Grain Report
By Dr. Robert Wisner

Corn
Plan to use rallies this winter to boost sales for late-winter delivery to cover spring cash flow needs. Also plan to boost sales of farm-stored corn for July to August delivery. If you farm near river markets, feed mills or processing plants, the basis at times in late spring and summer may be moderately stronger than reflected in current forward contracts. That prospect provides an incentive for forward sales with the basis left open until later. A case can also be made for conservative sales of 2008 corn with plans to boost sales on rallies this winter.
Corn price movements likely will be driven by export sales and shipments as well as South American weather. If weather is favorable, production in Brazil and Argentina should be up 5 to 8 percent from last spring. Ethanol profit margins have been much weaker than a year earlier for the last several months. Disappointing profit margins are due to the sharp increase in production and limited infrastructure for getting supplies from the Midwest to consumers on the east and west coasts. That’s slowing but not halting the industry’s growth. This year’s 26 percent increase in corn production should provide ample supplies of corn for the slower ethanol growth than expected a few months ago, but strong exports may partially offset weaker processing demand. Corn prices also are being supported by a need for more soybean acres and possibly more cotton next spring after this year’s 29 percent drop in acreage. Record-high wheat prices likely pulled some corn and bean acres into wheat this fall.
Keep in mind two cautions for corn prices for next summer. First is the slowing growth of ethanol, which will psychologically temper corn prices. Second, high wheat prices have shifted foreign feed-wheat demand over to corn. The wheat-related increase in corn export demand may be moderated in late spring and summer.

Beans
Look for prices to work irregularly higher into mid-winter as the market attempts to buy additional soybean acres in South America until the end of December and in the United States this spring. Any extended periods of dry weather in Brazil or Argentina would add substantially to upside potential. If you have beans in farm storage, plan to use rallies as opportunities to increase sales for summer delivery. If you’re storing in town, plan to boost sales for late winter and early spring delivery.
The planting season will be drawing to a close in most areas of Brazil in the next few weeks. Indicators at this writing suggest production may be up 5 to 7 percent from last year, with most of the increase due to larger acreage. Despite high soybean prices (in dollars), the increase is being held back by 1) an exchange-rate disadvantage for Brazilian farmers that has tempered the increase in bean prices in local currency; and 2) high corn prices that make that crop a strong competitor of soybeans in crop rotations. Also, some bean acreage has gone into sugar cane for ethanol plants in the past couple of years. Sugar cane usually is replanted only once every 5 to 7 years.
Indicators point to a 5 to 7 percent increase in soybean plantings in Argentina, but with yields expected to be down at least a little from last spring’s high levels. An increase of this size and the anticipated expansion in Brazil would not be enough to offset the drop in 2007 U.S. production.
Soybean export sales started off strong this fall but have slowed some in recent weeks, with higher prices causing a slight rationing of demand. Even so, exports remain relatively strong. The 16 percent decline in 2007 U.S. soybean acreage and slightly lower yields than last year will create much tighter late spring and summer U.S. soybean supplies than in the last few years, so some rationing of exports and/or crush will be needed this season.

Wheat
Rallies this winter should be viewed as opportunities to boost sales of old-crop wheat and to make conservative sales of the 2008 crop. Export demand for hard and soft red winter wheat have been exceptionally strong so far this season because of foreign weather problems, but some rationing is beginning to occur with high prices.
Prices for both classes of wheat this winter are likely to be sensitive to weather conditions in former Soviet republics, Europe and here at home. The market is counting on better yield prospects for 2008 to provide relief from extremely tight global supplies. If threats of widespread winter-kill develop in one or more of these regions, wheat prices could become explosive again. Early private estimates show a substantial increase in acreage in each of these regions, including the United States. With favorable weather, the extra acreage is a caution for prices from May onward.
Cumulative soft red wheat exports from June 1, 2007 through late October were up by an impressive 136 percent from a year earlier. Almost all major export markets showed large increases. Cumulative hard red wheat exports for the same period were up a whopping 250 percent. Big gains included large shipments to Iraq. Iraq is now the largest U.S. market for hard red winter wheat and the second largest U.S. market for all classes of wheat.
Global wheat carryover stocks are projected to be the lowest percent of annual use since at least the early 1960s. In 8 of the past 10 years, world wheat use has exceeded production and has pulled stocks lower. Much of the decrease in stocks has occurred in China. That raises questions about whether China might become a consistently large wheat importer in the next few years. China was a sizeable buyer of U.S. wheat about 3 years ago, but has cut back its purchases sharply since then.

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