Transcript WHEAT OUTLOOK Midwest Outlook Conference 2005
Grain Market Outlook
Scott City & Hays, Kansas
February 11-12, 2009 Daniel O’Brien & Mike Woolverton Extension Agricultural Economists K-State Research and Extension
Economic Trends in 2008/09
U.S. Economy
Weaker demand for food products Indicator: Dow Jones Industrial Index (DJIA)
Drop in Ocean Shipping Rates
Slow World export trade
weak World economy
Indicator: Baltic Dry Index (BDI)
Impact of Government Economic Policies
Concerns about future price inflation Indicator: 10 Year U.S. Treasury Notes
Dow Jones Industrial Avg: 2000-2009
Monthly Price Chart (DX – NYBOT) 10,000 8,000
Baltic Dry Index
Ocean Shipping Rates: April ’08 - Present
U.S. 10 Year Treasury Note: 2000-2009
Monthly Price Chart (TY – CBOT) 120 100
Why Grain Prices Surged in 2007/08
Trend toward lower grain Stocks/Use during 1998/99 - 2006/07 marketing years
“Just-in-time” supplies accepted by grain markets through Fall 2006
Ethanol expansion in Fall 2006
U.S. Clean Air Act rulings Lack of legal liability protection for MTBE (2006) 2007-2008 World Petroleum Supply/Demand –
Oil Price
to $140/barrel in 2008
Why Grain Prices Surged
(more)
Declining value of U.S. Dollar in 2007/08
Lower USD$ “spurred” U.S. Grain Exports
Foreign currencies bought more U.S. grains “priced” in U.S. $Dollars
Lower USD$ affected World Petroleum prices
Oil “priced” in U.S. $Dollars was cheaper to buy in other currencies: Oil$ as U.S. $Dollar
U.S. Dollar Index: 2000-2009
Monthly Price Chart (DX – NYBOT) Index = 100 Index = 75
Light Crude Oil Futures: 2000-2009
Monthly Price Chart (CL – NYMEX) $70 / barrel $30 / barrel
Why Grain Prices Surged
(more)
Aggressive World Grain Export Buying
Fear of world grain shortages (Rice, Corn, Wheat)
Other Factors
Speculative Interest in Ag Commodities “Migration” in traders/speculators from Stock Markets Malfunction of some futures markets (example: CBOT – Soft Red Winter Wheat) Cash grain delivery against expiring futures were not working
World Grain Markets Responded…
Supply-Response to High Grain Prices
World grain acreage in 2008
World grain Supplies & Stocks
Demand-Response to High Grain Prices
U.S/World Grain Demand in 2008/09
World grain buyers or delayed purchases Credit issues hurting exports ( world economy) “No Worry” about grain supplies ( grain stocks)
Drop in Ocean Shipping Rates
in World Markets Slow Trade
Current Grain Market Issues
Delayed farmer cash sales into early-mid 2009
Available prices below farmer’s expectations / plans Forced sales of wet Feedgrains in storage by spring?
Slow U.S. Exports of Feedgrains & Wheat
U.S. $Dollar in value, hurting U.S. grain exports World Wheat & Feedgrain supplies in 2008/09 than in 2007/08 marketing year “Hand-to-Mouth” grain export purchases in 2009???
Middle-East Conflict Affect on Commodity $s
Oil $s: (+/–) for U.S. bioenergy, feedgrain $s (???)
Other Grain Market Issues
2009 South America Crop Production
Hot-Dry conditions affecting Brazil, Argentina Crop production prospects – supporting Soybean prices
Spring Acreage Uncertainty in the U.S. (???)
Corn vs Soybean acreage decisions: Feb-June 2009 “Tightness” of corn vs soybean S/U in 2009/10?
Ratio of New Crop Soybean/Corn New Crop Futures $: 2.35 (2/10/2009)
U.S. Economic Policy Affect on U.S. $Dollar
If inflation, may U.S. $Dollar value……
U.S. Cropland Inventory
Millions of Acres 5 yr. Ave.
07/08 2008/09 1
Corn Soybeans Hay Wheat 79.6 74.2 62.4 59.5 93.5
64.7
61.6
60.5 86.0
(-8%)
75.7
(+17%)
60.2
(-2%)
63.1
(+4%)
Cotton 14.1 Grain Sorghum 8.1
Principle Crops 297.9
10.8 7.7
298.8 CRP 35.9 Total U.S. Cropland = 441.6 million acres
1 USDA, WASDE, Released February 10, 2009.
9.5
(-13%)
8.3
(+8%) 302.8
34.9
(-3%)
Persistant Inelastic Demand
Agricultural & Other Commodities
Many Ag Commodities are produced on Inelastic parts of their Demand Curves
Supply is often constrained by policies, competition for limited resources, etc.
Inelastic Price – Revenue Relationship
As Price , Revenue As Price , Revenue
Examples:
U.S. Grains, Livestock & Energy
U.S. Corn Price Flexibility Example
$ Response to U.S. Corn Supply Changes $10.00
Inelastic Demand => Highly Flexible Corn $'s
31% $ decrease per 12% Supply Increase
$8.00
$6.00
$4.00
Elastic Demand => Inflexible Corn $'s
2% $ decrease per 7% Supply Increase
$2.00
8.50
9.50
10.50
11.50
12.50
13.50
U.S. Corn Supply (Billion bu) 14.50
15.50
What Determines Price Elasticity?
Elastic Demand
(%∆ Q Demand > %∆ Price) Many close
substitutes
Longer
adjustment period
Commodity is a large expense item
Inelastic Demand
(%∆ Q Demand < %∆ Price) Few acceptable
substitutes
Shorter
adjustment period
Commodity is a smaller expense item
Implications of Inelastic Demand
Record High-Low Price Swings (Volatility)
Low Stocks/Use “pushed” grain markets into the Inelastic, highly Flexible regions of market demand
P Grains responded to their own & other grain’s tight S/D prospects
Fall 2008: Small--moderate has helped cause a large Supply & in grain prices Demand
Expect Market Volatility to Continue
Farm markets remain Inelastic with high Price Flexibility
Wheat Markets
U.S. Wheat Market Factors
Recovery in 2008/09 World & U.S. Wheat Stocks from 30 & 60 year lows in 2007/08 World Production U.S. Production 12%; 22%; Ending Stocks Ending Stocks 25% 114% Current Negative Impacts on Wheat Market Rising World Wheat Supplies ( Stocks/Use World ) Some strengthening of U.S. Dollar ( Exports U.S.
) Cross-Grain Market $ Effects in 2008/09??
Less U.S. Winter Wheat seeding in Fall 2008? Bidding “up” for HRS wheat & other crop acres?
Hard Red Winter Wheat Futures
KCBT: 2000 through 2009 $7.50/ bu $5.00/ bu
2009 KCBT March Wheat Futures
August 12, 2008 – February 11, 2009
KCBT Wheat Futures Price %’s
Based on Option Premiums for May-09 & July-09
Price on 2/11/2009
Low 10% Low 30%
Middle 50%
High 70% High 90%
Prob. Of $ Falling
May 2009 KBOT Wheat
$5.88
$4.50 $5.27
$5.78
$6.66 $9.98 July 2009 KBOT Wheat
$5.98
$4.28 $5.21
$5.82
$6.38 $7.60
KCBT Hard Red Winter Wheat Futures Feb. 11, 2009 Closes + Carrying Charges / Month $7.50
$7.00
$.05 - $0.05
$6.50
$6.00
$5.78
$5.50
$5.00
$5.88
5 /mo Carrying Charge $5.98
$6.09
$6.25
$0.04
5 Carry $6.39
Month-Year
Cash Wheat Prices Hays, Kansas
$5.
10 /bu on 2/11/09 Basis: $0.68/ bu under KC MAR 2009 Wheat Midland Marketing, Hays, KS Feb. 13, 2008 – Feb. 11, 2009 Source: DTN Bid Analyzer
U.S. Wheat Supply-Demand
USDA WASDE Report: February 10, 2009
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
57.3 46.8 38.6 571 1,808
2007/08
60.5 51.0 40.2 456 2,051
2008/09
63.1 55.7 44.9 306 2,500
2,501
1,020 908 117
2,620
1,035 1,264 15
2,915
1,030 1,000 230
2,045 2,314 2,260
(22.3%)
456
$4.
26
(13.2%)
306
$6.
48
(29%)
655
$6.
70 -$6.
90
U.S. Wheat Seeded Acreage
1973 through 2009 (Feb. 10, 2009 USDA-WASDE) 100 Kansas HRW Acres Seeded: 9.3 mln in 2008/09; 9.9 mln in 2007/08 88 80 77 75 75 62 60.4
57 63.1
50 25 '7 3/ 74 '7 5/ 76 '7 7/ 78 '7 9/ 80 '8 1/ 82 '8 3/ 84 '8 5/ 86 '8 7/ 88 '8 9/ 90 '9 1/ 92 '9 3/ 94 Marketing Year '9 5/ 96 '9 7/ 98 '9 9/ 00 '0 1/ 02 '0 3/ 04 '0 5/ 06 '0 7/ 08 '0 9/ 10
800
World Wheat Supply-Demand
2005/06 - 2008/09 Marketing Years (Feb. 10, 2009 USDA-WASDE) 621 596 611 683 624 617 618 652 2008/09 Supply Response: Higher Production, Use, Exports & Ending Stocks 600 Recovery in World Stocks from 30 year low in 2007/08 400 200 116 112 117 123 148 127 120 150 0 Production '2005/06 MY Use '2006/07 MY Exports '2007/08 MY Ending Stocks '2008/09 MY
U.S. Wheat Ending Stocks
Wheat Ending Stocks as a % of Total Use (1973-2009)
(Feb. 10, 2009 USDA-WASDE) 100 Market response in '08/09 to 60 year low of 13% S/U @ 306 mb End Stocks ('07/08) 75 50 25 17 2008/09 Forecast: 655 mb (29% S/U) 106 days wheat use 20 20 1619 27 13 29 0 '7 3/ 74 '7 5/ 76 '7 7/ 78 '7 9/ 80 '8 1/ 82 '8 3/ 84 '8 5/ 86 '8 7/ 88 '8 9/ 90 '9 1/ 92 '9 3/ 94 Marketing Year '9 5/ 96 '9 7/ 98 '9 9/ 00 '0 1/ 02 '0 3/ 04 '0 5/ 06 '0 7/ 08 '0 9/ 10
U.S. Wheat Stocks/Use% vs Price
1973/74 through 2008/09 Marketing Years (Feb. 10, 2009 USDA-WASDE)
125.0
100.0
75.0
50.0
25.0
0.0
Forecast 2008/09 U.S. Wheat Price $6.80 /bu @ 29% Stocks/Use
$3.99
$3.72
$4.50
$3.56
$6.48
$6.80
$8.00
$7.00
$4.26
$3.42
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Marketing Year
U.S. Wheat Ending Stocks to Use % U.S. Wheat Price
Feedgrain Markets:
Corn & Grain Sorghum
U.S. Feedgrain Market Factors
Financial & Macroeconomic Trends
Grain Demand hurt by economic fears & uncertainty
U.S. Dollar offsets lower Cash$’s
( Exports) “Struggling” Demand for U.S. Feedgrains World Supplies of Coarse Grains ( U.S. Exports
@ 1.75 bln bu.
( 28%) 2%) U.S. Feed Use U.S. Ethanol
@ 5.3 bln bu.
( 11%)
@ 3.6 bln bu.
( 19%) (*uncertain*) Increasing 2008/09 Corn End Stock estimates
1.790 bln bu
( 10%); 15% S/U Corn-Bean “Bidding for Acres” in Spring 2009 (?)
$5.00/ bu $4.00/ bu $3.00/ bu
CBOT Corn Futures
Monthly: 2000 through 2009
2009 CBOT March Corn Futures
August 12, 2008 – February 11, 2009
CBOT Corn Futures Price %’s
Based on Option Premiums for May-09 & Dec-09
Price on 2/11/2009
Low 10% Low 30%
Middle 50%
High 70% High 90%
Prob. Of $ Falling
May 2009 CBOT Corn
$3.78
$2.60 $3.34
$3.76
$4.05 $4.9 Dec 2009 CBOT Corn
$4.20
$2.76 $3.41
$3.86
$4.80 $6.63
CBOT Corn Futures Feb. 11, 2009 Closes + Carrying Charges / Month $5.25
$4.75
$.04
75 $.05
1 /mo $.03
9 - $.04
6 /mo $.03
6 /mo $4.24
$4.31
$4.25
$3.75
$3.69 $3.79
$3.88 $3.98
$4.10
$3.25
Month-Year
Cash Corn Prices Hays, Kansas
$3.
30 /bu on 2/11/09 Basis: $0.38
/bu under CBOT MAR 2009 Corn Midland Marketing, Hays, KS Feb. 13, 2008 – Feb. 11, 2009 Source: DTN Bid Analyzer
Cash Grain Sorghum Prices Great Bend, Kansas
$2.
68 /bu on 2/11/09 Basis: $1.00
/bu under CBOT MAR 2009 Corn Great Bend Coop, Great Bend, KS Feb. 131, 2008 – Feb. 11, 2009 Source: DTN Bid Analyzer
U.S. Corn Supply-Demand
2006/07 - 2008/09 Mktg Yrs (Feb. 10, 2009 USDA WASDE)
Planted Ac. (mln.) Harvested Ac (mln.) 2006/07 78.3 70.6 Yield (bu./ac.) Beg. Stocks Production 149.1 1,967 10,531 12,510
Total Supplies
Ethanol
Other F ood, S eed, I ndust.
Exports Feed & Residual
Total Use
End Stocks
(%S/U)
U.S. Ave. Farm $
2,119
1,371
2,125 5,591
11,207
(12%)
1,304
$3.
04
2007/08 93.5
2008/09 86.0
86.5
78.6
150.7
153.9
1,304 13,038
1,624 12,101
14,362
13,740
3,026
1,337
3,600
1,300
2,436 5,938
12,737
(13%)
1,624
$4.
20 1,750 5,300
11,950
(15%)
1,790
$3.
65
-$4.
15
U.S. Corn Food, Seed & Industrial Use
1973/74 - 2008/09 Mktg Yrs (Feb. 10, 2009 USDA WASDE) 6,000 4,500 3,000 Forecast 2008/09 Ethanol-related Corn Use: 3.6 billion bu. (30% of Total U.S. Corn Use) 2007/08 Ethanol-related Use of Corn: 3.026 billion bu. (24% of Total U.S. Corn Use) 1,500 0 '8 0/ 81 '8 2/ 83 '8 4/ 85 '8 6/ 87 '8 8/ 89 '9 0/ 91 '9 2/ 93 '9 4/ 95 '9 6/ 97 Marketing Year Other FSI Use (Non-ethanol) '9 8/ 99 '0 0/ 01 '0 2/ 03 '0 4/ 05 '0 6/ 07 '0 8/ 09 Ethanol
U.S. Ethanol Industry Development
No. operating Ethanol Plants: Plants under construction : Current capacity: (BGPY) 2006 97 35 4.8
2008 Oct 168 2009 166 43 ??
9.9 10.3
Feb
Projected name plate capacity:
•
13.0 BGPY end of 2009 Max starch-based ethanol inclusion of 15 bln. gal. by 2015
Corn Used for Ethanol Production & % U.S. Corn Crop: Mktg. Year 2006/07 2007/08 2008/09 2014/15 Bln. Bu.
% of Crop 2.1
3.0
20% 23% 3.6 30% 5.0
33%
Ethanol Profit Margin
Estimated Profit Margin ($ / gallon) Prices Corn ($/bu.) July ‘07 $3.27
RBOB Gas $/gal $1.98
Sept ‘08 $5.48 Ethanol $/gal $1.91 $2.20
1 Feb ‘09 $3.62 $1.53
$2.85 $1.17
2 Profit Margin +$0.26
+$0.01 3 ($0.17) 2 1 Prices Sept. 2008. Breakeven corn price = $5.52 / bu 2 Prices Feb. 4, 2009. Breakeven corn price = $2.99 / bu 3 Sept. 2008 Ethanol profit: 100 million gall. plant = $1 million 4 Feb. 4, ‘09 Ethanol profit: 100 million gall. plant = ($17 million) Distiller’s Grain revenue ~ $50 million.
Corn Ethanol & WDG $Value vs Corn $
Nebraska / Kansas #s, Feb 2007 – Jan 2009 $9.00
$7.50
$6.00
$4.50
$3.00
$1.50
$0.00
($1.50) Ethanol Value$ /bu.
Month-Week Year WDG Value$ /bu.
Est. Profit / gal.
World Coarse Grain Supply-Demand
2005/06 thru 2008/09 Marketing Years (Feb. 10, 2009 USDA WASDE) 1500 1125 988 1,079 1,100 1,015 1,060 1,079 World Coarse Grain S-D driven by U.S. Feedgrain S-D Trends: 2006/07 Lowest World Ending Stocks in 30 Yrs (139 mmt) 750 375 0 Production '2005/06 MY Use '2006/07 MY 117 124 103 Exports '2007/08 MY 139 158 179 Ending Stocks '2008/09 MY
World Coarse Grain Exporters
2005/06 thru 2008/09 Marketing Years (Feb. 10, 2009 USDA WASDE) 80 70
U.S. forecast to have 47% of World Coarse Grain Exports in 2008/09 Mktg Year (down from 56% in 2007/08)
60 48
150% increase for FSU-12 Exports
40
Drop in China Coarse Grain Exports
20 5 13 0 U.S.
Argentina Australia '2005/06 MY '2006/07 MY Canada Brazil '2007/08 MY China FSU-12 '2008/09 MY
U.S. Corn Ending Stocks
Corn Ending Stocks as a % of Total Use (Feb. 10, 2009 USDA WASDE) 80 62 66 55 2008/09 Ending Stocks: 1.790 Billion Bu. (15% S/U) 55 days of corn use 49 40 8 7 11 23 27 23 27 25 11 17 5 10 19 20 11 9 20 13 15 0 '7 3/ 74 '7 5/ 76 '7 7/ 78 '7 9/ 80 '8 1/ 82 '8 3/ 84 '8 5/ 86 '8 7/ 88 '8 9/ 90 '9 1/ 92 '9 3/ 94 Marketing Year '9 5/ 96 '9 7/ 98 '9 9/ 00 '0 1/ 02 '0 3/ 04 '0 5/ 06 '0 7/ 08 '0 9/ 10
U.S. Corn Stocks/Use% vs Price
1973/74 - 2008/09 Mktg Yrs (Feb. 10, 2009 USDA WASDE) 70.00
60.00
50.00
$3.02
40.00
30.00
$3.12
$3.21
2008/09 Forecast: $3.90 / bu @ 15%
$3.24
$2.42
$5.00
$4.20
$3.90
$4.00
$3.04
$3.00
$2.00
$2.00
20.00
10.00
$1.00
0.00
'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Marketing Year
$0.00
Stocks/Use% U.S. Corn Price
Soybean & Oilseed Markets
U.S. Oilseed Market Factors
Uncertainty about South American Soybean Crop
Hot-Dry Conditions during Jan-Feb
Production
Similar to flowering-pod set in U.S during July-August “Mixed” Demand for U.S. Soybeans & Products World Supplies of Oilseeds ( 1%) U.S. Soybean Crush
@ 1,650 mln bu.
( 8.4%) U.S. Soybean Exports U.S. Soy Oil Domestic Use U.S. SBM Domestic Use
@ 1,150 mln bu.
( 1%)
@ 17,600 mln lbs.
( 4%)
@ 30,750 mln tons
( 7%) Market Comfort with
“just-in-time”
Soybean End Stocks Stock Levels
@ 210 mln bu.
( 2%); 7% S/U Corn-Bean “Bidding for Acres” in Spring 2009 (?)
CBOT Soybean Futures
2000 through 2009 $10.00
/bu $7.50
/bu $5.00
/bu
2009 CBOT March Soybean Futures
August 13, 2008 – February 11, 2009
CBOT Soybean Futures Price %’s
Based on Option Premiums for May-09 & Nov-09
Price on 2/11/2009
May 2009 CBOT Soyb.
$9.82
Low 10% Low 30%
Middle 50%
High 70% High 90%
Prob. Of $ Falling
$7.47 $9.16
$9.69
$10.46 $12.09 Nov 2009 CBOT Soyb.
$9.17
$5.70 $7.48
$8.85
$10.34 $13.51
CBOT Soybean Futures Feb. 11, 2009 Closes + Carrying Charges / Month $11.00
$.02- $.03
/mo carry $10.50
$.04
4 /mo $10.00
$9.78
$9.50
$9.82
$9.88
$9.78
$9.46
$9.18
$9.26
$9.00
Month-Year
Cash Soybean Prices Hays, Kansas
$8.
83 /bu on 2/11/09 Basis: $0.95
/bu under CBOT MAR ‘09 Soybeans Midland Marketing, Hays, KS Feb. 13, 2008 – Feb. 11, 2009 Source: DTN Bid Analyzer
U.S. Soybean Supply-Demand
2006/07 - 2008/09 Mktg Yrs (Feb. 10, 2009 USDA WASDE)
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 $
2006/07
75.5 74.6
2007/08
64.7 64.1 42.9 449 3,197
3,655
1,808 1,116 41.7 574 2,677
3,261
1,801 1,161 __157 ___93
3,081
$6.
43
3,056
(19%)
574
(6.7%)
205
$10.
10
2008/09
75.7 74.6 39.6 205 2,959
3,173
1,650 1,150 __163
2,963
(7.1%)
210
$8.
75 -$9.
75
300
World Soybean Supply-Demand
2005/06 thru 2008/09 Marketing Years (Feb. 10, 2009 USDA WASDE) 238 221 224 226 230 227
Variable
World Production
Stable-Lower
Use, Exports, & Ending Stocks
200 100 72 79 75 63 53 50 0 Production '2005/06 MY Use '2006/07 MY Exports '2007/08 MY Ending Stocks '2008/09 MY
50 25
World Soybean Exporters
2005/06 thru 2008/09 Marketing Years (Feb. 10, 2009 USDA WASDE)
Steady-to-lower soybean export prospects for the United States, Brazil & Argentina
31.6
31.3
25.4
24.9
13.8
12.7
0 U.S.
'2005/06 MY '2006/07 MY Brazil '2007/08 MY Argentina '2008/09 MY
42
U.S. Soybean Ending Stocks
Soybean Ending Stocks as a % of Total Use (Feb. 10, 2008 USDA WASDE) 35 28 Continued low Soybean stocks in 2008/09 (210 mln bu, 7.1% S/U), i.e., 26 days inventory
(Recent low of 112 mln bu in 2003/04)
2008/09 Forecast 21 16 19 14 7 7 10 10 8 6 8 9 7 6 4 9 7 7 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 - 2008/09 Mktg Yrs (Feb. 10, 2009 USDA WASDE) 35.00
30.00
25.00
20.00
$6.64
$6.81
$7.57
$7.83
2008/09 Forecast
$7.42
$7.35
$7.34
$12.00
$10.10
$10.00
$9.25
$8.00
$6.43
$6.00
15.00
$4.00
10.00
$2.00
5.00
0.00
'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Marketing Year
$0.00
Stocks/Use% U.S. Soybean Price
Questions???
Daniel M. O’Brien, Ph.D.
K-State Extension Agricultural Economics: