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The Outlook for Feedgrain, Wheat & Soybean Markets in 2014

December 26, 2013


Summary

On December 10, 2013 the USDA released its monthly Crop Production and World Agricultural Supply and Demand Estimates (WASDE) reports.  In terms of domestic U.S. grain markets, the USDA projected that there would be some key decreases in U.S. corn and soybean supply-demand balances (i.e., ending stocks) that are likely to impact these markets from now through the summer of 2014.  No major changes were made in the projected supply-demand balance for U.S. grain sorghum for MY 2013/14, but cross market effects on grain sorghum prices are likely from corn market trends through the 2014 fall corn harvest.  The U.S. corn, grain sorghum, and soybean 2013/14 marketing year began on Sept. 1, 2013 and will end on Aug. 31, 2014.     

No major changes were made in projected U.S. wheat market supply-demand balances for the “new crop” 2013/14 marketing year – running from June 1, 2013 through May 31, 2014.  However, U.S. wheat exports, total use, ending stocks, and price prospects are likely to depend on the relative amount of export sales from a number of world wheat export competitors in MY 2013/14, including and especially Canada, the Black Sea region countries (including Russia, Ukraine & Kazakhstan), Australia, the European Union, and Argentina. 

Corn and Grain Sorghum Market Forecast: The USDA projected 2013 U.S. corn production at 13.989 billion bu (bb), with ending stocks-to-use of 13.7% for MY 2013/14, down from 14.6% a month ago, and up from 7.4% for “old crop” MY 2012/13.  U.S. average corn prices for “new crop” MY 2013/14 are forecast to be $4.05-$4.75 / bu, down from a record high $6.89 the previous year.  KSU probability scenario based-projections for MY 2013/14 are as follows: a) “Low Yield-Production” Scenario: 5% prob. of a 13.667 bb U.S. corn crop, 13.1% S/U, & $4.40-$5.40 /bu;  b) “Likely Yield-Production” Scenario: 90% prob. of a 13.989 bb U.S. corn crop (same as the USDA), 13.7% S/U, & $4.65-$5.65 /bu; and a c) “High Yield-Production” Scenario: 5% prob. of a 14.310 bb 2013 U.S. corn crop, 15.1% S/U, & $3.40-$4.40 /bu.  Grain sorghum market scenarios are similar to corn in terms of probability based prices – with a $0.30 / per bu downward adjustment from corn.  World corn and coarse grain ending stocks for MY 2013/14 were projected by the USDA to be markedly higher than 2012/13 levels.

Wheat Forecast: The USDA projected U.S. wheat ending stocks of 575 mb for MY 2013/14 – up 10 mb from a month ago, but still down from 718 mb in MY 2012/14.  Projected ending stocks-to-use of 23.6% for MY 2013/14 are up marginally from a month ago, but down from 29.7% for “old crop” MY 2012/13.  U.S. average wheat prices for “new crop” MY 2013/14 are forecast to be $6.65-$7.15 /bu, down from a record high $7.77 the previous year.  KSU probability scenario based-projections for MY 2013/14 are as follows: a) “Low Export” Scenario: 10% prob. of a 1.037 bb in U.S. exports, 26.9% S/U, & $6.00-$7.00 /bu;  b) “Likely Export” Scenario: 80% prob. of 1.100 bb in U.S. wheat exports (same as the USDA), 23.6% S/U, & $6.65-$7.15 /bu; and a c) “High Export” Scenario: 10% prob. of a 1.162 bb in U.S. wheat exports, 20.6% S/U, & $7.25-$8.25 /bu.  World wheat ending stocks for MY 2013/14 were projected to be higher than a month ago, and up from “old crop” 2012/13.  

Soybean Forecast: The USDA projected 2013 U.S. soybean production at 3.258 bb, with ending stocks-to-use of 4.58% for MY 2013/14, down from 5.2% a month ago, and essentially equal to 4.55% for “old crop” MY 2012/13.  U.S. average soybean prices for “new crop” MY 2013/14 are forecast to be $11.50-$13.50 /bu, down from a record high $14.40 /bu in the previous year.  KSU probability scenario based-projections for MY 2013/14 are as follows: a) “Low Yield-Production” Scenario: 10% prob. of a 3.147 bb U.S. soybean crop, 4.2% S/U, & $14.25-$14.75 /bu;  b) “Likely Yield-Production” Scenario: 80% prob. of a 3.258 bb U.S. soybean crop (same as the USDA), 4.6% S/U, & $13.00-$14.00 /bu; and a c) “High Yield-Production” Scenario: 10% prob. of a 3.369 bb 2013 U.S. soybean crop, 5.1% S/U, & $12.00-$13.00 /bu.  World soybean ending stocks for MY 2013/14 were projected by the USDA to be markedly higher than 2012/13 levels. 


I. USDA Crop Production & WASDE Reports of December 10, 2013

On December 10, 2013 the United States Department of Agriculture (USDA) released its December Crop Production report from the National Agricultural Statistical Service (NASS), and the World Agricultural Supply and Demand Estimates (WASDE) report from the World Agricultural Outlook Board (WAOB).  

The December 10th Crop Production report contained no changes in projected 2013 production for major U.S. field crops such as corn, grain sorghum, wheat and soybeans.  No survey of U.S. agricultural producers was associated with the December 10th Crop Production report.  “New crop” MY 2013/14 runs from September 1, 2013 through August 31, 2014.  That said, the USDA did make a number of changes in U.S. and World supply-demand balances and prices in its December 10th WASDE report.  These changes are explained in the following sections of this article.

On Friday, January 10, 2014 the USDA plans to release a number of reports that have the potential to impact U.S. and World corn, grain sorghum, wheat and soybean supply-demand and price prospects for the “new crop” 2013/14 marketing year.  The USDA will conduct surveys and use other means to reassess U.S. 2014 crop production prospects in its upcoming January 10, 2014 USDA Crop Production Summary report, which will be released along with its regular January 2014 Crop Production report.  This final 2013 summary report may provide results that vary from the December 10, 2013 Crop Production report.  Any updated estimates of 2013 U.S. crop production could have a significant impact on U.S. and World “new crop” MY 2013/14 supply-demand balances and prices for major grain and oilseed crops that will be reported in the January 2014 USDA WASDE report.  

II. The Forecast Accuracy of the December 10, 2013USDA Reports

Although it is generally thought that prospects for United States’ 2013 crop production, supply-demand, and price prospects are known with some accuracy by the grain and livestock markets, the USDA’s own forecast accuracy numbers indicated a considerable amount of uncertainty and associated market risk still exists.  Even greater uncertainty still exists in regard to the final supply-demand balances for the 2013/14 marketing years for World wheat and soybeans.  Uncertainty about World coarse grain supply-demand balances is less than for other crop types due to the offsetting variability of coarse grain production in the United States and other countries – particularly in South America.

The Kansas State University forecasts for “new crop” 2013/14 U.S. corn, grain sorghum, wheat and soybeans reflect this supply-demand factor uncertainty.  And of course any changes in foreign crop production and supply-demand prospects will also affect World grain supply-demand balances and market prospects along with any changes in grain supply-demand factors for the United States.

USDA’s U.S. Grain Domestic Supply-Demand Forecast Accuracy for MY 2013/14

For example, the USDA’s December 2013 forecast of 2013 U.S. corn production of 13.989 billion bushels (bb) has a 90% confidence interval of +/– 2.3%.  This indicates that there is a 90% probability of final 2013 U.S. corn production being within the range of 13.667 to 14.311 bb.  Similarly, the USDA’s December 2013 forecast of 2013 U.S. grain sorghum production of 416 million bushels (mb) has a 90% confidence interval of +/– 7.1%.  This indicates that there is a 90% probability of final 2013 U.S. grain sorghum production being within the range of 386 to 446 mb.  The USDA’s December 2013 forecast of 2013 U.S. soybean production of 3.258 billion bushels (bb) has a 90% confidence interval of +/– 3.4%.  This indicates that there is a 90% probability of final 2013 U.S. soybean production being within the range of 3.147 to 3.369 bb.

For U.S. wheat supply-demand, the amount of 2013 U.S. wheat production – estimated by the USDA to be 2.130 bb – is known with some degree of certainty, with 90% confidence interval of +/– 0.7%.  However, the accuracy of the December 2013 USDA WASDE U.S. wheat export forecast for MY 2013/14 is much less certain, with a 90% forecast confidence interval of +/– 9.6%. This would indicate that the USDA’s December projection of 1.100 bb in U.S. wheat exports in MY 2013/14 has a relatively wide 90% forecast confidence interval of 994 mb to 1.206 bb.   

USDA’s World Grain Supply-Demand Factor Forecast Accuracy for MY 2013/14

World crop production, supply-demand, and price prospects for the 2013/14 marketing years take into account the uncertainty of both United States’ and Foreign corn, coarse grains, wheat and soybeans supply-demand factors. Generally speaking, the USDA’s own forecast accuracy estimates indicated even more uncertainty about World supply-demand factors than for the U.S. alone. 

World Wheat: The USDA’s December 2013 forecast of MY 2013/14 World wheat production of 964.28 million metric tons (mmt) has a 90% confidence interval of +/– 1.5%, compared to a +/– 0.7% confidence interval for U.S. wheat production in MY 2013/14.  The 90% forecast confidence interval for World wheat production in MY 2013/14 is 949.82 to 978.74 mmt – a forecast interval range of 28.92 mmt or 3.0% of forecast World wheat production.  For comparison, the 90% confidence interval for the December 2013 projection of MY 2013/14 World wheat ending stocks of 182.78 mmt is +/– 9.7% (165.05 to 200.51 mmt – a 90% confidence interval range of 35.46 mmt or 19.4% of projected World wheat ending stocks).

World Soybeans: The USDA’s December 2013 forecast of MY 2013/14 World soybean production of 284.94 mmt has a 90% confidence interval of +/– 6.8%, compared to a +/– 3.4% confidence interval for U.S. soybean production in MY 2013/14.  Consequently, the 90% forecast confidence interval for World soybean production in MY 2013/14 is 265.47 to 304.32 mmt – a interval range of 38.85 mmt, and 13.6% of forecast World soybean production.  For perspective, the 90% confidence interval for the December 2013 projection of MY 2013/14 World soybean ending stocks of 70.62 mmt is +/– 27.6% (51.13 to 90.11 mmt – a 90% confidence interval range of 38.98 mmt, and 55.2% of forecast World soybean ending stocks).

World Coarse Grains (Corn, Sorghum, Barley, Oats, Millet, & Mixed Grains): The 90% confidence interval of +/– 3.1% for the USDA’s December 2013 Foreign coarse grain production forecast of 884.36 mmt for MY 2013/14 is greater than that of +/– 2.3% on a percentage basis for the United States (371.72 mmt forecast for MY 2013/14).  Taken together, however, forecast MY 2013/14 World coarse grain production of 1,256.08 mmt has a 90% confidence interval of +/– 2.2% (1,228.15 to 1,283.71 mmt – a 90% forecast confidence interval range of 55.56 mmt, which is 4.4% of projected World coarse grain production).   For comparison, the 90% confidence interval for the December 2013 projection of MY 2013/14 World coarse grain ending stocks of 196.92 mmt is +/– 9.7% (177.82 to 216.02 mmt – a 90% confidence interval range of 38.2 mmt, which is 19.4% of projected World coarse grain ending stocks).

Remaining Sections of this Article

In the following sections, the most recent December 10, 2013 USDA supply-demand and price projections for the 2013/14 marketing years are provided for U.S. corn, grain sorghum, wheat and soybeans.  Accompanying probability weighted Kansas State University supply-demand and price projections are also provided for these same key U.S. crops.  As shown in the preceding section, history shows that the potential still exists for considerable variation in final MY 2013/14 U.S. and World corn, grain sorghum, wheat, and soybean supply-demand balances as well as price prospects – and the KSU projections seek to reflect this uncertainty.

The following sections for a) corn and grain sorghum, b) wheat, and c) soybeans present recent weekly futures prices along with U.S. and World grain supply-demand and price information for these crops.   

III. Corn Supply-Demand and Prices – U.S. & World

Corn Futures Price Trends

On Tuesday, December 24, 2013, Chicago Board of Trade (CBOT) MARCH 2014 corn futures closed at $4.34 ½ (Figure III-A).  A continuous chart of weekly CBOT-CME corn futures lead contract open-high-low-closing prices from November 2011 through December 20, 2014 illustrates how lead contract corn futures prices had been trading at or above $6.85 per bushel from July 2012 through March 2013, then fell to a range of $6.25 to $7.25 through the second week in July 2013.  However, as the grain market came to a consensus that a record large 2013 U.S. corn crop was developing in the third week of July 2013, SEPTEMBER 2013 corn futures fell sharply from a close of approximately $7.00 in the second week in July 2014 down to approximately $5.50 the following week.  Since mid-summer lead contract corn futures have generally moved lower – falling to near $4.20 in late November – early December, before climbing marginally to $4.35 per bushel on December 24, 2013.  

Figure III-A.  Weekly Continuous Chart of CBOT-CME Corn Futures: Nov. 2011 through Dec. 24, 2013

Text Box: CBOT MAR 2014 Corn Futures
Close on Dec. 24, 2013 = $4.34 ½ /bu 
http://futures.tradingcharts.com/charts/barni/ZCW.GIF

U.S. Corn Supply-Demand & Price Projections

USDA Corn Supply-Demand and Price Forecasts: United States’ corn supply-demand balance sheets and prices for the 2007/08 through 2012/13 marketing years are provided in Table 1, with both USDA and KSU price projections for “new crop” MY 2013/14.  In the December 10th WASDE report the USDA made the following adjustments to the U.S. corn supply-demand balance sheet for “new crop” 2013/14 marketing year.  For “new crop” MY 2013/14 the USDA…

a) increased U.S. corn imports and total supplies by 5 mb each, up to 30 mb and 14.842 bb, respectively;

b) increased projected corn use for ethanol by 50 mb to 4.950 bb;

c) increased projected exports by 50 mb to 1.450 bb;

d) left non-ethanol food, seed, and industrial use and feed and residual use unchanged at 1.450 bb and 5.200 bb, respectively;

e) increased projected total use by 100 mb to 13.050 bb;

f) decreased ending stocks by 95 mb to 1.792 bb;

g) decreased percent (%) ending stocks-to-use from 14.57% in November to 13.73% in December; and

h) lowered its projected U.S. corn average price to $4.40 per bushel (range = $4.05 -$4.75), down from $4.50 per bushel (range = $4.10 -$4.90) in the November WASDE.  

KSU Corn Supply-Demand and Price Forecasts:  In comparison, KSU projections of 2013 U.S. corn production and “new crop” MY 2013/14 supply-demand and price scenarios are (see Table 1): 

1) “Low Yield-Production” Scenario: 5% prob. of 95.3 ma planted, 87.2 ma harvested, 156.7 bu/ac yields, a 13.667 bb U.S. corn crop, 13.1% S/U, & a price range of $4.40-$5.40 /bu (midpoint = $4.90); 

2) “Likely Yield-Production” Scenario: 90% prob. of 95.3 ma planted, 87.2 ma harvested, 160.4 bu/ac yields, a 13.989 bb U.S. corn crop, 13.7% S/U, & a price range of $3.65-$4.65 /bu (midpoint = $4.15); 

3) “High Yield-Production” Scenario: 5% prob. of 95.3 ma planted, 87.2 ma harvested, 164.1 bu/ac yields, a 14.310 bb 2013 U.S. corn crop, 15.1% S/U, & a price range of $3.40-$4.40 /bu (midpoint = $3.90). 

Both USDA and KSU probability-weighted U.S. corn price projections in Table 1 for “new crop” MY 2013/14 are illustrated graphically in Figures III-B and III-C. These figures represent the relationship between historic U.S. corn % ending stocks-to-use and U.S. corn season average prices.   Figure III-B represents the relationship between historic U.S. corn % ending stocks-to-use and U.S. corn season average prices on a marketing year basis since MY 2006/07.    Figure III-C represents the relationship between historic U.S. corn % ending stocks-to-use and U.S. corn season average prices in the form of a two-factor scatter diagram since MY 1973/74.   These figures show the sharp, inelastic response of U.S. corn prices to tight U.S. corn % ending stocks-to-use since MY 2006/07 – the beginning of the major expansion in U.S. corn-based ethanol production.

World Corn Supply-Demand & Price Projections

The USDA’s projection of World corn production, total use, export trade, and ending stocks for the 2007/08 through 2013/14 marketing years are shown in Figure III-E.  Since MY 2007/08 World corn production has grown by an average of 24.2 mmt (3.5%) per marketing year.  This compares to annual marketing year growth in World corn total usage of 22.6 mmt (3.4%), in World corn export trade of 1.9 mmt (2.3%), and of 4.4 mmt (3.9%) in World corn ending stocks.  

After a World corn percent ending stocks-to-use ratio of 17.0% in MY 2007/08, 18.8% in MY 2008/09, 17.8% in MY 2009/10, 15.1% in MY 2010/11, 15.3% in MY 2011/12, and 15.6% in “old crop” MY 2012/13, the USDA has projected a level of 17.4% in “new crop” MY 2013/14.  

The historic relationship between marketing year average U.S. corn prices and World corn percent ending stocks-to-use is illustrated in Figure III-F.  This figure follows a similar pattern of Figure III-C, in which  the sharp, inelastic response of U.S. corn prices to tighter supplies of both U.S. and World corn % ending stocks-to-use since MY 2006/07 has lead first to higher prices through “old crop” MY 2012/13, and now to lower prices in “new crop” MY 2013/14.

Table 1. U.S. Corn Supply-Demand Balance Sheet: MY 2007/08 – “New Crop” MY 2013/14 (December 10, 2013 USDA WASDE & KSU Projections)

Item

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13

USDA

Dec. 2013 2013/14

KSU

Lower Yield-Production

2013/14

KSU

Likely Yield-Production

2013/14

KSU

Higher Yield-Production

2013/14

% Probability of Occurring

 

 

 

 

 

 

 

5%

90%

5%

Planted Area (million acres)

93.5

86.0

86.4

88.2

91.9

97.2

95.3

95.3

95.3

95.3

Harvested Area (million acres)

86.5

78.6

79.5

81.4

84.0

87.4

87.2

87.2

87.2

87.2

% Harvested/Planted Area

92.5%

91.4%

92.0%

92.4%

91.4%

89.9%

91.5%

91.5%

91.5%

91.5%

Yield / harvested acre (bu/ac)

150.7

153.9

164.7

152.8

147.2

123.4

160.4

156.7

160.4

164.1

 

million bushels

Beginning Stocks

1,304

1,624

1,673

1,708

1,128

989

824

824

824

824

Production

13,038

12,092

13,092

12,447

12,360

10,780

13,989

13,667

13,989

14,310

Imports

20

14

8

28

29

162

30

30

30

30

Total Supply

14,362

13,729

14,774

14,182

13,516

11,932

14,842

14,521        

14,842

15,164

Ethanol for fuel Use

3,049

3,709

4,591

5,019

5,000

4,648

4,950

4,900

4,950

4,975

Non-ethanol Food, Seed & Industrial Use

1,393

1,316

1,370

1,407

1,429

1,396

1,450

1,440

1,450

1,460

Exports

2,437

1,849

1,980

1,834

1,543

731

1,450

1,375

1,450

1,500

Feed & Residual Use

5,858

5,182

5,125

4,795

4,557

4,333

5,200

5,125

5,200

5,250

Total Use

12,737

12,056

13,066

13,055

12,528

11,108

13,050

12,840

13,050

13,185

Ending Stocks

1,624

1,673

1,708

1,128

989

824

1,792

1,681

1,792

1,979

% Ending Stocks-to-Use

12.75%

13.88%

13.07%

8.64%

7.89%

7.42%

13.73%

13.83%

14.57%

15.96%

U.S. Corn Average Farm Price ($/bushel)

$4.20

$4.06

$3.55

$5.18

$6.22

$6.89

$4.05-$4.75

($4.40)

$4.40-$5.40

($4.90)

$3.65-$4.65

($4.15)

$3.40-$4.40

($3.90)

 

 


 

Figure III-B. U.S. Corn Ending Stocks vs U.S. Avg. Cash Corn Prices: Since MY 2006/07                                    
(December 10, 2013 USDA WASDE Report, KSU & USDA projections for “new crop” MY 2013/14)

Figure III-C. U.S. Corn Price vs U.S. % Stocks-to-Use (MY 1973/74 through projected “New Crop” MY 2013/14)    
(December 10, 2013 USDA WASDE Report)

Text Box: KSU: “New Crop” 
MY 2013/14
13.7% S/U, $4.15 /bu
Text Box: 1995/96
Text Box: 2010/11


Figure III-D. World Corn Supply-Demand: MY 2007/08 thru 2013/14
(December 10, 2013 USDA WASDE)

Text Box: 13 year high in end stocks projected for 
MY 2013/14 
@ 162.5 mmt
 
4 year high in % ending stocks-to-use in MY 2013/14 
 @ 17.4% StxUse
Text Box: “Recovery” in World Exports 
In MY 2013/14
Text Box: Production
ñ3.5%/yr
Text Box: Usage
ñ3.4%/yr

Figure III-E. U.S. Corn Price vs World % Corn Stocks-to-Use (MY 1973/74 through projected MY 2012/13)         
(December 10, 2013 USDA WASDE Report)

Text Box: 1973/74

 

IV. Grain Sorghum & Coarse Grain Supply-Demand & Prices – U.S. & World

U.S. Grain Sorghum Supply-Demand & Price Projections

USDA Grain Sorghum Supply-Demand and Price Forecasts: United States’ grain sorghum supply-demand balance sheets and prices for the 2007/08 through 2012/13 marketing years are provided in Table 2, with both USDA and KSU price projections for “new crop” MY 2013/14.  In the December 10th WASDE report the USDA made minimal adjustments to the U.S. grain sorghum supply-demand balance sheet for “new crop” 2013/14 marketing year.  For “new crop” MY 2013/14 the USDA projected…

a) U.S. grain sorghum imports and total supplies of 15 mb and 431 mb, respectively;

b) grain sorghum food, seed, and industrial use of 120 mb;

c) exports of 220 mb;

d) total use of 400 mb;

e) ending stocks of 31 mb;

g) percent (%) ending stocks-to-use of 7.75% in December; and

h) lower U.S. grain sorghum average price of $4.10 per bushel (range = $3.75 -$4.45), down from $4.20 per bushel (range = $3.80-$4.60) in the November WASDE.  

KSU Grain Sorghum Supply-Demand and Price Forecasts:  In comparison, KSU projections of 2013 U.S. grain sorghum production and “new crop” MY 2013/14 supply-demand and price scenarios are (see Table 2): 

1) “Low Yield-Production” Scenario: 5% prob. of 8.1 ma planted, 6.7 ma harvested, 58.0 bu/ac yields, a 386 mb U.S. grain sorghum crop, 6.4% S/U, & a price range of $4.00-$5.00 /bu (midpoint = $4.50); 

2) “Likely Yield-Production” Scenario: 90% prob. of 8.1 ma planted, 6.7 ma harvested, 62.2 bu/ac yields, a 416 mb U.S. grain sorghum crop, 7.8% S/U, & a price range of $3.25-$4.25 /bu (midpoint = $3.75);  and

3) “High Yield-Production” Scenario: 5% prob. of 8.1 ma planted, 6.7 ma harvested, 66.6 bu/ac yields, a 445 mb 2013 U.S. sorghum crop, 9.8% S/U, & a price range of $3.00-$4.00 /bu (midpoint = $3.50). 

Both USDA and KSU probability-weighted U.S. grain sorghum price projections in Table 2 for “new crop” MY 2013/14 are illustrated graphically in Figures IV-A and IV-B.   Figure IV-A represents the relationship between historic U.S. grain sorghum and corn % ending stocks-to-use and U.S. grain sorghum season average prices on a marketing year basis since MY 2006/07.   Figure IV-B represents the relationship between historic U.S. feedgrain % ending stocks-to-use and U.S. grain sorghum season average prices in the form of a two-factor scatter diagram since MY 1973/74.   These figures show the sharp, inelastic response of U.S. grain sorghum prices to tight U.S. feedgrain % ending stocks-to-use since MY 2006/07 – the beginning of the major expansion in U.S. feedgrain-based ethanol production.

World Coarse Grain Supply-Demand & Price Projections

The USDA’s projection of World coarse grain production, total use, export trade, and ending stocks for the 2007/08 through 2013/14 marketing years are shown in Figure IV-C.  Since MY 2007/08 World coarse grain production has grown by an average of 25.3 mmt (2.74%) per marketing year.  This compares to annual marketing year growth in World coarse grain total usage of 24.0 mmt (2.65%), in World coarse grain export trade of 2.4 mmt (2.17%), and of 4.7 mmt (3.30%) in World coarse grain ending stocks.  

Table 2. U.S. Grain Sorghum Supply-Demand Balance Sheet: MY 2007/08 – “New Crop” MY 2013/14 (December 10, 2013 USDA WASDE & KSU Projections)

Item

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13

USDA

December  2013/14

KSU

Low Yield-Production

2013/14

KSU

Likely Scenario

2013/14

KSU

High Yield- Production

2013/14

% Probability of Occurring

 

 

 

 

 

 

 

5%

90%

5%

Planted Area (million acres)

7.7

8.3

6.6

5.4

5.5

6.2

8.1

8.1

8.1

8.1

Harvested Area (million acres)

6.8

7.3

5.5

4.8

3.9

5.0

6.7

6.7

6.7

6.7

% Harvested/Planted Area

88.1%

87.8%

83.2%

89.1%

71.7%

79.4%

82.8%

82.8%

82.8%

82.8%

Yield / harvested acre (bu/ac)

73.2

65.0

69.4

71.8

54.6

49.8

62.2

58.0

62.2

66.6

 

million bushels

Beginning Stocks

32

53

55

41

27

23

15

15

15

15

Production

497

472

383

346

214

247

416

386

416

445

Imports

0

0

0

0

0

10

0

0

0

0

Total Supply

530

525

438

387

242

279

431

401

431

460

Food, Seed & Industrial

35

95

90

85

85

95

120

115

120

125

Exports

277

143

164

152

63

76

180

167

180

189

Feed & Residual

165

233

142

123

71

93

100

95

100

105

Total Use

477

471

396

359

219

267

400

377

400

419

Ending Stocks

53

55

41

27

23

15

31

24

31

41

% Ending Stocks-to-Use

11.1%

11.7%

10.4%

7.5%

10.5%

5.7%

7.8%

6.4%

7.8%

9.8%

U.S. Grain Sorghum Avg. Farm Price ($/bushel)

$4.08

$3.20

$3.22

$5.02

$5.99

$6.33

 

$3.75-$4.45

($4.10)

$4.00-$5.00

($4.50)

$3.25-$4.25

($3.75)

$3.00-$4.00

($3.50)

 

 

 


 

After a World coarse grain percent ending stocks-to-use ratio of 15.6% in MY 2007/08, 18.0% in MY 2008/09, 17.7% in MY 2009/10, 14.7% in MY 2010/11, 14.3% in MY 2011/12, and 14.5% in “old crop” MY 2012/13, the USDA has projected a level of 16.1% in “new crop” MY 2013/14.  

The historic relationship between marketing year average U.S. grain sorghum prices and World coarse grain percent ending stocks-to-use is illustrated in Figure IV-D.  This figure follows a similar pattern of Figure IV-C, in which  the sharp, inelastic response of U.S. grain sorghum prices to tighter supplies of both U.S. and World coarse grain % ending stocks-to-use since MY 2006/07 has lead first to higher prices through “old crop” MY 2012/13, and now to lower prices in “new crop” MY 2013/14.

Figure IV-A. U.S. Sorghum & Corn Ending Stocks vs U.S. Grain Sorghum Prices: Since MY 2006/07                                    
(December 10, 2013 USDA WASDE Report, KSU & USDA projections for “new crop” MY 2013/14)

Figure IV-B. U.S. Sorghum Price vs U.S. % Feedgrain Stocks-to-Use (MY 1975/76 thru “New Crop” 2013/14)     
(December 10, 2013 USDA WASDE Report)

Text Box: 1995/96
Text Box: 2010/11
Text Box: “New Crop” 2013/14
13.9% S/U, $4.10

Figure IV-C. World Coarse Supply-Demand: MY 2007/08 thru 2013/14 (December 10, 2013 USDA WASDE)

Text Box: “Recovery” in World Exports 
In MY 2013/14
 
ñ2.4 mmt/yr
Text Box: 4 year high
In end stocks projected for 
2013/14 
@ 197 mmt (16.1% StxUse)
Text Box: Production
ñ25.3 mmt/yr
Text Box: Usage
ñ24.0 mmt/yr

Figure IV-D. U.S. Grain Sorghum Price vs World % Coarse Grain Stocks-to-Use (Since MY 1975/76)                  
(December 10, 2013 USDA WASDE Report)

Text Box: 2006/07

 

V. Wheat Supply-Demand & Prices

Kansas Hard Red Winter Wheat Futures Price Trends

On Tuesday, December 24, 2013, Kansas City Board of Trade (KCBT) MARCH 2014 wheat futures closed at $6.46 ½ (Figure V-A).  A continuous chart of weekly KCBT-CME Kansas City wheat futures lead contract open-high-low-closing prices from November 2011 through December 20, 2014 illustrates how lead contract corn futures prices had been trading at or above $8.50 per bushel from the third week in July 2012 through early December 2012, then fell to a range of $7.25 to $8.50 through the last week in March 2013.  For the April through June 2013 period wheat futures first traded higher up to $8.00 in mid-May, before trending downward to $6.75 in the last week in June-first week in July.  For the rest of the July-September period wheat prices traded in the range of $6.80 – nearly $7.30.  Then after a U.S. wheat export demand-driven rally up to $7.75 in October, wheat futures prices began a decent down to the December 24th price of $6.46 ½. 

Figure V-A.  Weekly KCBT HRW Wheat Futures: Nov. 2011 through Dec. 24, 2013

Text Box: KCBT MAR 2014 HRW Wheat Futures
Close on Dec. 24, 2013 = $6.46 ½ /bu
http://futures.tradingcharts.com/charts/barni/KEW.GIF

U.S. Wheat Supply-Demand & Price Projections

USDA All Wheat Supply-Demand and Price Forecasts: United States’ wheat supply-demand balance sheets and prices for the 2007/08 through 2012/13 marketing years are provided in Table 3, with both USDA and KSU price projections for “new crop” MY 2013/14.  In the December 10th WASDE report the USDA made the following minor adjustments to the U.S. wheat supply-demand balance sheet for “new crop” 2013/14 marketing year.  For “new crop” MY 2013/14 the USDA projected…

a) increased U.S. wheat imports and total supplies by 10 mb each, up to 160 mb and 3.008 bb, respectively;

b) food use of 950 mb;

c) exports of 1.100 bb;

d) seed use of 73 mb;

e) feed and residual use of 310 mb;

f) total use of 2.433 bb;

g) increased ending stocks by 10 mb to 575 mb;

g) increased percent (%) ending stocks-to-use marginally to 23.63% in December from 23.22% in December; and

h) lowered its projected U.S. wheat average price to $6.90 per bushel (range = $6.65 -$7.15), down from $7.00 per bushel (range = $6.70-$7.30) in the November WASDE.  

KSU Corn Supply-Demand and Price Forecasts:  In comparison, KSU projections of “new crop” MY 2013/14 supply-demand and price scenarios are (see Table 3): 

1) “Low Export” Scenario: 10% prob. of U.S. wheat total supplies of 3.008 bb, exports of 1.037 bb, total use of 2.370 bb, ending stocks of 637 mb, 26.9% S/U, & a price range of $6.00-$7.00 /bu (midpoint = $6.50); 

2) “Likely Export” Scenario (equal to USDA projection): 80% prob. of U.S. wheat total supplies of 3.008 bb, exports of 1.100 bb, total use of 2.433 bb, ending stocks of 575 mb, 23.6% S/U, & a price range of $6.65-$7.15 /bu (midpoint = $6.90); 

3) “High Export” Scenario: 10% prob. of U.S. wheat total supplies of 3.008 bb, exports of 1.162 bb, total use of 2.495 bb, ending stocks of 513 mb, 20.6% S/U, & a price range of $7.25-$8.25 /bu (midpoint = $7.75); 

Both USDA and KSU probability-weighted U.S. wheat price projections in Table 3 for “new crop” MY 2013/14 are illustrated graphically in Figures V-B and V-C. These figures represent the relationship between historic U.S. wheat % ending stocks-to-use and U.S. wheat season average prices.   Figure V-B represents the relationship between historic U.S. wheat % ending stocks-to-use and U.S. wheat season average prices on a marketing year basis since MY 2006/07.  Figure V-C represents the relationship between historic U.S. wheat % ending stocks-to-use and U.S. wheat season average prices in the form of a two-factor scatter diagram since MY 1973/74.   These figures show the sharp, inelastic response of U.S. wheat prices to tightening U.S. wheat % ending stocks-to-use since MY 2006/07 – as well as cross market arbitrage price impacts on the wheat market resulting from high corn prices in recent marketing years.

World Corn Supply-Demand & Price Projections

The USDA’s projection of World wheat production, total use, export trade, and ending stocks for the 2007/08 through 2013/14 marketing years are shown in Figure V-D.  Since MY 2007/08 World wheat production has grown by an average of 11.9 mmt (1.9%) per marketing year.  This compares to annual marketing year growth in World wheat total usage of 22.6 mmt (3.4%), in World wheat export trade of 3.6 mmt (3.0%), and of 7.7 mmt (5.9%) per marketing year in World wheat ending stocks.  

After a World wheat percent ending stocks-to-use ratio of 21.1% in MY 2007/08, 26.6% in MY 2008/09, 31.1% in MY 2009/10, 30.4% in MY 2010/11, 28.9% in MY 2011/12, and 25.6% in “old crop” MY 2012/13, the USDA has projected a level of 26.1% in “new crop” MY 2013/14.  

The historic relationship between marketing year average U.S. wheat prices and World wheat percent ending stocks-to-use is illustrated in Figure V-E.  This figure follows a similar pattern of Figure V-C, in which  the moderate, inelastic response of U.S. wheat prices to tighter supplies of both U.S. and World wheat % ending stocks-to-use since MY 2006/07 has lead first to higher prices through “old crop” MY 2012/13, and now to lower prices in “new crop” MY 2013/14.  Just as with Figure V-C, in Figure V-E higher World feedgrain supplies in MY 2013/14 appear to be having a negative cross market impact on the responsiveness of U.S. wheat prices to World percent (%) ending stocks-to-use.

Table 3. U.S. Wheat Supply-Demand Balance Sheet: MY 2007/08 – “New Crop” MY 2013/14 (Dec. 10, 2013 USDA WASDE & KSU Projections)

Item

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13

USDA

December  2013/14

KSU

Low Exports

2013/14

KSU

High Exports

2013/14

% Probability of Occurring

 

 

 

 

 

 

80%

10%

10%

Planted Area (million acres)

60.5

63.2

59.2

53.6

54.4

55.7

56.2

56.2

56.2

Harvested Area (million acres)

51.0

55.7

49.9

47.6

45.7

48.9

45.2

45.2

45.2

% Harvested/Planted Area

84.4%

88.1%

84.3%

88.9%

84.0%

87.9%

80.4%

80.9%

80.9%

Yield / harvested acre (bu/ac)

40.2

44.9

44.5

46.3

43.7

46.3

47.2

47.2

47.2

 

 

Beginning Stocks

456

306

657

976

862

743

718

718

718

Production

2,051

2,499

2,218

2,207

1,999

2,266

2,130

2,130

2,130

Imports

113

127

119

97

112

123

160

160

160

Total Supply

2,620

2,932

2,993

3,279

2,974

3,131

3,008

3,008

3,008

Food Use

948

927

919

926

941

945

950

950

950

Seed Use

88

78

69

71

76

73

73

73

73

Exports

1,263

1,015

879

1,291

1,051

1,007

1,100

1,037

1,162

Feed & Residual Use

16

255

150

129

162

388

310

310

310

Total Use

2,314

2,275

2,018

2,417

2,231

2,414

2,433

2,370

2,495

Ending Stocks

306

657

976

862

743

718

575

637

513

% Ending Stocks-to-Use

13.2%

28.9%

48.4%

35.7%

33.3%

29.7%

23.6%

26.9%

20.6%

U.S. Wheat Avg. Farm Price ($/bushel)

$6.48

$6.78

$4.87

$5.70

$7.24

 

$7.77

 

$6.65-$7.15

($6.90)

$6.00-$7.00

($6.50)

$7.25-$8.25

($7.75)


 

Figure V-B. U.S. Wheat Ending Stocks vs U.S. Avg. Cash Prices: MY 1973/74 through MY 2013/14      
(December 10, 2013 USDA WASDE Report)

Figure V-C. U.S. Wheat Price vs U.S. % Stocks-to-Use (MY 1973/74 through projected MY 2013/14)

Text Box: Cross Market Price Support
Tight corn stocks & high corn prices since MY 2006/07 have been supporting wheat prices – especially in the 2011/12 & 2012/13 marketing years 
 
 
Text Box: 2011/12

Figure V-D. World Wheat Usage & Ending Stocks: MY 2007/08 thru MY 2013/14                                        
(December 10, 2013 USDA WASDE Report)

Text Box: Wheat Usage
ñ11.9 mmt/yr (+1.9%/yr) since 2007/08
Text Box: End Stocks
182.8 mmt 
in 2013/14
 
Up 46.3 mmt (+36%) since 
36 year low in 
MY 2007/08
Text Box: Wheat Trade
133-158 mmt since 2008/09
 
157 mmt in MY 2013/14
Text Box: Production
652-711 mmt
since 2008/09

Figure V-E. U.S. Wheat Price vs % World Stocks-to-Use (MY 1973/74 through projected MY 2013/14)            

Text Box: Cross Market Price Support
Tight corn stocks & high corn prices since MY 2006/07 have been supporting wheat prices   – especially in the 2011/12 & 2013/14 marketing years
 
 
Text Box: 2011/12

 

VI. Soybean Supply-Demand & Prices

Soybean Futures Price Trends

On Tuesday, December 24, 2013, Chicago Board of Trade (CBOT) JANUARY 2014 soybean futures closed at $13.33 ¾ (Figure VI-A).  A continuous chart of weekly CBOT-CME soybean futures lead contract open-high-low-closing prices from November 2011 through December 20, 2014 illustrates how lead contract soybean futures prices had been trading at or above $13.75 per bushel for most of the period from late June 2012 through the third week of July 2013 (except for parts of the first two weeks in April 2013).  Soybean lead futures prices then traded in the range of $12.60 to $15.00 through the end of September 2013 – closing the last two weeks in September at approximately $13.12 - $13.20 per bushel.  Since then, lead contract soybean futures prices have traded in the range of $12.50 to nearly $13.60 per bushel – trading at or above $13.12 since late November with a close of $13.33 ¾ on December 24, 2013.  Strength in export sales and early signs of dry growing conditions in South America soybean production areas have helped to support soybean futures prices over the last few weeks. 

Figure VI-A.  Weekly CBOT Soybean Futures: Nov. 2011 through Dec. 24, 2013

Text Box: CBOT JAN 2014 Soybean Futures
Close on Dec. 24, 2013 = $13.33 ¾ /bu
http://futures.tradingcharts.com/charts/barni/ZSW.GIF

U.S. Soybean Supply-Demand & Price Projections

USDA Soybean Supply-Demand and Price Forecasts: United States’ soybean supply-demand balance sheets and prices for the 2007/08 through 2012/13 marketing years are provided in Table 4, with both USDA and KSU price projections for “new crop” MY 2013/14.  In the December 10th WASDE report the USDA made the following adjustments to the U.S. soybean supply-demand balance sheet for “new crop” 2013/14 marketing year.  For “new crop” MY 2013/14 the USDA…

a) increased U.S. soybean imports and total supplies by 10 mb each, up to 25 mb and 3.423 bb, respectively;

b) increased projected soybean crush by 5 mb to 1.690 bb;

c) increased projected exports by 25 mb to 1.475 bb;

d) left seed use and residual use unchanged at 87 mb and 22 mb, respectively;

e) increased projected total use by 31 mb to 3.274 bb;

f) decreased ending stocks by 20 mb to 150 mb;

g) decreased percent (%) ending stocks-to-use from 5.24% in November to 4.58% in December; and

h) raised its projected U.S. soybean average price to $12.50 per bushel (range = $11.50 -$13.50), up from $12.15 per bushel (range = $11.15-$13.15) in the November WASDE.  

KSU Soybean Supply-Demand and Price Forecasts:  In comparison, KSU projections of 2013 U.S. soybean production and “new crop” MY 2013/14 supply-demand and price scenarios are (see Table 4): 

1) “Low Yield-Production” Scenario: 10% prob. of 76.5 ma planted, 75.7 ma harvested, 41.6 bu/ac yields, a 3.147 bb U.S. soybean crop, total use of 3.209 bb, ending stocks of 109 mb, 4.2% S/U, & a price range of $14.25-$15.25 /bu (midpoint = $14.75); 

2) “Likely Yield-Production” Scenario: 80% prob. of 76.5 ma planted, 75.7 ma harvested, 43.0 bu/ac yields, a 3.258 bb U.S. soybean crop (same as USDA), total use of 3.274 bb, ending stocks of 150 mb, 4.6% S/U, & a price range of $13.00-$14.00 /bu (midpoint = $13.50);    

3) “High Yield-Production” Scenario: 10% prob. of 76.5 ma planted, 75.7 ma harvested, 44.5 bu/ac yields, a 3.369 bb U.S. soybean crop, total use of 3.364 bb, ending stocks of 171 mb, 5.1% S/U, & a price range of $12.00-$13.00 /bu (midpoint = $12.50); 

Both USDA and KSU probability-weighted U.S. soybean price projections in Table 4 for “new crop” MY 2013/14 are illustrated graphically in Figures VI-B and VI-C. These figures represent the relationship between historic U.S. soybean % ending stocks-to-use and U.S. soybean season average prices.   Figure VI-B represents the relationship between historic U.S. soybean % ending stocks-to-use and U.S. soybean season average prices on a marketing year basis since MY 2006/07.  Figure IV-C represents the relationship between historic U.S. corn % ending stocks-to-use and U.S. corn season average prices in the form of a two-factor scatter diagram since MY 1973/74.   These figures show a somewhat inelastic response of U.S. soybean prices to tight U.S. soybean % ending stocks-to-use since MY 2006/07 – the impact of large projected South American soybean production in 2014 on projected “new crop” MY 2013/14 U.S. soybean prices.

World Corn Supply-Demand & Price Projections

The USDA’s projection of World soybean production, total use, export trade, and ending stocks for the 2007/08 through 2013/14 marketing years are shown in Figure VI-D.  Since MY 2008/09 World soybean production has grown by an average of 12.2 mmt (5.8%) per marketing year.  This compares to annual marketing year growth in World soybean total usage of 8.3 mmt (3.7%), in World soybean export trade annual marketing year growth of 5.3 mmt (6.8%), and of 4.4 mmt (10.0%) marketing year over marketing year growth in World soybean ending stocks.  

After a World corn percent ending stocks-to-use ratio of 23.3% in MY 2007/08, 19.9% in MY 2008/09, 26.2% in MY 2009/10, 28.6% in MY 2010/11, 21.5% in MY 2011/12, and 23.3% in “old crop” MY 2012/13, the USDA has projected a level of 26.1% in “new crop” MY 2013/14.  

Table 4. U.S. Soybean Supply-Demand Balance Sheet: MY 2007/08 through Projected “New Crop” MY 2013/14

  (December 10, 2013 USDA WASDE Report)

Item

2007/08

2008/09

2009/10

2010/11

2011/12

2012/13

USDA

December 2013/14

KSU 2013/14

Lower

Yield &  Production

KSU 2013/14

Likely

Yield & Production

KSU 2013/14

Higher

Yield & Production

Percent Probability

 

 

 

 

 

 

 

10%

80%

10%

Planted Area (million acres)

64.7

75.7

77.5

77.4

75.0

77.2

76.5

76.5

76.5

76.5

Harvested Area (million acres)

64.1

74.7

76.4

76.6

73.8

76.2

75.7

75.7

75.7

75.7

% Harvested-to-Planted acres

99.1%

98.6%

98.6%

99.0%

98.3%

98.6%

98.95%

98.95%

98.95%

98.95%

Yield per harvested acre (bu/ac)

41.7

39.7

44.0

43.5

41.9

39.8

43.0

41.6

43.0

44.5

 

Million bushels

Beginning Stocks

574

205

138

151

215

169

141

141

141

141

Production

2,677

2,967

3,359

3,329

3,094

3,034

3,258

3,147

3,258

3,369

Imports

10

13

15

14

16

36

25

25

25

25

Total Supply

3,261

3,185

3,512

3,495

3,325

3,239

3,423

3,343

3,423

3,535

Domestic Crushings

1,803

1,662

1,752

1,648

1,703

1,689

1,690

1,660

1,690

1,730

Exports

1,159

1,279

1,499

1,501

1,365

1,320

1,475

1,440

1,475

1,525

Seed

89

90

90

87

90

89

87

87

87

87

Residual

5

16

20

43

-2

1

22

22

22

22

Total Use

3,056

3,047

3,361

3,280

3,155

3,098

3,274

3,209

3,274

3,364

Ending Stocks

205

138

151

215

169

141

150

134

150

171

% Ending Stocks-to-Total Use

6.71%

4.53%

4.49%

6.55%

5.36%

4.55%

4.58%

4.18%

4.58%

5.08%

U.S. Average Farm Price ($/bu)

$10.10

$9.97

$9.59

 

$11.30

$12.50

$14.40

$11.50-$13.50

($12.50)

$14.25-$15.25

($14.75)

$13.00-$14.00

($13.50)

$12.00-$13.00

($12.50)

Figure V-B. U.S. Soybean Ending Stocks vs U.S. Avg. Cash Prices: MY 1973/74 through MY 2013/14      
December 10, 2013 USDA WASDE Report, KSU & USDA projections for “new crop” MY 2013/14

Figure V-C. U.S. Soybean Price vs U.S. % Stocks-to-Use (MY 1973/74 through projected MY 2013/14)

Text Box: 2011/12
Text Box: KSU 2013/14
4.58% S/U, $13.50 /bu

Figure V-D. World Soybean Usage & Ending Stocks: MY 2007/08 thru MY 2013/14                                    
(December 10, 2013 USDA WASDE Report)

Text Box: Soybean Trade
109 mmt in     MY 2013/14 is ñ5.3 mmt/yr (+6.8%/yr) since 2008/09 
Text Box: Soybean 
End Stocks
70.6 mmt in MY 2013/14
 
44-72 mmt
since 2007/08
 
Text Box: Soybean Production
285 mmt in 2013/14 is record high
Text Box: Soybean Usage
ñ8.3 mmt/yr (+3.7%/yr) since 2008/09

Dan O'Brien
Extension Grain Economist
Department of Agricultural Economics
Kansas State University
dobrien@ksu.edu
 
Department of Agricultural Economics   K-State Research & Extension   College of Agriculture   Kansas State University