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WASDE Report for 8/12/16

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Attention Corn & Soybean Producers:

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WHEAT: Projected U.S. supplies for 2016/17 are raised on a larger crop that is partially offset by lower imports. U.S. wheat production is raised for all 5 major wheat classes. Projected imports are lowered 5 million bushels on larger supplies of U.S. spring wheat. All wheat exports for 2016/17 are projected 25 million bushels higher to 950 million on expectations of an improved competitive situation and a sharp reduction of EU wheat production, which is expected to benefit North American suppliers. Feed and residual use is raised 30 million bushels on the larger domestic crop. The increased use offsets the higher supplies and ending stocks are slightly lower. The season-average farm price is lowered 5 cents on the low end and 15 cents on the high end to $3.35 to $4.05 per bushel.

Global wheat supplies for 2016/17 are raised 2.3 million tons on a 4.9-million production increase that is partially offset by a decrease in beginning stocks. The Russia wheat crop is raised 7.0 million tons to 72.0 million on excellent growing conditions throughout the country and harvest reports showing very high yields. Ukraine and Kazakhstan are raised 2.0 million tons each, also on harvest reports and favorable weather. Australia and Canada production is raised 1.0 million tons each, on favorable growing conditions. These large production increases are partially offset by a 9.0-million-ton reduction in the EU, due to excessive rain in key growing regions, particularly in France. Unrelenting rain during flowering and grain fill damaged crop quality and sharply lowered yield prospects. French yields are projected to be the lowest in nearly thirty years. For the EU as a whole, 2016/17 yields are projected to be the lowest since 2012/13.

Global trade is raised 2.3 million tons on larger global supplies. Russia exports are raised 4.5 million tons to a record 30.0 million on the sharp production increase. Russia is projected to be the world’s largest wheat exporter for the first time. Ukraine exports are raised 2.0 million tons, and Australia, Canada, and Kazakhstan are each raised 1.0 million, all due to increased production. These increases are partially offset by a 7.0-million-ton reduction in EU exports due to the sharply smaller crop. Argentina exports are also lowered 1.0 million tons on reduced production and lower beginning stocks. Global use is up 3.2 million tons led by a 1.0-million-ton increase in Russia feed use, a 0.8-million-ton increase in U.S. feed use, and a 0.4-million-ton increase in Afghanistan food use. With total use rising faster than supplies, world ending stocks are lowered 0.9 million tons but remain record large.

COARSE GRAINS: Projected 2016/17 U.S. feed grain supplies are increased this month with higher forecast corn, sorghum, barley, and oats production. Corn production is forecast at a record 15.2 billion bushels, up 613 million from the July projection. The season’s first survey-based corn yield forecast, at 175.1 bushels per acre, is up 7.1 bushels from last month’s trend-based projection and above the record 171.0 bushels in 2014/15. The Crop Production report indicates that nearly all Corn Belt states, with the exception of Minnesota and South Dakota, are forecast to have yields above a year ago. Sorghum production is forecast 55 million bushels higher with the forecast yield 8.4 bushels per acre above last month’s projection.

U.S. corn supplies for 2016/17 are projected at a record 16.9 billion bushels, up 1.5 billion from the prior year with the larger crop and small increases in beginning stocks and imports. Ending stocks for 2015/16 are raised 5 million bushels reflecting a larger import projection and offsetting usage changes. Imports are raised as the pace of organic corn imports through June has been above expectations. Corn use for ethanol production in 2015/16 is lowered 25 million bushels, based on the latest indications from the Grain Crushings and Co-Products Production report. An offsetting 25-million-bushel increase is made to corn exports supported by the recent robust pace of shipments and sales.

Total U.S. corn use for 2016/17 is projected 300 million bushels higher at a record 14.5 billion. Feed and residual use is raised 175 million bushels with the larger crop and lower expected prices. Exports are projected 125 million bushels higher, reflecting the relative competitiveness of U.S. corn on the world market and large new-crop outstanding sales. Corn ending stocks for 2016/17 are projected 328 million bushels higher and, if realized, would be the highest since 1987/88. The projected range for the season-average corn price received by producers is lowered 25 cents on both ends to $2.85 to $3.45 per bushel. This would be down 45 cents at the midpoint from the $3.55 to $3.65 per bushel range now expected for 2015/16. The all barley price is raised this month based on early indications of prices received by farmers for malting barley.

Foreign coarse grain supplies for 2016/17 are projected 5.1 million tons higher this month with a 2.3-million-ton increase in beginning stocks and a 3.0-million-ton increase in production. Foreign corn carryin is up, mostly reflecting lower 2015/16 corn feeding in Indonesia, Canada, and Ukraine as 2015/16 corn production increases for the EU and South Africa offset a further reduction for Brazil. Foreign corn production for 2016/17 is raised 2.1 million tons with increases for Argentina, India, and Mexico more than offsetting reductions for the EU and Canada. Corn area is raised in Argentina on an expected reduction in planted area for wheat and small grains. For India, corn area is increased as favorable rainfall has boosted plantings to date as reported in the latest government statistics. Abundant summer rainfall in Mexico boosts corn yield prospects, but persistent dryness in Ontario reduces the outlook for production in Canada. EU corn production is lowered mostly on reductions for Spain and France.

Global coarse grain consumption for 2016/17 is raised 8.9 million tons this month with higher corn use in the United States accounting for half of the increase. Outside the United States, corn feeding is raised for Mexico, India, and the EU. Partly offsetting is a 1.0-million-ton reduction in corn feeding for Indonesia, where government import licensing policy is expected to reduce corn imports. Global coarse grain trade is raised reflecting increases for corn and to a lesser extent barley. Global 2016/17 coarse grain ending stocks are projected 13.4 million tons higher reflecting larger corn and barley stocks. Global corn stocks are projected 12.4 million tons higher with the United States accounting for two-thirds of the increase.

RICE: Total U.S. rice supplies for 2016/17 are lowered 2.2 million cwt from last month to 307.7 million, still the highest on record. Carryin is lowered 1.5 million cwt to 39.4 million due to 2015/16 revisions. The 2016/17 U.S. rice production forecast is lowered 0.7 million cwt to a record 244.3 million based on the first survey-based yield forecast of the 2016/17 crop. At 7,659 pounds per acre, the 2016/17 yield is down 21 pounds from the previous projection. With no revisions to the use side of the 2016/17 rice balance sheet, the lower supply forecast reduces the 2016/17 U.S. ending stocks 2.2 million cwt to 54.7 million, still the highest since 1985/86. For 2015/16, total U.S. exports are raised 1.5 million cwt to 104.5 million, with long-grain accounting for all of the increase.

The only price revision for 2015/16 is a 20-cent reduction in the season-average farm price for California medium- and short-grain rice to $18.00 per cwt. For 2016/17, the U.S. long-grain price is lowered 50 cents on both the high and low ends of the range to $9.50 to $10.50 per cwt. The California 2016/17 medium- and short-grain price is lowered $1.00 on both ends to $14.50 to $15.50 per cwt. The other states medium- and short-grain 2016/17 price is lowered 50 cents on both ends to $10.00 to $11.00 per cwt.

The 2016/17 global production forecast is lowered fractionally to 481.1 million tons (milled basis), still the highest on record. Crop forecasts for 2016/17 are lowered for Afghanistan and Bolivia but raised for Iran. For 2015/16, the Indonesia crop estimate is increased, while Vietnam is lowered. Global consumption for 2016/17 is lowered 1.8 million tons to 478.8 million, mostly due to a reduction for India. The 2016/17 global export forecast is raised slightly to 40.6 million tons, with stronger shipments from India offsetting weaker exports from Vietnam. The 2016/17 global ending stocks forecast is increased 6.5 million tons to 113.8 million, 2 percent above the previous year’s revised estimate. India accounts for most of the upward revision in the global ending stocks forecasts for both 2015/16 and 2016/17.

OILSEEDS: U.S. oilseed production for 2016/17 is projected at 120.2 million tons, up 4.8 million from last month due to a higher soybean production forecast. Soybean production for 2016/17 is forecast at 4,060 million bushels, up 180 million due to increased yields. Harvested area is forecast at 83.0 million acres, unchanged from the July projection. The first survey-based soybean yield forecast of 48.9 bushels per acre is 2.2 bushels above last month and 0.9 bushels above last year’s record. With higher production only partly offset by lower beginning stocks, soybean supplies for 2016/17 are projected at a record 4,346 million bushels. Soybean crush is raised 15 million bushels based on expected higher domestic use and exports of soybean meal. Soybean exports are raised 30 million bushels to 1,950 million. Despite higher use, soybean ending stocks are projected at 330 million bushels, up 40 million from last month.

The U.S. season-average soybean price for 2016/17 is forecast at $8.35 to $9.85 per bushel, down 40 cents on both ends of the range. Soybean meal prices are forecast at $305 to $345 per short ton, down 20 dollars at the midpoint. The soybean oil price forecast is unchanged at 29.5 to 32.5 cents per pound.

U.S. changes for 2015/16 include increased soybean crush and exports, and lower ending stocks. The soybean crush is raised 10 million bushels to 1,900 million reflecting increased domestic use and exports of soybean meal. Soybean exports are raised 85 million bushels to 1,880 million as unusually large outstanding old-crop sales are confirmed by the latest shipment data. With increased use, 2015/16 ending stocks are projected at 255 million bushels, down 95 million from last month.

Global oilseed production for 2016/17 is projected at 543.5 million tons, up 7.0 million from last month. Global soybean production is projected at a record 330.4 million tons, up 4.5 million. The U.S. production increase is partly offset by reductions for both India and Ukraine with the latest planting data for both countries indicating lower forecasts for harvested area. Rapeseed production is raised for Canada where abundant moisture and favorable temperatures in July helped to boost yield prospects. Partly offsetting is a reduction for EU rapeseed production on excessive moisture in key growing areas, particularly in France. Other changes include increased sunflowerseed production for Russia and Ukraine, increased peanut production for India and Senegal, increased cottonseed production for China, and reduced cottonseed production for India. For 2015/16, global vegetable oil trade is expected to decline 1.5 million tons from last month due to lower palm oil production in Indonesia and Malaysia.

Global oilseed supplies for 2016/17 are raised 8.1 million tons with increased production and higher beginning stocks. With larger supplies only partly offset by increased crush, 2016/17 global oilseed stocks are projected at 80.6 million tons, up 4.5 million from last month.

SUGAR: Sugar production for the fiscal year 2016/17 is increased 247,901 short tons, raw value (STRV) to 9.208 million resulting from new sugar crop forecasts made by NASS in the August Crop Production report. Beet sugar is increased 128,160 STRV based on higher sugar per acre implied by the NASS sugarbeet yield forecast although area harvested is down slightly. Cane sugar production in Florida is increased by 47,786 STRV and in Louisiana by 71,955 based on higher sugar-per-acre yields implied by NASS sugarcane yield forecasts in both States.

Beginning stocks for 2016/17 are increased by 35,012 STRV due to changes made to two import estimates for 2015/16 that flowed into the ending stock estimate. Re-export imports for 2015/16 are increased by 50,000 STRV to 350,000 based on pace to date. Partially offsetting is an increase in 2015/16 raw sugar tariff-rate quota shortfall of 14,988 STRV.

The only other change for 2016/17 is a reduction in re-export imports of 50,000 STRV to 125,000. With no change expected for 2016/17 sugar exports, deliveries for re-export sugar-containing products, or polyhydric alcohol manufacturing, the imports for re-export reduction offsets the increase made for 2015/16. Ending stocks for 2016/17 increase to 1.887 million STRV, implying a stocks-to-use of 15.4 percent.

Mexico sugar production for 2015/16 is estimated at 6.117 million metric tons (MT), a small reduction from last month based on final industry reporting. Deliveries for 2015/16 to the sugar-containing product export IMMEX program are increased by 75,283 MT to 330,000 based on increases in the pace of deliveries to the program by domestic producers. Deliveries to IMMEX in 2016/17 are expected to match the level in 2015/16, thereby resulting in an increase of 75,283 MT as well.

LIVESTOCK, POULTRY, AND DAIRY: The forecast for total red meat and poultry production for 2016 is reduced from last month as increased beef and turkey production is more than offset by lower forecast pork and broiler production. Beef production is forecast higher on higher expected third quarter steer and heifer slaughter. However, second quarter production is adjusted lower to reflect June production data. Pork production for 2016 is lowered on expectations of slightly lighter carcass weights for the remainder of the year. Broiler production is lowered on slower expected growth in the fourth quarter. Turkey production is raised for 2016, largely on June production data. Production forecasts for 2017 red meat and poultry are raised as lower forecast feed prices are expected to encourage increased production. Table egg production is raised for 2016 on June production data; the 2017 forecast is unchanged.

The beef import forecasts for 2016 and 2017 are raised in part due to expectations of increased imports from Brazil beginning in the later part of 2016. Beef exports for 2016 are lowered based on June trade data; no change is made to the 2017 forecast. Small adjustments are made to pork trade based on June data; no change is made to the forecasts. Broiler exports for 2016 are lowered due to a slower pace of exports in June; no change is made to 2017. No change is made to turkey exports.

Cattle, hog, and broiler prices for second-half 2016 are reduced from last month on weakness in current prices. Prices for cattle, hogs and broilers for 2017 are reduced from last month as production is forecast higher; however, the annual price range for cattle is unchanged. Turkey prices are raised for the third quarter of 2016 but are unchanged for 2017. Egg prices are lowered for 2016 and 2017.

The milk production forecast for 2016 is lowered from last month as growth in milk per cow is reduced. However, the production forecast for 2017 is raised as higher forecast milk prices and lower feed costs in late 2016 and 2017 are expected to lead to a modest expansion in the cow inventory and more rapid growth in milk per cow. Fat basis exports are raised for 2016 on continued strength in whole milk powder (WMP) exports. The forecast for 2017 is unchanged. On a skim-solids basis, the export forecasts for 2016 and 2017 are raised on higher sales of WMP and whey products. Imports are raised for 2016 and 2017 as imports of fat-containing products has increased. Fat basis stocks are forecast higher as stocks of butter remain high, but on a skim-solids basis, stocks are reduced.

Cheese, nonfat dry milk (NDM) and whey prices for 2016 are forecast higher as demand remains firm, but the forecast for butter price is reduced as stocks remain larger than expected. The Class III price is raised, reflecting higher cheese and whey prices, but the Class IV price is lowered as the lower butter price more than offsets the higher NDM price. For 2017, prices of cheese, butter, and whey are increased, but NDM is unchanged from last month. The Class III and Class IV price forecasts are raised on the stronger component prices. The all milk prices are forecast higher at $16.25 to $16.45 per cwt for 2016 and $16.15 to $17.15 per cwt for 2017.

COTTON: The 2016/17 U.S. cotton supply and demand estimates include marginally higher production and ending stocks, with the farm price projected 7 percent above last month. Production is forecast at 15.9 million bales based on NASS’s first survey of the 2016 crop. Domestic mill use and exports are unchanged from last month, raising ending stocks to 4.7 million bales, equivalent to 31 percent of total use. The marketing year average price received by producers is projected to range from 57 to 69 cents per pound. The midpoint of 63 cents per pound is raised 4 cents from last month’s estimate based on recent price activity and tighter global cotton supplies.

Projected world 2016/17 cotton ending stocks are down 2 percent this month, due to combination of lower beginning stocks and production. Beginning stocks are reduced by 1.1 million bales, due mainly to revisions in China, India, and Australia. Production is reduced for China, India, Mexico, and Argentina, partially offset by an increase for Brazil. Global consumption and imports are estimated marginally lower, mainly reflecting reductions in Vietnam and Pakistan. Exports are reduced for Brazil. World ending stocks are lowered 1.7 million bales to 89.6 million. Stocks outside of the United States and China are projected at 36 percent of total use, similar to the estimated 2015/16 ratio.

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About the author

Currently a member of The Chicago Board of Trade (CBOT) and registered with the Commodity Futures Trading Commission (CFTC) as a floor broker and a member of the National Futures Association (NFA). I started my career in 1973 on The Chicago Mercantile Exchange trading floor working for a major firm. Three years later I purchased my first membership and began what would become a thirteen-year commitment to trading soybeans for my own account on the trading floor. I began trading options on futures since their inception in Chicago about twenty years ago; doing so, I traded in various pits on the trade floor. 

One of the major lessons that I have learned from all my years of experience is that knowledge is an important condition for the possibility of successful trading. Knowledge gives you a better chance to succeed by eliminating obvious mistakes: with it, you will never find yourself shamefully uttering, “If I only took the time to learn”.  
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