GRAIN REPORT
By Dr. Robert Wisner

CORN

Price sensitivity to weather will be tempered but not eliminated this summer by a privately-owned U.S. reserve supply of about 1.3 billion bushels. That’s the anticipated excess of Sept.1 carryover stocks beyond comfortable working stocks needed by the industry. Most of the reserve will be owned and financed by farmers. To use up the excess in the next year, the U.S. corn yield would probably need to drop 10 to 12 bushels below the long-run trend. Yields were not quite that far below trend in 2002, with serious drought in most of the eastern Corn Belt, Missouri, Nebraska and Kansas. That year, December futures were in the $2.50 to $2.60 range at harvest. With rapidly growing ethanol demand, similar crop conditions this year almost certainly would push prices sharply above the mid-$2.50 level, at least for a while.

Consider using rallies as an opportunity to boost old-crop marketings in the next several weeks. If your corn is stored on-farm, check out prices for July and early August delivery, especially if you are near a river market or ethanol processing plant. New-crop price rallies should be viewed as opportunities to conservatively increase sales of corn you will

need to move at harvest, using a combination of forward contracts and minimum-price contracts or options purchases. Purchasing call options, when combined with forward contract sales, lets you follow prices higher if the market strengthens. Purchasing put options establishes a floor price without forward contracts, while retaining the ability to follow prices higher if the market strengthens later on.

The three major sources of corn demand (feed, processing and export) all have been strong for the past several months. Exports were the last to strengthen, but were boosted after

January reports showed drought during pollination had cut Argentine and South African crops.

BEANS

Rallies in bean prices should be viewed as opportunities to boost old and new-crop sales. Prices will be sensitive to weather and any indication of Asian rust moving into the Midwest this spring and summer. But like corn, the market reaction will be tempered by large carryover stocks. Another negative market factor for soybeans, unlike corn, is the badly lagging export sales. Although commodity fund traders have held prices above levels justified by fundamentals, the big challenge to the market will come in late summer.

At press time, cumulative U.S. soybean export sales since last Sept. 1 were 22 percent below a year earlier. The potential for catch-up sales will be limited by new-crop South

American beans that should be readily available to foreign buyers from now until the U.S. harvest season. Cumulative export shipments also were down 22 percent from last year. Lagging export sales likely reflect bird flu and underestimation of last spring’s South American crop.

International publicity about bird flu has been widespread. Reports from some parts of Europe and southeastern Asia indicate consumers have been turning away from chicken meat. That has sharply reduced prices and profitability for poultry producers, thus decreasing the demand for soybean meal. Solid data on the number of birds destroyed to control the disease this marketing year are not readily available, but cutbacks in production plans appear to have had more impact than destruction of flocks. At this writing, bird flu appears to be spreading rather than receding, although most countries are reporting only scattered incidence of the disease. Bird flu has more impact on soybeans than corn because of the high percentage of soybean meal in rations and the anticipated large South American soybean crop.

WHEAT

Consider using rallies as opportunities to finish sales of old-crop wheat and to boost sales of new-crop you’ll need to move at harvest time. Prices are likely to remain volatile into late May as the grain trade waits for more information on this year’s yields.

Wheat production in Texas and Oklahoma is almost certain to be sharply below last year because of severe drought during the fall, winter and early spring. Early yield reports from that area may bring at least some short-term strength to prices in mid to late May. Yield prospects further north are more uncertain, but also are more important to the market because Kansas, Nebraska and Colorado account for a high percentage of U.S. hard red winter wheat production. In late May and early June, prices also will be influenced some by reports on wheat crop conditions in China and the former Soviet republics. Early reports hint their crops may be somewhat below 2005.

Look for hard wheat prices to be a bit stronger than the soft wheat market. Soft wheat export sales still lagged badly as we went to press, with the season total down 39 percent from a year earlier. That’s with 80 percent of the marketing year behind us. A big factor behind the depressed soft wheat exports is the loss of the Chinese market after large sales last year. In contrast, cumulative hard red winter wheat exports were up 11 percent from a year earlier. China wasn’t a market for U.S. hard red winter wheat last year, and this season’s exports have been helped by strong sales to Iraq as well as Egypt and Nigeria. Iraq purchases of U.S. hard red winter wheat totaled 78 million bushels. That’s equivalent to 2.7 times last year’s Missouri wheat crop.

Generally good soft red wheat crop prospects will tend to make the soft wheat market lag behind hard wheat prices during rallies.