market outlook for wheat & feedgrains wkarc field day, hays, kansas august 26, 2008 daniel...

Market Outlook for Market Outlook for Wheat & FeedgrainsWheat & Feedgrains

WKARC Field Day, Hays, KansasWKARC Field Day, Hays, KansasAugust 26, 2008August 26, 2008

Daniel O’Brien - Extension Ag Daniel O’Brien - Extension Ag EconomistEconomist

K-State Research and ExtensionK-State Research and Extension

Current vs Historic Grain Current vs Historic Grain PricesPrices

Average Cash Prices ReceivedAverage Cash Prices Received

Crop2000-2000-

0606

AveragAveragee

2007/082007/08

Mktg. Mktg. Year Year

KC MO.KC MO.August 25, August 25,

‘08‘08

Wheat $3.35 /bu $6.48 /bu $8.48 /bu

Corn $2.24 /bu $4.25 /bu $5.62 /bu

Grain Sorghum

$2.20 /bu $4.15 /bu $5.00 /bu

Soybeans $5.66 /bu $10.15 /bu $13.72

/bu

U.S. Cropland InventoryU.S. Cropland Inventory Millions of AcresMillions of Acres 5 yr. Ave. 07/08 USDA

Proj. 08/09 1

Corn 79.6 93.6 87.0 (-7%) Soybeans 74.2 63.6 74.8 (+18%)

Hay 62.4 61.6 60.2 (-2%)

Wheat 59.5 60.4 63.5 (+5%)

Cotton 14.1 10.8 9.3 (-15%)

Grain Sorghum 8.1 7.7 7.3 (-5%)

Principle Crops 297.9 297.9 302.3CRP 35.9 34.9 (-3%) Total U.S. Cropland = 441.6 million acres1 USDA, WASDE, Released August 12, 2008.

Crop Acres Coming Out of Crop Acres Coming Out of CRPCRP

2007–2017 (2007–2017 (Source: USDA, FSA)Source: USDA, FSA)

1.0

0.5

0.9 1.0

1.4 1.3

1.1

0.90.8 0.8

0.4

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.7520

07

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Mil

lio

n A

cres

U.S. Dollar Index: 2000-U.S. Dollar Index: 2000-20082008

Monthly Price Chart (DX – NYBOT)Monthly Price Chart (DX – NYBOT)

Light Crude Oil Futures: Light Crude Oil Futures: 2000-20082000-2008

Monthly Price Chart (CL – NYMEX)Monthly Price Chart (CL – NYMEX)

U.S. Gross Domestic U.S. Gross Domestic ProductProduct

Quarterly 2000 – 2008 (Nominal vs Quarterly 2000 – 2008 (Nominal vs Real)Real)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,00020

00q1

2000

q320

01q1

2001

q320

02q1

2002

q320

03q1

2003

q320

04q1

2004

q320

05q1

2005

q320

06q1

2006

q320

07q1

2007

q320

08q1

Year - Quarter

U.S

. GD

P (B

illio

n U

SD$)

GDP-Nominal USD$ GDP-Real (2000 USD$)

U.S. Gross Domestic Product U.S. Gross Domestic Product ChangesChanges

Year-to-Year Quarterly Changes (2000 – Year-to-Year Quarterly Changes (2000 – 2008)2008)

-1.00%0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%

2000

q120

00q3

2001

q120

01q3

2002

q120

02q3

2003

q120

03q3

2004

q120

04q3

2005

q120

05q3

2006

q120

06q3

2007

q120

07q3

2008

q1

Year - Quarter

U.S

. GD

P (B

illio

n U

SD$)

Change in GDP Change in Real GDP (2000$)

U.S. Corn Price Flexibility U.S. Corn Price Flexibility ExampleExample

$ Response to 2008 U.S. Corn $ Response to 2008 U.S. Corn ProductionProduction

$3.00

$6.00

$9.00

$12.00

8.50 10.00 11.50 13.00 14.50 16.00 17.50

U.S. Corn Production (Billion bu - 2008)

U.S

. Co

rn $

/ b

u

Inelastic Demand => Highly Flexible Corn $'s35% $ Increase per 10% Prodn. Decline

Elastic Demand => Inflexible Corn $'s6% $ Increase per 10% Prodn. Decline

Inelastic – Highly Flexible Inelastic – Highly Flexible DemandDemand

Implications for Farm & Other Commodity Prices Record High & Volatile Grain PricesRecord High & Volatile Grain Prices

Record low Grain Stocks/Use “pushed” markets into the Inelastic, highly Flexible parts of their market demand curves

PGrains responded to their own & other grain’s tight S/D prospects

Expect Market Volatility to Continue Farm markets to remain Inelastic with high

Price Flexibility into the forseeable future

WheatWheatMarketsMarkets

Wheat Market FactorsWheat Market Factors World & U.S. Wheat Stocks recovering in

2008/09 from 30 / 60 year lows in 2007/08 World Production 10%; Ending Stocks 18% U.S. Production 19%; Ending Stocks 87%

Current Negative Impacts on Wheat Market Larger World Wheat Supplies Some strengthening of U.S. Dollar (↓ U.S.

Exports)

Cross-Grain Market $ Effects in 2008/09?? Fall Winter Wheat seeding? Spring acres

bidding?

SEPT 2008 HRW Wheat SEPT 2008 HRW Wheat FuturesFutures

KCBT: March 2007 – August 25, 2008KCBT: March 2007 – August 25, 2008

Contract Volume & Open Interest

Cash Wheat PricesCash Wheat PricesHays, KansasHays, Kansas

Midland Marketing, Hays, KSAugust 27, 2007 – August 25, 2008Source: DTN Bid Analyzer

$7.98 /bu on 8/25/08Basis: $0.80/bu underKC SEP 2008 Wheat

U.S. Wheat Supply-DemandU.S. Wheat Supply-DemandUSDA WASDE Report: August 12, 2008USDA WASDE Report: August 12, 2008

2006/07 2007/08 2008/09 Planted Ac. (mln.) 57.3 60.4 63.5 Harvested Ac (mln.) 46.8 51.0 56.6 Yield (bu./ac.) 38.7 40.5 43.5 Beg. Stocks 571 456 306 Production 1,812 2,067 2,462

Total Supplies 2,505 2,635 2,868 Food & Seed 1,019 1,036 1,044 Exports 908 1,264 1,000 Feed & Residual 121 30 250

Total Use 2,049 2,330 2,294 End Stocks (%S/U) (22.3%) 456 (13.1%) 306 (25.0%) 574

U.S. Ave. Farm $ $4.26 $6.48 $6.50-$8.00

U.S. Wheat Planted AcreageU.S. Wheat Planted Acreage1973 through 20081973 through 2008

60.463.562

7577

8880

57

25

50

75

100

Marketing Year

Mill

ion

Acr

es

Kansas HRW Acres Seeded down 500K in 2007/08 – What of 2008/09??

World Wheat Supply-DemandWorld Wheat Supply-Demand2005/06 thru 2008/09 Marketing Years2005/06 thru 2008/09 Marketing Years

621 624

116148

596 617

111 127

611 622

114 115

671 650

121 136

0

200

400

600

800

Production Use Exports Ending Stocks

Mill

ion

Met

ric

Ton

s

'2005/06 MY '2006/07 MY '2007/08 MY '2008/09 MY

Supply Response:Higher Production, Use,

Exports & Ending Stocks

Recovery in World Stocks from 30 year low in 2007/08

World Wheat ExportersWorld Wheat Exporters2005/06 thru 2008/09 Marketing Years2005/06 thru 2008/09 Marketing Years

0

10

20

30

40

Mill

ion

Met

ric

Ton

s

EU-27 U.S. Canada Australia Argentina FSU-12

'2005/ 06 MY '2006/ 07 MY '2007/ 08 MY '2008/ 09 MY

U.S. & Argentina DOWN in 2008/09, Australia, FSU-12 & EU-27 UP

U.S. Wheat Ending Stocks U.S. Wheat Ending Stocks Wheat Ending Stocks as a % of Total Use Wheat Ending Stocks as a % of Total Use

(1973-2008)(1973-2008)

252720 2017 1619 13

0

25

50

75

100

Marketing Year

% S

tock

s to

Use

Market response in '08/09 to 60 year low of 13% S/U @ 306 mb End Stocks ('07/08)

Forecast2008/09

U.S. Wheat Stocks/Use% vs U.S. Wheat Stocks/Use% vs PricePrice

1973/74 through 2008/09 Marketing 1973/74 through 2008/09 Marketing YearsYears

$7.25

$3.99$3.72

$4.50

$3.56$3.42

$4.26

$6.48

0.0

25.0

50.0

75.0

100.0

125.0

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09

Marketing Year

% S

tock

s/U

se

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

U.S

. Wh

eat

$

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

Forecast 2008/09 U.S. Wheat Price $7.25 /bu @ 25% Stocks/Use

Feedgrain Feedgrain

Markets:Markets:

Corn & Corn & Grain Grain

SorghumSorghum

Feedgrain Market Factors

Pre-Freeze Maturity of the 2008 Corn Crop? Freeze risk - crop development questions in U.S.

Corn Belt

Price Competition Rationing Tight U.S. Supplies Livestock Feed Use @ 5.3 bln bu (14%) Grain-Ethanol Use @ 4.1 bln bu (36%) Export Use @ 2.0 bln bu (18%) Ending Stocks @ 1.1 bln bu (28%)

Corn-Bean “Bidding for Acres” in Spring 2009

Market Comfort with Lower “just-in-time” Stocks

DEC 2008 Corn FuturesDEC 2008 Corn FuturesCBOT: December 2005 – August 25, CBOT: December 2005 – August 25,

20082008

Contract Volume & Open Interest

Cash Corn PricesCash Corn PricesHays, KansasHays, Kansas

Midland Marketing, Hays, KSAugust 27, 2007 – August 25, 2008Source: DTN Bid Analyzer

$5.27/bu on 8/25/08Basis: $0.53/bu underCBOT SEPT 2008 Corn

Cash Grain Sorghum PricesCash Grain Sorghum PricesHays, KansasHays, Kansas

Midland Marketing, Hays, KSAugust 27, 2007 – August 25, 2008Source: DTN Bid Analyzer

$4.79/bu on 8/25/08Basis: $1.01/bu underCBOT SEPT 2008 Corn

U.S. Corn Supply-DemandU.S. Corn Supply-Demand2006/07 through 2008/09 Marketing 2006/07 through 2008/09 Marketing

YearsYears 2006/07 2007/08 2008/09 Planted Ac. (mln.) 78.3 93.6 87.0 Harvested Ac (mln.) 70.6 86.5 79.3 Yield (bu./ac.) 149.1 151.1 155.0 Beg. Stocks 1,967 1,304 1,576 Production 10,535 13,074 12,288

Total Supplies 12,514 14,396 13,878 Ethanol 2,119 3,000 4,100 Other Food, Seed, Indust. 1,371 1,345 1,345 Exports 2,125 2,425 2,000 Feed & Residual 5,595 6,050 5,300

Total Use 11,210 12,820 12,745 End Stocks (%S/U) (12%) 1,304 (12%) 1,576 (10.5%) 1,133

U.S. Ave. Farm $ $3.04 $4.25 $4.90-$5.90

U.S. Grain Sorghum Supply-U.S. Grain Sorghum Supply-DemandDemand

2006/07 through 2008/09 Marketing 2006/07 through 2008/09 Marketing YearsYears 2006/07 2007/08 2008/09

Planted Ac. (mln.) 6.5 7.7 7.3 Harvested Ac (mln.) 4.9 6.8 6.4 Yield (bu./ac.) 56.2 74.2 63.7 Beg. Stocks 66 32 52 Production 278 505 410

Total Supplies 343 537 462 Food, Seed, Indust. 45 35 70 Exports 153 275 130 Feed & Residual 114 175 200

Total Use 311 485 400 End Stocks (%S/U) (10%) 32 (11%) 52 (15.5%) 62 U.S. Ave. Farm $ $3.29 $4.15 $4.40-$5.40

U.S. Corn Food, Seed & U.S. Corn Food, Seed & Industrial UseIndustrial Use

1973/74 thru 2008/09 Marketing Years1973/74 thru 2008/09 Marketing Years

0

1,500

3,000

4,500

6,000

Marketing Year

Mill

ion

Bus

hels

Other FSI Use (Non-ethanol) Ethanol

2007/08 Ethanol-related Use of Corn:3.0 billion bu. (23% of Total U.S. Corn Use)

Forecast 2008/09 Ethanol-related Corn Use: 4.1 billion bu. (32% of Total U.S. Corn Use)

U.S. Ethanol Industry Development

2006 2008 No. operating Ethanol Plants: 97 163 Plants under construction or expanding: 35 47 Announced plants: 300(17%) ??? Current production capacity: (BGPY) 4.8 9.5

Projected production capacity: 12.4 BGPY end of 200813.6 BGPY end of 2009

Corn Used for Ethanol Production & % of U.S. Corn Crop:Mktg. Year Mln. Bu. % of Crop

2006/07 2,119 20% 2007/08 3,000 23% 2008/09 4,100 33%

Ethanol Profit Margin Est. ($ / gallon)

Prices July 07 Aug 08 ChangeCorn ($/bu.) $3.27 $5.09 1 +58%Ethanol $/gal $1.91 $2.10

+13%RBOB Gas $/gal $1.98 $2.84

+51%

Profit Margin +0.26 +0.01 2

1 1 Prices Aug 12, 2008. Breakeven corn price - $5.15Prices Aug 12, 2008. Breakeven corn price - $5.1522 Ethanol profit for a 100 million gallon plant = $1 million Ethanol profit for a 100 million gallon plant = $1 million Distiller’s Grain revenue would be about $54.6 million. Distiller’s Grain revenue would be about $54.6 million.

To compete with gasoline as substitute, ethanol $ would need to fall to To compete with gasoline as substitute, ethanol $ would need to fall to $1.88/gal$1.88/gal

Corn Ethanol & WDG $Value Corn Ethanol & WDG $Value vs Corn $vs Corn $

Nebraska / Kansas #s, Feb. 2007 - Nebraska / Kansas #s, Feb. 2007 - August 15, 2008August 15, 2008

($2.00)

$0.00

$2.00

$4.00

$6.00

$8.00Feb

4 07

Mar

4 07

Apr

3 07

May

3 07

Jun3

07

Jly2

07

Aug

2 07

Sep1

07

Oct

1 07

Nov

1 07

Nov

5 07

Dec

4 07

Jan4

08

Feb

4 08

Mar

3 08

Apr

3 08

May

3 08

Jun2

08

Jly2

08

Aug

2 08

Month-Week Year

$/ U

nit

Ethanol Value$ / bu. WDG Value$ / bu. Est. Profit / gal.

World Coarse Grain Supply-World Coarse Grain Supply-DemandDemand

2005/06 thru 2008/00 Marketing Years2005/06 thru 2008/00 Marketing Years

125 148116 144

1,0661,076 1,089 1,093

0

300

600

900

1200

1500

Production Use Exports Ending Stocks

Mill

ion

Met

ric

Ton

s

'2005/ 06 MY '2006/ 07 MY '2007/ 08 MY '2008/ 09 MY

World Coarse Grain S-D driven by U.S. Feedgrain S-D Trends:

2nd Lowest World Ending Stocks in 30 Yrs (behind '06/07)

World Coarse Grain ExportersWorld Coarse Grain Exporters2005/06 thru 2008/09 Marketing Years2005/06 thru 2008/09 Marketing Years

5

70

12

55

0

20

40

60

80

U.S. Argentina Australia Canada Brazil China FSU-12

Mill

ion

Met

ric

Ton

s

'2005/ 06 MY '2006/ 07 MY '2007/ 08 MY '2008/ 09 MY

U.S. forecast to have 47% of World Coarse Grain Exports in 2008/09 Mktg Year (down from 56% in 2007/08)

126% increase for FSU-12

Drop in China Coarse

Grain Exports

U.S. Corn Ending Stocks U.S. Corn Ending Stocks CornCorn Ending Stocks as a % of Total UseEnding Stocks as a % of Total Use

2527

55

6662

23

49

2723

1291117 19 20 20

98711 11

510

0

25

50

75

Marketing Year

% S

tock

s to

Use

2008/09 Ending Stocks: 1.133 Billion Bu. 9% Stocks/Use

U.S. Corn Stocks/Use% vs U.S. Corn Stocks/Use% vs PricePrice

1973/74 through 2008/09 Marketing Years1973/74 through 2008/09 Marketing Years

$4.25

$3.04

$2.00

$2.42

$3.24$3.21$3.12$3.02

$5.40

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09

Marketing Year

% S

tock

s/U

se

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

U.S

. C

orn

$

Stocks/Use% U.S. Corn Price

2007/08 Record High: $4.25 / bu @ 12% S/U

2007/08 Forecast: $5.40 / bu @ 9% S/U

Soybean Soybean &&

Oilseed Oilseed MarketsMarkets

NOV 2008 Soybean FuturesNOV 2008 Soybean FuturesCBOT: April 2006 – August 25, 2008CBOT: April 2006 – August 25, 2008

Contract Volume & Open Interest

Cash Soybean PricesCash Soybean PricesHays, KansasHays, Kansas

Midland Marketing, Hays, KSAugust 27, 2007 – August 25, 2008Source: DTN Bid Analyzer

$11.99/bu on 8/25/08Basis: $1.48/bu underCBOT NOV 2008 Soybeans

U.S. Soybean Supply-U.S. Soybean Supply-DemandDemand

2006/07 through 2008/09 Marketing 2006/07 through 2008/09 Marketing YearsYears 2006/07 2007/08 2008/09

Planted Ac. (mln.) 75.5 63.6 74.8 Harvested Ac (mln.) 74.6 62.8 73.3 Yield (bu./ac.) 42.7 41.2 40.5 Beg. Stocks 449 574 135 Production 3,188 2,585 2,973

Total Supplies 3,647 3,169 3,116 Crushings 1,808 1,830 1,815 Exports 1,116 1,145 1,000 Seed & Residual 148 ****59 165

Total Use 3,073 3,034 2,980 End Stocks (%S/U) (19%) 574 (4.4%) 135 (4.5%) 135

U.S. Ave. Farm $ $6.43 $10.15 $11.50-$13.00

World Soybean Supply-World Soybean Supply-DemandDemand

2005/06 thru 2008/09 Marketing Years2005/06 thru 2008/09 Marketing Years

220 215

64 53

237 238

7649

0

100

200

300

Production Use Exports Ending Stocks

Mill

ion

Met

ric

Ton

s

'2005/ 06 MY '2006/ 07 MY '2007/ 08 MY '2008/ 09 MY

Variable World ProductionStable-Growing Use & Exports

Stable-Low Ending Stocks

World Soybean ExportersWorld Soybean Exporters2005/06 thru 2008/09 Marketing Years2005/06 thru 2008/09 Marketing Years

31

26

12

27 28

13

0

15

30

45

U.S. Brazil Argentina

Mill

ion

Met

ric

Ton

s

'2005/ 06 MY '2006/ 07 MY '2007/ 08 MY '2008/ 09 MY

Not as large an increase in Brazilian soybean production as expected has diminished Export prospects & pushed World Soybean $Prices higher

Record Prospects for Argentina Soy Exports

U.S. Soybean Ending StocksU.S. Soybean Ending StocksSoybean Ending Stocks as a % of Total Soybean Ending Stocks as a % of Total

UseUse

4.5

19

710 10 9988 7

4.54.46 6

16

0

10

20

30

40

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09

Marketing Year

% S

tock

s to

Use

Continued low Soybean stocks in 2008/09 (135 mln bu, 4.5% S/U), i.e., 17 days inventory

(With 2007/08, Lowest since 112 mln bu stocks in 2003/04)

2008/09 Forecast

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

1973/74 through 2008/09 Marketing Years1973/74 through 2008/09 Marketing Years$12.25

$6.64 $6.81

$7.57 $7.83$7.42 $7.35

$10.15

$6.43

$7.34

0

5

10

15

20

25

30

35

'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09

Marketing Year

% S

tock

s/U

se

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

Stocks/Use% U.S. Soybean Price

2008/09 Forecast

Questions???Questions???

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