Grain report
By Dr. Robert Wisner

Corn
As you focus on field work, keep a close watch on the markets. We expect at least two or three periods of price strength between now and early summer as the grain trade looks for indicators of summer weather and yield prospects. The best pricing opportunities should be at processing plants and feed mills, if you have either nearby. If you’ve sold corn on contract but haven’t locked in the basis, look for opportunities to do so in the next few weeks.

Consider setting four or five specific price goals for old and new-crop, each modestly higher than the previous one. Plan to use these for a series of offer contracts. If you forward contract, also consider buying out-of-the-money call options to retain upside price potential. With serious weather concerns, the corn market could be explosive. An alternative to forward contracting would be to buy put options to set a floor on prices but leave the upside open.

Processing demand should be very strong for the next 16 months and probably longer. Ethanol plants under construction have enough capacity to more than double the industry’s ethanol production. Most of this new capacity will be operational in 18 months or sooner. Many more plants are almost ready to break ground. Unless domestic corn feeding and exports drop sharply, very favorable weather will be needed to produce enough corn to meet demand. For the last 2 years, U.S. production has fallen short of market demand, despite the second-highest yields on record.

Early indicators point to modestly lower U.S. corn exports in 2007-08, after very strong export demand this season. Corn crop estimates for Brazil, Argentina, and South Africa are moderately above the spring 2006 weather-reduced levels. Their production will start moving into world markets in late May and will compete with U.S. corn into at least late fall.

Beans
As with corn, consider offer contracts and purchases of out-of-the-money call options after sales as part of your marketing strategy to retain upward price potential. The sharp decline in this year’s prospective plantings will make soybean prices sensitive to weather from now through August.

Old-crop soybean carryover stocks are expected to be about 9.5 to 10 weeks supply at the end of August. That’s in sharp contrast to corn carryover stocks, which are expected to be at minimum pipeline levels. But bean stocks likely will decline moderately in 2008, even with good weather.

For the first half of the marketing year, soybean exports and sales were sharply above last season’s depressed level. In late 2005 and the first half of 2006, exports were held back by bird flu that caused poultry flock reductions in China and other parts of southeast Asia.

Reports from South America at press time indicated crop conditions were above average this season and that production will be 4.5 to 5 percent above a year earlier. Brazilian farmers likely will be slow in selling newly harvested soybeans—as they were last year. But the volume should be up significantly from the low levels of the last 3 months and almost certainly will reduce spring and summer U.S. exports. Slow sales from South America will stretch out Brazilian and Argentine competition into late fall or early winter.

Expanding demand for biodiesel also will increase the weather sensitivity of soybean prices this summer. New biodiesel plants are being built about as rapidly as in the ethanol industry. In addition, the European Union has moved aggressively into biodiesel to reduce greenhouse gas emissions. The EU has many more diesel cars than the United States, and its demand for biofuel is tightening world vegetable oil supplies.

Wheat
Look for hard and soft red winter wheat prices to trend irregularly downward into late June as the market reflects harvest progress in the Southern Plains and southern Midwest. Expectations for improved crops in India, parts of Europe and former Soviet republics are expected to ease tightness in world supplies. Another factor is anticipation that Australia won’t have a repeat of last year’s severe drought that produced less than half a crop. A disappointing export season that cut U.S. old-crop hard red winter wheat exports by about 39 percent from a year earlier in the first 9 months of the marketing year also has been negative. However, the downside in wheat prices will be tempered by strong corn prices. At press time, feedlots in the southern Plains were planning to include sizeable amounts of new-crop wheat in their cattle rations.

Soft wheat prices will follow trends in the hard red winter market, but upside potential in cash prices between now and the end of harvest may again be tempered by a weak basis. Last summer’s soft wheat prices were sharply below Chicago futures for an extended period.

Cumulative soft red wheat export sales for the first two-thirds of the marketing year were up about 70 percent from the very disappointing level of a year earlier. When wheat prices move up sharply, foreign users tend to shift to lower priced soft wheat. But as hard red wheat supplies increase, some buyers may reduce their new-crop soft red purchases. The big gains in U.S. soft red wheat exports this season have been in Egypt, Mexico and some other parts of Latin America. Losers in the U.S. hard red winter wheat were sales to Iraq, Egypt, Nigeria, Mexico and some other parts of Latin America. China had purchased no U.S. hard red winter wheat and only a small amount of soft red winter wheat at press time.

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