GRAIN REPORT
By Dr. Bob Wisner

CORN
Expect storage space to be tight this fall, with basis levels considerably weaker than in the last 2 years. Also, the spread between the current December and next July futures prices ("carry" or "carrying charge") is likely to be much wider than last year. These two market indicators are the market's way of signaling to farmers to delay sales beyond harvest. The weak basis is an abnormally large spread between local cash prices and Chicago futures.

Check out alternative storage arrangements as soon as possible, including feasibility of storage for a few months in a properly reinforced machine shed. Arrangements for aeration also are important if you use non-typical grain storage. Alternatives for forward sales include non-roll hedge-to-arrive or "futures only" contracts for winter or spring delivery. Forward contracts may also be a good alternative if the basis being offered is near the mid-winter or spring average of recent years.

Chances for a significant rally in corn prices look low until late this year or early 2005. With early plantings in most areas, risk of frost damage in the next few weeks looks to be lower than normal. A large U.S. crop is widely expected and most foreign grain crops look better than last year. The 2003 grain crops were hit hard by multiple weather problems in eastern and western Europe, several former Soviet republics, China and parts of the Southern Hemisphere. A sharp recovery in the European crop is increasing that region's export availability and reducing its import needs. Crops in the Ukraine look much better than last year, although not as good as 2 years ago. The Ukraine is exporting feed wheat to markets that normally buy U.S. corn.

By December, the grain industry is likely to focus on Southern Hemisphere crop indicators and U.S. corn export sales to China's usual customers.

BEANS
Look for lower and much less volatile cash soybean prices from mid-September until at least late December or early January. Strongly consider harvest sales if you have early harvested beans and the cash is at a significant premium to new crop. The same consideration may be important for the remaining old-crop beans that you're still holding. High soybean prices of this past spring were driven by simultaneous crop problems in the United States and South America. While similar problems could happen again in the 2004-05 marketing year, history says the odds are strongly against it. Recent USDA projections show a potential increase of 1.3 billion bushels in world soybean production, after a weather-driven decrease of approximately 900 million bushels in the marketing year just ending. For soybeans harvested after the old-crop/new-crop price premium has disappeared, check out potential returns from storage and forward sales for delivery this winter or during next spring's planting season.

Early indications are that China will be a big buyer of soybeans again this season. For the first few months after harvest, they may be a strong buyer of U.S. soybeans before shifting to South America. That's because South American supplies will almost certainly be at least moderately below normal from November through late February. The sharp drop in last spring and summer U.S. supplies pulled more than the usual amount of the Brazil and Argentina reduced crop to market. That leaves fewer beans and bean products for them to export this winter.

Key market indicators to watch include USDA's Sept. 10 and Oct. 8 crop reports as well as weekly export sales reports out on Thursday mornings. While there is disagreement on the exact level of yields, most analysts expect U.S. production to be sharply above last year.

WHEAT
Look for hard and soft wheat prices to trend slightly upward into late October or early November as the grain trade worries about planting progress and moisture availability for the new crop. Price strength may be enough to cover out-of-pocket costs for on-farm storage. But substantially increased world production appears likely to temper up-side potential unless the U.S. crop gets off to a bad start.

Despite disappointing hard wheat yields in the Great Plains, soft wheat may have a little more upward price potential than hard wheat. At press time, soft red winter wheat export sales were up 129 percent from a year earlier. At the same time, hard red winter export sales were down 6 percent. Soft red sales were boosted by large purchases from China and Egypt.

U.S. wheat is facing sharply increased competition from eastern and western Europe, as well as former Soviet republics. In 2003, temperatures that topped 100 degrees and drought reduced crop yields in the European Union, but weather was much better this year. Last year, winter-kill and drought devastated the Ukraine wheat crop, shifting that country to a net importer. Preliminary yield reports indicate the crop was much better this year, but still not up to normal yields. However, its crop is up enough to put the Ukraine back in the world wheat export market. Final Canadian numbers are expected to show a relatively good wheat crop. Early projections for Australian wheat to be harvested from November through early January indicate production is likely to be near last year's large crop. More uncertain areas include Brazil, Argentina, India and China. Preliminary estimates at press time placed production below last year in India and China. It is uncertain whether China has finished booking its wheat imports for the year ahead. Additional wheat sales to Iraq also are possible in the months ahead.