CORN
Look for corn prices to work irregularly higher into mid-winter as the market focuses on the need for a large increase in corn plantings in 2007 and uncertainty about next year’s weather. If you are storing corn in town, plan to use winter rallies to boost sales. After covering late winter and early spring cash-flow needs, consider holding farm storage into spring unless a strong winter rally takes northern Missouri and southern Iowa prices well above $3.20 per bushel. On a strong rally that carries out to next fall’s bids, consider conservative sales of the 2007 crop at a level that takes into account production risk.

Expanding ethanol demand has quickly become the driving force in the corn market. Corn processing for ethanol in the current Sept. 1, 2006 to Aug. 31, 2007 marketing year is projected to increase 34 percent over last season. As we went to press, another 1.7 billion bushels of corn processing capacity were under construction. Most of those plants should be in operation within 2 years or less. Currently planned plants would take ethanol processing demand to at least 9 billion bushels. That’s equivalent to 83 percent of this year’s U.S. corn crop. The 2006 U.S. corn crop, with the second-highest yield on record at 153.5 bushels per acre, is expected to be about a billion bushels below potential demand.

Corn export demand also has been strong this season. Export sales have been strengthened by weather problems that reduced production in Argentina and South Africa last spring as well as weather-reduced production in Europe and reduced feed wheat supplies.

The billion bushel gap between corn production and use gap this season will be filled by drawing down large carryover stocks that were built up with the record 2004 crop. However, 200 million bushels looks to be the upper end of what can realistically be drawn out of carryover stocks in 2007.


BEANS
Look for cash prices to work irregularly higher into mid-winter and to remain very sensitive to South American crop prospects, longer-term U.S. weather forecasts and the corn market. Consider winter-time market rallies as opportunities to boost sales to cover spring expenses. First priority should be sales of beans stored in town. The driving force in the bean market will be a need for sharply increased corn acres in 2007, many of which will have to come from soybeans.

Soybean export demand has been much stronger than a year earlier this fall and probably will remain strong until at least late January when we have a better reading on South American crops. Strong export demand should support periods of price strength into mid-winter. As we went to press, cumulative export sales were up 41 percent from a year earlier and up 2.6 percent from the same date 2 years ago, but down 12 percent from 3 years earlier. Last year, soybean exports were depressed by foreign buyer concerns about bird flu and possible liquidation of poultry flocks in Asia and other areas.

New biodiesel plants also will be a supporting influence on bean prices this winter and for the next few years. The non-fuel demand for soybean oil is highly inelastic. That means prices tend to rise sharply as supplies tighten and traditional food and industrial users bid for needed supplies. At this writing, at least 20 biodiesel plants are reported to be under construction, with many more in the planning stage. Biodiesel plants likely will increase the volatility of soybean oil and soybean prices. At the same time, increased crushings for oil will boost meal production. The meal will have to compete with expanded supplies of distillers grain from ethanol plants, so look for meal prices to lag behind increases in soybean prices.


WHEAT
Both hard and soft wheat prices will remain unusually sensitive to weather and crop prospects in the Northern Hemisphere this winter. Grain traders will be watching closely include the U.S. hard red winter Wheat Belt from Nebraska and eastern Colorado to Texas, the soft Wheat Belt in the eastern Corn Belt and Missouri, former Soviet republics, Europe and China. Any sign of widespread winter-kill in one or more of these areas could bring temporary strength in cash prices as well as prices for harvest delivery.

World wheat stocks as a percent of annual use are getting close to the level that triggered $7 wheat in 1995-96. Currently reported stocks are lower than at that time. But in the last 5 years, there have been large upward revisions in global wheat stocks—due almost entirely to huge upward revisions in Chinese stocks. Pre-revised stocks for 1995-96 were much lower than presently indicated, and widespread crop problems in a major producing area could take current stocks down to that level. That possibility will probably keep wheat prices volatile this winter. But there are caution signs for harvest-time prices. The strong wheat market this fall appears to have encouraged a sharp increase in winter wheat plantings in the Great Plains from South Dakota to Texas, and probably also in parts of Europe and former Soviet republics. In soft red wheat areas, a wet fall restricted wheat plantings, so soft wheat acres may be fewer than last year.

U.S. soft red wheat export sales have recovered strongly from the depressed level of a year ago. As we went to press, cumulative exports and outstanding unshipped sales since June 1 were 62 percent above a year earlier. That is a sharp contrast to hard red winter and spring export sales. Combined exports and outstanding unshipped sales of these two classes of wheat were down 37 percent from a year earlier.