March Grain Report

Grain report
By Dr. Robert Wisner

Corn
Plan to use a scale-up approach for 2006-crop corn, increasing your sales in an up-trending market and holding off sales when prices drop. On strong rallies between now and early May, consider stepping up sales of corn stored in town more than farm-stored inventories because of higher out-of-pocket storage costs. For farm-stored corn, check bids for June through August delivery. As we went to press, bids for July delivery were strong enough to lock in modest storage profits. Also, watch the basis carefully. If you are close to processors, feed mills or river terminals, your basis could get quite strong at times. With USDA’s downward-revised season final crop estimate, Aug. 31 stocks appear likely to drop to about a 3- to 3.5-week supply. That means some users could be scrambling for supplies in late summer and early fall, before harvest is in full swing in the Corn Belt.

The final crop revisions indicate last year’s U.S. corn crop was about 1.3 to 1.4 billion bushels below market demand, even with the second-highest yield on record. In 2005, the crop was about 200 million bushels below demand. In the 2007-08 marketing year that starts Sept. 1, corn processing for ethanol is likely to be at least a billion bushels larger than this season. With over 2.1 billion bushels of corn processing capacity currently under construction, a larger increase is possible.

With carryover stocks headed toward bare minimum levels by late summer, 2007 corn production will need to be large enough to fill this season’s production-use gap and supply another sharp increase in corn processing next season. U.S. corn plantings likely will need to be up at least 12 to 15 percent to meet the demand for ethanol, other processed corn products, food, feed and exports. The corn market at times may move higher than needed to insure adequate acreage.

Beans
Plan to increase soybean marketings during periods of rising prices this spring, giving first priority to elevator-stored beans. Also look for a stronger old-crop basis in May, June and early July if you’ve sold but left the basis open. Go slow on new-crop sales unless you can get well over $7 per bushel for harvest delivery. If you need soybean meal for livestock feeding, boost coverage on modest breaks in the market.

Even though U.S. soybean carryover stocks at the end of August appear likely to be equivalent to 2.5 months supply, prospects for a sharp increase in corn acres will probably push old and new-crop soybean prices irregularly higher into the planting season. Most of the increase in corn acres needed to supply ethanol plants will have to come from soybeans.

That sets the stage for at least moderately tighter soybean supplies next season, with gradually tightening supplies likely during the next several years. Winter wheat plantings last fall were about 4 million acres larger than a year earlier. Part of the increase came out of soybeans.

With adequate soil moisture, part of the increased wheat acreage will be double-cropped with soybeans. But double crop yields are likely to be below the national average.

Soybean export sales through mid-winter were up about 33 percent from the low level of a year earlier. Last season, exports were held back by major concerns about bird flu and partial liquidation of flocks in China. While this season’s sales look very impressive when compared to last year, they have been running slightly below the 5-year seasonal pattern. Whether the gains from a year ago can hold for the rest of the marketing year will depend heavily on the size of the South American soybean crop. Reports from Brazil and Argentina through mid-winter indicated yield prospects were the best in several years.

Wheat
Watch for short-term periods of strength in the wheat market to boost sales of old-crop wheat and the new-crop that you will need to move at harvest. In the next few weeks, prices will be potentially sensitive to any indications of winter-kill losses in the Great Plains as well in former Soviet republics.

Down-side risk in prices into late May through early July comes from indications that production in a number of countries will be well above last year. Look for significantly larger wheat crops in India, the EU, former Soviet republics and the United States. Next fall, the odds favor a substantial recovery in Australia’s crop prospects when compared with their extreme drought of 2006.

High prices last fall encouraged U.S. hard red winter wheat growers to increase plantings by an estimated 9 percent from last year. With better weather, harvested acreage could be up more sharply. Last year’s percent of the crop harvested for grain was unusually low, especially in drought-stricken Texas, Oklahoma and parts of neighboring states. USDA reports that soft red winter wheat plantings this season are 13 percent larger than a year ago. Much of that increase is in the mid-South. It will be harvested in June, in time to replant to soybeans if soil moisture is available.

U.S. wheat exports have been quite disappointing this season, especially for hard wheat. Cumulative export sales of hard red winter wheat as we went to press were 46 percent below a year earlier. Export sales of hard red spring, a high-protein bread wheat that can compete with hard red winter varieties, were down 16 percent. With more than three quarters of the marketing year behind us, chances of sales catching up with a year earlier are slim. In contrast, cumulative export sales of soft red winter wheat were up 60 percent from a year earlier.

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