Grain report
By Dr. Robert Wisner

Corn
Plan to boost 2007 corn sales on rallies in the next few weeks by enough to at least cover late-winter and spring cash flow needs. Also consider conservative sales of 2008 corn you’ll need to move at harvest. Keep in mind cash-flow needs, your crop insurance plans, yield potential, storage and weather.

Key influences on the market in late winter and spring will include 1) updated mandates on ethanol and biodiesel production from the energy bill; 2) South American corn and soybean production prospects; 3) the late-March USDA planting intentions report. At press time, Congress had just agreed on the energy bill, but not all of the details were available yet.

About 3.2 to 3.3 billion bushels of corn should be needed for next year’s mandate. South American weather through March will be more important than usual to the corn market. U.S. corn and beans are in a battle for acreage this spring, and how much acreage is available for corn will depend heavily on soybean yields in Brazil and Argentina.

Yield potential for corn and beans in both countries at this writing is being tempered by less than ideal conditions including delayed planting of part of the crops and some areas with excessive moisture. Other areas were too dry, and a late-spring frost damaged some Argentine crops. As this was written, it looked best to plan on yields at least slightly below average for both Brazil and Argentina.

With South American yields slightly below long-run trends, we would see a need for 5 to 6 million more U.S. soybean acres in 2008 to avoid exceptionally tight world supplies. With increased wheat acreage and last year’s 29 percent reduction in cotton plantings, the increase in soybean plantings will have to come mainly from corn. How high bean prices will have to be to shift that many acres out of corn is the question the market is attempting to answer.

Beans
Plan to boost sales in late January and the first 3 weeks of February to cover late-winter and spring cash flow needs. Keep in mind that for most crop producers, income taxes are likely to be significantly higher than in recent years. Also consider conservative sales of 2008 soybeans, especially for beans you’ll need to move at harvest and to cover fall cash flow needs. In today’s volatile markets, scale-up sales using offer contracts can be helpful.

With offer contracts, you designate your price goals and instruct the elevator to sell specific quantities if/when those prices are reached. Offer contracts also can be used to indicate the basis levels you would be willing to sell some grain at. While these contracts obviously can’t guarantee you’ll hit the market high, they can help make sales at profitable prices if you are realistic on your price goals.

Although some rationing of demand is beginning to show up with high bean prices, the soybean market should be relatively firm until late winter or early spring, as the late March USDA intended plantings report approaches. Key influences on prices will be 1) mid-to-late February South American crop prospects; 2) weekly export sales and inspections; 3) several private planting intentions reports that will be released ahead of the USDA intentions survey. Domestic crushings should hold up well until new-crop South American supplies are available in large quantities, usually in mid-to-late April. High prices for hay, corn and competing protein ingredients are expected to support meal prices.

Biodiesel returns will depend on details of the Energy Bill, which were not totally available at press time. Returns for the industry have been depressed due to high soy oil prices, as the market reacts to strong food demand and the aggressive biodiesel industry in Europe that has cut substantially into competing rapeseed and palm oil supplies.

Wheat
Prices for both hard and soft wheat will be potentially very volatile in March and April as the world wheat trade focuses on crop prospects in former Soviet republics, Europe, the U.S. and China. World stocks as a percent of annual use are the lowest since at least the 1970s. Any serious crop problems in one or more of these areas would offer the potential for further tightening of supplies. Market impacts would be amplified by the U.S. Energy Bill, which will encourage more cropland to be shifted to feed grains in the next dozen years. Export demand for hard and soft red winter wheat has been exceptionally strong so far this season because of foreign weather problems, and demand rationing with high prices has been quite modest so far. At press time, U.S. wheat export shipments since last June 1 were 66 percent higher than a year earlier.

The market has been counting on better yield prospects for 2008 and increased acreage to provide relief from extremely tight global supplies—starting in late May. In the U.S., as well as parts of Europe and former Soviet republics, dry weather in some sections of the Wheat Belts has caused less than ideal conditions as winter wheat went into dormancy. That will make a portion of these crops more vulnerable than usual to winter kill. With favorable weather, the extra acreage would be a strong caution for prices from May onward.

Cumulative soft red wheat exports from June 1, 2007 through early December were up by an impressive 107 percent from a year earlier. Almost all major export markets showed large increases. Cumulative hard red wheat exports for the same period were up a whopping 177 percent. Big gains included large shipments to Iraq and North Africa. China was a sizeable buyer of U.S. wheat about 3 years ago, but had bought almost no U.S. wheat this season as we went to press.

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