GRAIN REPORT
By Dr. Robert Wisner

CORN

Watch for possible frost concerns that may bring short-term rallies in old and new-crop corn. While that should not be a worry for most of the Midwest, parts of Minnesota and the Dakotas would have yield losses if killing frosts come before late September. Use rallies to finish old-crop marketings of corn you can't store into spring, and to boost sales of new-crop you'll need to move at harvest. If you have on-farm storage, plan for modest price strength into early spring as supplies gradually tighten and additional ethanol processor demand comes on line. Farmers with adequate storage should watch for opportunities to lock in storage profits through contracts for spring delivery. If you need to buy corn for feed, plan to cover a significant part of your requirements at harvest, either through purchases and storage or forward contracts.

Prices for the next several months will be dominated by 1) timing of the first frosts in North Dakota and Minnesota; 2) USDA's Sept. 12 crop report; 3) large old-crop carryover stocks; and 4) weekly export sales. Dry weather has hurt yield prospects substantially, especially in Illinois, sizeable areas of Missouri, Indiana, Ohio, Wisconsin and parts of adjoining states. At press time, traders expected the U.S. crop to be 14 to 17 percent below 2004. A USDA Sept. 12 forecast smaller than that could bring temporary price strength. A reduction of 16 percent would be expected to pull carryover stocks down to or only modestly above normal working stocks. That would leave very little reserve to offset 2006 weather problems, and would make prices quite sensitive to spring and summer 2004 weather prospects.

Foreign buyers so far have been slow in booking new-crop corn and expect to find adequate supplies.

BEANS

Plan to use short-term rallies to finish old-crop sales and price new-crop beans you'll need to move at harvest time. Frost may be more of a concern for soybeans than corn because of exceptionally late bean plantings in the Red River valley of Minnesota and North Dakota. Look for modest strength in cash soybean prices in late fall, after harvest pressures subside. Winter prices will depend heavily on South American planting progress and rainfall.

For soybeans, August is the critical month in the growing season. That will make the Sept. 12 crop report extremely important for soybeans this year as the grain trade attempts to sort out impacts on the crop from dry weather. Pre-report expectations appear to be centered on a crop 10 to 13 percent below last year's record harvest. We would expect a crop of that size to pull the Aug. 31, 2006 carryover down to about minimal trade needs and require modest rationing of use through higher prices than in the 2004-05 season. Harvest-time and early winter prices would probably be sharply above a year earlier, with spring and summer prices having the potential to be lower. Part of the higher prices from late February through August this year was due to severe drought in much of Brazil's soybean belt. After two consecutive drought years, history says the odds of a third one should be small. Normal 2006 yields in Brazil and Argentina would temper next spring and summer's prices. But significant volatility will almost certainly continue as traders worry about possible 2006 U.S. Asian rust problems.

Soybeans may have more competition in vegetable oil markets in the next months. Sunflower seed production is expected to increase in the former Soviet Union, along with an anticipated boost in Canadian canola production.

WHEAT

Prices for hard and soft wheat should trend irregularly upward into late October or early November. There is a good chance price strength will more than cover out-of-pocket costs of farm storage, but probability of profits for storing in town appear to be no more than about 65 percent. World crops look to be large enough to cover global demand, and early projections show U.S. exports slipping 8 to 10 percent below last season. Factors behind expected price strength into late October or early November are decreased farmer marketings as harvesting is completed in North Dakota and Canada as well as trade nervousness about soil moisture and planting progress in the U.S. Wheat Belt.

Weather has been favorable for spring wheat in the Northern Plains and Canada this year. Production in both regions is expected to be large because of good rains. Protein content may be less than ideal, as usually happens in years of abundant rainfall. These crops will be offset by smaller harvests in North Africa, an anticipated slight decline in Argentina and a decline in the EU.

U.S. wheat carryover stocks are projected to move up to a 16 to 17 weeks' supply, slightly below the levels of 1998 through 2002. Stocks at that level in the past typically have pushed the U.S. average farm price for wheat moderately below the $3 level. Early projections place this season's U.S. average price at about $2.90 per bushel. That compares with a U.S. average wheat price of $2.63 per bushel during the 1998-99 through 2001-02 marketing years. Wheat carryover stocks in that period averaged a 19.7 weeks' supply. U.S. crop conditions in late November and early December will help determine whether wheat can move above $3.