GRAIN REPORT
By Dr. Robert Wisner

CORN

The U.S. crop is well above mid-summer forecasts, with good yields in the western 2/3 of Iowa and most other western Corn Belt states except Missouri. Production is expected to be only slightly below total utilization, and carryover stocks are projected to remain large next summer. During the last few weeks of harvest, we expect to see large outside piles of corn in central and northern Iowa, Minnesota, Nebraska and parts of South Dakota.

Large supplies in these regions and limited grain shipping capacity at the New Orleans port area likely will keep corn prices well below local loan rates through the fall and early winter, and will keep basis depressed for a while.

Watch for the Nov. 10 crop report, and export sales reported on Thursday mornings. As we went to press, cumulative corn export sales were only 0.6 percent above last year's  level—despite low prices.

Returns for storing corn should be well above normal, if you have storage space available. In areas where yields are sharply below normal, look for somewhat larger increases in prices into the spring than in areas where crops were good. Also, if you farm near an ethanol plant or river terminal, look for prices next spring and summer to respond more strongly than in other areas. Manage LDPs carefully. LDPs probably will gradually decline during the winter, spring and early summer. Also keep in mind that when you take the LDP you lose any further price protection from the CCC loan. To reduce price risk exposure, consider using forward contracts, futures hedges, or "futures only" elevator contracts to lock in the price level while waiting for basis gains. Contracts for spring delivery and direct hedges in the futures market this fall have been offering much larger than normal returns for storage.

BEANS

Like corn, the U.S. soybean crop appears to be considerably larger than mid-summer forecasts anticipated. A large part of the Soybean Belt received good August and early September rains, and Asian rust was not a problem except in a few pockets in minor southeastern soybean producing states. The September USDA crop forecast indicated production would be only about 3.5 percent below anticipated market needs. With the third largest U.S. carryover stocks since 1991 and record large South American stocks, supplies are expected to be adequate for the year ahead, but not burdensome. Carryover stocks are expected to decline substantially by Aug. 31, 2006. Declining U.S. stocks will make prices sensitive to South American weather and crop conditions from late November trough February. Delayed plantings or worries about drought in South America could bring moderate short-term soybean price strength.

Watch for rallies in late November and December for opportunities to contract for late spring or early summer delivery if you're storing beans on the farm. For beans stored in town, watch for opportunities to lock in prices for February delivery. If you feed livestock or poultry, consider covering part of your soybean meal needs by mid- to late November.

Soybean markets likely will be a little less sensitive to concerns about Asian rust in 2006 than they were this year. That's because the industry, including commodity speculators, watched for and expected Asian rust problems that didn't develop this year. In 2005, speculators and other traders built a risk premium into soybean futures expecting rust would rapidly move through  the soybean belt.

At press time, U.S. soybean export sales were lagging 31 percent behind last year. Most of the decline was due to a slow start in Chinese buying. China's purchases were down 67 percent from a year earlier.

WHEAT

Look for wheat prices to be more volatile in the next few months as markets react to U.S. crop conditions in both the Great Plains and the eastern Corn Belt. Grain traders also will be watching crop condition reports from Australia and Argentina. Their harvests run from late November into January and will be an important addition to world supplies.

The potential for major price strength into winter appears limited unless their crops deteriorate unexpectedly. At press time, crops in these two Southern Hemisphere exporting countries looked to be on the low side of normal, but timely rains could alter final yields.

U.S. conditions looked to be about normal and were generally favorable for newly planted winter wheat. If you have soft wheat in storage, watch for winter and spring forward contracting opportunities that will let you lock in a storage profit. As we went to press, the May 2006 Chicago soft red wheat futures were trading $0.20 higher than the December 2005 contract. Hard wheat futures showed $0.08 lower price for May delivery than for December.

As this is being written, U.S. wheat export sales so far this marketing year are 10 percent below a year earlier. Soft red and white wheat have been hit hardest by lagging export sales. They are down 54 percent and 29 percent respectively from a year earlier. The most positive picture in wheat exports is for hard red winter wheat, with export sales of this class up 10 percent from last year. Soft red wheat was struggling from lost sales to China. The Chinese had purchased just 0.9 million bushels of U.S. soft red wheat, down from 28 million bushels a year earlier. The drop in Chinese purchases likely reflects an estimated 220 million bushel increase in this year's crop.