Milling & Baking News - November 22, 2016 - 26

Grain Market Roundtable X

wheat futures. Before the dollar rally,
U.S. wheat was becoming more competitive in world markets, and only
lower wheat futures could offset the
effect of the dollar's rise.
The outlook for 2017-18 provided the
best opportunity for wheat prices to rally,
Mr. Meyers and Mr. Freed agreed. Both
expected U.S. wheat production in 2017
to fall because of reduced plantings.
The area planted to winter wheat
in the United States for harvest in
2016 was 36.1 million acres. Mr. Meyers said winter wheat plantings may
have dropped 2% to 3% this fall from
a year ago. The greatest decrease in
winter wheat area was expected in the
hard red winter wheat belt, Mr. Meyers
said, because of slumping Kansas City
wheat futures and cash wheat bids to
the farmer in the country about $1 a bu
below the K.C. December future.

U.S. wheat carryover
in million bus

1,500
1,200

900
600
300
0

1988

1991

1994

1997

2000

Source: U.S. Department of Agriculture

Mr. Freed noted some crop forecasters suggested all-wheat planted area
for 2017 may drop to around 48.5 million acres compared with 50.1 million
acres in 2016, a decline of about 3%.
Acreage reductions of this size
should translate to a smaller U.S.
wheat crop in 2017.

2003

2006

2009

2012

2015
*2017 forecast

"Next year, the U.S. will produce
less wheat," Mr. Meyers said. "There
may be acreage cutbacks in other regions as well. And we're not likely to
have a fifth consecutive year of record
world wheat production."
Mr. Meyers said wheat futures may
drop modestly in the near term, but most

U.S. exports to China key to soybean performance
KANSAS CITY - The key to understanding both the pressures and
opportunities in the U.S. soybean market in the months ahead can
almost be boiled down to a single word: China.
China is the behemoth overseas buyer of about 1 billion bus annually of U.S. soybeans, said Karl Setzer, market analyst at MaxYield
Cooperative in West Bend, Iowa, accounting for more than half of
total U.S. soybean exports.
In its Nov. 9 World Agricultural Supply and Demand Estimates report, the U.S. Department of Agriculture forecast 2016-17 U.S. soybean exports at 2,050 million bus.
"China is so important - they are the dog and we are the tail -
whether we realize it or not," said Bill Lapp, president of Advance
Economic Solutions in Omaha, Neb. "During the past crop year, their
monthly imports of about 7 million tonnes are the equivalent of what
Indiana produces. So in a given month, they are taking the entire
crop of the state of Indiana."
Because Chinese demand remains so vital to the U.S. soybean
market, two particular fundamentals need to be considered, the
analysts said. One is the impact on imports during a time of slower
economic growth in China. Another is whether the new Trump administration will make good on the campaign promise to renegotiate
trade agreements that could affect U.S. dealings with export partners
across the world, including Asia, although there is no trade deal with
China involving soybeans.
There has been much talk that China's stellar growth of recent years
is slowing, but it is hard to know by exactly how much. The question
is whether slower economic gains will translate to a slower pace of
soybean purchases. China made the decision some years ago not to attempt to be self-sufficient in soybean production but to rely on imports
for the lion's share of the basic commodity central to the diets of their
population and as protein for animal feed, the analysts said.
"China is very good at keeping everything they do quiet," Mr. Setzer said.
He said Chinese commodity funds recently have had their credit
tightened by the government, which may mean the Chinese government is shorter on funds slated for speculative investments.
Mr. Lapp said he believes China will make sure enough soybeans and
soybean meal will be available, even if economic growth takes a hit.
"I would say one of the last things the Chinese want to do internally is make some sort of shortage or higher cost of feeding their

26 / November 22, 2016 XMilling & Baking News

people," he said. "The greater risk would be a self-inflicted wound,
where we would put up some impediment to trade with them."
That is a legitimate fear in the market, given President-elect
Trump's pledge to renegotiate trade agreements, said Mr. Setzer.
"We'll be keeping a close eye on this," he said, noting that any
changes in regulations affecting China's ability to import U.S. soybeans may have a negative effect on U.S. export demand. He said,
though, that he believes the person appointed as the new Secretary
of Agriculture will be important in setting the agenda on trade of
agricultural commodities, and that person might be more inclined to
free trade than campaign rhetoric may have indicated.
Another wrinkle is the fact that China has put anti-dumping duties on
U.S. supplies of distillers' dried grains with solubles (D.D.G.s), which have
significantly reduced U.S. export sales of the animal feed ingredient.
"Domestic (soybean) meal use has got the potential to grow, but it
will initially have to face the challenge of more D.D.G.s being marketed
in the United States rather than overseas," Mr. Lapp said.
Meanwhile, the United States' largest soybean export competitors
- Brazil and Argentina - are experiencing a near-perfect beginning to their new crop year.
"They have had phenomenal weather so far," Mr. Setzer said. "It's
been a little bit dry, and that's good." He said the outlook for the
crop is "the best it has been in a few years," which could put some
downward pressure on U.S. soybean futures in coming months.
Still, despite a cluster of unknowns, the outlook for the soybean
market in the United States is a picture of bountiful supplies and remarkably good demand, with analysts predicting prices will likely stay
in the current trading range until the South American crop is harvested.
The fact 2016 U.S. production was estimated record high at 4,361 million bus has meant soybean values have moved significantly down
from pre-harvest highs, but at the same time they have been able to
keep from swooning under the weight of available supplies.
"We'll watch changes in the value of the dollar, but it would appear to me that this is maybe the second or third year where we have
had a good bid in the market for soybeans and soybean meal, and
that is supporting prices," Mr. Lapp said. He said he sees soybean
futures holding above $9.50 a bu and soybean meal staying at $300
a ton or higher for an extended period.
Before the South American harvest gets under way in the spring of

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Milling & Baking News - November 22, 2016

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