GRAIN REPORT
By Dr. Robert Wisner

CORN

Look for short-term rallies to price old-crop corn you'll need to move before harvest. If you have corn sealed under loan and Illinois and Missouri have had good rains before pollination is finished, there should be an incentive to contract for late August to September delivery. A large U.S. crop would put downward pressure on futures prices and the basis, potentially increasing marketing loan gains. If you have enough farm storage for old and new-crop, consider forward contracting for mid-winter delivery on rallies.

Key market indicators to watch the rest of summer include 1) weekly USDA crop condition reports released Monday afternoons; 2) USDA's Aug. 12 crop production forecasts; 3) rainfall and temperature patterns-especially in Missouri, southeastern Iowa, Illinois and Indiana; and 4) weekly export sales reports released on Thursday mornings. By late July, the weekly corn crop condition reports are good indicators of the potential U.S. average yield.

If 68 to 72 percent or more of the U.S. corn crop is in good to excellent condition by the last week of July, odds are high that the U.S. average yield will be near the long-run trend. This year, that would be an average of about 145 bushels per acre. A trend yield would create substantial down-side risk in late summer and fall cash prices and the basis.

With total supplies exceeding last fall and available storage space, fall price potential could be lower than a year earlier. Last fall, December futures fell to around $2. But as you fine-tune corn marketing plans, keep in mind that widespread soybean rust or aphids would create a bullish soybean market that could postpone downward pressure on corn prices for several weeks.

Crop condition ratings will be strongly influenced by rainfall in an area that started the summer with below-normal precipitation.

BEANS

Look for continued volatility in soybean prices into the second or third week of August because of uncertainty about possible Asian rust damage to beans in the South and possibly in the Midwest. If rust or dry weather has not hit the Midwest crop by the third week of August, market volatility should start to diminish and would be a signal to boost sales of remaining old crop and some new-crop soybeans. That indication would be reinforced if USDA weekly crop condition reports show 68 percent or more of the crop in the 18 major soybean states is in good to excellent condition.

World carryover supplies tightened earlier this summer with a small downward revision in Brazil's spring 2004 harvest and carryover stocks at the end of the last marketing year. The net result was that Brazil has fewer old-crop soybeans stored into this marketing year. Even so, world soybean production for 2004-05 is estimated to be 16 percent above a year earlier.

World carryover stocks are expected to be up 35 percent, to the second highest percent of use on record. That is the supply picture for the marketing year ending Aug. 31. 

Widespread drought cut Brazil's crop to only slightly above the previous year-despite increased acreage. In the year ahead, the world should have adequate soybean supplies if the U.S. yield is near normal. But a U.S. yield dropping to 37.5 bushels per acre or lower would tighten global supplies enough to provide substantial support under bean prices this fall.

Soybean demand has been a little stronger than anticipated. Usually China shifts most of its soybean purchases to South America in the spring and summer. This year, it continued buying U.S. beans into mid-year because of strong internal demand and logistical problems in moving South American beans rapidly enough to meet Chinese needs.

WHEAT

Look for a slow, irregular uptrend in cash wheat prices from late summer into October as harvesting pressure subsides in the Dakotas, Montana and Canada. U.S. carryover stocks are expected to increase modestly in the year ahead and will likely temper the price strength. Positive elements in fall price prospects include a severe drought in parts of Australia's wheat belt, uncertainty about the final size of China's crop, and dry weather in parts of Europe that reduced its crop from earlier potential. Late summer and early fall soil moisture from Nebraska to Texas also will be an important market factor.

The chances for profitable off-farm storage into mid-fall look to be around 55 to 65 percent.

Wheat prices are potentially somewhat more sensitive to foreign weather and crops than corn, because of more competitors in the global wheat market. About 76 percent of world wheat exports are expected to come from non-U.S. origins. Early indications are that world wheat production for 2005-06 will be down about 2 percent from last season. However, increased carryover stocks from the large 2004 crop are expected to push global supplies about 1 percent above a year earlier. The global wheat harvest also takes place over a longer period than for corn or soybeans. Harvesting starts in April or earlier in some areas, continuing through the spring, summer, and into September in Northern Hemisphere spring wheat regions. The Southern Hemisphere harvest (especially Australia, Brazil and Argentina) typically takes place from November through early January. If dry weather occurs in one part of the global wheat belt, it can be partially offset later by improved yields elsewhere.

At press time, China was off to a very slow start in buying 2005-crop U.S. wheat. Slow purchases may reflect Chinese expectations of better buying opportunities later.