GRAIN REPORT
By Dr. Robert Wisner
CORN
Prices appear likely to trend at least slightly upward until
there are clear indications of ample soil moisture over most of the Midwest.
The corn market also will be quite sensitive to planting progress because of
the expected decline in acreage. Widespread planting delays across the Corn
Belt beyond May 15 would likely bring at least short-term price strength. With
a dry April to May and early plantings, price strength could be delayed, but
generate more significant upward potential if widespread rains have not come by
mid-June. If you want to lock in new-crop prices to cover fall cash needs but
are nervous about weather, consider buying call options. Purchasing December
calls would give you upward price flexibility after the sale. If futures prices
rise sharply in response to summer drought, calls would increase in value.
Domestic demand for corn remains quite strong in response to
reasonably good livestock feeding profitability and rapid expansion of ethanol
processing. At least two new ethanol plants will be coming into production in
Iowa this spring, and two more are doubling capacity. In other states, several
new plants also are under construction.
Projections at press time indicated Brazil’s corn crop would
be up more than enough to offset the short-fall in Argentina and South Africa,
but USDA projections indicate Brazil will hold part of its increased corn
production in carryover stocks rather than export it. If current projections
materialize, U.S. corn exports should run modestly above a year earlier through
late spring and summer.
As you look for old and new-crop marketing opportunities,
note that U.S. Sept. 1 carryover stocks are expected to be a 3-month supply.
With good yields, the large stocks would put substantial pressure on storage
space and late summer and fall prices.
BEANS
Fundamentals are negative for late summer soybean prices,
barring major U.S. weather problems. However, prices will remain somewhat
responsive to uncertainty about final planted acreage, Midwest soil moisture
recharge and summer weather prospects. Look for focus on these conditions to
generate at least two or three modest short-term rallies between now and
mid-summer, creating additional opportunities for old and new-crop sales.
The negative
fundamentals include: 1) projected Aug. 31, 2006 U.S. carryover stocks at a
historically large nine-week supply; 2) private projections showing a possible
4 million acre increase in U.S. soybean plantings; 3) severely lagging export
sales; 4) a large South American soybean crop. There is talk that aggressive
futures purchasing by index fund traders may be able to override fundamentals,
thus pushing prices up even in the face of historically large carryover stocks.
Time will tell whether that is possible. Carryover stocks will still have to be
held through the next year by farmers and financed by their lenders.
With a good crop, the combined corn and bean carryover
stocks would again stress storage and transportation facilities at harvest,
pressuring cash prices and the basis. Two to three years from now, there is
reason to expect stronger grain and soybean prices because of the heavy
emphasis on renewable fuels. But it is questionable whether fund traders can
bring stronger prices while fundamentals are negative.
Bird flu also is an important market factor to watch.
Problems with the disease have been centered in China and several other
southeastern Asia countries, along with a few cases in Turkey, Romania, and
Russia. Southeast Asia has many backyard flocks, making management of the disease
difficult. Bird flu can be carried long distances by migrating birds, so
changes in geographic patterns of the disease will be important to monitor.
WHEAT
Look for hard red winter wheat prices to remain volatile
into early May as grain traders try to determine the yield potential and
harvested acres for this year’s U.S. crop, as well as conditions in China and
former Soviet republics. Crop prospects are sharply below last year in Texas
and Oklahoma, where about 12 to 13 percent of the total U.S. wheat crop normally
is produced. Yields and harvested acreage in those two states almost certainly
will be well below last year. As we went to press, lack of rain and snow in
Kansas, eastern Colorado and Nebraska also was becoming a concern. Our Ukraine
contacts indicate winter wheat plantings there were well below normal last fall
because of adverse weather. Intended acreage that didn’t get planted will be
planted to spring wheat, but yields normally are lower.
In contrast to hard wheat problems in the southern plains,
the U.S. soft wheat crop was reported to be in above average condition, with
planted acreage 19 percent above a year ago. Soft wheat prices will tend to
follow trends in the hard red winter market to some extent, but upside
potential is likely to be a bit more restrained. Cumulative soft red wheat
export sales for the first two-thirds of the marketing year were down 45
percent from a year earlier. The bright spot in wheat exports has been hard red
winter wheat, with cumulative export sales up 17 percent. Hard red winter sales
have been boosted by large sales to Iraq. At press time, Iraq was the fourth
largest market for U.S. wheat, behind Japan, Nigeria, and Mexico.
The Chinese market for hard red spring and soft wheat was
large last year, but has almost disappeared this season. U.S. wheat export
sales to China through the first two-thirds of the marketing year were only 12
million bushels, down a staggering 83 percent from a year earlier.
|