GRAIN REPORT
By Dr. Robert Wisner

CORN

Look for cash prices to trend gradually upward into late April or May as the markets worry about spring weather and possible changes in farmers' crop rotations because of high fertilizer prices. Large supplies will temper but not prevent price strength. Brief weakness in prices is possible in late February with increased farmer marketings to meet spring expenses. But by mid-March the grain trade will begin anticipating  changes in U.S. acreage in USDA March 31 Planting Intentions report. Prices will be strongest near river markets, ethanol plants and where yields were hit by the 2005 drought.

On average over the last 15 years, western Corn Belt cash corn prices have reached a seasonal high in May. Rainfall and subsoil moisture recharge or lack of recharge in the northern third of Illinois, the southern half of Iowa, southern Nebraska, and dry areas of neighboring states will influence whether that pattern holds true this year. These areas went into the winter with very limited subsoil moisture. Unless moisture is recharged by mid-June, yields there would face considerably more risk than last year.

Early indications from Extension budgets and projections by several private firms hint that a modest shift of acres from corn to soybeans may be ahead this spring. The main reason is the sharp rise in nitrogen fertilizer price. Since soybeans require less fertilizer than corn, some farmers may shift acres to beans. However, indications from farmers and ag lenders at Extension meetings in the last few months suggest changes are likely to be small. Application rates per acre will be cut some also.

Ethanol processing will continue to expand in the next several months with more new plants and added capacity at others. Exports sales were still lagging at press time, so watch the USDA Thursday sales reports closely. Corn sales in the 0.9 to 1 million ton range would be supportive to prices.

BEANS

Look for continued moderate volatility in soybean prices into mid to late April, with at least occasional periods of modest price strength. Scale-up marketings (gradually moving more beans into the market during each succeeding period of price strength) are a potential strategy for volatile market conditions. Caution signs for prices from June onward include an expected increase in 2006 U.S. soybean plantings and South American crop conditions that looked good as we went to press.  Even so, the markets will have the potential to respond to possible Asian rust concerns in the U.S. until about the middle of August.

Price volatility likely will be boosted again this spring by commodity fund traders. One type aims to take advantage of short-term price movements and can amplify price volatility in both directions.  The other type is index funds. Index fund traders generally concentrate on the buying side of the market, holding positions for long-term gains. Index fund traders have noted that in the last 3 years, the Commodity Research Bureau (CRB) index of all commodity futures prices has trended steadily upward, and so far has been a good hedge against inflation. Index funds develop portfolios of commodity futures that match the CRB index. The CRB index includes precious and industrial metals, the energy contracts, lumber, tropical products, grain and livestock. As a group, these commodities have been strengthened in part in the last few years by rapidly increasing demand for metal and energy in China, India and several other countries.

Our biggest concern in the soybean outlook has been a very slow start in bean export sales. USDA reports through late December placed season-to-date export sales at about one-fourth less than a year earlier. Lagging export sales reflect concern about Asian bird flu, especially in Asia, which is a huge market for soybeans.

WHEAT

Look for at least modest volatility in wheat prices into late March as the grain trade responds to crop and weather conditions in the central and southern Great Plains. Soil moisture from southern Nebraska to Texas has been low, with periods of very cold temperatures and lack of snow cover. Grain traders will watch for any reports of winter kill in mid to late March.  Consider using periods of price strength to boost old-crop sales as well as new-crop wheat you will need to move at harvest.

World wheat supplies now appear to be slightly above last year's large supply. Rain came in time to push Australia's crop above early forecasts. Soft wheat supplies are plentiful, but hard wheat supplies are a bit tighter due to late harvests and lower quality on Canadian and Northern Plains wheat due to a wet harvest in early fall. Also, Iraq has become a sizeable market for U.S. wheat and prefers hard red winter varieties. After strong

Chinese purchases of U.S. wheat from the 2004 crop, sales to China dropped to very low levels in the first 7 months of the current marketing year.

Season-to-date export sales of U.S. hard red winter wheat were up 26  percent from a year earlier at press time, with big increases in sales to Iraq and Nigeria. Iraq was the largest overseas customer for U.S. hard winter wheat and Nigeria was second in size. In contrast, soft red winter wheat export sales were down 46  percent from a year earlier, due to loss of most of the Chinese market and a drop in sales to Egypt and Mexico. While there is still time for a partial recovery in soft red wheat export sales, competition is stiff from Australia and the former Soviet republics.