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Market Outlook for Market Outlook for Wheat & FeedgrainsWheat & Feedgrains
WKARC Field Day, Hays, KansasWKARC Field Day, Hays, KansasAugust 26, 2008August 26, 2008
Daniel O’Brien - Extension Ag Daniel O’Brien - Extension Ag EconomistEconomist
K-State Research and ExtensionK-State Research and Extension
Current vs Historic Grain Current vs Historic Grain PricesPrices
Average Cash Prices ReceivedAverage Cash Prices Received
Crop2000-2000-
0606
AveragAveragee
2007/082007/08
Mktg. Mktg. Year Year
KC MO.KC MO.August 25, August 25,
‘08‘08
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
Soybeans $5.66 /bu $10.15 /bu $13.72
/bu
U.S. Cropland InventoryU.S. Cropland Inventory Millions of AcresMillions 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 297.9 297.9 302.3CRP 35.9 34.9 (-3%) Total U.S. Cropland = 441.6 million acres1 USDA, WASDE, Released August 12, 2008.
Crop Acres Coming Out of Crop Acres Coming Out of CRPCRP
2007–2017 (2007–2017 (Source: USDA, FSA)Source: USDA, FSA)
1.0
0.5
0.9 1.0
1.4 1.3
1.1
0.90.8 0.8
0.4
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.7520
07
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Mil
lio
n A
cres
U.S. Dollar Index: 2000-U.S. Dollar Index: 2000-20082008
Monthly Price Chart (DX – NYBOT)Monthly Price Chart (DX – NYBOT)
Light Crude Oil Futures: Light Crude Oil Futures: 2000-20082000-2008
Monthly Price Chart (CL – NYMEX)Monthly Price Chart (CL – NYMEX)
U.S. Gross Domestic U.S. Gross Domestic ProductProduct
Quarterly 2000 – 2008 (Nominal vs Quarterly 2000 – 2008 (Nominal vs Real)Real)
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,00020
00q1
2000
q320
01q1
2001
q320
02q1
2002
q320
03q1
2003
q320
04q1
2004
q320
05q1
2005
q320
06q1
2006
q320
07q1
2007
q320
08q1
Year - Quarter
U.S
. GD
P (B
illio
n U
SD$)
GDP-Nominal USD$ GDP-Real (2000 USD$)
U.S. Gross Domestic Product U.S. Gross Domestic Product ChangesChanges
Year-to-Year Quarterly Changes (2000 – Year-to-Year Quarterly Changes (2000 – 2008)2008)
-1.00%0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%9.00%
2000
q120
00q3
2001
q120
01q3
2002
q120
02q3
2003
q120
03q3
2004
q120
04q3
2005
q120
05q3
2006
q120
06q3
2007
q120
07q3
2008
q1
Year - Quarter
U.S
. GD
P (B
illio
n U
SD$)
Change in GDP Change in Real GDP (2000$)
U.S. Corn Price Flexibility U.S. Corn Price Flexibility ExampleExample
$ Response to 2008 U.S. Corn $ Response to 2008 U.S. Corn ProductionProduction
$3.00
$6.00
$9.00
$12.00
8.50 10.00 11.50 13.00 14.50 16.00 17.50
U.S. Corn Production (Billion bu - 2008)
U.S
. Co
rn $
/ b
u
Inelastic Demand => Highly Flexible Corn $'s35% $ Increase per 10% Prodn. Decline
Elastic Demand => Inflexible Corn $'s6% $ Increase per 10% Prodn. Decline
Inelastic – Highly Flexible Inelastic – Highly Flexible DemandDemand
Implications for Farm & Other Commodity Prices Record High & Volatile Grain PricesRecord 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
WheatWheatMarketsMarkets
Wheat Market FactorsWheat 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 SEPT 2008 HRW Wheat FuturesFutures
KCBT: March 2007 – August 25, 2008KCBT: March 2007 – August 25, 2008
Contract Volume & Open Interest
Cash Wheat PricesCash Wheat PricesHays, KansasHays, Kansas
Midland Marketing, Hays, KSAugust 27, 2007 – August 25, 2008Source: DTN Bid Analyzer
$7.98 /bu on 8/25/08Basis: $0.80/bu underKC SEP 2008 Wheat
U.S. Wheat Supply-DemandU.S. Wheat Supply-DemandUSDA WASDE Report: August 12, 2008USDA WASDE Report: August 12, 2008
2006/07 2007/08 2008/09 Planted Ac. (mln.) 57.3 60.4 63.5 Harvested Ac (mln.) 46.8 51.0 56.6 Yield (bu./ac.) 38.7 40.5 43.5 Beg. Stocks 571 456 306 Production 1,812 2,067 2,462
Total Supplies 2,505 2,635 2,868 Food & Seed 1,019 1,036 1,044 Exports 908 1,264 1,000 Feed & Residual 121 30 250
Total Use 2,049 2,330 2,294 End Stocks (%S/U) (22.3%) 456 (13.1%) 306 (25.0%) 574
U.S. Ave. Farm $ $4.26 $6.48 $6.50-$8.00
U.S. Wheat Planted AcreageU.S. Wheat Planted Acreage1973 through 20081973 through 2008
60.463.562
7577
8880
57
25
50
75
100
Marketing Year
Mill
ion
Acr
es
Kansas HRW Acres Seeded down 500K in 2007/08 – What of 2008/09??
World Wheat Supply-DemandWorld Wheat Supply-Demand2005/06 thru 2008/09 Marketing Years2005/06 thru 2008/09 Marketing Years
621 624
116148
596 617
111 127
611 622
114 115
671 650
121 136
0
200
400
600
800
Production Use Exports Ending Stocks
Mill
ion
Met
ric
Ton
s
'2005/06 MY '2006/07 MY '2007/08 MY '2008/09 MY
Supply Response:Higher Production, Use,
Exports & Ending Stocks
Recovery in World Stocks from 30 year low in 2007/08
World Wheat ExportersWorld Wheat Exporters2005/06 thru 2008/09 Marketing Years2005/06 thru 2008/09 Marketing Years
0
10
20
30
40
Mill
ion
Met
ric
Ton
s
EU-27 U.S. Canada Australia Argentina FSU-12
'2005/ 06 MY '2006/ 07 MY '2007/ 08 MY '2008/ 09 MY
U.S. & Argentina DOWN in 2008/09, Australia, FSU-12 & EU-27 UP
U.S. Wheat Ending Stocks U.S. Wheat Ending Stocks Wheat Ending Stocks as a % of Total Use Wheat Ending Stocks as a % of Total Use
(1973-2008)(1973-2008)
252720 2017 1619 13
0
25
50
75
100
Marketing Year
% S
tock
s to
Use
Market response in '08/09 to 60 year low of 13% S/U @ 306 mb End Stocks ('07/08)
Forecast2008/09
U.S. Wheat Stocks/Use% vs U.S. Wheat Stocks/Use% vs PricePrice
1973/74 through 2008/09 Marketing 1973/74 through 2008/09 Marketing YearsYears
$7.25
$3.99$3.72
$4.50
$3.56$3.42
$4.26
$6.48
0.0
25.0
50.0
75.0
100.0
125.0
'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Marketing Year
% S
tock
s/U
se
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
U.S
. Wh
eat
$
U.S. Wheat Ending Stocks to Use % U.S. Wheat Price
Forecast 2008/09 U.S. Wheat Price $7.25 /bu @ 25% Stocks/Use
Feedgrain Feedgrain
Markets:Markets:
Corn & Corn & Grain Grain
SorghumSorghum
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 @ 5.3 bln bu (14%) Grain-Ethanol Use @ 4.1 bln bu (36%) Export Use @ 2.0 bln bu (18%) Ending Stocks @ 1.1 bln bu (28%)
Corn-Bean “Bidding for Acres” in Spring 2009
Market Comfort with Lower “just-in-time” Stocks
DEC 2008 Corn FuturesDEC 2008 Corn FuturesCBOT: December 2005 – August 25, CBOT: December 2005 – August 25,
20082008
Contract Volume & Open Interest
Cash Corn PricesCash Corn PricesHays, KansasHays, Kansas
Midland Marketing, Hays, KSAugust 27, 2007 – August 25, 2008Source: DTN Bid Analyzer
$5.27/bu on 8/25/08Basis: $0.53/bu underCBOT SEPT 2008 Corn
Cash Grain Sorghum PricesCash Grain Sorghum PricesHays, KansasHays, Kansas
Midland Marketing, Hays, KSAugust 27, 2007 – August 25, 2008Source: DTN Bid Analyzer
$4.79/bu on 8/25/08Basis: $1.01/bu underCBOT SEPT 2008 Corn
U.S. Corn Supply-DemandU.S. Corn Supply-Demand2006/07 through 2008/09 Marketing 2006/07 through 2008/09 Marketing
YearsYears 2006/07 2007/08 2008/09 Planted Ac. (mln.) 78.3 93.6 87.0 Harvested Ac (mln.) 70.6 86.5 79.3 Yield (bu./ac.) 149.1 151.1 155.0 Beg. Stocks 1,967 1,304 1,576 Production 10,535 13,074 12,288
Total Supplies 12,514 14,396 13,878 Ethanol 2,119 3,000 4,100 Other Food, Seed, Indust. 1,371 1,345 1,345 Exports 2,125 2,425 2,000 Feed & Residual 5,595 6,050 5,300
Total Use 11,210 12,820 12,745 End Stocks (%S/U) (12%) 1,304 (12%) 1,576 (10.5%) 1,133
U.S. Ave. Farm $ $3.04 $4.25 $4.90-$5.90
U.S. Grain Sorghum Supply-U.S. Grain Sorghum Supply-DemandDemand
2006/07 through 2008/09 Marketing 2006/07 through 2008/09 Marketing YearsYears 2006/07 2007/08 2008/09
Planted Ac. (mln.) 6.5 7.7 7.3 Harvested Ac (mln.) 4.9 6.8 6.4 Yield (bu./ac.) 56.2 74.2 63.7 Beg. Stocks 66 32 52 Production 278 505 410
Total Supplies 343 537 462 Food, Seed, Indust. 45 35 70 Exports 153 275 130 Feed & Residual 114 175 200
Total Use 311 485 400 End Stocks (%S/U) (10%) 32 (11%) 52 (15.5%) 62 U.S. Ave. Farm $ $3.29 $4.15 $4.40-$5.40
U.S. Corn Food, Seed & U.S. Corn Food, Seed & Industrial UseIndustrial Use
1973/74 thru 2008/09 Marketing Years1973/74 thru 2008/09 Marketing Years
0
1,500
3,000
4,500
6,000
Marketing Year
Mill
ion
Bus
hels
Other FSI Use (Non-ethanol) Ethanol
2007/08 Ethanol-related Use of Corn:3.0 billion bu. (23% of Total U.S. Corn Use)
Forecast 2008/09 Ethanol-related Corn Use: 4.1 billion bu. (32% of Total U.S. Corn Use)
U.S. Ethanol Industry Development
2006 2008 No. operating Ethanol Plants: 97 163 Plants under construction or expanding: 35 47 Announced plants: 300(17%) ??? Current production capacity: (BGPY) 4.8 9.5
Projected production capacity: 12.4 BGPY end of 200813.6 BGPY end of 2009
Corn Used for Ethanol Production & % of U.S. Corn Crop:Mktg. Year Mln. Bu. % of Crop
2006/07 2,119 20% 2007/08 3,000 23% 2008/09 4,100 33%
Ethanol Profit Margin Est. ($ / gallon)
Prices July 07 Aug 08 ChangeCorn ($/bu.) $3.27 $5.09 1 +58%Ethanol $/gal $1.91 $2.10
+13%RBOB Gas $/gal $1.98 $2.84
+51%
Profit Margin +0.26 +0.01 2
1 1 Prices Aug 12, 2008. Breakeven corn price - $5.15Prices Aug 12, 2008. Breakeven corn price - $5.1522 Ethanol profit for a 100 million gallon plant = $1 million Ethanol profit for a 100 million gallon plant = $1 million Distiller’s Grain revenue would be about $54.6 million. Distiller’s Grain revenue would be about $54.6 million.
To compete with gasoline as substitute, ethanol $ would need to fall to To compete with gasoline as substitute, ethanol $ would need to fall to $1.88/gal$1.88/gal
Corn Ethanol & WDG $Value Corn Ethanol & WDG $Value vs Corn $vs Corn $
Nebraska / Kansas #s, Feb. 2007 - Nebraska / Kansas #s, Feb. 2007 - August 15, 2008August 15, 2008
($2.00)
$0.00
$2.00
$4.00
$6.00
$8.00Feb
4 07
Mar
4 07
Apr
3 07
May
3 07
Jun3
07
Jly2
07
Aug
2 07
Sep1
07
Oct
1 07
Nov
1 07
Nov
5 07
Dec
4 07
Jan4
08
Feb
4 08
Mar
3 08
Apr
3 08
May
3 08
Jun2
08
Jly2
08
Aug
2 08
Month-Week Year
$/ U
nit
Ethanol Value$ / bu. WDG Value$ / bu. Est. Profit / gal.
World Coarse Grain Supply-World Coarse Grain Supply-DemandDemand
2005/06 thru 2008/00 Marketing Years2005/06 thru 2008/00 Marketing Years
125 148116 144
1,0661,076 1,089 1,093
0
300
600
900
1200
1500
Production Use Exports Ending Stocks
Mill
ion
Met
ric
Ton
s
'2005/ 06 MY '2006/ 07 MY '2007/ 08 MY '2008/ 09 MY
World Coarse Grain S-D driven by U.S. Feedgrain S-D Trends:
2nd Lowest World Ending Stocks in 30 Yrs (behind '06/07)
World Coarse Grain ExportersWorld Coarse Grain Exporters2005/06 thru 2008/09 Marketing Years2005/06 thru 2008/09 Marketing Years
5
70
12
55
0
20
40
60
80
U.S. Argentina Australia Canada Brazil China FSU-12
Mill
ion
Met
ric
Ton
s
'2005/ 06 MY '2006/ 07 MY '2007/ 08 MY '2008/ 09 MY
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
Drop in China Coarse
Grain Exports
U.S. Corn Ending Stocks U.S. Corn Ending Stocks CornCorn Ending Stocks as a % of Total UseEnding Stocks as a % of Total Use
2527
55
6662
23
49
2723
1291117 19 20 20
98711 11
510
0
25
50
75
Marketing Year
% S
tock
s to
Use
2008/09 Ending Stocks: 1.133 Billion Bu. 9% Stocks/Use
U.S. Corn Stocks/Use% vs U.S. Corn Stocks/Use% vs PricePrice
1973/74 through 2008/09 Marketing Years1973/74 through 2008/09 Marketing Years
$4.25
$3.04
$2.00
$2.42
$3.24$3.21$3.12$3.02
$5.40
0.00
10.00
20.00
30.00
40.00
50.00
60.00
70.00
'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Marketing Year
% S
tock
s/U
se
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
U.S
. C
orn
$
Stocks/Use% U.S. Corn Price
2007/08 Record High: $4.25 / bu @ 12% S/U
2007/08 Forecast: $5.40 / bu @ 9% S/U
Soybean Soybean &&
Oilseed Oilseed MarketsMarkets
NOV 2008 Soybean FuturesNOV 2008 Soybean FuturesCBOT: April 2006 – August 25, 2008CBOT: April 2006 – August 25, 2008
Contract Volume & Open Interest
Cash Soybean PricesCash Soybean PricesHays, KansasHays, Kansas
Midland Marketing, Hays, KSAugust 27, 2007 – August 25, 2008Source: DTN Bid Analyzer
$11.99/bu on 8/25/08Basis: $1.48/bu underCBOT NOV 2008 Soybeans
U.S. Soybean Supply-U.S. Soybean Supply-DemandDemand
2006/07 through 2008/09 Marketing 2006/07 through 2008/09 Marketing YearsYears 2006/07 2007/08 2008/09
Planted Ac. (mln.) 75.5 63.6 74.8 Harvested Ac (mln.) 74.6 62.8 73.3 Yield (bu./ac.) 42.7 41.2 40.5 Beg. Stocks 449 574 135 Production 3,188 2,585 2,973
Total Supplies 3,647 3,169 3,116 Crushings 1,808 1,830 1,815 Exports 1,116 1,145 1,000 Seed & Residual 148 ****59 165
Total Use 3,073 3,034 2,980 End Stocks (%S/U) (19%) 574 (4.4%) 135 (4.5%) 135
U.S. Ave. Farm $ $6.43 $10.15 $11.50-$13.00
World Soybean Supply-World Soybean Supply-DemandDemand
2005/06 thru 2008/09 Marketing Years2005/06 thru 2008/09 Marketing Years
220 215
64 53
237 238
7649
0
100
200
300
Production Use Exports Ending Stocks
Mill
ion
Met
ric
Ton
s
'2005/ 06 MY '2006/ 07 MY '2007/ 08 MY '2008/ 09 MY
Variable World ProductionStable-Growing Use & Exports
Stable-Low Ending Stocks
World Soybean ExportersWorld Soybean Exporters2005/06 thru 2008/09 Marketing Years2005/06 thru 2008/09 Marketing Years
31
26
12
27 28
13
0
15
30
45
U.S. Brazil Argentina
Mill
ion
Met
ric
Ton
s
'2005/ 06 MY '2006/ 07 MY '2007/ 08 MY '2008/ 09 MY
Not as large an increase in Brazilian soybean production as expected has diminished Export prospects & pushed World Soybean $Prices higher
Record Prospects for Argentina Soy Exports
U.S. Soybean Ending StocksU.S. Soybean Ending StocksSoybean Ending Stocks as a % of Total Soybean Ending Stocks as a % of Total
UseUse
4.5
19
710 10 9988 7
4.54.46 6
16
0
10
20
30
40
'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Marketing Year
% S
tock
s to
Use
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
U.S. Soybean Stocks/Use% U.S. Soybean Stocks/Use% vs Pricevs Price
1973/74 through 2008/09 Marketing Years1973/74 through 2008/09 Marketing Years$12.25
$6.64 $6.81
$7.57 $7.83$7.42 $7.35
$10.15
$6.43
$7.34
0
5
10
15
20
25
30
35
'73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Marketing Year
% S
tock
s/U
se
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
Stocks/Use% U.S. Soybean Price
2008/09 Forecast
Questions???Questions???
K-State Extension Agricultural K-State Extension Agricultural Economics:Economics:
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