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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
KSUGrains on Twitter & Facebook
www.AgManager.info