Markets

Dr. Robert Wisner is an agricultural economist at Iowa State University.

Glenn Grimes is a MU professor emeritus and long-time market analyst.

Grain volatility continues to rule
All eyes on weather in U.S. grain belt

Projections may dampen wheat market by Dr. Robert Wisner Because of record tightness in global supplies, prices for both hard and soft wheat will be extremely sensitive to weather and crop conditions across the Northern Hemisphere in the next few weeks. Plan to use rallies to boost sales of old-crop wheat and new-crop that you will need to move at harvest. With any serious weather problems in the U.S. Great Plains, Europe, former Soviet republics, and/or China, prices for hard wheat likely would react more strongly than those for soft wheat. Export demand for both types of wheat have been excellent, but hard red winter wheat (HRW) exports to date sharply exceed those for soft red wheat (SRW). At press time, cumulative exports of HRW since last June 1 were 121 percent larger than in the same period last year. SRW exports were up 68 percent. The strong export demand reflects extreme drought in Australia for the past two years, along with crop problems in Europe, former Soviet republics, Canada, and other areas last year. Early indicators point to significantly increased foreign wheat planted acreage and somewhat improved Northern Hemisphere weather. Australia’s crop is planted in early summer and harvested in November and early December, so it is too early to get a reading on its crop prospects. Some parts of the country are starting to see an easing of drought conditions. With good soil moisture, the high prices would be expected to encourage increased acreage. If current projections materialize, look for a moderate decline in wheat prices from mid-May into July. But until U.S. and foreign crop prospects are more definite, prices will remain quite volatile. Early reports point to a moderate increase in U.S. spring wheat plantings. Final planted acreage will depend on corn and soybean prices, as well as weather conditions. In the last several years, corn and soybeans have replaced a substantial amount of spring wheat in the Dakotas and northwest Minnesota.

Corn
by Dr. Robert Wisner

Keep an eye on the markets during the spring fieldwork season. Old and new-crop prices will be very sensitive to any widespread planting delays or shortages of nitrogen fertilizer and may offer good opportunities to boost sales if you can do so without interrupting fieldwork. Watch for basis strength at feed mills, ethanol plants and river terminals. All three sources of demand are exceptionally strong this spring, and users may bid up local prices and the basis significantly for short periods if they run low on supplies.

Also keep in mind that a shift of at least 3 to 4 million acres from corn to soybeans appears to be needed to meet rapidly growing world soybean demand. Our contacts with farmers over a large part of the western Corn Belt and northern Plains suggest price relationships may not yet offer a large enough incentive for a shift in rotations. That, along with nervousness about weather and crop progress, would add upside potential for new-crop price strength as corn, beans, wheat and other crops battle for acreage.

At press time (half-way through the marketing year), season-to-date U.S. corn export shipments were up 15 percent from a year earlier. However, total 2007-crop sales were up 30 percent due to aggressive purchases that have not yet been shipped out. Purchases by most major foreign buyers were up sharply, with the exception of Japan—where purchases were up 3 percent. Huge wheat shipments likely have stressed shipping capacity and restricted corn export movement. If so, some acceleration in corn export shipments relative to a year earlier may occur this summer as new-crop foreign wheat supplies become available and slow U.S. wheat exports. USDA projects a 15 percent increase in U.S. corn exports for the current marketing year. That could prove to be slightly conservative. If so, carryover stocks would probably be lower than the 5.8 weeks supply recently projected.

In a recent visit to Japan, virtually all major feed manufacturers and corn processors expressed concern about the availability of U.S. corn for future years. If the Corn Belt should experience widespread drought, Japanese buyers almost certainly would aggressively line up 2008 and 2009 supplies.


Soybeans
by Dr. Robert Wisner

Soybean prices will almost certainly be very volatile from now through June and perhaps for most of the next year. The 16 percent reduction in bean plantings last year coupled with strong domestic and export demand is cutting expected Aug. 31 carryover stocks to just over a 2.5-week supply. That’s down from almost a 10-week supply a year earlier.

Export sales, shipments, and crushings continue to reinforce prospects for very tight soybean supplies through at least the end of summer, and quite possibly for the next year. U.S. export sales at press time were 2 percent above a year earlier, with a big part of the increase accounted for by China. Sales to EU, Japan, Taiwan, Korea, Turkey and a few other countries were slightly less than a year earlier, but were partially offset by increased purchases by other countries.

The December 2007 U.S. energy legislation also will be a positive influence on next season’s soybean demand. The legislation requires 500 million gallons of biodiesel to be produced in 2009. If all of the feedstock were to come from soybeans, that would be equivalent to the oil from about 340 million bushels of soybeans. The mandate increases to 900 million gallons by 2015, thus pointing to the need for more vegetable oil supplies in future years. Increased biodiesel production will intensify the battle among corn, soybeans, wheat, cotton and other crops for acreage in the next several years.

Forecasts call for the South American crop to furnish only about one-fourth of the increased supply needed to meet rapidly growing world demand. U.S. exports that may exceed recent USDA projections. So far, there are indications of only a small increase in U.S soybean plantings this spring. With good yields and no change from last year in U.S. plantings, total use of the U.S. soybean crop in the 2008-09 marketing year starting Sept. 1 would need to be reduced by about 15 percent.

Soybeans and inflation When we wrote this, gold was about to break ground on the $1,000 per ounce club and oil was settling in to a range solidly above $100 per barrel. Likewise, farm commodity prices were flirting with records or had reached them. In heady times like these, it’s never a bad idea to search for perspective. So we asked what today’s prices would look if we adjusted them for inflation using the Consumer Price Index. It’s hardly scientific, but this graph shows (in blue) what the annual average soybean price since 1970 looks like in using the CPI formula for 1970 dollars. The red line is the same data in 2006 dollars. How much did that new truck cost in 1972?

Cattle
by Glenn Grimes

United States beef production for the year 2007 was 1 percent above 2006 but down 2.5 percent from the record high production of 2002.

Cow slaughter for the year 2007 was up 6.4 percent from 2006. The U.S. cow inventory on Jan. 1, 2008, was down 0.3 percent from a year ago and the total cattle herd was down 0.6 percent. The number of beef heifers held for addition to the breeding herd was down 4.5 percent and the number of dairy heifers being held for herd replacements was up 3.4 percent. With the high probability that feed prices will continue to increase substantially during the next several years, the odds are high that the U.S. cow herd will be downsized some in the next few years. The Missouri beef cow herd was down 3.1 percent from 2007.

Our demand index for beef at the U.S. consumer level was up 0.6 percent in 2007 from a year ago. This is good performance for beef considering the supply of pork was at a record high level. Consumer demand for other meats also showed growth in 2007 with pork up 2.6 percent and turkey up 3.3 percent, but demand for broilers was down 1.4 percent. More positive news for the beef industry is that live fed cattle demand was up 3.5 percent from a year earlier. Larger beef exports and population growth are the major reasons for this increase.

Retail beef prices in 2007, in nominal dollars, averaged a record $4.16 per pound, up 4.7 percent from 2006 and 1.6 percent higher than the record set in 2005. However, the monthly average price of choice beef ended 2007 down 4.3 percent from the high of $4.30 per pound set in May.

Cattle feeders and the processor/retailers of beef benefited from the higher retail prices. The processor/retailer margin increased 9.3 percent and the price cattle feeders received for slaughter cattle averaged 7.7 percent higher in 2007 than 2006. But, the packer margin was down 18.4 percent from 12 months earlier.

The price cattle feeders pay for young cattle will be lower in 2008 because of higher feed costs. In January 2008, 400 to 500 lb. steer calves at Oklahoma City were selling for about $6 per cwt. less than a year ago. In early 2008, 700 to 800 lb. yearling steers were about $3 below a year ago at the same market.

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