GRAIN REPORT
By Dr. Bob Wisner

CORN
Plan to use any significant rallies in the next 2 or 3 weeks to add to old- and new-crop sales. Weather from Nebraska to Ohio and from Minnesota to Missouri, along with USDA’s weekly crop condition reports, will be good indicators of whether more rally potential is developing. This year’s record early plantings should bring early pollination, probably a week to 10 days sooner than normal in many areas. Last year’s weather and yields suggest that if corn comes through pollination without serious stress, yield risk at the national level would be relatively low, even with a dry August. That scenario would set the stage for a slight to modest downtrend in cash and new-crop corn prices into the fall. As you fine-tune your marketing plans, also keep in mind that about 68 to 70 percent of the time since the early 1980s, cash corn prices have declined in each succeeding month from June into October.

China is the biggest unknown in U.S. corn export prospects for the next 12 months, although weather and crop prospects in Europe, the Ukraine, other former Soviet republics, Canada and India also will be very important. Many grain industry and USDA analysts believe China will sharply reduce its corn exports next season and may soon become a corn importer. Whether that happens will depend heavily on its corn yields and production. For more than 35 years, China’s average corn yield trended strongly upward. But for the last 4 years with poor weather, it has been sharply below trend. Normal Chinese yields are only about half as large as a typical U.S. yield. USDA projects its corn yields to be sharply below the long-run trend yield again this year. If so, China should have about half as much corn to export as in the 2003-04 marketing year. A return to normal Chinese yields would greatly change the world market picture.

BEANS
Expect extremely volatile prices until mid-September. To cope with volatility and to deal with marketing challenges on remaining old-crop beans, consider setting specific price goals and using them in offer contracts at local elevators or processing plants. Late summer U.S. bean and meal supplies look to be the tightest since the early 1970s and possibly the tightest ever. Because of limited supplies, August and first-half September domestic crushings will likely need to be at least 33 percent below a year earlier—with a corresponding drop in meal production. Meal is quite likely to be imported in the next 6 weeks to help fill the supply gap created by sharply reduced crushings. But there is no historical precedent to determine what level of meal prices will be needed to allocate the extremely short supplies among various users. Imports will almost certainly be unable to make up all of the supply short-fall.

Plan to use rallies in the next 3 or 4 weeks to boost sales of new-crop beans you’ll need to move at harvest. Look for volatile new-crop prices until the risk of frost damage is past and harvest is widespread across the Midwest. Downside risk in new-crop prices comes from 1) the potential recovery from last year’s low U.S. yields; 2) slightly larger U.S. bean acreage than a year ago; 3) an expected increase in Brazilian and Argentine plantings in November and December; 4) a probable recovery in South American soybean yields next spring.

USDA’s Aug. 12 crop report will be a closely watched market indicator, although it is a very tentative forecast of this year’s production. Most analysts expect the U.S. yield forecast to be well above last year’s 33.4 bushels per acre but not up to the 40 bushels used in official balance sheet projections. The trade likely is anticipating at least a 400 million bushel production increase from the 2003 harvest.

WHEAT
Look for hard and soft wheat prices to trend irregularly higher into late October as Northern Hemisphere harvest pressures fade and the grain trade shifts focus to winter wheat plantings and crop conditions. Price gains appear likely to be enough to at least cover out-of-pocket costs for on-farm storage. But price strength may be tempered by improved foreign crops. Hard wheat prices may have slightly more upside potential than soft wheat because of this year’s weather problems in the central Great Plains.

China is a bright spot in the wheat export and price outlook. Because of disappointing yields and production over the last 4 years, its stocks apparently have dropped below food security levels desired by the Chinese government. To keep stocks from going lower, China, at press time, had purchased about 68 million bushels of 2004-crop U.S. wheat versus only 2 million bushels a year earlier. Half of this was soft red winter wheat, with the rest split mainly between hard red spring and white wheat.

Hard red winter wheat export sales were up 25 percent from a year earlier, with increased sales to Iraq, Israel, Mexico and unknown destinations. Excluding the unknown category (which could be sales to China), there was very little net increase in sales of this class of wheat. Soft red winter sales were up 263 percent from a year earlier, with much of the increase due to Chinese purchases. Hard red spring wheat sales were up 40 percent, with increases to the Western Hemisphere, the Philippines, Korea and China.

Early indicators point to a significant increase in foreign competition this year because of better overseas crops. As we went to press, crops looked substantially better than a year ago in western and eastern Europe and the Ukraine. These areas were hard-hit by multiple weather problems last year, including record-high summer temperatures.