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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
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www.AgManager.info