Grain report
By Dr. Robert Wisner

Corn
Watch for USDA’s March 31 planting intentions report for additional indications of market potential this spring and summer. At press time, USDA was projecting slightly smaller South American corn and soybean crops than last spring. If final estimates of these crops are near current projections, the bean market will need to encourage U.S. farmers to shift a substantial amount of cropland from corn to soybeans. That, plus the continued expansion in corn processing for ethanol, are likely to tighten the corn market substantially starting in late fall or early winter of this year.

If acreages come out as currently anticipated, there will be a good chance for further upside potential in prices in the next couple of months, along with a lot of volatility in the markets.

Last year, the U.S. corn crop rose by 24 percent from 2006. Of the 24 percent, 20 was due to increased acreage. The increased corn acreage came from very sharp reductions in plantings of soybeans, cotton and spring wheat. Even with the substantially higher 2007 corn crop, only a small increase in Aug. 31, 2008 U.S. corn carryover stocks is indicated. Last year’s big crop has provided adequate supplies to meet this season’s demand, but the market’s challenge is to see that no more than 3 to 4 million corn acres shift over to other crops this spring. Even with a 3- to 4-million acre decline in corn plantings, the ethanol expansion and the new energy bill’s mandated production levels will likely keep supplies tight next season unless weather is exceptionally favorable.

With these prospects, a case can be made for gradually moving enough corn into the market to cover cash-flow needs, and then going slow on further sales until we have a better reading on crop conditions and prospects. If this issue arrives in your mail before the crop insurance sign-up deadline, be sure to consider harvest-price revenue insurance. n

Beans
Old-crop soybean supplies are likely to be very tight this summer because of the 16 percent shift of bean acres into corn last spring, along with mediocre crop prospects in South America and very strong Chinese demand. Look for a very volatile, weather-sensitive soybean market from now through summer. Further price strength is a good possibility, but the markets are in uncharted territory with no historical benchmarks to use for guidance.

China’s demand is being stimulated by very high food price inflation and its government’s desire to import enough meal and oil to stem further food price increases. The December 2007 Energy Bill did not include a mandated level of biodiesel production for 2008. However, for 2009, it mandates production of half a billion gallons, with further increases required in the next few years. The 2009 mandate equals almost a fifth of total U.S. domestic soybean oil use. Food and industrial demand for soybean oil is highly inelastic. In other words, it takes a large increase in price to bring a small reduction in use. A sizeable part of the biodiesel production will come from soybean oil, although other feedstocks will include recycled cooking oil, animal and poultry fats as well as cottonseed, sunflower and canola oils. Even so, look for much stronger soybean oil prices than in the past. Tightness in supplies of corn, hay and other feed ingredients will help support soybean meal prices at the same time.

Looking ahead over the next few years, high prices will encourage more land clearing in South America, as well as shifting of some pasture land there to soybeans. Strong markets for vegetable oils also will provide substantial incentive for ethanol processors to invest in new technology for separating corn oil from distillers grain for use in biodiesel. n

Wheat
Prices for both hard and soft wheat will be exceptionally sensitive to weather this spring and early summer. With favorable prospects here and abroad, we would expect at least modest downside potential in wheat prices at harvest time. However, tight feed grain and soybean supplies and competition for cropland next fall and in 2009 should prevent a major collapse in prices.

World wheat stocks as a percentage of annual use are at the lowest in recorded history. Early reports indicate the wheat crop in Europe has the potential for a substantial increase from last year along with modestly increased crop prospects in the former Soviet republics. It’s too early to get a good reading on prospects for 2008 wheat in India, China, Canada, Australia and Argentina, but their production also will be very important influences on wheat prices. Record high planting-time prices for hard spring wheat will encourage increased plantings in the Dakotas, Montana and Canada. Australia’s crop typically is planted in our late spring and early summer, and is harvested in November. Extreme drought there for the past 2 years has been a major factor behind the very tight world supplies, along with weather problems in the U.S. central and southern Great Plains.

Foreign weather problems have created strong export demand for U.S. wheat. At press time, season-to-date sales of all wheat were an incredible 68 percent above a year earlier with export shipments were up 59 percent. Export sales of soft red wheat were 90 percent larger than a year earlier, and hard red winter wheat sales were up an incredible 140 percent. Since the late 1800s, U.S. wheat exports have shown a saw-tooth pattern on the charts, with strong exports followed by a sharp decline as foreign crops recovered from weather problems. It would not be surprising to see such a pattern for U.S. wheat in the next year or two.

Click here to respond to this article

Top of page