GRAIN REPORT
By Dr. Robert Wisner

CORN

Old-crop fundamentals show strong caution signs that August and September prices and basis may be under pressure, but late June and early July prices will take direction from Midwest weather and crop conditions. With good soil moisture and 2/3 or more of the U.S. crop in good to excellent condition by mid-June, new-crop prices likely would test the $2.27 support on December futures charts. In assessing down-side risk, note that nearby corn futures from mid-October 2004 through mid-February 2005 were mostly in the $1.91 to $2.04 per bushel range. A normal trend yield this year would be well below last year's extremely high yields. But large old-crop carryover stocks would push total supplies above last fall.

Other indicators influencing the direction of summer corn prices include 1) weekly export sales reports, released on Thursday mornings; 2) reports on China's corn crop prospects; and 3) the condition of wheat crops in Canada, Europe, and the former Soviet Union. China usually is the world's second or third largest corn exporter. Whether China is able to maintain normal exports will depend heavily on its 2005 crop prospects. At press time, weather and soil moisture reports indicated areas on the edges of its main Corn Belt were dry.

As you fine tune your marketing strategy, take a close look at USDA's June 30 planted acreage and grain stocks reports. Over the last decade, soybean acres have tended to increase slightly from the early intentions survey. This year, a higher than normal new-crop soybean to corn price ratio, high costs of nitrogen fertilizer, and high fuel costs for irrigation in the Great Plains have provided incentives for farmers to increase soybean acres. The June 30 report will show whether these developments were offset by the extremely good corn yields of the last 2 years and by concern about Asian rust damage to beans.

BEANS

Watch for rallies in the next few weeks as opportunities to boost old-crop sales and to price beans you need to move at harvest. Soybean prices  will remain volatile through mid-August, as the grain industry and commodity fund traders watch for possible serious Asian rust problems. Global old-crop soybean supplies are estimated to be record-large, with a 15 to 16 percent increase in total production despite Brazil's weather problems.

World stocks as a percent of annual use are estimated to be a record. Accordingly, the main hope for higher soybean prices in the next few months rests on possible problems with the U.S. crop. The most likely problem is threat of Asian rust infestation in the South and Midwest. But risks of a dry August and aphids are other possibilities traders will watch. After mid-August, if weekly USDA reports show the U.S. crop to be 2/3 or more in good to excellent condition, down-side price risk would be sizeable.

Soybeans' time of greatest vulnerability to Asian rust is during the flowering period. The fast-moving nature of the disease will cause speculators and fund traders to keep a sharp eye on the soybean crop, both in the South and Midwest.

Down-side risk in late August and September comes from 1) the large world supply; 2) expected Aug. 31 U.S. carryover stocks more than three times as large as last year; and 3) a serious shortage of grain storage space across the Midwest with normal or better yields. Yields look unlikely to match last year's record levels, but a trend yield would be expected to hold total supplies (carryover stocks plus production) at or slightly above last fall's level. With supplies at that level along with normal growth in world demand and the prospect of rust  again in 2006, look for soybean prices at harvest to be $0.25 to $0.35 cents per bushel above a year earlier.

WHEAT

Look for a gradual down-trend in prices for hard and soft wheat into late June or early July as harvest progress accelerates from southern Texas and the Mid-South northward. Consider short-term rallies as opportunities to boost old-crop marketings and increase sales of new-crop wheat you will need to move at harvest. As you make plans for possible wheat storage, note that early reports on U.S. and foreign crop conditions suggest post-harvest strength into fall may be quite modest. One development which could change that picture would be if Asian rust seriously reduces soybean yields. In that case, the wheat market likely would move up in sympathy with soybeans, at least for a short time.

At press time, crop reports showed the U.S. and most Northern Hemisphere wheat crop prospects to be mostly favorable. The U.S. winter wheat crop was reported to be 70 percent good to excellent, up sharply from 48 percent a year earlier. That was the best crop condition rating since 1998, the year of the second highest U.S. wheat yield on record. The poorest areas among major wheat producing states were Arkansas, Missouri and Illinois.

Watch weekly export sales closely for signs of a pick-up in foreign demand. Export sales of both hard and soft red wheat were off to a slow start as we went to press. Except for a few sales to Mexico and other Latin American markets, most foreign buyers were looking elsewhere for supplies or waiting for lower prices at harvest time. Export sales likely will pick up in mid-July as the winter wheat harvest moves into its final stages. Also watch for USDA's June 10 and July 12 crop forecasts. The grain trade anticipates a slightly larger U.S. wheat crop than last year, despite approximately 2 percent fewer planted acres.