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September 6, 2017
Grain Market Outlook
State University that these USDA projections for “new crop” MY 2016/17 have a 55% probability of
occurring.
Four Alternative KSU U.S. Wheat Supply/Demand Forecast for “New Crop” MY 2017/18
To represent possible alternative outcomes from the USDA’s August 10th projection, four potential KSU‐
Scenarios for U.S. wheat supply‐demand and prices are presented for “new crop” MY 2017/18.
KSU Scenario 1) “Lower U.S. Production” Scenario (25% probability) assumes for “new crop” MY 2017/18
that the following occurs. This scenario assumes that there will be 46.657 ma planted, 83.72% harvested‐to‐
planted, 37.500 ma harvested, 44.0 bu/ac yield, 1.650 bb production, 2.984 bb total supplies, 975 mb exports,
150 mb feed & residual use, 2.141 bb total use, 843 mb ending stocks, 39.37% stocks/use, & $5.20 /bu U.S.
wheat average price.
KSU Scenario 2) “Lower U.S. Wheat Exports” Scenario (10% probability) assumes the following for “new
crop” MY 2017/18: Production of 1.739 bb (same as the USDA), 3.074 bb total supplies, 800 mb exports, 150
mb feed & residual use, 1.966 bb total use, 1.108 bb ending stocks, 56.36% stocks/use, & $3.75 /bu U.S. wheat
average price;
KSU Scenario 3) “Higher U.S. Wheat Exports” Scenario (5% probability) assumes the following for “new
crop” MY 2017/18: Production of 1.739 bb (same as the USDA), 3.074 bb total supplies, 1.200 bb exports, 150
mb feed & residual use, 2.366 bb total use, 708 mb ending stocks, 29.92% stocks/use, & $6.00 /bu U.S. wheat
average price;
KSU Scenario 4) “Wildcard Foreign Events” Scenario (5% probability) assumes the following for “new
crop” MY 2017/18: Production of 1.739 bb (same as the USDA), 3.074 bb total supplies, less than 700 mb
exports, 150 mb feed & residual use, less than 1.800 bb total use, more than 1.300 bb ending stocks, greater
than 65% stocks/use, & less than $3.00 /bu U.S. wheat average price;
…
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April 19, 2017
Grain Market Outlook
DECEMBER (DEC) 2017 CME Kansas hard red winter wheat futures traded as high as $5.90 ¼ on
April 20, 2016, and $5.90 on June 8, 2016 before declining approximately $0.90 per bushel by early
July. Then, following lows of $4.74 per bushel on August 31st, $4.72 ½ on October 12th, and $4.59 ½
DEC 2017 CME KS HRW Wheat Futures
February 18, 2016 – April 18, 2017
Close = $4.74 ¼ on 4/18/2017
MAY 2017 CME KS HRW Wheat Futures
February 18, 2016 – April 18, 2017
Close = $4.19 ¼ on 4/18/2017
Page | 4
on December 1, 2016, DEC 2017 CME Kansas hard red winter wheat futures prices traded up to a high
of $5.30 ¾ on February 16, 2017. From that February 16th high, DEC 2017 CME KS HRW Wheat
futures then traded lower – down to a low of $4.68 ½ on March 31st and $4.69 on April 18th before
closing at $4.74 ¼ that same day (Figure 1).
The total futures carrying charge or “term spread” between MAY 2017 and JULY 2017 CME Kansas Wheat
futures contracts on Tuesday, April 18th was $0.12 ¾ per bushel (i.e., $4.32 for JULY 2017 less $4.19 ¼ for MAY
2017 Wheat), or $0.06375 per bushel per month. This compares to commercial storage charges in Kansas grain
elevators in the range of $0.04 to $0.05 per bushel per month – before interest or additional handling costs or
other discounts are accounted for.
Given these futures carrying charges, commercial storage of wheat from MAY 2017 to JULY 2017 would at
least break even and/or cover costs (i.e., carry of $0.06375 /bu/mo is greater than $0.04‐$0.05 /bu/mo storage
cost) IF local cash wheat basis levels would at least stay unchanged and not weaken further over the May‐July
2017 period. Along this same lines of reasoning, it may be profitable to actually place a stor …
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Grain Market Outlook
The total futures carrying charge or “term spread” between DEC 2016 and JULY 2017 CME Kansas Wheat
futures contracts on Wednesday, October 19th was $0.39 ½ per bushel (i.e., $4.64 ¾ for JULY 2017 less $4.25 ¼
for DEC 2016 Corn), or $0.06643 per bushel per month. This compares to storage charges in Kansas grain
elevators in the range of $0.04 to $0.05 per bushel per month – before interest or additional handling costs or
other discounts are accounted for.
Given these futures carrying charges, for storage of wheat from December 2016 to July 2017 to at least
break even, local wheat basis levels would need to at least stay level or unchanged from current levels to fully
cover commercial storage charges over the same period. Also, it would be prudent to actually place a storage
hedge on the CME Kansas July 2017 futures contract if a person were actually holding wheat for sale that long.
Otherwise the possibility of seasonal harvest price weakness in June of 2017 could put these projected storage
profits at risk.
Kansas Wheat Seasonal Average Cash Price Trends
Seasonal average price index trends for Kansas wheat over the last 17 marketing years indicate definite
seasonal impacts or trend in cash wheat prices (Figure 2). Since the 1999/2000 marketing year Kansas hard
red winter wheat cash prices have typically been weakest during the harvest month of July, with an average
seasonal price index of 98.4% of the unweighted marketing year average Kansas wheat cash price for the June
through May marketing year. However, Kansas cash wheat prices have then tended to trend higher after
harvest through September‐October, then trended sideways from November through January, with moderate
seasonal strength in February‐March – followed by a sideways‐to‐lower trend during April and May.
The projected U.S. average cash price for U.S. hard red winter wheat in the “current crop” 2016/17
marketing year exhibits a pronounced price low in August‐September 2016 with monthly prices climbing
steadily from October through January 2017 – with a sideways to declining trend during February, followed by
a trend higher in April‐May (Figure 2). “Current crop” MY 2016/17 for U.S. wheat began on June 1, 2016 and
will conclude on May 31, 2017. If this projected price pattern were to become reality, it would signal the
JULY 2017 CME KS HRW Wheat Futures
August 20, 2015 – October 19, 2016
Close = $4.64 ¾ on 10/19/2016
DEC 2016 CME KS HRW Wheat Futures
August 20, 2015 – October 19, 2016
Close = $4.25 ¼ on 10/19/2016
Page | 5
likelihood of returns to storage for Kansas wheat over the October 2016 harvest through January 2017 period.
These projections are taken from the USDA Economic Research Service (ERS) wheat futures price forecast
model, available online at the following web address:
http://www.ers.usda.gov/data‐products/season‐average‐price‐forecasts.aspx
According to historic price patterns, most of the post‐harvest increase in Kansas wheat prices is usually
realized from July through October, with movement being mostly sideways through the remainder of the
marketing year. The most variability around these monthly indices have occurred during June‐July and the
period when the Kansas hard red winter wheat crop breaks winter dormancy (i.e., February‐March), with
accompanying production uncertainty in late spring (i.e., May).
Figure 2. Kansas Wheat Seasonal Price Index – Last 17 Marketing Years (MY 1999/00 – MY 2015/16)
plus “current crop” MY 2016/17 USDA projection (Source: KSU www.AgManager.info & USDA)
U.S. Trade Weighted Dollar Index & Global Wheat Prices
Since 1973 the monthly average trade‐weighted index value of the U.S. dollar relative to the currencies
of U.S. trading partner countries has averaged 94.3680 with a median value of 93.1623 – indicating some
positive skewness in U.S. dollar index values (i.e., a few very high values pulling up the average) (Figure 3).
The historic low in the U.S. dollar trade weighted index since 1973 was 69.0247 – occurring in August 2011.
The historic high of 143.9059 occurred in March 1985. Over the January 1973 through September 2016 period
the U.S. dollar index has declined at a rate of ‐0.0609 per month …
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