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GRAIN REPORT
By Dr. Robert
Wisner
CORN
Look for old and new-crop prices to be volatile through the
second or third week of May, with the potential for volatility to decline after
most of the Midwest crop is planted. Up-side potential will be tempered by
lagging export sales, a large Argentine crop soon to enter world markets and
reports that foreign winter wheat and barley are in reasonably good condition.
Plan to use rallies to boost old and new-crop marketings this spring. For corn
in on-farm storage, watch quality closely and check out forward contracts for
July and August delivery.
For the next few months, weather, planting progress, and
crop conditions will be driving forces in the corn market. Export sales will be
an important secondary influence. The planting season is starting out with good
subsoil moisture in most major producing areas. If most plantings are completed
across the Midwest by the first week or 10 days of May, that also would be a
positive indicator for the U.S. average yield. In that case, look for cash and
new-crop corn futures to weaken slightly in late May, with more down-side
potential by late June. Also note that fund traders built up sizeable long
positions in corn futures earlier this spring. At some point they will need to
sell futures to close out their positions.
As you consider how long to hold old-crop corn, note that
U.S. corn carryover stocks on Aug. 31, 2005 are expected to be about 2.1 to 2.2 billion bushels, nearly
a 11-week supply. The last time U.S. corn carryover stocks exceeded 2 billion
bushels was 17 years ago, when virtually all of the excess supply was stored
under government programs. Normal trade working stocks at the end
of August will be about 850 million bushels. Most of the remaining inventory
will have to be financed by farmers and their lenders. Lenders may be uneasy about financing long-term storage when there is no floor-price protection.
BEANS
Recent volatility in soybean prices has been triggered by dry weather in Brazil’s southern three
provinces, limited U.S. and South American farmer marketings and a
late-February report indicating Asian soybean rust was found on kudzu in
west-central Florida. At press time, USDA projected that Brazil’s crop would be
down about 9 percent from its earlier potential. One private South American
forecast put the crop down as much as 19 or 20 percent from the pre-drought
potential. However, this forecast should be viewed with caution, partly because
of uncertainty of whether it is completely objective or are motivated to
influence prices and for other reasons we note below.
Look for continued price volatility in the next few months
as the grain trade reacts to U.S. Asian rust updates and changing Brazilian
crop estimates. As we went to press, most reports indicated the main problem
area in Brazil was its three southern provinces. Beans were reported to be in generally good condition in
northern parts of Brazil’s soybean belt. If so, the low end of private crop
forecasts would imply yields in the south will be about 60 percent below
normal. With about a 7.5 percent increase in plantings this season, the low end
of the forecasts imply Brazil’s national average yield will be about 8.5
percent below last year.
In this spring’s highly volatile marketing environment, a
strong case can be made for scale-up marketing. This approach involves first
making sure cash flow needs are adequately covered and then selling additional quantities of soybeans on further price strength. Offer
contracts at elevators can be a useful tool for implementing a scale-up
strategy. If you have given the elevator offers to sell at predetermined prices, the grain merchandiser may be able to
take advantage of short-term price moves that most farmers would not notice.
WHEAT
Look for gradually declining volatility and irregularly
lower prices for hard and soft wheat in the next several weeks as prospects for
Northern Hemisphere crops become more definite. Even so, wheat prices will have
the potential to move somewhat in sympathy with the soybean market. Serious Asian rust concerns would likely
bring temporary strength in wheat prices. Consider rallies as opportunities to increase old-crop marketings and
sales of new crop you’ll need to move at harvest.
Reports at press time showed generally good U.S. hard winter
wheat crop conditions, with some uneasiness about excessive soil moisture for
soft wheat in parts of the eastern Corn Belt. White winter wheat in the Pacific
Northwest as well as Montana hard wheat areas had below-normal soil moisture.
But markets for white wheat are different than wheat grown in the Midwest, and
crop concerns there should not be a big influence on hard and soft red winter
wheat prices. Early spring reports also pointed to generally good conditions
for winter wheat in Eastern Europe and western former Soviet republics. Two
exceptions to the generally good foreign conditions were 1) a dry area in
southern France, Spain and Portugal, and 2) severe drought in parts of
Southeast Asia’s rice-growing area. If the drought persists, it could create
slightly increased demand for wheat to supplement limited rice supplies.
U.S. hard winter wheat export sales appear to be on track to
reach USDA projections. USDA projects a 26 percent decline from a year earlier
for the marketing year ending May 31, 2005. Exports and outstanding unshipped
sales to Japan, Africa, Romania, Brazil and unknown destinations at press time
were well below a year earlier. No U.S. hard red winter wheat had been sold to
China. After stronger sales performance earlier this season, USDA’s soft red
wheat export projections now look a bit optimistic.
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