GRAIN REPORT
By Dr. Robert Wisner

CORN

Cash prices should strengthen modestly into the second or third week of February, in response to strong domestic demand and limited farmer marketings. But export sales through mid-December were disappointing when compared to the huge 2004 crop and may temper upward price potential.

Consider some sales during this time period to meet late winter cash-flow needs. For late February and early March, several indicators caution that temporarily weaker prices are possible. At press time, farmers had taken the LDPs on almost half of the 2004 corn crop. Since that eliminates access to the CCC loan program for financing storage, corn growers may need to sell a little more corn than usual to pay late winter bills.

Also, Asian rust concerns may cause farmers to hold soybeans more strongly than corn, thus requiring more corn sales to meet cash flow needs. For corn in good, well-managed farm storage, modest profits should be available for storage into May. Cash prices at least $0.10 to $0.18 above mid-winter levels appear likely at that time as the markets respond to reduced farmer marketings and nervousness about 2005 crop prospects.

The brightest spot in demand for corn is the domestic ethanol market. USDA now projects the nation’s corn processing for ethanol to be up 14 percent or 221 million bushels from last year. Last year’s growth in processing for ethanol was 208 million bushels or 21 percent. A year ago, official projections for ethanol processing were about 127 million bushels or 12 percent below the final number. A slight increase in corn feeding also is anticipated, but the expansion will be tempered by the sharp increase in the amount of distillers grain being used to replace corn and soybean meal.

BEANS

Discovery of Asian soybean rust as far north as the Missouri Bootheel almost guarantees that soybean prices will remain volatile until late summer. Look for cash prices to fluctuate in at least a $0.40 to $0.60 range from the planting season into late August as traders try to determine the extent of damage to the U.S. crop. But unless Asian rust damage becomes severe in South America or the United States, huge world supplies will temper upside potential.

USDA projects this season’s world soybean production to be up by a whopping 21 percent from last year, bringing a sharp increase in late summer carryover stocks. Those supplies are a caution that normal U.S. yields would bring substantial downside risk in soybean prices by fall.

At least eight chemicals are potentially available to control Asian rust, and risk of rust in the Midwest appears to be considerably lower than in Brazil because of climactic differences. In the United States, the highest-risk area is along the Gulf coast, where rust may overwinter and get an early start in soybeans.

 In the Midwest, risk is lower in the Great Plains than further east because the area is less humid and receives fewer rains. The rust thrives best in cool, humid conditions with frequent rains. It is least likely to be a problem in years with hot, dry weather in the last half of summer.

A major uncertainty for grain traders will be the impact of Asian rust on planted acres of soybeans and other crops. Geographic risk patterns and the prospect of spraying several times each year to control rust suggest a significant amount of soybean acres in the South may be shifted to other crops. The South normally has about 9 to 10 million acres of soybeans—out of a U.S. total of 74 to 75 million acres.

WHEAT

Look for Chicago nearby futures prices to trade in a $2.85 to $3.20 range for the next several weeks as traders watch winter weather in the Midwest and Great Plains for signs of possible crop damage. At press time, the wheat crop looked to be in the best condition in several years, reducing but not eliminating the chance for winter damage.

U.S. hard winter wheat prices may be supported some by Canada’s problems with frost-damaged wheat. But most of the benefits from reduced milling-quality wheat have gone to the hard red spring crop. Hard red winter wheat export sales through mid-December were 29 percent below a year earlier. Hard red spring wheat export sales were up 13 percent and soft red sales were down only 4 percent from a year earlier.

Pressure on wheat prices has come from the estimated 12 percent increase in 2004-05 world wheat production. Increases of this size are highly unusual and typically pressure U.S. exports and prices. Over the last 44 years, we have seen similar increases only four other times: 1962, 1976, 1978 and 1990. Estimated wheat production in the EU is up 27 percent from last year, along with increases of 39 percent in the former Soviet republics, 10 percent in Canada, 11 percent in Argentina and 11 percent in India. Australia is the main exception to this pattern, with its estimated production down 14 percent from last year’s exceptionally large crop.

For the next few months, important wheat market indicators to watch will include 1) weekly export sales reports; 2) weather reports from Colorado and Kansas southward to Texas, and 3) final USDA estimates for the Australian and Argentine wheat harvests.