Grain report
By Dr. Robert Wisner

Corn
Watch for the Oct. 12 USDA crop report for an updated indication of this year’s corn supplies. The October report should give a good reading on impacts from ear and kernel sizes. In the previous two reports, corn in a number of areas was not mature enough to provide good measurements of these key variables.

Barring a major and unexpected reduction in the U.S. average corn yield, the crop will be record large. The big crop will stress grain receiving, handling, drying, storage and transportation facilities, with the amount of stress varying from area to area depending on local conditions. Pressure on the marketing system appears likely to lead to weakness in the basis (futures-to-local cash price spreads), especially in the last third of the harvest.

If you have farm storage available, watch forward pricing opportunities for late spring and early summer delivery. The market is likely to offer profitable opportunities to lock in larger-than-normal storage returns. For those with significant risk-bearing ability, returns for unpriced storage is likely to be larger than normal but more volatile than those from forward pricing.

After harvest, corn prices will take direction from export sales and indications of how ethanol prices are holding up given sharply increased production. Some expect winter and spring ethanol prices to be under considerable pressure as increased production faces limited ethanol blending capacity. Weakness in ethanol prices would reduce the maximum price that processing plants can pay for corn to be processed into ethanol.

New-crop corn export sales so far have been the strongest since 1995. Big export sales that year along with U.S. and foreign crop problems led to corn prices in the western Corn Belt above $5 per bushel for nearly 6 months. As we went to press, cumulative new-crop sales were 60 percent above last year.

Beans
Prices in the next weeks will take direction from U.S. harvesting progress, reports on South American planting progress, new-crop export sales and the October crop report. A U.S. soybean yield of 41.5 bushels per acre or higher would point to adequate but tighter soybean supplies for the year ahead.

Early indications are that a 41.5 bushel-per-acre yield would set the stage for carryover stocks to drop to around a 3.5- to 4-week supply by the end of August next year. Stocks at that level would provide the needed old-crop soybeans to carry the industry through until harvest is in full swing in 2008. However, they would leave almost no reserve supplies to offset possible weather problems.

To prevent extreme tightness in soybean supplies, a moderate increase in U.S. and/or South American plantings for harvest next year almost certainly will be needed. Soybean price strength after harvest should be supported by the need for more soybean acres in 2008. Brazil’s currency, the real, has been strong against the U.S. dollar. That means higher soybean prices in dollars per bushel will be required to interest Brazilian farmers in planting more beans.

Prospects for stress on grain receiving and storage facilities likely will prevent the soybean basis from improving significantly from its extremely depressed summer level this fall. But with the basis being a dollar or more per bushel under near-by futures prices in some areas as we went to press, it is difficult to believe the basis could be much more depressed than in recent weeks. Early indicators point to significantly stronger soybeans during the late-winter to late-June 2008 time period as supplies tighten. That and higher prices for next summer’s futures contracts than for nearby delivery may create profitable forward pricing opportunities this fall.

Wheat
Prices for hard and soft wheat will be unusually sensitive to fall planting progress, final crop estimates for the United States, Canadian, and former Soviet Union spring wheat crops as well as reports on crop conditions in Argentina and Australia. Serious U.S. planting delays, would bring additional strength in wheat prices into late October or early November.

World wheat stocks as a percent of consumption are at historically very low levels, leaving little reserve stocks to offset any widespread U.S. or foreign weather problems. The low stocks reflect severe crop problems in
Australia last season that reduced production by about 58 percent from the previous year. They also reflect reduced 2006 production in the EU, former Soviet republics and other areas. Early indications are that Australia’s November/December wheat harvest will be up sharply from last year. However, further declines in production are indicated this year in North Africa and former Soviet republics.

In the southern U.S. Great Plains, favorable soil moisture supplies for wheat planting are expected this fall. Historically high wheat prices should encourage increased plantings in that region. While moisture supplies were more variable in areas such as Nebraska and South Dakota as we went to press, strong wheat prices also should encourage increased plantings in those states. Planted acreage of soft wheat in the eastern Corn Belt and South will depend on how quickly the soybean harvest is completed. With an early completion of the bean harvest, double cropping of wheat and soybeans next year will be attractive in areas where that combination is feasible.

Wheat export sales remain strong. As we went to press, total export sales of U.S. hard red winter wheat were a whopping 167 percent above the same date a year earlier—despite the high prices. Soft red winter wheat export sales were up 151 percent.

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