Outlook for 2018 grain markets coming into focus

by Ron Sterk
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Ron Sterk

A bevy of reports from the U.S. Department of Agriculture on Jan. 12 laid the initial groundwork for grain and oilseed markets in 2018, and at this point, it looks like more of the same with abundant domestic and global supplies the overarching theme.

Combined data from the U.S.D.A.’s annual Winter Wheat and Canola Seedings, annual Crop Production 2017 Summary, quarterly Grain Stocks and monthly World Agricultural Supply and Demand Estimates reports indicated more corn and wheat than expected and less soybeans, which moved futures sharply lower for wheat, modestly lower for corn and higher for the oilseed market.

Although wheat numbers were bearish all around, probably the biggest surprise was winter wheat seedings. Area planted to all wheat for harvest in 2018 at 32,608,000 acres was down 88,000 acres, or 0.3%, from 2017, down 10% from 2016, the lowest since 1909 and the second lowest on record. But the U.S.D.A. estimate was about 4% above the average of trade expectations and even above the full range of analysts’ forecasts.

Abundant domestic and global supplies are the overarching theme in 2018 grain and oilseed markets.
Abundant domestic and global supplies are the overarching theme in 2018 grain and oilseed markets.
 

The U.S.D.A. Dec. 1 wheat stocks estimate of 1,874 million bus was down 10% from a year earlier but also above the average of trade expectations. Wheat carryover on June 1, 2018, was forecast at 989 million bus, up 3% from the December forecast, down 16% from 2017 but again above the average trade estimate. The clencher was global wheat ending stocks forecast by the U.S.D.A. at a record 268.02 million tonnes, down from December but again above the trade average.

Old crop wheat futures fell 10c to 16c a bu, or about 3%, on Jan. 12 with winter wheat futures losing another 2c to 4c a bu on Jan. 16 after the three-day weekend. Both Kansas City hard red winter and Chicago soft red winter contracts fell to one-month lows but held above contract lows set in early December. Minneapolis spring wheat futures, which have been the market leader all season, eked out small gains on Jan. 16.

As if to further demonstrate the challenges facing the U.S. wheat market, Egypt on Jan. 16 bought 295,000 tonnes of wheat from Russia. Though winter wheat futures have hovered near contract lows, strong cash basis levels have made U.S. wheat uncompetitive on the world market.

U.S. winter wheat planted area chart
 

The U.S.D.A. bumped up its 2017 U.S. corn production estimate by 26 million bus, or 0.2%, to 14,604 million bus, which was down 4% from record high production of 15,148 million bus in 2016 but still the second highest on record, with average yield at a record 176.6 bus an acre. The U.S.D.A. estimated Dec. 1 corn stocks at 12,516 million bus, up 1% from a year earlier, and forecast Sept. 1, 2018, corn carryover at 2,477 million bus, up 1.6% from 2017. The production, Dec. 1 stocks and 2018 carryover numbers all were above the average of trade expectations, sending corn futures down just over 2c a bu to new contract lows on Jan. 12. The average price of corn paid to farmers in 2017-18 was forecast by the U.S.D.A. to range between $2.95 to $3.55 a bu, compared with $3.36 a bu in 2016-17 and $3.61 a bu in 2015-16.

U.S. 2017 soybean production was estimated at a record 4,392 million bus, down 33 million bus, or 0.8%, from the prior estimate but up 96 million bus, or 2.2%, from 2016. Soybean stocks on Dec. 1 were estimated at 3,157 million bus, up 9% from a year earlier, and Sept. 1, 2018, carryover was forecast at 470 million bus, up 25 million bus, or 6%, from the December forecast and up 168 million bus, or 56% from 2017. The U.S.D.A. production, Dec. 1 stocks and 2018 carryover numbers all were below the average of trade expectations, and soybean futures gained about 10c a bu on Jan. 12 and another 7c on Jan. 16. The U.S.D.A. forecast the average soybean price paid to farmers to range between $8.80 and $9.80 a bu in 2017-18, compared with $9.47 a bu last year and $8.95 a bu in 2015-16.

“The reports provide support for soybean prices in the short term while corn prices should experience some weakness but stay in the range witnessed over the last few months despite the larger crop and growing ending stocks,” said Todd Hubbs, University of Illinois agricultural economist in the Jan. 16 farmdoc daily. “Corn and soybean prices, in the near term, will reflect the pace of consumption and crop prospects in South America. Corn prices will likely average in the middle to lower part of the range of the U.S.D.A.’s projection while soybean prices show the potential for falling into the lower half of the projected range as we move through the marketing year.”

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