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GRAIN REPORT
By Dr. Robert Wisner
CORN
Look for modest strength in prices into midwinter, with additional strength likely from March through May. Early indicators suggest that both on-farm and off-farm storage into the spring planting season may be profitable. The best returns are likely in areas near ethanol plants and river terminals. The corn market will be responsive to USDA’s mid-January final crop estimates and grain stocks reports as well as crop condition reports from Argentina, Brazil and South Africa. These countries had weather problems that sharply reduced last spring’s crops.
Rapid expansion of the ethanol processing industry is a major driving force behind our expectations for higher corn prices this winter and next spring. At this writing, the Renewable Fuels Association shows that ethanol plants under construction have a combined processing capacity of about a billion bushels of corn.
Other industry sources show an additional 300 million bushels of capacity under construction not reported by the Renewable Fuels Association. The ethanol industry usually plans on around 12 months to build an ethanol plant, from start to finish. These numbers and a 700 to 800 million bushel gap between this year’s corn production and potential use indicate a lot more corn acres will be needed in 2007.
To get the extra acres, 2006 and 2007-crop corn prices will need to strengthen this winter and early spring. As many as 7 to 8 million more corn acres may be needed. That’s a 9 to 10 percent increase from last year’s plantings. Much of the increased corn acreage likely will need to come from soybeans. If corn plantings don’t increase substantially, look for a very strong corn market during and after the 2007 harvest.
Along with strong ethanol processor demand for corn, domestic livestock feeding and export demand have been quite good this fall.
BEANS
Cash soybean prices and the basis (spread between cash and futures prices) appear likely to begin a gradual uptrend into mid-winter, probably starting in late October or early November. Price strength will reflect 1) limited farmer selling; 2) processor efforts to increase their soy product production and inventories for winter demand; 3) the usual uncertainties about South American crop yield potential and the expectation that Brazilian farmers will reduce acreage this year; and 4) an upward pull on soybean prices as the corn market attempts to encourage more corn acres to be planted next year.
Projected soybean carryover stocks for late summer 2007 are large, but early signs point to a sharp reduction in stocks the following year through impacts of biofuels on both corn and soybeans.
Brazilian soybean growers have been facing a severe cost-price squeeze for the past 2 years, and there is no sign of major relief this fall. The pressures are coming from currency exchange rate problems, high interest rates and the high cost of controlling Asian soybean rust. Newer production areas have the greatest problem because of weather conditions that are ideal for Asian rust.
Nation-wide, Brazil’s soybean plantings appear likely to decline by 6 to 8 percent this year. That’s a slightly larger decline than last season. Profitable alternative crops are limited in much of the country, although in some regions farmers are shifting from soybeans to sugar cane.
A 7 percent decline in Brazilian production would add about 140 million bushels to U.S. soybean export potential for the year ahead. Part but not all of that decline is already in USDA export projections.
Reduced Brazilian supplies will be partially offset by increased U.S. production of distillers grain from ethanol plants.
WHEAT
Look for increased volatility in both hard and soft red winter wheat prices into late winter and early spring as the market responds to a 20 percent drop in production from last year in Australia’s November/December harvest and uncertain prospects for winter wheat in the U.S., Europe, and former Soviet republics. At least brief periods of higher prices appear likely as the market responds to these conditions and low U.S. and world carryover stocks. Up-side potential will be tempered some by good soil moisture conditions on this year’s U.S. hard red wheat plantings.
Because of tighter supplies, hard red wheat prices may have more upside potential than soft red wheat. Also, despite a wide basis at harvest and disappointing cash prices, reports from the eastern Corn Belt suggest soft red wheat plantings may have increased again this fall. In the international picture, India is projected to be a large importer of wheat this season—the first time since 1999.
Early indications are that India’s wheat imports, at a projected 220 million bushels, will be the largest since 1975-76. India was a large importer of wheat at times during the 1960s and 1970s because of adverse weather. In recent years, it has imported very little wheat.
Despite weather problems in some areas, Argentina, the EU, and former Soviet republics are projected to maintain exports near last season’s level by reducing carryover stocks.
Early reports indicate U.S. hard red winter wheat plantings were up modestly this fall. The largest production area for this class of wheat is from Texas to South Dakota, and includes eastern Colorado. With good early fall rains, wheat producers in this area hope to recover from last season’s severe drought. The drought also sharply reduced hay and pasture supplies in the region.
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