Wheat Market Outlook in 2015-2016

DANIEL O’BRIEN

EXTENSION AGRICULTURAL ECONOMIST

Wheat Market RealitiesKey issues over 2005-2015 Period

Transportation Logistics Drive World ExportsExample: Black Sea & Australia exports to the Middle East & Asia

Wheat Substitutes for Coarse Grains in Feed Use Issues of “Food” versus “Feed” Quality & adoesption by users

World S/D driven by Production (Acres & Weather) Once supplies are set, price discovery processes ration usage

Searching for Wheat Market “Rules”Key issues over 2005-2015 Period

“Mean Reversion” LIVES in the Grain Markets! Competitive forces tend to undo periods loses or profits

Varying “Price Flexibility / Elasticity” is evidentFlexibility: Varying $ response to “short” vs “abundant” Stocks/Use

Elasticity: Usage affected conversely by “high” vs “low” prices

Exports impacted by Currencies, # Competitors

Wheat Market Supply-Demand

1) Large U.S. & World Stocks of Wheat• A “buyers” market for wheat exports unless/until supplies decline

• High value of the U.S. Dollar & ample foreign competition is seriously hurting U.S. wheat exports

2) U.S. & World Crop Uncertainty in 2016 (El Nino…??)

3) Impact of World financial problems (EU, China, U.S., ......)

• Are “Commodity price deflation” worries affecting grain markets & the psyche of market participants??? (likely Yes)

Dow Jones Europe Index Weekly, March 2013 – August 12, 2015

Was 352 in June 2014 & 286 in October 2014

Drop from 338 (early May) to 317 close on 8/12/2015

Shanghai Stock Exchange Index Weekly, March 2013 – August 12, 2015

Was 1,991 in May 2014

Drop from 5,178 (Mid June) to 3,886 close on 8/12/2015

U.S. Dow Jones Composite Average Index Weekly, April 2013 – August 12, 2015

Was 14,551 in June 2013 – climbed to 18,351 in May ‘15

Down to 17,403 close on 8/12/2015

U.S. Dollar Index – Cash SettleWeekly, March 2013 – August 12, 2015

Was 78.9 in March 2014 – climbed to 100.7 in March ‘15

Dropped to 100.7 (mid March) to 93.3 (mid June), close of 96.3 on 8/12/2015

Wheat Market Futures PricesDaily CME Kansas HRW SEPT 2015 Futures (since March 2015)

$6.00

$5.00

≈$4.69

SEPT 2015

$4.84 ¼

8/13/2015 am

$4.84

Wheat Market Futures PricesMonthly CME Kansas HRW 2015 Futures

$4.84

SEPT 2015 $4.84 ¼

8/13/2015

≈$6.10

≈$4.85$4.58

Kansas HRW Wheat Futures & Cash$Hutchinson, Kansas Cash, FC & Insurance $’s, August 13,

2015

Aug/S

ep-JLY

15

June-

JLY15

Aug 1

5Aug/S

ep-JLY

16

Sep

15

Oct

15

Nov

15

Dec

15

Jan 1

6Fe

b 1

6M

ar 1

6Apr

16

May

16

June

16

July

16

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

6.3

5.31 5.3954.835 5.055 5.1925 5.305 5.395

4.725

3.9825 4.04625

4.83

Futures $s Wheat Cash/FC Wheat-Ins 75%

$0.04583 /mo

$0.07333 /mo

$0.05625 /mo

World Wheat Supply, Use & Stocks

Production Usage Trade End Stocks0

300

600

900

613 615

116 129

687650

137203

696 689

158198

725 704

165

210

727 714

156221

166

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

2015/16

Million

Metr

ic T

on

s

2.3% /yr 2.0% /yr

4.3% /yr

3 year uptrendin End Stocks

“New Crop” MY 2015/16 End Stocks = 221.5 mmtEnd Stks/Use = 31.0% (6 yr high)

Vs. “Benchmark” MY 2007/08 End Stocks = 128.8 mmtEnd Stks/Use = 21.0%

World Wheat Exporters

U.S.

EU-2

8

Canad

a

Austral

ia

Argen

tina

Russia

Kazak

hsta

n

Ukrai

ne

Other

0

50

32 32

23

19

2

19

810

2123

35

24

17

6

23

6

11

20

25

31

18 19

6

23

6

1316

MY 2013/14 MY 2014/15 MY 2015/16

Million

Metr

ic T

on

s

World Wheat Importers

North Africa

Middle East

SE Asia Brazil EU-28 FSU-12 China Others0

20

40

60

80

2521

16

74

7 7

71

2522 20

6 6 8

2

72

2519 19

7 7 72

69

MY 2013/14 MY 2014/15 MY 2015/16

Million

Metr

ic T

on

s

World Wheat Use & Ending Stocks

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

0

200

400

600

800

1,000

1,200

1,400

-30%

-20%

-10%

0%

10%

20%

30%

40%

474 475 486 480 495 499 506 510 513 527 536 541 549 564 570 577

111 112 116 102 110 117 113 105 124 122 117 148 138 127 135 136207 204 169 136 156 153 134 129 169 203 199 198 177 193 210 221

35% 35%

28%

23%26% 25%

22% 21%

27%

31% 30%29%

26%28%

30% 31%

FSI Usage Feed+Residual End Stocks %Stx/Use

Million

metr

ic t

on

s (

mm

t)

% E

nd

ing

Sto

cks-t

o-U

se

World Wheat Feed Use

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

0

100

200

300

400

500

600

700

800

0

5

10

15

20

25

30

35

40

124 122 117 148 138 127 135 136

19.5 18.8 17.921.5 20.1 18.3 19.1 19.1

26.5

31.3 30.5 28.725.7 27.3 28.1 28.3

Feed & Resid. %Feed/Total Use World %Stocks/Use

Feed

Use (

mm

t)

% o

f Tota

l U

se

Recent 5 years (2011-2015) wheat feeding avg. = 137.0 mmt (19.8% total use)

Previous 3 years (2008-2010) average = 121.1 mmt (18.7% total use)

World Wheat Ending Stocks & % Stx/Use

0

10

20

30

40

0

100

200

300

400

500

600

177 183164156165

199 210 210 207 204169

136156 153

134129169

203 199 198177193 210 221

32 33

30

29 29

3536 36 35 35

28

23

26 25

22 21

27

31 3029

26

2829.8

31.0

Marketing Year

% E

nd

ing

Sto

cks-t

o-U

se

Millio

n M

etr

ic T

on

s

U.S. Wheat $ vs World %Stx/UseMY 1973/74 – “New Crop” MY 2015/16

20 25 30 35 40$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

2007/08

2013/14$6.87 @ 28.0%

S/U

U.S. Wheat % Ending Stocks-to-Use

U.S

. W

heat

Pri

ce 2011/12

2014/15$5.99 @

29.8% S/U

USDA 2015/16$5.10 @ 31.0% S/U

2012/13$7.77 @ 25.8% S/U

U.S. Wheat Supply-Demand August 2015

2013/14 2014/15 2015/16 Planted Acres (mln.) 56.2 56.8 56.1 Harvested Ac. (mln.) 45.3 46.4 48.5 Yield (bu./ac.) 47.1 43.7 44.1 Beginning Stocks 718 590 753 Production 2,135 2,026 2,136 Imports 169 144 125

Total Supplies 3,022 2,760 3,014 Food & Seed 1,032 1,039 1,039 Exports 1,176 854 925 Feed & Residual 223 115 200

Total Use 2,431 2,008 2,164

End Stocks (%S/U) (24.3%) 590 (37.5%) 753 (39.3%) 850

U.S. Ave. Farm $ $6.87 $5.99 $4.65-$5.55

U.S. Wheat MY 2015/16 Forecasts USDA

MY 2015/16 KSU 2015/16 Higher $ (70%)

KSU 2015/16 Exports-30%

Planted Ac. (mln.) 56.1 56.1 55.5 Harvested Ac (mln.) 48.5 48.5 48.5 Yield (bu./ac.) 44.1 44.1 44.1 Beginning Stocks 753 753 753

Production 2,136 2,136 2,136

Imports 125 125 125

Total Supplies 3,014 3,014 3,014

Food & Seed Use 1,039 1,039 1,039 Exports**Wildcard! 925 925 1,050 Feed & Residual 200 200 175

Total Use 2,164 2,164 2,264

End Stocks (%S/U) (39.3%) 850 (39.3%) 850 (33.1%) 750

U.S. Avg. Farm $ $5.10 $5.50 $6.00

U.S. Wheat Seeded Acreage

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

0

20

40

60

80

51.4 48.0 46.4 43.3 43.3 40.9 41.8 45.4 43.3 40.4 40.645.0 46.8 43.3

36.6 40.6 40.9 43.2 42.4 40.6

20.019.1

15.615.3 15.3

15.6 15.613.8 13.8

14.0 14.913.3

14.113.2

13.512.3 12.3 11.6 13.0 13.5

Winter Wheat Other Spring Wheat Durum

Million

Acre

s

2015 U.S. Wheat acreage 1.3% vs 2014USDA Est. of All U.S. Wheat Acres in 2015 = 55.079 mln ac. (743,000 acres)

U.S. Wheat Acreage

0

25

50

75

100

125

0%

20%

40%

60%

80%

100%

63.659.0

52.6 54.3 55.3 56.2 56.8 56.1

56.049.8 46.9 45.7 48.8 45.3 46.4 48.5

84.8%

81.6%76.0%

85.4%83.8%87.6%

81.6%

84.4%88.1%

84.5%89.1%

84.2%88.2%

80.6%81.6%

84.1%

Planted Acres Harvested Acres % Harvested of Planted

Million

Acre

s

% H

arv

este

d/P

lan

ted

U.S. Wheat Yields19

73

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

0

10

20

30

40

50

60

31.6

27.3

34.2

39.4

32.7

39.5

35.8

43.2

35

44.2

38.6

46.1

43.6

47.1

43.7

44.146.1f(x) = 0.353412866203564 x + 30.5016611295681

U.S. Wheat Yields Year

Yie

ld:

Bu

/ A

cre

Record High

U.S. Wheat Use Since MY 2004/0520

04/0

520

05/0

620

06/0

720

07/0

820

08/0

920

09/1

020

10/1

120

11/1

220

12/1

320

13/1

420

14/1

520

15/1

6

0

500

1,000

1,500

2,000

2,500

3,000

910 917 938 948 927 919 926 941 951 955 958 967

1,0661,003 9081,263

1,015 8791,291 1,051 1,012 1,176

854 925

181 157 117

16268

142

85157 364 223

115200

Feed + Residual

Seed

Exports

Food

Marketing Years

Million

Bu

shels

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

0

5

10

15

20

25

30

35

40

45

50

0

500

1,000

1,500

2,000

2,500

531 568 507376444

722

946 950876

777

491546 540 571456

306

657

976863

743 718590

753850

2123

20

16

19

31

39 4037 36

2523 24

27

22

13

29

49

3633

30

24

37.539.3

Marketing Year

% E

nd

Sto

cks-t

o-U

se

Millio

n B

ush

els

U.S. Wheat Ending Stocks & Prices

0

25

50

75

100

125

150

$0

$2

$4

$6

$8

$10

13

29

4936 33 30

2437.5 39.3 39.3

33.1

$6.48 $6.78

$4.87$5.70

$7.24$7.77

$6.87$5.99

$5.10

KSU 70% prob

$5.50

KSU30% prob

$6.00

Marketing Year

% E

nd

Sto

cks-t

o-U

se

U.S

. P

rice$

/ b

u

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

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100$2

$3

$4

$5

$6

$7

$8

$9

$10

1985/86

1995/96

2007/08

2009/10

2012/13MY 2013/14

24.3% S/U, $6.87 /bu

U.S. Wheat % Ending Stocks-to-Use

U.S

. Whe

at $

per

bus

hel

USDA “New Crop” MY 2015/1639.3% S/U, $5.10 /bu

KSU “New Crop” MY 2015/1639.3% S/U, $5.50 /bu

“Old Crop” MY 2014/1537.5% S/U, $5.99 /bu

2011/12

Wheat Market Prospects for MY 2015/162015 U.S. HRS Wheat Crop?

• Quality of HRW (lower protein) & SRW Crops (disease/wet)• Prospects for 2015 U.S. Hard Red Spring wheat crop – Good!!

World Wheat Crops in MY 2015/16 (up 0.1%)• Higher in Kazakhstan, Russia, Turkey, Ukraine, & China

• Lower in Argentina, Canada, U.S. & European Union

Financial Markets & Geopolitical Conflicts• Financial European Union, China, U.S. Dollar, ……• Geopolitical Black Sea Region, Middle East, …..

Questions?Daniel O’Brien – Extension Agricultural

Economist

Kansas State university

dobrien@ksu.edu

KSUGrains on Twitter & Facebook

www.AgManager.info