Transcript WHEAT OUTLOOK Midwest Outlook Conference 2005

Market Outlook for
Wheat & Feedgrains
WKARC Field Day, Hays, Kansas
August 26, 2008
Daniel O’Brien - Extension Ag Economist
K-State Research and Extension
Current vs Historic Grain Prices
Average Cash Prices Received
2000-06
Average
2007/08
Mktg. Year
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
$5.66 /bu
$10.15 /bu
$13.72 /bu
Crop
Soybeans
KC MO.
August 25, ‘08
U.S. Cropland Inventory
Millions 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
302.3
CRP
35.9
34.9 (-3%)
Total U.S. Cropland = 441.6 million acres
1 USDA,
WASDE, Released August 12, 2008.
Crop Acres Coming Out of CRP
2007–2017 (Source: USDA, FSA)
1.75
1.4
1.25
1.3
1.1
1.0
0.9 1.0
1.00
0.9
0.8 0.8
0.75
0.5
0.50
0.4
0.25
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
0.00
2007
Million Acres
1.50
U.S. Dollar Index: 2000-2008
Monthly Price Chart (DX – NYBOT)
Light Crude Oil Futures: 2000-2008
Monthly Price Chart (CL – NYMEX)
U.S. Gross Domestic Product
Quarterly 2000 – 2008 (Nominal vs Real)
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
Year - Quarter
GDP-Nominal USD$
GDP-Real (2000 USD$)
1
2008q
3
2007q
1
2007q
3
2006q
1
2006q
3
2005q
1
2005q
3
2004q
1
2004q
3
2003q
1
2003q
3
2002q
1
2002q
3
2001q
1
2001q
3
2000q
1
$0
2000q
U.S. GDP (Billion USD$)
$16,000
U.S. Gross Domestic Product Changes
1
2008q
3
2007q
1
2007q
3
2006q
1
2006q
3
2005q
1
2005q
3
2004q
1
2004q
3
2003q
1
2003q
3
2002q
1
2002q
3
2001q
1
2001q
3
2000q
1
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%
2000q
U.S. GDP (Billion USD$)
Year-to-Year Quarterly Changes (2000 – 2008)
Year - Quarter
Change in GDP
Change in Real GDP (2000$)
U.S. Corn Price Flexibility Example
$ Response to 2008 U.S. Corn Production
U.S. Corn $ / bu
$12.00
Inelastic Demand => Highly Flexible Corn $'s
35% $ Increase per 10% Prodn. Decline
$9.00
Elastic Demand => Inflexible Corn $'s
6% $ Increase per 10% Prodn. Decline
$6.00
$3.00
8.50
10.00
11.50
13.00
14.50
16.00
U.S. Corn Production (Billion bu - 2008)
17.50
Inelastic – Highly Flexible Demand
Implications for Farm & Other Commodity Prices

Record 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
Wheat
Markets
Wheat 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 Futures
KCBT: March 2007 – August 25, 2008
Contract Volume & Open Interest
Cash Wheat Prices
Hays, Kansas
Midland Marketing, Hays, KS
August 27, 2007 – August 25, 2008
Source: DTN Bid Analyzer
$7.98 /bu on 8/25/08
Basis: $0.80/bu under
KC SEP 2008 Wheat
U.S. Wheat Supply-Demand
USDA WASDE Report: August 12, 2008
Planted Ac. (mln.)
Harvested Ac (mln.)
Yield (bu./ac.)
Beg. Stocks
Production
Total Supplies
Food & Seed
Exports
Feed & Residual
Total Use
End Stocks (%S/U)
U.S. Ave. Farm $
2006/07
2007/08
2008/09
57.3
46.8
38.7
571
1,812
2,505
1,019
908
121
2,049
(22.3%) 456
$4.26
60.4
63.5
51.0
56.6
40.5
43.5
456
306
2,067
2,462
2,635
2,868
1,036
1,044
1,264
1,000
30
250
2,330
2,294
(13.1%) 306 (25.0%) 574
$6.48 $6.50-$8.00
U.S. Wheat Planted Acreage
1973 through 2008
Kansas HRW Acres Seeded down 500K in 2007/08 – What of 2008/09??
100
88
77
75
75
62
57
63.5
60.4
50
25
'73/7
4
'75/7
6
'77/7
8
'79/8
0
'81/8
2
'83/8
4
'85/8
6
'87/8
8
'89/9
0
'91/9
2
'93/9
4
'95/9
6
'97/9
8
'99/0
0
'01/0
2
'03/0
4
'05/0
6
'07/0
8
'09/1
0
Million Acres
80
Marketing Year
World Wheat Supply-Demand
2005/06 thru 2008/09 Marketing Years
800
671
Million Metric Tons
621
600
596 611
624 617 622
650
Supply Response:
Higher Production, Use,
Exports & Ending Stocks
Recovery in World Stocks
from 30 year low in 2007/08
400
200
116 111 114 121
148
127 115 136
0
Production
'2005/06 MY
Use
'2006/07 MY
Exports
'2007/08 MY
Ending Stocks
'2008/09 MY
World Wheat Exporters
2005/06 thru 2008/09 Marketing Years
Million Metric Tons
40
U.S. & Argentina DOWN in 2008/09,
Australia, FSU-12 & EU-27 UP
30
20
10
0
EU-27
'2005/06 MY
U.S.
Canada
'2006/07 MY
Australia Argentina
'2007/08 MY
FSU-12
'2008/09 MY
U.S. Wheat Ending Stocks
Wheat Ending Stocks as a % of Total Use (1973-2008)
Market response in '08/09 to 60 year low of
13% S/U @ 306 mb End Stocks ('07/08)
75
Forecast
2008/09
50
25 17
27
20 19
16
20
25
13
Marketing Year
'03/0
4
'05/0
6
'07/0
8
'09/1
0
'93/9
4
'95/9
6
'97/9
8
'99/0
0
'01/0
2
'83/8
4
'85/8
6
'87/8
8
'89/9
0
'91/9
2
0
'73/7
4
'75/7
6
'77/7
8
'79/8
0
'81/8
2
% Stocks to Use
100
U.S. Wheat Stocks/Use% vs Price
1973/74 through 2008/09 Marketing Years
125.0
Forecast 2008/09 U.S. Wheat Price
$7.25 /bu @ 25% Stocks/Use
$8.00
$7.00
$6.48
$6.00
$5.00
$4.50
75.0
$3.99
$3.72
$3.56
$4.26
$4.00
$3.42
50.0
$3.00
$2.00
25.0
$1.00
0.0
$0.00
'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Marketing Year
U.S. Wheat Ending Stocks to Use %
U.S. Wheat Price
U.S. Wheat $
% Stocks/Use
100.0
$7.25
Feedgrain
Markets:
Corn &
Grain Sorghum
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
 Grain-Ethanol Use
 Export Use
 Ending Stocks

@ 5.3 bln bu (14%)
@ 4.1 bln bu (36%)
@ 2.0 bln bu (18%)
@ 1.1 bln bu (28%)

Corn-Bean “Bidding for Acres” in Spring 2009

Market Comfort with Lower “just-in-time” Stocks
DEC 2008 Corn Futures
CBOT: December 2005 – August 25, 2008
Contract Volume & Open Interest
Cash Corn Prices
Hays, Kansas
Midland Marketing, Hays, KS
August 27, 2007 – August 25, 2008
Source: DTN Bid Analyzer
$5.27/bu on 8/25/08
Basis: $0.53/bu under
CBOT SEPT 2008 Corn
Cash Grain Sorghum Prices
Hays, Kansas
Midland Marketing, Hays, KS
August 27, 2007 – August 25, 2008
Source: DTN Bid Analyzer
$4.79/bu on 8/25/08
Basis: $1.01/bu under
CBOT SEPT 2008 Corn
U.S. Corn Supply-Demand
2006/07 through 2008/09 Marketing Years
Planted Ac. (mln.)
Harvested Ac (mln.)
Yield (bu./ac.)
Beg. Stocks
Production
Total Supplies
Ethanol
Other Food, Seed, Indust.
Exports
Feed & Residual
Total Use
End Stocks (%S/U)
U.S. Ave. Farm $
2006/07
2007/08
78.3
70.6
149.1
1,967
10,535
12,514
2,119
1,371
2,125
5,595
11,210
(12%) 1,304
$3.04
93.6
86.5
151.1
1,304
13,074
14,396
3,000
1,345
2,425
6,050
12,820
(12%) 1,576
$4.25
2008/09
87.0
79.3
155.0
1,576
12,288
13,878
4,100
1,345
2,000
5,300
12,745
(10.5%) 1,133
$4.90-$5.90
U.S. Grain Sorghum Supply-Demand
2006/07 through 2008/09 Marketing Years
2006/07
Planted Ac. (mln.)
Harvested Ac (mln.)
Yield (bu./ac.)
Beg. Stocks
Production
Total Supplies
Food, Seed, Indust.
Exports
Feed & Residual
Total Use
End Stocks (%S/U)
U.S. Ave. Farm $
6.5
4.9
56.2
66
278
343
45
153
114
311
(10%) 32
$3.29
2007/08
7.7
6.8
74.2
32
505
537
35
275
175
485
(11%) 52
$4.15
2008/09
7.3
6.4
63.7
52
410
462
70
130
200
400
(15.5%) 62
$4.40-$5.40
U.S. Corn Food, Seed & Industrial Use
1973/74 thru 2008/09 Marketing Years
4,500
3,000
Forecast 2008/09 Ethanol-related Corn Use:
4.1 billion bu. (32% of Total U.S. Corn Use)
2007/08 Ethanol-related Use of Corn:
3.0 billion bu. (23% of Total U.S. Corn Use)
1,500
Marketing Year
Other FSI Use (Non-ethanol)
Ethanol
'08/0
9
'04/0
5
'06/0
7
'00/0
1
'02/0
3
'96/9
7
'98/9
9
'92/9
3
'94/9
5
'88/8
9
'90/9
1
'84/8
5
'86/8
7
0
'80/8
1
'82/8
3
Million Bushels
6,000
U.S. Ethanol Industry Development
2006
2008

No. operating Ethanol Plants:
97
163

Plants under construction or expanding:
35
47

Announced plants:

Current production capacity: (BGPY)

Projected production capacity: 12.4 BGPY end of 2008
13.6 BGPY end of 2009

Corn Used for Ethanol Production & % of U.S. Corn Crop:
Mktg. Year
Mln. Bu.
% of Crop
2006/07
2,119
20%
2007/08
3,000
23%
2008/09
4,100
33%
300(17%)
4.8
???
9.5
Ethanol Profit Margin Est. ($ / gallon)
Prices
Corn ($/bu.)
Ethanol $/gal
RBOB Gas $/gal
July 07
$3.27
$1.91
$1.98
Aug 08
$5.09 1
$2.10
$2.84
Profit Margin
+0.26
+0.01 2
Change
+58%
+13%
+51%
1 Prices
Aug 12, 2008. Breakeven corn price - $5.15
2 Ethanol profit for a 100 million gallon plant = $1 million
Distiller’s Grain revenue would be about $54.6 million.
To compete with gasoline as substitute, ethanol $ would need to fall to $1.88/gal
Corn Ethanol & WDG $Value vs Corn $
Nebraska / Kansas #s, Feb. 2007 - August 15, 2008
$8.00
$4.00
$2.00
$0.00
Jun2 08
Jly2 08
Aug2 08
Feb4 08
Mar3 08
Apr3 08
May3 08
Nov1 07
Nov5 07
Dec4 07
Jan4 08
Jly2 07
Aug2 07
Sep1 07
Oct1 07
($2.00)
Feb4 07
Mar4 07
Apr3 07
May3 07
Jun3 07
$/ Unit
$6.00
Month-Week Year
Ethanol Value$ /bu.
WDG Value$ /bu.
Est. Profit / gal.
World Coarse Grain Supply-Demand
2005/06 thru 2008/00 Marketing Years
Million Metric Tons
1500
1200
1,076 1,089
1,066
1,093
900
World Coarse Grain S-D driven by
U.S. Feedgrain S-D Trends:
2nd Lowest World Ending Stocks
in 30 Yrs (behind '06/07)
600
300
125 116
148 144
0
Production
'2005/06 MY
Use
'2006/07 MY
Exports
'2007/08 MY
Ending Stocks
'2008/09 MY
World Coarse Grain Exporters
2005/06 thru 2008/09 Marketing Years
Million Metric Tons
80
70
55
60
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
40
Drop in China
Coarse
Grain Exports
20
12
5
0
U.S.
Argentina Australia
'2005/06 MY
Canada
'2006/07 MY
Brazil
'2007/08 MY
China
FSU-12
'2008/09 MY
U.S. Corn Ending Stocks
Corn Ending Stocks as a % of Total Use
49
50
23
25
87
27
66
62
55
23
27
2008/09 Ending Stocks:
1.133 Billion Bu.
9% Stocks/Use
25
19 20
17
11
11
5
10
20
11 9
12
9
Marketing Year
'03/0
4
'05/0
6
'07/0
8
'09/1
0
'93/9
4
'95/9
6
'97/9
8
'99/0
0
'01/0
2
'83/8
4
'85/8
6
'87/8
8
'89/9
0
'91/9
2
0
'73/7
4
'75/7
6
'77/7
8
'79/8
0
'81/8
2
% Stocks to Use
75
U.S. Corn Stocks/Use% vs Price
1973/74 through 2008/09 Marketing Years
70.00
2007/08 Forecast:
$5.40 / bu @ 9% S/U
$6.00
$5.00
2007/08 Record High:
$4.25 / bu @ 12% S/U
50.00
40.00 $3.02
$4.25
$4.00
$3.24
$3.12 $3.21
$2.42
30.00
$3.04 $3.00
$2.00
20.00
$2.00
10.00
$1.00
0.00
$0.00
'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Marketing Year
Stocks/Use%
U.S. Corn Price
U.S. Corn $
% Stocks/Use
60.00
$5.40
Soybean
&
Oilseed
Markets
NOV 2008 Soybean Futures
CBOT: April 2006 – August 25, 2008
Contract Volume & Open Interest
Cash Soybean Prices
Hays, Kansas
Midland Marketing, Hays, KS
August 27, 2007 – August 25, 2008
Source: DTN Bid Analyzer
$11.99/bu on 8/25/08
Basis: $1.48/bu under
CBOT NOV 2008 Soybeans
U.S. Soybean Supply-Demand
2006/07 through 2008/09 Marketing Years
2006/07
Planted Ac. (mln.)
Harvested Ac (mln.)
Yield (bu./ac.)
Beg. Stocks
Production
Total Supplies
Crushings
Exports
Seed & Residual
Total Use
End Stocks (%S/U)
U.S. Ave. Farm $
2007/08
2008/09
75.5
63.6
74.8
74.6
62.8
73.3
42.7
41.2
40.5
449
574
135
3,188
2,585
2,973
3,647
3,169
3,116
1,808
1,830
1,815
1,116
1,145
1,000
148
****59
165
3,073
3,034
2,980
(19%) 574 (4.4%) 135
(4.5%) 135
$6.43
$10.15 $11.50-$13.00
World Soybean Supply-Demand
2005/06 thru 2008/09 Marketing Years
Million Metric Tons
300
220
237
238
215
Variable World Production
Stable-Growing Use & Exports
Stable-Low Ending Stocks
200
100
64
76
53
49
0
Production
'2005/06 MY
Use
'2006/07 MY
Exports
'2007/08 MY
Ending Stocks
'2008/09 MY
World Soybean Exporters
2005/06 thru 2008/09 Marketing Years
45
Million Metric Tons
Not as large an increase in Brazilian soybean production as expected has
diminished Export prospects & pushed World Soybean $Prices higher
31
27
30
26
28
Record Prospects for
Argentina Soy Exports
15
12
13
0
U.S.
'2005/06 MY
Brazil
'2006/07 MY
Argentina
'2007/08 MY
'2008/09 MY
U.S. Soybean Ending Stocks
Soybean Ending Stocks as a % of Total Use
40
% Stocks to Use
30
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
19
16
20
10
7
10
10
8
6
8
9
9
76
4.4
4.5 4.5
0
'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Marketing Year
U.S. Soybean Stocks/Use% vs Price
1973/74 through 2008/09 Marketing Years
35
$14.00
$12.25
2008/09 Forecast
30
$12.00
% Stocks/Use
$10.15
25
$10.00
$7.57
20
$6.64
$7.83
$7.42
$7.35
$7.34
$8.00
$6.81
$6.43
15
$6.00
10
$4.00
5
$2.00
0
$0.00
'73 '75 '77 '79 '81
'83 '85 '87 '89 '91 '93 '95 '97 '99
'01 '03 '05 '07 '09
Marketing Year
Stocks/Use%
U.S. Soybean Price
Questions???
K-State Extension Agricultural Economics:
www.AgManager.info