Wheat Market Outlook in 2015-2016

DANIEL O’BRIENEXTENSION 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 Supplies are driven by 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/UseElasticity: Usage affected conversely by “high” vs “low” prices

Exports impacted by Currencies, # Competitors

Wheat Market Supply-Demand1) 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

$6.30

$5.31 $5.40$4.84 $5.06 $5.19 $5.31 $5.40

$4.83$4.73$3.98 $4.05

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

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

$0.04583 /mo$0.07333 /mo

$0.05625 /mo

World Wheat Supply, Use & Stocks

613 615

116 129

687650

137203

696 689

158198166

725 704

165

210

727 714

156221

0

300

600

900

Production Usage Trade End Stocks

Mill

ion

Met

ric

Tons

2007/08 2008/09 2009/10 2010/11 2011/122012/13 2013/14 2014/15 2015/16

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

32 32

23

19

2

19

810

2123

35

24

17

6

23

6

11

20

25

31

18 19

6

23

6

1316

0

50

Mill

ion

Met

ric

Tons

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

World Wheat Importers

2521

16

74

7 7

71

2522 20

6 6 82

72

2519 19

7 7 72

69

0

20

40

60

80

NorthAfrica

MiddleEast

SE Asia Brazil EU-28 FSU-12 China Others

Mill

ion

Met

ric

Tons

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

World Wheat Use & Ending Stocks

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%

-30%

-20%

-10%

0%

10%

20%

30%

40%

0

200

400

600

800

1,000

1,200

1,400

% E

ndin

g St

ocks

-to-

Use

Mill

ion

met

ric to

ns (m

mt)

FSI Usage Feed+Residual End Stocks %Stx/Use

World Wheat Feed Use

124 122 117 148 138 127 135 136

19.5 18.8 17.921.5 20.1 18.3 19.1 19.1

26.531.3 30.5 28.7

25.7 27.3 28.1 28.3

0510152025303540

0100200300400500600700800

% o

f Tot

al U

se

Feed

Use

(mm

t)

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

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

177 183 164 156 165199 210 210 207 204

169136 156 153 134 129

169203 199 198 177 193 210 221

32 3330

29 29

3536 36 35 35

28

23

26 25

22 21

27

31 3029

26

2829.8 31.0

0

100

200

300

400

500

600

0

10

20

30

40

Mill

ion

Met

ric To

ns

% E

ndin

g St

ocks

-to-

Use

Marketing Year

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

2007/08

2013/14$6.87 @ 28.0% S/U

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

$10.00

20 25 30 35 40

U.S.

Whe

at P

rice

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

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

51.4 48.0 46.4 43.3 43.3 40.9 41.8 45.4 43.3 40.4 40.6 45.0 46.8 43.336.6 40.6 40.9 43.2 42.4 40.6

20.019.1

15.615.3 15.3 15.6 15.6

13.8 13.814.0 14.9

13.3 14.113.2

13.512.3 12.3 11.6 13.0 13.5

0

20

40

60

80

Mill

ion

Acr

es

Winter Wheat Other Spring Wheat Durum

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

63.6 59.052.6 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%

0%

20%

40%

60%

80%

100%

0

25

50

75

100

125

% H

arve

sted

/Pla

nted

Mill

ion

Acr

es

Planted Acres Harvested Acres % Harvested of Planted

U.S. Wheat Yields

31.6

27.3

34.239.4

32.7

39.5

35.8

43.2

35

44.2

38.6

46.1

43.6

47.1

43.7

44.146.1

U.S. Wheat Yield Trend (1973-2015)Yield = 30.50 bu + 0.353 bu/yr

0

10

20

30

40

50

60

Yiel

d: B

u /

Acr

e

YearU.S. Wheat Yields KSU 2016

Record High

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

531 568 507376 444

722

946 950 876777

491 546 540 571456

306

657

976863

743 718590

753850

21 2320

1619

31

39 4037 36

2523 24

2722

13

29

49

3633

30

24

37.539.3

0

500

1,000

1,500

2,000

2,500

05

101520253035404550

Mill

ion

Bush

els

% E

nd S

tock

s-to

-Use

Marketing Year

U.S. Wheat Ending Stocks & Prices

1329

4936 33 30 24

37.5 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

$0

$2

$4

$6

$8

$10

0

25

50

75

100

125

150U.

S. P

rice$

/ b

u

% E

nd S

tock

s-to

-Use

Marketing Year

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

1985/86

1995/96

2007/08

2008/09

2009/10

2012/13MY 2013/14 24.3% S/U, $6.87 /bu

$2

$3

$4

$5

$6

$7

$8

$9

$10

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

U.S. W

heat $ per bushe

l

U.S. Wheat % Ending Stocks‐to‐Use

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

2010/11

Wheat Market Prospects for MY 2015/162015 U.S. 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