considered an optimistic expectation for an appreciating basis. Plus 2 standard deviations is the expected basis plus 2 standard deviations which could be considered an extremely optimistic basis appreciation. Minus 1 standard deviation is the expected basis minus 1 standard deviation which could be considered a pessimistic view of basis appreciation. Minus 2 standard deviations is the expected basis minus 2 standard deviations which could be considered an extremely pessimistic view of basis appreciation. The only forecast which is certain is the CFC (DTN) as those are contracted prices. The rest are subject to market and basis volatility. If basis appreciates more than expected (+1 std. dev.), then the projected return to storage to March is a gain of $0.134/bushel. Basis will need to appreciate by 2 std. dev. for a chance of positive storage returns exceeding $0.40/bushel. The projected returns to off-farm soybean storage are shown in Table 8. The greater fees associated with off-farm storage and lack of significant carry in the soybean futures market makes it difficult to pencil out a positive return to storage unless there is greater basis appreciation than expected. If basis appreciates more than expected (+2 std. dev.) then storing soybeans until March 2016 gives a projected return to storage of $0.277/bushel. If basis is average or appreciate less than average (-1 std. dev.) then there are negative expected returns to off-farm soybean storage. The point of this analysis is to get managers thinking about what the market is currently signaling as far as potential storage returns and to hopefully motivate managers to monitor the market, basis, and to understand the full cost of storing (including opportunity cost of stored grain) in improving their marketing of stored grain. Table 8. Projected Returns to Off-Farm Storage for Soybeans from October 2015 to July / Nov Dec Jan Feb Mar Apr May Jun July Expected Basis -$ $ $ $ $ $ $ $ $0.303 CFC (DTN) -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ std dev -$ $ $ $ $ $ $ $ $ / Expected basis is average from 2001 to 2014 for Western Kentucky locations. CFC (DTN) is cash-forward-contract prices as reported on DTN for Western Kentucky locations. Plus 1 std. deviation is the expected basis plus 1 standard deviation which could be considered an optimistic expectation for an appreciating basis. Plus 2 standard deviations is the expected basis plus 2 standard deviations which could be considered an extremely optimistic basis appreciation. Minus 1 standard deviation is the expected basis minus 1 standard deviation which could be considered a pessimistic view of basis appreciation. Minus 2 standard deviations is the expected basis minus 2 standard deviations which could be considered an extremely pessimistic view of basis appreciation. The only forecast which is certain is the CFC (DTN) as those are contracted prices. The rest are subject to market and basis volatility. If basis appreciates more than expected (+2 std. dev.), the projected return to storage to March is $0.277/bushel. However, DTN CFC bids suggest that returns to off-farm storage will be negative for most basis expectations. Topic 5. USDA Releases Preliminary 2016 Agricultural Baseline Projections Each February, USDA releases their Agricultural Baseline Projections for the grain and livestock sectors that project price potential and profitability over the next decade. These projections are based on a detailed economic model but do not include farmer s planting intentions in any given year. These forecasts can help policy-makers understand economic outlook for the important crop and livestock sectors. Managers can use these forecasts to understand potential long-term profitability in the crop sector if there isn t any major shock to production or demand. That is an unlikely assumption so this discussion will focus on USDA s preliminary forecast for the marketing-year for corn, soybeans and wheat. 6

7 Table 9. Preliminary 2016 Baseline Projection for Corn /17 Change from Estimated Projected Projected Planted Acres (million) Harvested Acres (million) Yield ( bushels/acre) Million Bushels Beginning stocks 1,232 1,731 1, Production 14,216 13,654 13, Imports Supply 15,479 15,415 15, Feed & residual 5,315 5,300 5, Food, seed, & industrial 6,568 6,580 6, Ethanol and by-products 5,209 5,200 5, Exports 1,864 1,750 1, Total use 13,748 13,630 13, Ending stocks 1,731 1,785 1, Stocks/Use 12.6% 13.1% 12.6% -0.5% Days of Stocks U.S. MYA Price $3.70 $3.65 $3.68 +$0.03 USDA is projecting 2016 planted and harvested area to increase 2.1 million and 2.0 million acres, respectively, from 2015 (Table 9). This acreage projection is based on relative crop profitability and not from a farmer survey. University budgets for 2016 suggest a profitability advantage for corn over soybeans in the Corn Belt which suggests this is a reasonable assumption given current price expectations. The largest increase in use is projected for feed, 150 million bushels, and for exports increasing by 150 million bushels from At this time, the projected exports of 1.9 billion bushels seem too optimistic given the value of the dollar and export competition from South America. Stocks are not projected to change much which suggests the MYA price will be similar to the two previous years prices. The preliminary Agricultural Baseline Projections are shown for soybeans in Table 10. Some of the projected increase in corn area is projected to come from soybeans. USDA s Agricultural Baseline is projecting planted and harvested are projected to be 1.2 million and 1.3 million acres lower, respectively, from the 2015 soybean plantings. USDA is assuming a trend yield of 46.7 bushels/acre which is lower than the record yield set in Assuming acreage reduction and trend yields, the corn crop of billion bushels would be 196 million bushels less than The optimistic assumption of soybean exports increasing 110 million bushels from the marketing-year may be difficult to realize given the strength of the dollar and abundant stocks in South America. USDA s Baseline is projecting soybean stocks decreasing slightly which could push prices above $9/bushel. This reduction in stocks hinges on average production and greater exports. The 2016 wheat Agricultural Baseline Projections are reflecting the pressure of abundant global and domestic stocks. Assuming a reduction in planted and harvested wheat area in 2016 plus trend yields, the 2016 wheat crop would still be 8 million bushels larger than the 2015 crop (Table 11). With carry-in for 2016 projected at 911 million bushels, the total supply of wheat for could be 166 million bushels greater than the supply. Table 10. Preliminary 2016 Baseline Projection for Soybeans /17 Change from Estimated Projected Projected Planted Area (million) Harvested Area (million) Yield (bushels/acre) Beginning Stocks Production 3,927 3,981 3, Imports Total Supply 4,052 4,203 4, Crushings 1,873 1,890 1, Exports 1,843 1,715 1, Seed & Residual Total Use 3,861 3,738 3, Ending Stocks Stocks/Use 4.9% 12.4% 10.9% -1.5% Days of Stocks U.S. Marketing-Year Average Price ($/bu) $10.10 $8.90 $9.10 +$0.20 Table 11. Preliminary 2016 Baseline Projection for Wheat /17 Change from Estimated Projected Projected Planted Acres (million) Harvested Acres (million) Yield (bushels/acre) Beginning Stocks Production 2,026 2,052 2, Imports Total Supply 2,766 2,930 3, Food Seed Feed and Residual Exports Total Use 2,013 2,019 2, Ending Stocks Stocks/Use 37.4% 45.1% 42.8% -2.3% Days of Stocks U.S. Marketing-Year Average Price ($/bu) $5.99 $5.00 $4.90 -$0.100 USDA is assuming feed use will increase to 225 million bushels which would require wheat prices at a discount to corn. Exports are also assumed to increase 100 million bushels from which suggests either a weaker dollar or a global production issue that shifts exports from more price competitive regions to the United States. Even if stocks decrease for , the U.S. MYA price for wheat is projected to be at least $0.10/bushel less than the MYA price. These projections will be revised and release in February as part of the USDA Outlook Forum. They are not based on farmers planting intentions but can tell an interesting story on how the corn, soybean and wheat markets could be stuck in a sustained period of low prices unless a production shock can pop prices higher, temporarily. Growing demand is needed to recreate a multi-year price increase like the market experienced from

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