Grain Report
By Dr. Robert Wisner

Corn
Prices will be potentially very sensitive to USDA’s Sept. 12 Crop Report. A U.S. corn forecast of 150 bushels per acre or higher would point to possible harvest-time December futures in the low $3 per bushel range, and perhaps slightly below that at times. It would also point to substantial pressure on grain receiving, handling, drying and storage
facilities during the harvest and a weakening basis (difference between cash and the futures prices). As we went to press, a number of Chicago traders and analysts were talking of a 153 to 157 bushels per acre U.S. yield. That looks a bit optimistic, considering this year’s unusually late planting season, large increases in acreage in low-yielding areas of the Northern Plains and South and more back-to-back corn acres in the Midwest.

The USDA Sept. 29 Grain Stocks Report also will be more important to the corn market than in the past. The stocks reports allow analysts to get a reading on domestic corn feeding four times a year. This report will indicate how much was fed in the June to August quarter. Be prepared for news of summer corn feeding to be modestly below a year earlier. Indicated spring quarter corn feeding was down 12 percent or 154 million bushels from a year earlier, despite larger livestock numbers. Part of the decline reflected substitution of distillers grain for corn. Weather and its impact on feedlot conditions as well as livestock marketing weights also influence feeding.

Corn export shipments have been slowing in the last 3 months, but should pick up about mid way in the harvest season. New-crop corn export sales as we went to press were the largest since the mid-1990s. The accumulated total for 07-08 delivery was 145 percent above a year earlier and only 12 percent below 1995, the year that set the stage for $5 cash corn prices for nearly 6 months in the western Corn Belt.

Beans
Like corn, soybean prices will be potentially very sensitive to USDA’s Sept. 12 Crop Report.

A U.S. soybean yield of less than 41.5 bushels per acre would point to the potential for substantial tightness in bean supplies by late summer 2008 and the need for beans to attract back a significant part of the 16 percent drop in plantings that occurred this year. Even with a 42.5 to 43 bushel yield, it appears that the soybean market will try hard to attract back some U.S. acreage next spring or to encourage a sizeable increase in South American acreage. This combination appears to be setting the stage for tightening of the soybean basis in 2008 from its extremely depressed level this year.

The basis this summer in parts of the western Midwest has been almost $1 per bushel under nearby futures. Basis pressure reflects the 10- to 11-week supply in old-crop carryover stocks late this summer. But it also reflects some serious problems with the delivery mechanism in the futures market. Along with a tightening basis, the soybean market likely will show a sizeable “carry” in the futures market for at least a while. The “carry” is the spread between nearby and distant futures. Along with basis improvement, it reflects a return for carrying the beans or grain over until later in the marketing year. An improving basis and a large “carry” may provide better than average returns for storing beans after harvest—if you have storage space on the farm and forward price for spring or summer delivery.

With large livestock numbers, domestic meal demand should be strong in the year ahead, but tempered some by competition from distillers grain. Export demand for beans and meal will depend on South American yields and whether bean prices are able to attract more acreage in Brazil. At press time, trade sources there believed that would require futures near $9 because of its strong currency.

Wheat
Prospects for storage returns into late November continue to be more uncertain than usual because of recent high wheat prices. As we went to press, wheat futures at all three major markets were at historically high levels of over $6 per bushel. In an unusual situation, Chicago prices were above Kansas City. The potential for further strength in prices this fall appears to hinge on one or more of the following: 1) weather problems that prevent a strong start to the U.S. winter wheat crop this fall; 2) worsening crop prospects for Australian and Argentine wheat to be harvested in late fall and early winter; 3) lower yields than expected in spring wheat areas of the United States, Canada and former Soviet republics; or 4) a poor start to fall-seeded wheat in Europe and former Soviet republics.

World wheat stocks are at historically low levels and the market would be unusually sensitive to one or more of the above conditions, if it should occur. However, keep in mind that about 17 to 18 percent of the global wheat crop is fed. That’s approximately 3.9 billion bushels that are estimated to be used for feed. High prices will cut into feed use and will shift some of that demand to U.S. corn exports as well as foreign corn, grain sorghum and barley. Food demand is less price sensitive.

The higher price for soft wheat on the Chicago futures market than at Kansas City reflects very strong export sales for soft red wheat so far this marketing year. As we went to press, season-to-date soft red winter wheat export sales were up by a whopping 142 percent from a year earlier. Hard red winter wheat sales were up by a very impressive 75 percent, but the increase didn’t match that of soft red wheat. Sales of hard red spring wheat (priced in the Minneapolis market) were down 6 percent from a year earlier.

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