Wheat Market Outlook in Mid June 2016

Transcription

1 Wheat Market Outlook in Mid June 2016 Daniel O Brien Extension Agricultural Economist, K State Research and Extension June 22, 2016 Summary Since the USDA s June 10 th Crop Production and World Agricultural Supply and Demand Estimates (WASDE) report, U.S. and World wheat market prices have fallen sharply especially as the U.S. hard red winter wheat harvest has advanced. For the new crop 2016/17 marketing year the USDA projected: 1) World wheat total supplies of mmt and total use of mmt both at record high levels, 2) that at least marginally weaker trade continues in World wheat exports with mmt in the new marketing year down from mmt last year, but up from mmt two years ago, 3) World wheat ending stocks at a record high mmt compared to mmt last year, and mmt two years ago, and 4) World wheat percent ending stocks to use of 36.0% up from 34.3% last year and from 30.7% two years ago up to their highest level in 15 years (since MY 2001/02). For a perspective on how historically large World wheat stocks and percent stocks to use are, the 34 year low in World wheat ending stocks of mmt and at least a 57 year low in percent ending stocks to use of 20.9% S/U both occurred in MY 2007/08, the last major World wheat short crop marketing year. The large crop over supply situation that exists in World and U.S. wheat markets continues to have a strong prevailing negative influence on World wheat prices. It is likely that significant World wheat production problems and/or trade disruptions would need to occur in coming weeks and months in order to have wheat prices recover significantly in spring summer Ongoing strength in the U.S. dollar exchange rate although it has been weakening recently also is a serious negative factor that is limiting U.S. wheat exports, resulting in higher U.S. wheat ending stocks and % ending stocks touse, and is consequently causing U.S. wheat prices to fall sharply. USDA U.S. Wheat S/D Forecast for Old Crop MY 2015/16: The USDA made minor changes in its supplydemand and price projections for U.S. wheat in the old crop 2015/16 marketing year with billion bushels (bb) production, bb total supplies (down 3 mb on reduced imports), 960 million bushels (mb) of food use, 775 mb of exports (down 5 mb), 140 mb of feed use, bb of total use (down 5 mb), 980 mb ending stocks (up 2 mb), and 50.49% ending stocks to use (up from 50.24% in May to the highest level since 48.6% in MY 2009/10). The USDA forecast of old crop MY 2015/16 U.S. average wheat prices to be $4.90 /bu the lowest U.S. wheat marketing year average price since $4.87 /bu in MY 2009/10 when U.S. wheat ending stocks to use was 48.58%. USDA U.S. Wheat S/D Forecast for New Crop MY 2016/17: The USDA projected 2016 U.S. wheat plantings of million acres (ma) down ma from The USDA also implicitly forecast 2016 harvested acres of ma which would be down ma ( 9.25%) vs Based on projected 2016 U.S. wheat yields of 48.6 bu/ac (up from 43.6 bu/ac in 2015), 2016 U.S. wheat production is projected to be bb (vs bb in 2015), with total supplies of bb (up from bb in old crop MY 2015/16), and total use of bb (up from bb in old crop MY 2015/16). Given these numbers, the USDA projected new crop MY 2016/17 ending stocks of bb (vs 980 mb a year ago), with percent ending stocks to use of 49.25% S/U (vs 50.49% last year). U.S. wheat average prices are projected to be in the range of $3.60 to $4.40 (midpoint = $4.00 /bu) down from $4.90 /bu in old crop MY 2015/16. It is assumed by Kansas State University that these USDA projections for new crop MY 2016/17 have a 35% probability of occurring. Page 1

2 KSU U.S. Wheat S/D Forecasts for New Crop MY 2016/17: Three alternative KSU Scenarios for U.S. wheat supply demand and prices are presented for new crop MY 2016/17, with each assuming the same 2016 planted acreage as USDA. However, based on historical U.S. percent harvested to planted acreage relationships, these KSU projections assumed million less acres harvested than the implicit USDA estimate. These KSU projections also assume at least a moderation in the high value of the U.S. dollar, and some improvement in U.S. wheat exports as a result. A) KSU Trend Yield Moderate $USD Scenario (30% probability) assumes for new crop MY 2016/17: ma planted, ma harvested, 46.0 bu/ac yield, bb production, bb total supplies, 850 mb exports, bb total use, 946 mb ending stocks, 45.50% S/U, & $4.40 /bu U.S. wheat average price; B) KSU Trend Yield Foreign Crop Problems Moderate $USD Scenario (15% probability) assumes: ma planted, ma harvested, 46.0 bu/ac yield, bb production, bb total supplies, bb exports, bb total use, 696 mb ending stocks, 29.88% S/U, & $5.50 /bu U.S. wheat average price; and C) KSU Trend Yield Fall 2017 Crop Problems Moderate $USD (20% prob.) assumes for new crop MY 2016/17: ma planted, ma harvested, 46.0 bu/ac yield, bb production, bb total supplies, 1,000 mb exports, bb total use, 796 mb ending stocks, 35.71% S/U, & $5.10 /bu U.S. wheat average price. Page 2

3 I. U.S. Wheat Market Situation & Outlook I A. June 10 th USDA Crop Production & WASDE Reports On June 10 th the USDA National Agricultural Statistics Service (NASS) released its June 2016 Crop Production report containing U.S. winter wheat harvested acreage, yield and production forecasts for 2016 with information specific to the 2016 U.S. hard red winter (HRW) wheat, soft red winter (SRW) wheat, and white winter (WW) wheat crops. The NASS 2016 U.S. winter wheat production forecast was derived by USDA using a combination of a) an objective yield survey, and b) a farmer operator survey both conducted during the May 25 June 7 period. The objective yield survey was conducted in 10 states that accounted for 68% of 2015 U.S. winter wheat production. Farm operators were interviewed to update previously reported acreage data, and to seek permission to randomly locate sample plots in selected winter wheat fields. Projected biological yields were calculated from these farmer plots assessing number of wheat stalks, heads in late boot stage, and the number of emerged heads to develop a count of the number of heads that would be harvested. These same plots had been originally surveyed in late April early May to monitor wheat development and update the USDA s yield projections on a plot by plot basis, and will be revisited again on a monthly basis through and after harvest to eventually obtain estimates of 2016 wheat harvest losses. The farm operator survey included a sample of approximately 4,500 wheat producers representing all major U.S. wheat producing areas. Producers were contacted by a combination of mail correspondence, internet and personal interviews, and were asked about likely wheat yields on their farms in On June 10 th the USDA World Agricultural Outlook Board (WAOB) also released its June 2016 World Agricultural Supply and Demand Estimates (WASDE) report containing U.S. and World wheat supplydemand and price projections for the 2014/15, old crop 2015/16, and new crop 2016/17 marketing years. The old crop 2015/16 marketing year for U.S. wheat began on 6/1/2015 and lasted through 5/31/2016, with new crop MY 2016/17 beginning 6/1/2016 and continuing through 5/31/2017. However, more current farmer survey based information on 2016 planted and harvested acreage for U.S. wheat and other major and minor crops will be made available by USDA NASS in its June 30 th 2016 Acreage report. The findings of the USDA 2016 Acreage report will provide information from surveys of nearly 70,000 U.S. farm operators that were conducted the first two weeks in June 2016, supplemented with historical planted to harvested acreage relationships and the historic accuracy of past USDA Acreage report projections. I B. CME Kansas Hard Red Winter Wheat JULY & DECEMBER 2016 Futures Since a low of $4.52 ¾ on April 11, 2016, JULY 2016 Chicago Mercantile Exchange (CME) Kansas hard red winter wheat futures prices traded up to a high of $5.09 ¼ on April 21 st. Then after falling to lows of $4.41 ¼ on May 11 th and 12 th, JULY 2016 CME KS HRW Wheat futures traded higher again to $4.95 ½ on June 8 th before moving lower again to a low of $4.77 ½ on June 21 st before closing at $4.78 on that same day (Figure 1). Page 3

4 Similarly, since a low of $4.88 on April 11, 2016, DECEMBER 2016 CME Kansas hard red winter wheat futures prices traded up to a high of $5.45 on April 21 st. Then after falling to a low of $4.83 ½ on May 11 th, DECEMBER 2016 CME KS HRW Wheat futures traded sideways then higher again to $5.35 ½ on June 8 th before moving lower again to to a high of $4.34 ½ on June 21 st before closing at $4.35 on that same day (Figure 1). Figure 1. JULY 2016 & DECEMBER 2016 CME Kansas Wheat Futures Price Charts DEC 2016 CME KS HRW Wheat Futures January 26 June 21, 2016 Close = $4.78 on 6/21/2016 JULY 2016 CME KS HRW Wheat Futures January 26 June 21, 2016 Close = $4.35 on 6/21/2016 I C. Kansas Wheat Seasonal Average Cash Price Trends Seasonal average price index trends for Kansas wheat over the last 15 years indicate definite seasonal impacts on wheat prices. Meanwhile, the U.S. average cash price of wheat in the old crop 2015/16 marketing year has generally moved sideways to lower (Figure 2a). Old crop MY 2015/16 for U.S. wheat began on June 1, 2015 and concluded May 31, Prices declined from June 2015 through September, moved sideways with some variation from October through January 2016, and then trended mostly lower from February through May Since MY 1999/2000 Kansas hard red winter wheat prices have typically been weakest during the harvest month of July, with an average seasonal price index of 96.9% of the unweighted average marketing year average Kansas wheat cash price for the June through May marketing year. However, Kansas cash wheat prices have then trended higher on average after harvest through September October, and have then trended sideways from November through January, with moderate seasonal strength in February March followed by a sideways to lower trend in during April and May. According to historic price patterns, most of the post harvest increase in Kansas wheat prices is usually realized from July through October, with movement being mostly sideways through the remainder of the marketing year. The most variability around these monthly indices have occurred during June July and the period when the Kansas hard red winter wheat crop breaks winter dormancy (i.e., February March), with accompanying production uncertainty in late spring (i.e., May). Projected New Crop MY 2016/17 Wheat Price Pattern The projected U.S. average cash price for U.S. hard red winter wheat in the new crop 2016/17 marketing year exhibits a pronounced price low in August 2016 with monthly prices climbing steadily from September through April 2017 with a marginally decline in May 2017 (Figure 2b). MY 2016/17 for U.S. Page 4

5 wheat began on June 1, 2016 and will conclude on May 31, If this price pattern were to become reality, it would signal the likelihood of returns to storage for Kansas wheat following the summer 2016 harvest. Figure 2a. Kansas Wheat Seasonal Price Index Last 15 Marketing Years (MY 1999/00 MY 2014/15) plus Old Crop MY 2015/16 (Source: KSU & USDA) 140% Kansas Corn Seasonal Price Index 130% 120% 110% 100% 90% 80% 70% 60% 50% 110.8% 106.7% 99.0% 98.1% 98.9% 99.7% 100.3% 100.0% 100.9% 100.5% 102.0% 101.6% 99.9% 101.2% 96.9% 99.4% 99.2% 98.4% 96.3% 96.1% 94.1% 92.3% 89.8% 88.8% June July Aug Sept Oct Nov Dec Jan Feb March April May Separate Months of the June 1 to May 31 U.S. Wheat Marketing Year High 85% Average 15% Low U.S. 2015/16 ($4.90 Avg$) Figure 2b. Kansas Wheat Seasonal Price Index Last 15 Marketing Years (MY 1999/00 MY 2014/15) plus New Crop MY 2016/17 (Source: KSU & USDA) 140% Kansas Corn Seasonal Price Index 130% 120% 110% 100% 90% 80% 70% 60% 50% 112.7% 114.0% 112.4% 108.9% 108.9% 104.6% 106.0% 98.1% 98.9% 99.7% 100.3% 100.0% 100.9% 102.0% 100.5% 101.6% 99.9% 101.2% 96.9% 99.7% 97.1% 94.0% 93.4% 91.5% June July Aug Sept Oct Nov Dec Jan Feb March April May Separate Months of the June 1 to May 31 U.S. Wheat Marketing Year High 85% Average 15% Low U.S. 2016/17 ($4.73 Avg$) Page 5

6 I D. U.S. Trade Weighted Dollar Index Increases in the value of the U.S. dollar relative to the currencies of U.S. trading partner countries began in earnest in August 2014 when the dollar index was valued at on August 15 th. This upward trend continued through January 2016 with the index climbing to a high of on January 20 th up 24.0% from mid August 2014 (Figure 3). Since then the index has declined, falling to a low of on May 2, 2016, before trending moderately higher again. On June 10, 2016 the U.S. Dollar index was calculated to be down 6.9% from the January 20 th high of but still up 15.4% from in mid August The upward trend in the value of the U.S. trade weighted dollar index since mid 2014 has been a significant negative factor in U.S. wheat and other U.S. grain export markets. A higher U.S. dollar exchange rate relative to other major currencies generally makes it more expensive for foreign buyers of U.S. grains to exchange their country s currencies for U.S. dollars which they would then in turn use to purchase U.S. grain exports (i.e., which are denominated or priced in U.S. dollars in U.S. grain markets). Although this is not the only factor negatively impacting U.S. grain exports, it is a very important one working against U.S. wheat being an affordable, competitive alternative export seller in World grain trade. Expected U.S. Dollar Trend for Mid Expectations for the direction of the U.S. dollar for the remainder of 2016 and into 2017 are uncertain. However, there is a prevalent market sentiment that the U.S. Federal Reserve will pursue less of a hard dollar policy (that resulted in a rising value of the U.S. dollar relative to other currencies) as financial markets were anticipating from mid 2014 through early 2016, and more of a moderate or soft dollar policy (resulting in unchanging or lower U.S. dollar values relative to foreign currencies). Reasons for such a policy course by the U.S. Fed may be their desire not to limit already weak growth in the U.S. economy with higher interest rates, and also with the absence to date of significant inflation in the U.S. economy which higher interest rates would combat. Such a moderation of the U.S. dollar would have a positive impact on U.S. wheat exports and prices in new crop MY 2016/17. Figure 3. Daily U.S. Trade Weighted Dollar Index Major Currencies (DTWEXM) (Source: St. Louis Federal Reserve Bank, FRED) Trade Wtd U.S. Dollar Index (1973=100) Date (Month/Day/Year) Trade Weighted U.S. Dollar Index (1973=100) (Not Seasonally Adjusted) Page 6

7 I E. U.S. Wheat Production Acreage, Yield & Production U.S. Wheat Planted Acreage United States wheat acreage figures in the May 10 th and June 10 th USDA Crop Production and WASDE reports followed exactly from the March 31 st NASS 2016 Prospective Plantings report. The USDA forecast that 2016 U.S. total wheat planted acres would be million acres (ma), down ma ( 9.3%) from ma in 2015, down 12.8% from ma in 2014, and down 11.9% from ma in 2013 (Table 1 and Figures 4 and 5). The KSU projection for 2016 U.S. wheat planted acres would be the same as the USDA. U.S. Winter Wheat Planted Acres: In its May 10 th and June 10 th NASS Crop Production reports the USDA projected 2016 U.S. winter wheat seedings to be ma (Table 1 and Figures 4 and 5). Winter wheat seedings of ma in 2015 for harvest in 2016 are down ma ( 8.2%) from ma in 2015, down ma ( 14.7%) from ma in 2014, and down ma from ma ( 16.2%) in Of this total amount of 2016 U.S. Winter Wheat planted acres, Hard Red Winter wheat planted acres are projected to be ma, down from ma in 2015 and ma in Soft Red Winter wheat planted acres are projected to be 6.60 ma, down from 7.09 ma in 2015 and 8.48 ma in White Winter wheat planted acres are projected to be 3.37 ma, down from 3.40 ma in 2015 and 3.43 ma in U.S. Other Spring Wheat Planted Acres: The USDA forecast 2016 other spring wheat planted area to be ma, down ma ( 14.3%) from ma in 2015, down from ma in 2014, and from ma in 2013 (Table 1 and Figures 4 and 5). Of these acres, ma were projected to be seeded to Hard Red Spring Wheat in 2016, down from ma in 2015, and ma in U.S. Durum Wheat Planted Acres: The USDA forecast 2016 durum wheat planted area to be ma, up 59,000 acres (+3.0%) from ma in 2015, and up from ma in 2014, and ma in 2013 (Table 1 and Figures 4 and 5). Figure 4. U.S. Wheat Planted Acreage All Winter, Other Spring & Durum Classes ( ) as of the March 31, 2016 USDA NASS Prospective Plantings & the June 10 th NASS Crop Production Reports Million Acres Year All Winter Wheat (HRW, SRW, White) Other Spring Wheat (HRS, SW) Durum Page 7

8 U.S. Wheat Harvested Acreage In both its June 10 th WASDE report the USDA projected implicitly that 2016 U.S. All Wheat Harvested Acreage would be 42,736,625 acres ma down from ma in the May WASDE report (Table 1 and Figure 5). This implicit USDA projection of ma for 2016 U.S. wheat harvested acres is down ma (down 9.25%) from ma in 2015, and down 7.9% from ma in 2014, and down 5.7% from ma in This projected USDA U.S. wheat harvested acreage figure is calculated by dividing the USDA s projection of 2016 U.S. wheat production (2.077 billion bushels or bb ) by its forecast 2016 U.S. wheat yield (48.6 bushels per acre or bu/ac ). It also assumes that 2016 U.S. wheat harvested acres are 86.24% of planted acres up from the U.S average of 84.22%. The KSU June 2016 forecast of 2016 U.S. wheat harvested acres is ma, using a average harvested to planted acres percentage of 84.22% on the USDA s forecast of ma planted down ma acres ( 2.3%) from the implicit USDA 2016 projection of ma (Table 1). U.S. Winter Wheat Harvested Acres: In its June 10 th NASS Crop Production report the USDA projected 2016 U.S. winter wheat harvested acres to be ma down ma ( 7.5%) from ma in 2015, down ma ( 7.6%) from ma in 2014, down ma ( 8.6%) from ma in 2013, and down ma ( 13.8%) from ma in 2012 (Table 1 and Figures 4 and 5). Figure 5. U.S. All Wheat Planted & Harvested Acreage ( ) as of the June 10, 2016 WASDE report Million Acres % 81.6% 76.0% 85.4% 83.8% 87.6% 81.6% % 88.1% 84.5% 89.1% 84.2% 88.2% % 86.2% 86.2% 81.6% % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% % Harvested of Planted Acres Year Planted Acres Harvested Acres % Harvested of Planted U.S. Wheat Yields & Production U.S. Wheat Yields: In its June 10 th WASDE report the USDA projected 2016 U.S. wheat yields to be 48.6 bu/ac up 1.9 bu from the May WASDE report. The USDA forecast U.S. wheat yield of 48.6 bu/ac in 2016 is up from 43.6 bu/ac in 2015, and 43.7 bu/ac in 2014, greater than the present record high of 47.1 bu/ac in 2013, and the 2 nd highest yield on record of 46.2 bu/ac in 2012 (Table 1 and Figure 6). This USDA forecast scenario is given a 35% probability of occurring by KSU estimates. Page 8

9 Three KSU Trend Yield Scenarios (i.e., the KSU Trend Yield Moderate $USD Scenario 30% probability, the KSU Trend Yield Foreign Crop Problems Moderate $USD Scenario 15% probability, and the KSU Trend Yield Fall 2017 Crop Problems Moderate $USD Scenario 20% probability) with a combined estimate of 65% probability of occurring assume that 2016 U.S. average wheat yields will be 46.0 bu/ac. This projection is a trend line forecast for year 2016 based on all yields over the time period. For this KSU forecast of 2016 U.S. wheat yields to be true, lower yields will need to occur for spring wheat in the northern states and for soft red winter wheat in the eastern Corn Belt both being a distinct possibility given the high temperature July August 2016 weather forecasts for the United States. U.S. Wheat Production: The USDA forecast in its June 10 th WASDE report based on forecast 2016 planted acreage ( ma), implicit harvested acreage ( ma), and yield (48.6 bu/ac) that 2016 U.S. wheat production to be billion bushels (bb) (Table 1 and Figure 7). This USDA forecast scenario of bb is given a 35% probability of occurring by KSU estimates, and is up from bb in 2015, and bb in 2014, and within the range of bb (average = bb, median = bb). By KSU projection estimates, there is a combined 65% likelihood of 2016 U.S. wheat production of U.S. wheat of approximately bb based on KSU acreage assumptions (i.e., bb harvested acres and 46.0 bu/ac trend line yields) (Table 1). U.S. Winter Wheat Production: In its June 10 th NASS Crop Production report the USDA projected 2016 U.S. winter wheat production to be bb up million bushels (mb) (+10.0%) from bb in 2015, and up from bb in 2014, down from bb in 2013, and down from bb in In this report, 2016 U.S. Hard Red Winter wheat production is forecast to be 938 mb in 2016, up 13.4% from 827 mb in 2015 and up 26.9% from 739 mb in Soft Red Winter wheat production is forecast to be 355 mb in 2016, down marginally from 359 mb in 2015 and down 21.9% from 455 mb in White Winter wheat production is projected to be 214 mb in 2016, down from 219 mb in 2015 and 224 mb in Figure 6. U.S. All Wheat Yield ( ) and USDA 2016 Projection as of June 10, 2016 WASDE, with KSU Long Term Trend Estimate for 2016 U.S. Average Yield Bu/Acre USDA 2015 Yield = 43.6 bu/ac USDA 2016 Yield = 48.6 bu/ac KSU 2016 Trend = 46.0 bu/ac Year U.S. Wheat Yields ( ) USDA 2016 KSU Trend Page 9

10 Table 1. U.S. Wheat Supply Demand Balance Sheet: MY 2010/11 New Crop MY 2016/17 as of June 10, 2016 WASDE Report, and KSU projections for New Crop MY 2016/17. KSU Trend line U.S. Wheat Yields, Moderate USD$ KSU Foreign Crop Problems & Higher U.S. Wheat Exports Moderate USD$ KSU 2016/17 U.S. Crop Problems & Higher U.S. Wheat Exports Moderate USD$ 2016/17 Item 2010/ / / / / /16 USDA 2016/ / /17 % Probability of Occurring 35% 30% 15% 20% Planted Area (million acres) Harvested Area (million acres) % Harvested/Planted Area 89.10% 84.17% 88.18% 80.61% 81.60% 86.18% 86.24% 84.22% 84.22% 84.22% Yield / harvested acre (bu/ac) Million Bushels Beginning Stocks Production 2,163 1,993 2,252 2,135 2,026 2,052 2,077 1,920 1,920 1,920 Imports Total Supply 3,236 2,969 3,119 3,026 2,766 2,921 3,182 3,025 3,025 3,025 Food Use Seed Use Exports 1,291 1,051 1,012 1, ,100 1,000 Feed & Residual Use Total Use 2,373 2,227 2,401 2,436 2,014 1,941 2,132 2,079 2,329 2,229 Ending Stocks , % Ending Stocks to Use 36.37% 33.35% 29.90% 24.24% 37.36% 50.49% 49.25% 45.50% 29.88% 35.71% U.S. Wheat Avg. Farm Price ($/bushel) $5.70 $7.24 $7.77 $6.87 $5.99 $4.90 $3.60 $4.40 ($4.00) $4.40 $5.50 $5.10 Page 10

11 I F. U.S. Wheat Total Supplies Total supplies of U.S. wheat for new crop MY 2016/17 are projected by the USDA to be bb up 76 mb from the May WASDE report, and up from bb for old crop MY 2015/16 (down 3 mb). The USDA projection of bb in total supplies for new crop MY 2016/17 results from beginning stocks of 980 mb (up 2 mb), projected 2016 production of bb (up 79 mb), and projected imports of 125 mb (down 5 mb) (Table 1 and Figure 7). This USDA forecast scenario of bb in U.S. wheat supplies is given a 35% probability of occurring by KSU estimates. By KSU projections estimates, there is a combined 65% likelihood of U.S. wheat total supplies in new crop MY 2016/17 of bb, down from the USDA s forecast of bb (Table 1). Figure 7. U.S. Wheat Total Supplies for MY 2004/05 New Crop MY 2016/17 as of June 10, 2016 USDA WASDE Report Billion Bushels Marketing Year Production Beg Stocks Imports Total Supply The USDA s forecast U.S. wheat beginning stocks of 980 mb in new crop MY 2016/17 (up 2 mb from the May WASDE) are up from 752 mb in old crop MY 2015/16, 590 mb in MY 2014/15, and from 718 mb in MY 2013/14. Projected U.S. wheat imports of 125 mb for new crop MY 2016/17 (down 5 mb from the May WASDE) are up from 117 mb in old crop MY 2015/16 (down 3 mb from the May WASDE), but down from 149 mb in MY 2014/15 (the 2 nd highest on record), and the record high of 173 mb in MY 2013/14. Canada Wheat Production Trends: Nearly all of U.S. wheat imports come from Canada because of favorable geographic location and associated grain transportation logistic advantages. Large Canadian wheat supplies over the last several years have been a major factor in this increase in U.S. wheat imports. Canada produced a record large wheat crop of million metric tons (mmt) (or bb in 60 lb/bu units) in MY 2013/14, followed by a crop of mmt (1.081 bb) in MY 2014/15, with an estimate of mmt (1.014 bb) in old crop MY 2015/16, and a projection of mmt (1.047 bb) in new crop MY 2016/17. The largest Canadian wheat crops since 1960 that were over 30.0 mmt happened in 1986 (31.4 mmt or bb), 1990 (32.1 mmt or bb), 1991 (31.9 mmt or bb), and in 2013 ( mmt or bb). For new crop MY 2016/17 the USDA forecasts that Canada will produce mmt (1.047 bb). Page 11

12 I G. U.S. Wheat Total Use & Use by Category U.S. Wheat Food Use The USDA forecast U.S. wheat food use of 963 mb in new crop MY 2016/17, following a consistent upward trend over time due to a) steady growth in the U.S. population, and b) associated regular increases in domestic demand for processed wheat products. This projected amount of 963 mb in food use in new crop MY 2016/17 is up from 960 mb for old crop MY 2015/16, 958 mb in MY 2014/15, 955 mb in MY 2013/14, and 951 mb in MY 2012/13 (Table 1 and Figure 8). The KSU forecast of U.S. wheat food use for new crop MY 2016/17 is the same as that of the USDA, i.e., 963 mb. Figure 8. Trends in U.S. Wheat Use & Ending Stocks: MY 2004/05 New Crop MY 2016/17 as of the June 10, 2016 USDA WASDE report Million Bushels 3,000 2,500 2,000 1,500 1, ,234 2,314 2,288 2,154 2, , ,066 1, ,263 1, , , , ,401 2, ,051 1,012 1, ,014 1,941 2, , Marketing Years Feed+Residual Seed Exports Food Use End Stocks Total Use U.S. Wheat Seed Use The USDA forecast seed use of 69 mb in new crop MY 2016/17, up from 66 mb in old crop MY 2015/16, but down from 79 mb in MY 2014/15, 77 mb in MY 2013/14, and 73 mb in MY 2012/13 (Table 1 and Figure 8). The KSU forecast of seed use in new crop MY 2016/17 is lower than the USDA at 66 mb. U.S. Wheat Exports The USDA projected that U.S. wheat exports will be 900 mb in new crop MY 2016/17 up 25 mb from the May WASDE (Table 1). A total of 900 mb of U.S. wheat exports in new crop MY 2016/17 would be up from 775 mb in old crop MY 2015/16 (down 5 mb from the May WASDE), and is up from 854 mb in MY 2014/15, but less than the range of bb over the MY 2010/11 MY 2013/14 period. Total U.S. wheat exports of 775 mb in old crop MY 2015/16 is the lowest amount in 45 years, i.e., since 610 mb in MY 1971/72 prior to the Russian Grain Deal period of MY 1973/74 (Table 1 and Figure 8). This USDA forecast scenario of 900 mb in U.S. wheat exports in new crop MY 2016/17 is given a 35% probability of occurring by KSU estimates. Page 12

13 For the KSU Trend Yield Moderate $USD Scenario 30% probability U.S. wheat exports for new crop MY 2016/17 are projected to be 850 mb compared to the 900 mb forecast by the USDA (Table 1). For the KSU Trend Yield Foreign Crop Problems Moderate $USD Scenario 15% probability U.S. wheat exports would increase with fewer exportable, competitive foreign U.S. wheat supplies, totaling 1,100 mb (or bb). For the KSU Trend Yield Fall 2017 Crop Problems Moderate $USD Scenario 20% probability U.S. wheat exports are projected to be 1,000 mb (1.000 bb), based on concerns by foreign importers of dry weather conditions in the U.S. which could cause deteriorating winter wheat establishment conditions in fall 2016 and winter wheat development problems in the spring of 2017 both of which would be expected to bring about at least a moderate increase in U.S. wheat exports in the later 2/3 of new crop MY 2016/17. Also, based on recent announcements and actions by the U.S. Federal Reserve Bank, it seems likely that the value of the U.S. dollar relative to other major World currencies may be expected to be either unchanged or lower during the remainder of new crop MY 2016/17. Such a trend in the relative value of the U.S. dollar would be at least neutral if not directly supportive of U.S. wheat exports and prices. Cumulative U.S. wheat export shipments through June 9 th the 2 nd week of the new crop 2016/17 marketing year for U.S. wheat which began on June 1, 2016 have totaled 17.4 mb, which is 1.9% of the USDA s projected new crop MY 2016/17 exports of 900 mb, with 3.85% (2 of 52 weeks) of the marketing year completed. United States wheat export shipments will need to average 17.6 mb per week through the remainder of the new crop 2016/17 marketing year to attain the USDA s June 10 th WASDE projection of 900 mb. Total wheat export shipments by the U.S. of 4.6 mb and 12.9 mb during the weeks ending June 2 nd and June 9 th, respectively, are behind the pace (17.6 mb/week) needed to meet USDA forecast of 900 mb in the new crop 2016/17 marketing year. (Source: USDA Foreign Agricultural Service U.S. Weekly Export Sales report sales/esrd1.html). In addition, when accounting for unshipped forward sales of exports of mb in U.S. wheat for new crop MY 2016/17 (i.e., that had not yet been shipped as of June 9 th ), total U.S. wheat shipped plus outstanding shipments added up to mb (i.e., 17.4 mb shipped plus mb forward sales). This amounts to 26.6% of the USDA s projection of 900 mb for new crop MY 2016/17 with 3.85% of the marketing year having already occurred (i.e., 2 of 52 weeks) presenting a more positive perspective on potential U.S. wheat export sales and the likelihood of U.S. wheat exports reaching the 900 mb target set by the USDA in the June 10 th WASDE report. The primary factors that have caused lower U.S. wheat exports in MY 2014/15 and old crop MY 2015/16 are a) the sharp increase in the value of the U.S. dollar that occurred in 2014, 2015, and early 2016 relative to other World currencies in particular those of other major World wheat exporters, and b) prospects for fully adequate supplies of both the U.S. and competitive foreign wheat stockpiles for export trade purposes. There are several factors that could eventually change the existing low export demand for wheat situation for the United States. These include 1) the uncertain impact on World wheat trade in the future from ongoing geopolitical conflicts such as those between Russian and Ukraine and also in the broader Middle East, and 2) the potential for dry or adverse weather conditions in other major World wheat production areas due to the El Nino transition to a La Nina weather pattern likely to occur in the spring and/or summer of However, until tangible evidence of such potential damage to U.S. and/or foreign wheat production prospects, and/or other market events should occur in the last half of 2016 and the first half of 2017, such weather uncertainties are being treated mostly as non factors in World wheat export and wheat futures markets. Page 13

14 U.S. Wheat Feed & Residual Use In the June 10 th WASDE report the USDA projected that U.S. feed and residual use for new crop MY 2016/17 would be 200 mb up 30 mb from the May WASDE, and up from 140 mb in old crop MY 2015/16 and 122 mb in MY 2014/15 but still down from 228 mb in MY 2013/14, and from the recent high of 365 mb in MY 2012/13 (Table 1 and Figure 8). Projections by KSU of new crop MY 2016/17 U.S. wheat feed use range from 200 mb to 150 mb, compared to the USDA s projection of 200 mb (Table 1). Domestic U.S. wheat feeding had trended lower in old crop MY 2014/15 from the previous year, and remained lower in old crop MY 2015/16 due to the availability in domestic markets of sizable 2013, 2014, and 2015 U.S. corn and grain sorghum crops and supplies at low prices. However, in early mid June 2015 the price of wheat at local markets near livestock feeding centers in western Kansas had fallen below the price of corn. For example, in Dodge City in southwest Kansas on June 21 st the USDA Agricultural Marketing Service (AMS) reported cash wheat prices to be $3.45 /bu, while corn prices were reported to be $3.66 /bu a ratio of $3.45 / $3.66 = or 94.26%. In these western Kansas locations especially in proximity to livestock feeding operations there would seem to be an opportunity to feed lower priced wheat in feed rations and perhaps free up storage space for looming 2016 fall crop harvests at local grain elevators. However, in the more wheat export and wheat milling focused central parts of Kansas, wheat prices were still at or above corn prices providing little incentive to feed wheat in livestock rations. For instance, in Hutchinson in South Central Kansas on June 21 st, the USDA AMS reported cash wheat prices to be in the range of $3.54 $3.80 /bu (mid point = $3.67), while corn prices were reported to be in the range of $3.40 $3.51 ¼ /bu (mid point = $3.46) a ratio of $3.67 / $3.46 = or %. This situation has led to large competitive U.S. feedgrain supplies for domestic livestock feeding at lower market prices since MY 2012/13. Total U.S. Wheat Use Total use of U.S. wheat for new crop MY 2016/17 is projected by the USDA to be bb (up 55 mb from the May WASDE). This projection of bb in total use of U.S. wheat in new crop MY 2016/17 is up from bb in old crop MY 2015/16 (lowered 5 mb in the May WASDE report), and bb in MY 2014/15, but down from bb in MY 2013/14. This USDA forecast scenario of bb in U.S. wheat use during new crop MY 2016/17 is given a 35% probability of occurring by KSU estimates. Projected total use of wheat in old crop MY 2015/16 of bb is the smallest amount of U.S. wheat total usage in the last 14 marketing years, i.e., since bb in MY 2002/03 (Table 1 and Figure 8). For the KSU Trend Yield Moderate $USD Scenario 30% probability U.S. wheat total use for new crop MY 2016/17 is projected to be bb compared to the bb forecast by the USDA (Table 1). For the KSU Trend Yield Foreign Crop Problems Moderate $USD Scenario 15% probability U.S. wheat total use would increase with increased U.S. wheat exports to bb. For the KSU Trend Yield Fall 2017 Crop Problems Moderate $USD Scenario 20% probability U.S. wheat total use would be moderately higher as U.S. wheat exports increased due to development problems with the 2017 U.S. wheat crops, increasing to bb. Page 14

15 I H. U.S. Wheat Ending Stocks & % Stocks to Use & Prices U.S. Wheat Ending Stocks In its June 10 th WASDE report, the USDA projected that U.S. wheat ending stocks for new crop MY 2016/17 would be bb up 21 mb from May and this highest in 29 years since bb in MY 1987/88 (Table 1 and Figure 8). Wheat ending stocks in the U.S. of bb in new crop MY 2016/17 would be up from 980 mb in old crop MY 2015/16 (up 2 mb from May), 752 mb in MY 2014/15, and 590 mb in MY 2013/14. This USDA forecast scenario of bb in U.S. wheat ending stocks in new crop MY 2016/17 is given a 35% probability of occurring by KSU estimates. Ending stocks of U.S. wheat in new crop MY 2016/17 of bb are 343% of ending stocks of 306 mb in MY 2007/08 the historic tight stocks marketing year since the early 1970s. For the KSU Trend Yield Moderate $USD Scenario 30% probability U.S. wheat ending stocks for new crop MY 2016/17 are projected to be 946 mb compared to the bb forecast by the USDA (Table 1). For the KSU Trend Yield Foreign Crop Problems Moderate $USD Scenario 15% probability U.S. wheat ending stocks would decrease with increased U.S. wheat exports and total use down to 696 mb. For the KSU Trend Yield Fall 2017 Crop Problems Moderate $USD Scenario 20% probability U.S. wheat ending stocks are forecast to be 796 mb following from moderately higher as U.S. wheat exports and total use in response to market concerns about development problems with the 2017 U.S. wheat crop. U.S. Wheat Ending Stocks to Use In its June 10 th WASDE report, the USDA projected percent (%) ending stocks to use for U.S. wheat of 49.25% in new crop MY 2016/17 down from 50.49% in old crop MY 2015/16, but up from 37.36% in MY 2014/15, and 24.24% in MY 2013/14 (Table 1 and Figures 8 and 9). This USDA forecast scenario of 49.25% in U.S. wheat percent ending stocks to use in new crop MY 2016/17 is given a 35% probability of occurring by KSU estimates. Forecast U.S. wheat ending stocks to use of 49.25% in new crop MY 2016/17 and 50.49% in old crop MY 2015/16 are the highest since 48.58% in MY 2009/10, and the largest since the 32 year highs during the U.S. farm financial crisis years of 97.2% in MY 1985/86 and 82.9% MY 1986/87. For the KSU Trend Yield Moderate $USD Scenario 30% probability U.S. wheat percent ending stocks to use for new crop MY 2016/17 are projected to be 45.50% compared to the 49.25% forecast by the USDA (Table 1). For the KSU Trend Yield Foreign Crop Problems Moderate $USD Scenario 15% probability U.S. wheat percent ending stocks to use would decrease with increased U.S. wheat exports and total use, and lower ending stocks down to 29.88%. For the KSU Trend Yield Fall 2017 Crop Problems Moderate $USD Scenario 20% probability U.S. wheat percent ending stocks to use are forecast to be 35.71% following from moderately higher as U.S. wheat exports and total use, and moderately lower ending stocks in response to market concerns about development problems with the 2017 U.S. wheat crop. U.S. Wheat Marketing Year Average Prices In its June 10 th WASDE report, the USDA projected U.S. average wheat prices for new crop MY 2016/17 in the range of $3.60 $4.40 (midpoint = $4.00 per bushel) down $0.10 on each end of the price range from the May WASDE, and down from $4.90 per bushel in old crop MY 2015/16, $5.99 in MY 2014/15, $6.87 in MY 2013/14, and the record high of $7.24 in MY 2012/13 (Table 1 and Figures 9 and 10). Page 15

16 For the KSU Trend Yield Moderate $USD Scenario 30% probability U.S. wheat season average prices for new crop MY 2016/17 are projected to be $4.40 /bu compared to the midpoint $4.00 forecast by the USDA (Table 1). For the KSU Trend Yield Foreign Crop Problems Moderate $USD Scenario 15% probability U.S. wheat season average prices would increase in response to lower percent ending stocks touse up to $5.50 /bu. For the KSU Trend Yield Fall 2017 Crop Problems Moderate $USD Scenario 20% probability U.S. wheat season average prices are forecast to be $5.10 /bu following from moderately lower percent ending stocks to use occurring in response to market concerns about development problems with the 2017 U.S. wheat crop. These KSU supply demand and price forecasts assume a moderation in the value of the U.S. dollar in new crop MY 2016/17, providing some support for U.S. wheat exports and prices. Figure 9. U.S. Wheat Ending Stocks vs U.S. Cash Prices: MY 2004/05 thru New Crop MY 2016/17 as of June 10, 2016 WASDE report & KSU forecasts for New Crop MY 2016/17 % Ending Stocks to Use $ $ $ $ $7.77 $7.24 $ $ $ $4.90 USDA 16/17 35% prob $4.00 KSU 16/17 Trend Yld 30% prob $ KSU 16/17 Hi Expts 15% prob $ KSU 16/17 Dry % prob $ $8.00 $6.00 $4.00 $2.00 $0.00 Wheat $ per bushel U.S. Wheat Ending Stocks to Use % U.S. Wheat Price Page 16

17 Figure 10. U.S. Wheat Price vs U.S. % Stocks to Use: MY 1973/74 through New Crop MY 2016/17 as of the June 10, 2016 WASDE report $9 U.S. Wheat $ per bushel $8 $7 $6 $5 $4 MY 2013/ % S/U, $6.87 /bu 2007/ / / / / / /10 Old Crop MY 2014/ % S/U, $5.99 /bu USDA Current Crop MY 2015/ % S/U, $4.90 /bu USDA New Crop MY 2016/ % S/U, $4.00 /bu $3 1985/86 $ U.S. Wheat % Ending Stocks to Use II. World Wheat Supply Demand Trends The USDA forecast that World wheat production of mmt in new crop MY 2016/17 will be down 0.5% from mmt in the old crop 2015/16 marketing year that ended on May 31, 2016, and up 0.5% to mmt two years ago in MY 2014/15 (Figure 11). World wheat total supplies in new crop MY 2016/17 are forecast to be mmt, up mmt (up 2.4%) from mmt in old crop MY 2015/16, and up 52.7 mmt (up 5.7%) from mmt in MY 2014/15. Given these increases in World wheat supplies, World wheat total use in new crop MY 2016/17 is projected to increase 1.2% from old crop MY 2015/16, and to be up 1.6% from MY 2014/15. World wheat ending stocks in new crop MY 2016/17 are projected to increase by 6.0% from a year earlier in old crop MY 2015/16, and by 16.9% from two years ago in MY 2014/15. The direction of U.S. and World wheat markets in June 2016, i.e., the beginning of new crop MY 2016/17, will depend primarily on market expectations of how total World wheat supplies balance with total demand, as well as on volatile World and U.S. financial and currency markets. Wheat producing areas of the World from which periodic annual variations in wheat production historically have periodically caused significant market volatility in the last several years include a) Russia, Ukraine and Kazakhstan in the Black Sea Region, b) Australia, c) the United States, d) Canada, e) the wheat producing regions in the European Union, f) Argentina, g) India, and h) China. Whether World wheat markets improve from old levels or not in the near or longer term will likely depend on whether production and/or export availability problems are avoided in any one or a combination of these major wheat producing and exporting areas for the remainder of From the perspective of the United States, at this time the opportunity for sharp improvements in U.S. wheat export demand for new crop MY 2016/17 appear to depend on the persistence of the high value of Page 17

18 the U.S. dollar (although it has trended lower in recent months) and its negative impact on U.S. wheat export sales as the U.S. competes in World wheat export markets with other major wheat exporters. That said, it is also possible that geopolitical conflicts in the Middle East and/or the Black Sea region could escalate to the point of causing disruptions and extreme price volatility in World energy and grain markets. These large geopolitical events are near impossible to forecast accurately, but could have a major impact on World wheat and other grain markets in coming months. Such systematic market risks are not being accounted for to any appreciable degree in World wheat markets at this time. Figure 11. World Wheat Usage & Ending Stocks: MY 2007/08 through New Crop MY 2016/17 as of June 10, 2016 USDA WASDE Report Million Metric Tons 1, Production 13.1 mmt/yr (+2.1%/yr) since 2007/08 Wheat Usage 11.3 mmt/yr (+1.8%/yr) since 2007/ Wheat Trade mmt since MY 2007/ mmt in New Crop MY 2016/ End Stocks mmt in New Crop MY 2015/16 Up 129 mmt (+100%) since 38 year low of mmt in MY 2007/ Production Usage Trade End Stocks 2007/ / / / / / / / / /17 II A. World Wheat Production Projected World wheat production of mmt in new crop MY 2016/17 are less than the record high of mmt in old crop MY 2015/16, and would be larger than the 2 nd highest year on record of mmt for MY 2014/15. This total for new crop MY 2016/17 of mmt is also up from mmt in MY 2013/14, is larger than the short mmt World wheat crop in MY 2012/13, and above the range of mmt during the previous MY 2007/09 MY 2011/12 period (Table 2 and Figure 11). Foreign (non U.S.) wheat production is projected to be mmt in new crop MY 2016/17, down 0.6% from mmt in old crop MY 2015/16, and up 0.4% from mmt in MY 2014/15. II B. World Wheat Exports Global wheat exports in new crop MY 2016/17 are projected to be a mmt, down 1.6% from mmt in old crop MY 2015/16, and also up 0.9% from mmt in MY 2014/15 (Table 3). Foreign (non U.S.) wheat exports are projected to be mmt in new crop MY 2016/17, down 4.1% from mmt in old crop MY 2015/16, and down 0.1% from mmt in MY 2014/15. Page 18

19 II C. World Wheat Imports Global wheat imports in new crop MY 2016/17 are projected to be mmt, down 2.4% from mmt in old crop MY 2015/16, and up 2.0% from mmt in MY 2014/15 (Table 4). Foreign (non U.S.) wheat imports are projected to be mmt in new crop MY 2016/17, down 2.5% from mmt in old crop MY 2015/16, and up 2.5% from mmt in MY 2014/15. II D. World Wheat Domestic Feed Use Global wheat domestic feed use in new crop MY 2016/17 is projected to be mmt, down 0.5% from mmt in old crop MY 2015/16, and up 2.0% from mmt in MY 2014/15 (Table 5). Foreign (non U.S.) wheat domestic feed use is projected to be mmt in new crop MY 2016/17, down 1.7% from mmt in old crop MY 2015/16, and up 0.4% from mmt in MY 2014/15. II E. World Wheat Food, Seed & Industrial (FSI) Use Global wheat food, seed and industrial (FSI) use in new crop MY 2016/17 is projected to be a mmt, up 1.5% from mmt in old crop MY 2015/16, and up 1.5% from mmt in MY 2014/15 (Table 6). Foreign (non U.S.) wheat FSI use is projected to be mmt in new crop MY 2016/17, up 1.6% from mmt in old crop MY 2015/16, and up 1.6% from mmt in MY 2013/14. II F. World Wheat Total Use Projected World wheat total use of mmt in new crop MY 2016/17 is the highest amount on record, being up 1.2% from the previous record high of mmt in old crop MY 2015/16, up 1.6% from mmt in MY 2014/15, and up from the range of mmt during the MY 2007/08 MY 2013/14 period (Table 7 and Figure 11). Foreign (non U.S.) wheat total use is projected to be mmt in new crop MY 2016/17, up 1.0% from mmt in old crop MY 2015/16, and up 1.4% from mmt in MY 2014/15. II G. World Wheat Ending Stocks Projected World wheat ending stocks of mmt for new crop MY 2016/17 are up 6.1% from mmt in old crop MY 2015/16, and up 19.1% from mmt in MY 2014/15, and is comparable to the range of mmt over the MY 2007/08 through 2013/14 period (Table 8 and Figure 11). The 38 year low in World wheat ending stocks occurred when supply demand balances fell to mmt in MY 2007/08. Foreign (non U.S.) wheat ending stocks are projected at mmt in new crop MY 2016/17, up 6.0% from mmt in old crop MY 2015/16, and up 16.9% from mmt in MY 2014/15. II H. World Wheat Ending Stocks to Use Projected World wheat ending stocks to use of 36.0% for new crop MY 2016/17 are up from 34.3% in old crop MY 2015/16, and from 30.7% in MY 2014/15 (Table 9 and Figure 12). After falling to a 39 year low in World wheat % ending stocks to use in MY 2007/08 (20.9% S/U), World wheat % S/U was 26.6% in MY 2008/09, 31.3% in MY 2009/10, 30.4% in MY 2010/11, 28.7% in MY 2011/12, 25.8% in MY 2012/13, 28.1% in MY 2013/14, 30.3% in MY 2014/15, 34.3% in old crop MY 2015/16, and are now projected to be 36.0% in Page 19

20 new crop MY 2016/17. Foreign (non U.S.) wheat ending stocks to use are projected at 27.8% in new crop MY 2016/17, up from 26.3% in old crop MY 2015/16, and up from 24.1% in MY 2014/15. II I. World Wheat Ending Stocks to Use vs U.S. Wheat Prices Similar to the relationship between U.S. wheat ending stocks to use and U.S. average wheat prices (see Figure 10), a negatively correlated market relationship has existed between U.S. wheat season average cash prices and World wheat % ending stocks to use with what may prove to have been an upward structural adjustment or jump during the MY 2011/12 MY 2012/13 time period (Figure 12). Larger World wheat supply demand balances are typically associated with lower World and U.S. wheat prices, while smaller supplydemand balances are usually associated with higher World and U.S. wheat prices all else being equal. As in Figure 10 earlier, U.S. wheat prices in Figure 12 are reported on a nominal basis (i.e., not adjusted for inflation). While the minimum U.S. wheat percent stocks to use since MY 1973/74 was 13.2% in the tight stocks year of MY 2007/08, the historic minimum in World wheat percent stocks to use occurred in that same marketing year at 20.9%. World stocks to use have not fallen below 25.8% in MY 2012/13 since the MY 2007/08 low of 20.9%. Figure 12. U.S. Wheat Price vs % World Stocks to Use: MY 1973/74 through New Crop MY 2016/17, as of the June 10, 2016 USDA WASDE Report $ / % S/U & $7.77 /bu 2013/ % S/U & $6.87 /bu $ U.S. Wheat Price per Bushel $8 $6 $4 2007/ / / / / / % S/U & $5.99 /bu 2009/10 "Current Crop" 2015/ % $4.90 /bu "New Crop" 2016/ % S/U & $4.00 /bu $2 1977/ / World Wheat % Ending Stocks to Use During the four most recent marketing years, rising World wheat percent ending stocks to use levels have been associated with declining U.S. wheat prices. Since MY 2013/14 as World % ending stocks to use increased from 28.1% to 30.3% to 34.3% to 36.0% (up 28.1%, i.e., / 0.281), U.S. wheat prices have fallen from $6.87 /bu to $5.99, to $4.90, and now to a projected level of $4.00 /bu (down 41.8%) before considering inflation adjustments. Page 20