GRAIN REPORT
By Dr. Robert Wisner

CORN
Cash prices should trend irregularly higher into mid-February, but with strength tempered by this year's large supply. Be alert for possible late February and early March weakness due to increased farmer marketings. Additional strength is likely into April and the first half of May in response to seasonally light farmer marketings and the usual grain trade nervousness about crop prospects in the spring. Look for spring cash prices to be $0.20 to $0.25 above harvest prices in most areas. Processing plants and river terminals may show a bit more strength. In case of widespread weather concerns across the Midwest, significantly higher prices would be possible.

Key market indicators to watch in the next 2 months include 1) weekly USDA export sales reports; 2) USDA's Jan. 12 grain stocks report; and 3) USDA's Jan. 12 season final crop estimates. The stocks report will provide an updated indication of domestic corn feeding during the September to November quarter. Domestic feeding is still the largest source of demand for corn. History for other years of record yields suggests farmers should not be surprised if the crop estimates increase further in January.

Low prices and a weak U.S. dollar are helping to stimulate demand, along with the continued strong expansion in the ethanol fuels industry. Recent USDA projections place total corn utilization for the 2004-05 marketing year at an incredibly large 10.895 billion bushels. That's up 15 percent or 1.4 billion bushels from 2002-03. These projections are tentative, with some uncertainty on both corn feeding and exports. Feed use is projected to be up 487 million bushels or 9 percent from 2 years earlier. Processing, the least uncertain category of demand, is projected to be up 430 million bushels or 18 percent, and exports are projected to be up 487 million bushels or 31 percent.

BEANS
Look for cash prices to increase slightly into mid-February, but with considerable volatility and responsiveness to any indication of widespread South American weather or disease problems. Barring serious South American problems, the huge U.S. crop and an expected return to normal yields in South America probably will keep cash soybean prices in the winter and early spring from rising much more than $0.15 to $0.25 above local loan rates. After the planting season, there is a risk of significantly lower prices.

USDA's World Agricultural Outlook Board anticipates that world soybean production will be up by a very large 21 percent from last year, along with increased production of several competing oilseeds. At press time, South American industry and government sources projected modestly smaller increases in Brazilian production than USDA. Major reasons were 1) weakness of the Brazilian currency, which boosts local prices for fuel and other inputs; 2) reduced availability of government credit for planting, and; 3) increased costs of production due to extra chemicals necessary to control Asian rust. These developments are expected to reduce profits sharply from those Brazilian soybean producers experienced last season. Even so, profit prospects should be better than in the 1999 to 2001 period when bean prices were much lower.

To confirm USDA export projections and reinforce prospects for strength in winter cash prices, weekly soybean export sales need to be in the 0.8 to 1.2 million ton range most of the time for the next 2 months. Export sales normally are slow during the late winter and spring, when foreign buyers turn to new-crop South American supplies.

WHEAT
Look for prices to trade in a $0.20 to $0.25 range this winter, with no pronounced trend. The basis reflected in cash wheat prices may also strengthen some into mid-winter. At times, soft red prices may be a bit stronger than those for hard wheat. So far, export sales of soft red wheat have outperformed those for hard red winter wheat. Soft red export sales at press time were up 7 percent from a year earlier, in contrast to a 21 percent decline for hard red winter wheat sales. But at times this winter and next spring, hard wheat prices may strengthen slightly relative to soft wheat because of reduced availability of high-quality Canadian milling wheat. Most of Canada's wheat normally is high protein, hard wheat used for bread. This year, its crop was lower quality due to frost damage. That may shift some demand to U.S. hard winter wheat later on this season. The U.S. crop in the central and southern plains was planted with generally good soil moisture, minimizing concern about crop prospects until at least early spring.

In some parts of the eastern Corn Belt, excessive rains delayed plantings of soft red wheat. But the affected area does not appear to be large enough to cause much market reaction. Southern Hemisphere crops look about the same to slightly better than last year's large crops, and will offer competition from newly harvested production for the first few months of the year.

In other foreign markets, the good news is that China has re-emerged as a substantial wheat importer. Also, India and Pakistan are expected to have less wheat available to export than last season. But extra Chinese demand likely will be more than offset by a sharp increase in exports from the European Union and former Soviet republics. Current projections place exports from the EU and the former Soviet republics at 45 percent and 47 percent above last season.